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Change

Excerpted from the January 24 edition of Notes From the Rabbit Hole.

The title of this segment is meant as a demand upon the conventional herd more than a descriptor of anything likely to happen as a result of the Obama presidency or Wall Street having learned its lesson in the wake of a systemic financial meltdown. The title of this segment is meant to implore a few more people to consider the degree to which everything has changed, not since the deflation impulse became readily apparent in October 2008, but since secular forces began to cycle in very early in the decade.

A relatively few people will implement real change in their financial viewpoints, but humans being human, the vast majority will cling to conventional constructs as long as they can. Despite the financial horror that is on full display and its implications for the future, there seems to be no sign that people have left behind the etched in stone precepts of Jeremy Siegel' Stocks for the Long Run and those put forth by the investment king of the great bull market of the previous secular cycle, Peter Lynch (his best known philosophy "Invest in what you know" is an all-time keeper, however).

The herd will likely focus its attention on the current crop of financial perp walkers like Bernie Madoff, just as it did with that other bad Bernie (Ebbers) a few years ago. Cartoons are much easier to digest, after all, than doing the work of understanding how the system works, where the real faults can be found, and where the sound investment themes can be found.

The herd will not change because the herd does not change. The herd' perceptions may change, but because the herd is the herd, these new perceptions will ultimately be incorrect. The herd is the counterparty to the winning trade. The herd defers to the experts. The herd sleeps soundly in the comfort of its desire to remain disengaged.

Take the 'dollar to zero!' and the 'you must be 100% cash in a deflation!' herds for example. Two powerful armies led onto a battlefield, each expecting to triumph. But neither of them will win the war. Some experts tell us that the dollar is the contrary play because the euro is as bad fundamentally and over valued to boot. Some experts cite the profound and unmanageable issues particular to the US as the reason the dollar will be destroyed as we 'devalue and inflate our way out of our debts'.

The answer is of course that the dollar, the euro and every other currency are likely to survive as long as the... Beuller? As long as the herd buys the idea that a currency' value is anything more than its government says it is. Their exchange rates flash like red and green lights in the FOREX casino and meanwhile, gold just sits there as it always has, holding monetary value against the lot of them.

But surely the letter writer is a cranky crackpot. Well maybe it takes a crackpot to successfully navigate insanely complex and dysfunctional financial markets. Maybe it takes a small army of crackpots to see the value of a monetary metal and deploy their debt-backed paper money accordingly. Maybe it takes a crackpot to do what my friend Chris has done, and build something from the ground up, helping thousands find answers to some very complex questions. Maybe it takes a crackpot to summon the nerve to run for President armed with nothing other than an honest message.

NFTRH has now had enough track record to prove that the crackpot stance of being long gold miners and putting more money where my mouth was at HUI 150' was correct. The stance of 'if gold declines, it will do so to a lesser degree than positively correlated stuff and it will fuel the miners' bottom lines' has proven out despite the deflation alarm on code red. The NFTRH speculative portfolio is now more than 15% above baseline where not too long ago it was 27% below.

The Obama administration ran and won on a message of change. I suppose in the context of politics, plenty will indeed change. But I believe politics and sociology spring from economics in many ways, and in that regard real change is definitely not on the agenda. In actuality, Mr. Obama, aided by Mr. Summers and the rest of the Clinton holdovers, are bringing opportunity. But it will take investors who are willing and able to get outside the box to take advantage of it, because the dynamics at play in the ongoing boom/bust drama are not going to change. They are going to intensify, and convention is going to be punished more intensely than it has in the past.

Okay, sermon over. Let' get to the good stuff...

 

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