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Tales From The Future
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I look at value and contrarian ideas as well as emerging technologies worldwide, both on the long and short side. I also like to discuss the influence of monetary policy on stock markets. I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at... More
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  • March 2009 To May 2013: The Era Of (More) Cheap Money Could Be Over. Sell Your Stock Winners. 1 comment
    Jun 24, 2013 12:18 PM | about stocks: GDXJ

    The era of cheap money following the Financial Crisis of 2008 produced a lot of artificial bubbles in many asset classes (which is kind of ironic because cheap FED money and artificially low interest rates were some of the leading causes for the crisis in the first place).

    Now the party in asset inflation - visible in rising stock markets worldwide since early 2009 - may be over.

    The FED is at least talking about tapering (although some skeptics think we will see "QE 99" one day and Bernanke will not be following up on his announcements).

    Everything is falling in tandem around the globe at the moment: Stocks, Commodities... Investors are hiding in cash and liquidity.

    I think we may have seen the nominal highs in many stocks markets around May/June 2013 for a longer period of time (unless the FED reverses course, we will learn more over the next 12-18 months).

    Be careful going forward and trim long stock positions, especially in Japan and the U.S. where we had run-ups in recent months. *

    In my view, it is useless to hold winning stock positions one bought over the last 3-4 years at (much) lower levels given the

    - recent FED announcements in May and June 2013 and

    - the growing risks in the emerging markets (the last places with real growth), especially risks in China's shadow banking system

    - doubts about (public) debt levels with even minor rise in interest rates in Europe, Japan and the U.S.

    What if I'm wrong? Think about risk-reward, also after looking at the charts with all-time highs and recent euphoria. There's a lot of downside risk with little upside potential in my view for stocks worldwide at the moment. Example of the S&P 500:

    (click to enlarge)

    (Source: Black Rock et alii)

    PS: To end with a concrete pick: At current prices below 9 USD, GDXJ (an ETF for junior gold miners) could be a good longer-term contrarian investment. Wait for it to fall more and buy additional slices at 5-8 USD. Reason: Debt, especially public debt will not go away - even more with interest rates rising from almost zero. Virtually all larger developed economies will have issues servicing their public debt in real terms (U.S, Europe and least but not least Japan with a horrible public debt level above 200% of GDP). Because of these debt levels, gold could shine even if interest rates rise - once more people realize most paper money debt can only be paid back in nominal terms in the future. Gold miners will be an attractive investment longer term in this scenario. The demand for physical gold, especially in South East Asia, is not wavering.


    * I already opined to sell Japanese stocks (Nikkei 225) on May 25, 2013 on my personal blog. That was timely. In the same entry it was argued that Ben Bernanke's "magic ball" will probably stop bouncing soon (on May 30, 2013). This entry is simply a repeat, same message in clearer terms since the FED June 19 announcement is now reality: Time to sell or at least think about selling in the coming months.

    Themes: monetary policy, QE, ben bernanke Stocks: GDXJ
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  • Tales From The Future
    , contributor
    Comments (4110) | Send Message
    Author’s reply » Note that GDXJ had a 1:4 reverse split on July 1, 2013. Multiply the price given in the blog by 4, ie. prices below $35-36 look(ed) like good entry points for GDXJ.
    (I am still long GDXJ at these levels)


    Also note that the FED has somehow reversed course in June of 2013 (longer time to exit loose monetary policy), this is bullish for precious metals as well.
    16 Jul 2013, 04:01 PM Reply Like
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