Heaven Help the Contrarian
By Jeff Clark
September 20, 2007

Bloody fingers and a flattened torso – that's what I get for trying to catch a falling knife while jumping in front of a moving train.

That... and a little egg on my face.

Clichés aside, calling tops and bottoms in the market is a little like trying to guess your wife's weight. No one is all that impressed if you get it right. And you'll be sleeping on the couch if you get it wrong.

But it's so much fun to try.

At a small financial conference this past Monday, I participated in a panel discussion. One of the questions from the audience was, "What do you think will happen after the FOMC decision on interest rates on Tuesday?"

When it was my turn to respond, I poured myself a glass of water, took a sip, inhaled deeply, sighed... paused for dramatic effect... and then said, "I think the dollar will rally and gold will fall."

The crowd reaction? Complete shock and disbelief. It was as if I had placed my hand on a nun's belly and asked, "How far along are you?"

In the Church of Our Lady of Impending Doom, there are few beliefs more sacred than that of the ascension of gold to the heavens and the damnation of the dollar to the depths of hell. I, too, am a believer in that eventual outcome. But we may need to spend some time in purgatory first.

Let's face it... Hardly anyone on the planet likes the dollar right now. And even fewer dislike gold. So, if you're looking for a good contrarian trade, then there are worse ideas than buying the dollar at an all-time low and selling gold near a 27-year high – at least for the very short term.

Of course, the Fed dropped interest rates by 50 basis points (0.5%) Tuesday. The stock market soared. Gold rallied. The dollar fell. And the church elders have asked me to come in front of the congregation and beg forgiveness.

But as I stand in front of the alter, wearing a scarlet letter G, it occurs to me that since the Fed has cut rates, even more people are bullish on gold and even more people are bearish on the dollar. And gold didn't rally all that much on Tuesday. And the dollar didn't fall that much either.

So maybe we're headed for purgatory after all.

Blasphemy? Perhaps.

But when the church gets this crowded, it's best to have a seat near the exits.

Best regards and good trading,

Jeff Clark