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Qualitas Advisor
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I am an Investment Advisor in Orange County, CA. I manage the Qualitas Global Macro Portfolio I help individual and investors by investing stocks of great American brands that are value priced with a potential for great appreciation. This is my 18th year in the business. I am an Accredited Asset... More
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Qualitas Wealth Counsel LLC
  • Gold The Unprecious Metal? 1 comment
    Jul 7, 2009 12:41 AM | about stocks: GLL

    Gold Bricks Anyone?Being a fundamentalist when it comes to investing, I am always looking for investing ideas when the "perceived value" of the investment is trading higher or lower than it's "intrinsic value".  There is probably no greater asset that trades with more perceived value than the precious metal GOLD. 

    When conditions warrant like a global financial meltdown Gold is on everyone's list.  However, when the facts change as John Maynard Keynes once said, I change my mind.  Here are the new facts against Gold.

    1) The Financial Panic of 2008 is entering it's last chapter.  Read the paper.

    2) Inflation is not an issue.  Have you seen CPI numbers lately?

    3) How many commercials on television have you seen to buy gold? Enough said.

    4) The price of Gold has entered a "comfort zone" between $900 and $950 

    5) I counted no less than 40 blogs on this site defending Gold and 4 against.

    The bottom line is the evidence is building that the gold frenzy has a lot of headwinds going forward.  Throwing in a stronger U.S. Dollar and competition from equities may begin to varnish the shine on this all too faviorite asset class alternative. Finally, if the big money in hedge funds, pension funds, and ETF products starts looking for the door look out below.  So here is the trade I am suggesting if you think Gold is headed much lower.  Buy the ProShares Ultrashort Gold (GLL) with Gold currently around $930.  A slide in Gold to $830 puts in a potential 20% gain using this ETF because of it's 200% inverse relationship with the price of Gold.  GLL currently trades about $15.30 a share.  I would look to take out the GLL trade at a target price of $18 a share. 

    Disclosure: Our firm currently has a position in the ETF (GLL) Proshares Ultrashort Gold ETF.

     

    Stocks: GLL
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    Perhaps many here on Seeking Alpha have a different "fundamental" view of the dollar as you do.

    Looking forward, how do you account for the added trillions of debt that have to be paid? Then answer, how will it be paid. The choices are, inflation or taxes. Which do you think the government will choose?

    Is your firm a "trading" firm or "buy and hold?" This is where I'm confused. Your bio says you look to "identify trends" but I'm curious if you have identified the trend of the last 8 years of gold reaching new highs or if you are just trading GLL on a short term basis?

    There will be opportunities for "traders" to profit shorting gold, but most investors should hold physical gold as insurance against a falling dollar (look at the chart the last 10 years). Financial advisers typically don't "insure" a portfolio against the fall of the U.S. dollar (we were never taught to do so).

    Based on your comment, you think the panic is over. If the panic is over, then how do you account for the unemployment rate increasing? And when you add in those no longer looking for work and part time workers, according to Shadow Government Statistics, the unemployment rate is over 20%.

    How is GDP going to increase outside of government spending? Is the manufacturing base in America growing? Are we increasing our exports? Unless you think that government spending will work of course and we'll all of a sudden be back to the glory days again.... but not much of a track record of success there. Adding debt to debt by more spending hurts everyone. What's needed is to constrain government spending and allow free markets to work.

    You say that "inflation is not an issue," but it was up until last year and will be in the future with all of the government "stimulus" and "bailouts" as well as the proposed budget by Obama for the years to come including infrastructure spending and health care.

    The CPI has changed throughout the years, so it's not a good indication of what's really happening with inflation. The government doesn't want to give more to those on social security eh? Lastly, oil has been on the rise all year.

    Commercials for gold have increased and you can bet you'll see more as the gold price continues to rise. The Fed of course will be fighting it tooth and nail and everyone knows CNBC won't do gold any favors.

    The current "comfort zone" is a summer doldrums pattern that has been going on for years with gold. When the summer's over, gold will shine again.

    Doesn't mean one can't profit, as your firm is, by shorting this pattern. Just make sure to take the profit!
    7 Jul 2009, 01:02 PM Reply Like
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