Storm Warning

If I can't swim after forty days
And my mind is crushed by the crashing waves
Lift me up so high that I cannot fail
Lift me up well
--Jars of Clay

When it comes to market sages, few are 'sagier' than Richard Russell. He's been studying markets since the 1930s, and he's been writing his newsletter since 1958.

People who have been successfully practicing a complex discipline for that length of time have likely acquired large quantities of 'deep smarts' (Leonard & Swap, 2005). Deep smarts can be viewed as deep seated intelligence about the operations of complex systems. This knowledge is largely tacit in that those who possess it have trouble explain just how they arrive at their conclusions.

While it is tempting to attribute tacit knowledge and the decisions that flow from it as linked to emotion and 'gut feel', there is reason to believe that such intelligence is driven by intense pattern recognition processes, where the mind combs vast previous experiences for situations that match the present 'problem' (Simon, 1987).

Few people have developed deeper smarts about markets, particularly w.r.t. price patterns and tape behavior, than Mr Russell.

Russell thinks that stocks face an ugly period ahead. He feels we're in the early stages of breaking a large market topping pattern and that there's alotta room to the downside. He has been of this bearish mindset for a few months now.

His best ideas for weathering the storm continue to be cash and gold. Not very sophisticated, to be sure. But it's hard not to respect someone with his track record.

position in gold, SH

References

Leonard, D. & Swap, W. 2005. Deep smarts: How to cultivate and transfer enduring business wisdom. Boston: Harvard Business School Press.

Simon, H.A. 1987. Making management decisions: The role of intuition and emotion. Academy of Management Executive, 1(1): 57-64.