Being an Underground Contrarian

 | Dec 19, 2013 | 12:00 PM EST
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I correctly predicted that the Fed would taper, but I sure didn't get the market reaction right. The market was a) relieved that it was only $10 billion; b) surprised by the very dovish statement that rates would remain near zero until unemployment was "well below" 6.5%; and c) a lot of bad news was priced in already, judging from the price action leading up to the meeting.

I had cut a lot of longs going into the meeting. While I don't regret it --you have to take profits sometime -- with the market near all-time highs going into a quiet holiday week, you have to figure that the gains of 2013 are pretty much in the books.

But I remain unconvinced. I'm not as contrarian as I used to be, but I feel compelled to take profits in some of my bigger winners (like airlines, which I wrote about bullishly just a few weeks ago) and rotate into some of the more bombed-out sectors of the market. Quite truthfully, there is only one bombed-out sector in the market left: mining.

If you look at silver miners, for example, you will find that many of them are back to 2003 levels, when silver was trading in mid single-digits -- and well before quantitative easing was even a twinkle in Bernanke's eye. The same goes for the gold miners, names like Barrick Gold (ABX). My favorite name in the space is Freeport-McMoRan Copper & Gold (FCX) -- big, liquid, diversified and always profitable. I will probably be initiating a position today.

Bottom-fishing used to be my religion. While I don't really bottom-fish anymore, I believe the divergence between mining and the rest of the market has gotten to such an extreme level that it can no longer be ignored. I don't like fighting the tape, and I realize that buying some of these stocks is going to put me in a position where I will be doing just that. Oh, well, I'm used to it.

Let's put the taper in perspective. The Fed has been talking about this for the better part of the year. They have had to move heaven and earth, in terms of reputational capital, just to cut asset purchases by about 12 percent. If they taper $10 billion every other meeting, they will be done around the middle of 2015, assuming we don't go into another recession.

Raising rates won't happen until the fake unemployment rate gets below 6.5%, which will probably happen just before the 2016 election. Easy monetary policy is going to be around for awhile, exclusive of any cut in interest on excess reserves.

All the fundamental reasons to be long metals and mining are still present. They seem antiquated, because the gold bugs have been thoroughly discredited by the debt-loving money printers. The tinfoil hat guys running around predicting the collapse of civilization -- let's just say that you should not be dismissive of any argument, even the crazy ones. A stopped clock is right twice a day -- one day, these guys are going to be right.

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