Your Big Chance to Go Against the Flow

I remember very well back in 2008 when the Fed began with its extraordinary measures to stabilize the economy, first with dramatic interest rate reductions and then not long after that with round after round of quantitative easing.

After each successive rate cut or, iteration of QE, investors would sell the dollar and buy gold on the belief these monetary policy measures were going to create inflation. Some people even said hyperinflation. The dollar index at the time was trading around 70 and every time people would rush in and sell there'd be a brief dip, but that's all it was, a brief dip.

Ultimately, we know how the story ended. The outcome was the exact opposite. The dollar embarked on a multiyear period of massive appreciation. That dollar index eventually climbed all the way back to 100, nearly a 50% rise. And gold? Well, gold got crushed, to put it mildly, tumbling all the way down to just barely over $1,000, leaving all the hyperinflationists and otherwise very educated people scratching their heads.

What's happening now is the exact same thing as what happened back then, only in reverse. People are buying the dollar like mad on this expected June rate hike and they are selling gold and stocks and commodities and oil. I can tell you this trade will work out just as badly as the dollar selling and the gold buying did in the last cycle.

The rate cuts and QE were never inflationary to begin with and the rate hike(s) are not deflationary. Everyone who is thinking this has got it backward -- again.

In the past 24 hours, I have been actively buying Canadian dollars, Aussie dollars and euros in the forex market and these are positions that I fully expect to work out very handsomely in my favor. In addition, I think buying gold and commodities down here on this pullback and stocks, too, are moves that make a lot of sense.

Take a look at Walmart's (WMT) earnings today, which were released this morning. Better than expected, but not just because of cost cutting. The company also cited stronger revenues. I am not surprised. This is again tied to the federal spending flows that I so often talk about. The more government spends, the more that flows to non-government income and savings and the higher corporate sales and profits go. There is a direct connection.

The dynamic that I've just described is why the market's valuation does not bother me even though there are many who see it as a death sentence. While they may be looking at the P/E of the S&P 500 and see it as overvalued because of the P in that ratio, I am focused on the E and I see it expanding. If I'm right, then the ratio goes lower. In other words, it becomes undervalued even as the price, for many, may seem high.

The current environment is presenting you with a fantastic opportunity. You don't get many opportunities like this. Maybe one every four years or so. Sometimes you have to wait even longer. It's an opportunity because large numbers of people are exiting the market or making bets without truly understanding the dynamic of what is going on here. They are running on a playbook that is wrong. They're committing sizable funds to positions (or non-positions) that will not work out. It's like, if you went against all those who sold the dollar or bought gold during the Fed's accommodative phase, you would have cleaned up. But you had to "see" what was happening. Most people didn't.

You've got a major policy shift and millions of investors are all betting the same way, but it's the wrong way. Let that sink in. Is it easy to bet against them? Maybe for some, no; however, wild horses couldn't stop me from doing that right now. That's where I stand. How about you?

At the time of publication, Norman had no positions in the stocks mentioned.