The broad consensus is to own stocks and to sell gold.

But, as I have discussed since 2003 in my annual Surprise Lists, the broad consensus of investors is often wrong. Indeed, it is often the case that the very coalescing of popular opinion behind an investment tends to eliminate its profit potential.

As Howard Marks writes:

“First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in: 'The outlook for the company is favorable, meaning the stock will go up.'

Second-level thinking is deep, complex and convoluted. The second-level thinker takes many things into account:

• What is the range of likely future outcomes?
• Which outcome do I think will occur?
• What's the probability I'm right?
• What does the consensus think?
• How does my expectation differ from the consensus?
• How does the current price for the asset comport with the consensus view of the future and with mine?
• Is the consensus psychology that's incorporated in the price too bullish or bearish?
• What will happen to the asset's price if the consensus turns out to be right, and what if I'm right?”

While the animal spirits may have taken over the equity markets and have ignored the gold market, we should recall that there is a reason why Keynes called them animal and not human spirits. That's because animals are a lot dumber than humans!

As excited as investors are about stocks, they are now uninterested in gold.

I remain a minority and outside of consensus regarding gold. However, given the developing and concerning conditions — and lack of credible policy responses — that I now see falling into place, the uncertainty premium should be rising and gold may be a beneficiary this year.

What is most surprising to me is that the price of gold has not responded to these uncertainties, providing a potentially favorable upside/downside ratio for the yellow metal.

I wanted to start today's opening missive with the way in which I concluded my 15 Surprises for 2017 — the major theme being that “Donald Trump will make volatility and uncertainty great again.”

I especially would pay attention to the three questions at the end of my column as they relate to the prospects for a higher gold price. Answer them yourself — I have my own responses — and act accordingly:

Post-Mortem

Kew-Forest School in Queens (Where's Donald “The Dude” Trump?)

Some final words.

My outlook for 2017 is more gloomy than in years.

To me, the biggest surprises are (1) the abundance of complacent sheep that populate our financial markets today, (2) the rapidity in which the bloom comes off the Trump flower next year, and (3) that the market actually may do what is unexpected in 2017.

The Republican Party becomes divided and Trump's policy support loosens. Even the newly elected president's “A Team of Rivals” cabinet with vastly different philosophies and backgrounds becomes …read more

Source: Doug Kass Explains Why He Is Aggressively Buying Gold

    

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Posted January 5th, 2017 in Uncategorized.