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-Caveat Lector-
By Thom Calandra, Editor
CBS.MarketWatch.com
Tuesday, October 22, 2002
SAN FRANCISCO -- In the face of the October
stock-market rally, counter-trenders -- those
who go against the grain -- say they'll keep
going the opposite direction on a one-way
street.
"Prospering in the financial markets requires
a kind of creative dyslexia -- seeing the
world as most market participants do not,"
says Eric Fry, who spent 10 years as a
portfolio manager and is now a principal in
investor service Apogee Research.
Fry says the stock market's collapse since
early 2000 "has shown us all once again, that
running with the crowd is hazardous to your
financial health."
Fry and some 40 other financial authors, fund
managers, and strategists will present their
views on markets next month at a New Orleans
conference that has spread the gospel of
contrarian thinking since 1974.
Adrian Day, a Maryland fund manager whose
clients favor natural resources, says most
investors these days could benefit from a
walk on the "wrong" side of the street.
Global Strategic Management's Day says
contrarian thinkers often have been around
financial markets for 20 years and more.
"They are well-rounded, often generalists
with a good overview of market risks and
opportunities. These are not one-way
Corrigans, and their independence from Wall
Street enables them to see the big picture a
little clearer than many of the analysts,"
Day says.
Steven Hochberg, chief market analyst at
Elliott Wave International
(http://www.elliottwave.com/), says defying
conventional thinking will benefit in coming
weeks, months, and years from eroding value
in most things paper, including stocks, many
currencies, and even highly rated government
debt.
"By far the greatest threat facing the United
States in the next three to five years is a
deflationary depression.," says Hochberg, who
works for Elliott Waver Robert Prechter Jr.
"The mere mention of this elicits a reaction
of either total disbelief or complete
derision from most mainstream analysts. We
certainly understand that initial reaction,
because a deflationary depression is so rare.
But the evidence for just such an occurrence
now is overwhelming, in our estimation."
Hochberg, by the way, sees the October stock-
market rally at a vulnerable point. "Despite
(Monday's) 215-point rise in the Dow
industrials and 15-point rise in the S&P 500
cash index, NYSE ticks were essentially flat,
volume was relatively weak, and breadth was
feeble," he says.
A move below 8,460 in the Dow Jones
Industrial Average and 893 on the Standard &
Poor's 500 Index "should indicate ... a
multi-day decline that draws the S&P 40-60
points lower, at the least," he says. On
Tuesday morning, the Dow was down 105 points
to 8,433 and the S&P 500 was falling 12
points to 887.
Put a group of Wall Street dissenters in one
room and you'll find that half or more advise
their clients to place a portion of their
assets in gold, a metal that is most
unwelcome at most major investment banks.
"While Wall Street is sliding down the
slippery backside slope of a popped valuation
bubble, gold and mining stocks have enjoyed
new investor interest and demand," says James
Stack, editor of InvesTech Research. The
resurgence in gold can be attributed to the
record trade deficit and subsequent pressures
on the U.S. dollar."
Those gold believers, bucking what has been a
stalled rally in the metal, say they see vast
gains ahead for bullion.
Larry Edelson, a former bullion trader who
now edits the Safe Money Report
(http://www.safemoneyreport.com/about/bios_larry.asp),
says gold has "rock-solid support at the
$308-$310 level and is now base building for
the next leg up, which should easily blast
through the previous high and move on to $360
an ounce. U.S. stocks will get hit hard again
and soon. A couple of positive earnings
reports are not enough to turn the economy
around. Overseas, stocks are especially
vulnerable."
Gold's most outspoken supporter, Bill Murphy
of Le Metropole Café
(http://www.lemetropolecafe.com/), says he
will pull out all the stops when he addresses
the New Orleans investment crowd next month.
"Last year at the conference, gold was about
$275, so it has risen $50 per ounce at best,"
says Murphy, chairman of the Gold Anti-Trust
Action Committee (http://www.gata.org/). "My
guess is we are looking at a $500 before the
2003 conference, or 10 times the move of the
past year."
Murphy blames central banks and commercial
lenders of bullion for depressing the metal's
price in actions that resemble those of a
cartel. He also points to governments and
overseas consumers who are boosting their
gold holdings.
"Gold demand in China alone is expected to
increase 300 tons next year. That increase
alone represents more than 10 percent of mine
supply," says Murphy. "I understand Iran is
withdrawing gold from the London lending
pool, which is probably the reason spot
London price has gained over the U.S. very
recently."
Robert Bishop, editor of the long-standing
Gold Mining Stock Report,
(http://www.goldminingstockreport.com/)
acknowledges the shiny metal needs a boost if
gold mining companies are to make another
move higher in the stock market. Gold miners
such as Gold Fields Ltd. (GFI) and gold
mutual funds through June were among the
stock market's biggest gainers. Then gold, as
high as $329 an ounce on May 31, swooned.
"The cynic in me believes that gold's upside
is probably limited between now and the
November election; the realist is reminded
that gold is closing in on its third year in
a row of posting a gain," says Bishop.
"Gold's dip to $309 (last week) suggests to
me that gold is oversold, which means to me
that it's a good time to spend money on the
shares, not panic out of the sector."
C. Alexander Green, investment director of
private investor network The Oxford Club
(http://www.oxfordclub.com/), says he is
sticking to his short-selling guns. "Whether
the market is going higher or lower, there
are always certain companies that are
battling a host of problems: lost market
share, lower sales, high debt service,
expensive litigation, missed earnings."
Most of the strategists quoted here are
speaking in early November at the New Orleans
Investment Conference.
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