SeeTheLight

Gold Is Not in a Bull Market

Your aunt must not have been a very good stock broker since if you had invested that $50 in an Dow Jones industrial index fund (I know they didn't exist then) it would be worth between $1800 to $9000 today had you invested in the period between 1950 and 1955.(depending on your timing) Oh and by the way that doesn't include all the dividends, which are actually the largest part of the return. I'm not even sure that $50 kept up with inflation, but I leave that to others to debate.

Okay, that rejoinder over with. I think Gold is a good investment class in moderation. I just recently took profits on my gold and silver since I feel it has gone too far too fast. By all means hold on to it, but if you are close to retirement you may want consider selling some now since it is near its all time high. Sure keep some in case it goes higher, but don't miss the opportunity you missed in the 80s again!

I agree with everything Nader said, this is most definitely a Gold bubble mostly on the back off a US Dollar Bear (and there is nothing wrong with that, what is wrong is not profiting off the bubble). The telling point is that most of the liquidity that is being printed around the world is not being invested into hard assets like factories, roads, infrastructure or even jobs that can increase productivity (and truly be inflationary). No, its being thrown into investments like stocks, bonds, commodities and yes even Gold and Silver. This cash has no where to go, and the rising tide is lifting all boats (except the fiat currencies themselves. Note commodity based currencies like the Canadian Dollar, Aussie Dollar and Brazilian Real have actually had gold prices remain largely stable).

But most of the naysayers on this board keep saying "This time its different!". History may not repeat, but it certainly rhymes, and Nader's right in my opinion, unless the US goes Hyper-Inflationary (which I admit is a remote but growing possibility) gold is strictly a momentum play here. If (or mostly likely the better word is when) the FED starts tightening, the Gold bubble will pop and it will be ugly. People see Obama spending like mad, but all of it is a drop in the bucket compared to the FEDs actions. They don't even need to raise interest rates, just a slowing of the QE and curbing the expansion of its balance sheets will start the trend. The key will be do they stop purchasing treasuries or do they extend that program in the next month. Watch for it.

Just be careful with your emotions, we've just seen major bubbles in Internet Stocks, Housing, Oil, Emerging Market stocks, Commodities, why do people believe Gold is different? It is just simply an asset class, with its own intrinsic benefits and deficiencies. Don't be fooled into becoming a gold bug (unless you have already bought your Uzi). No one wants to be the last one out in a bubble, rather you want to be the first one out, even if it isn't the height of the party.

Good Luck all


On Nov 02 12:28 PM rcro wrote:

> I started buying gold coins in the early 50's. I thought the sales
> person was trying to rip me off when he told me the 1 oz St Gaudens
> coin I wanted to buy would cost about $50. Gold was $35 an ounce
> at that time. The sales person told me it cost so much because it
> was bright and uncirculated.. You could not buy bullion coins at
> that time because it was illegal, but there was no law against collecting
> gold or silver coins. That was the first coin I bought. I can't remember
> the exact amount I paid, but it was a little over $50. I also cashed
> my paycheck at the bank and requested the cashier to give me part
> payment in silver dollars. He kept a bag of new silver coins on the
> counter. Since then, I have been buying as much gold and silver as
> I could afford. I now have a large hoard. My wife says we have too
> much; but I don't think you can ever have too much.
>
> My aunt was a stockbroker, so I also bought stock even though I know
> the stock market is rigged. I don't want to tell you how much I have
> lost in the stock market but gold and silver coins have made my retirement
> secure.
>
> I think the author of the above article makes many valid points.
> He obviously is very well informed. I printed out the article and
> have put it in my file for future reference. There is no question
> in my mind that gold and silver will go up and down in price, but
> I will continue to buy and hold. I have never sold any gold and silver
> coins. Maybe I should have sold because it has tanked on several
> occasions. You would be surprised to know how it has grown in value
> over the years. You may not get rich quick, but there is nothing
> wrong with getting rich slowly.

Wednesday Outlook: Commodities, Global Markets

I know I'll be selling the pop as we're quickly getting short term overbought again. As you rightfully pointed out, Dave, we seem to be in a rising wedge, but I feel this wedge will continue until the easy money comes off the table, until then sell the peaks, buy the dips. Fundamentally it makes no sense, but fundamentals went out the window a long time ago. It certainly pays to trade this market with discipline.

I continue to believe that this rally will persist until at least the New Year, not because it has any substance, but what else do the banks have to do with all the free money being thrown at them from the Geitner/Bernanke tag team. It's not like anyone is borrowing right now, the consumer is unemployed, underwater and plain flat broke and Big Business? Why would they borrow a cent when they can just do a public offering instead. Like the Dire Straits said, "get the money for nothing and get the chicks for free".

So the banks will continue to push all that free money to their trading desks and bid the market up. If you were given a blank check and some loaded dice, wouldn't you gamble too? Too bad all this nonsense is doing nothing to help the underlying economy and it will all have us all in deeper dire straits sooner or later. As the Chinese curse goes, "May you live in interesting times". They are certainly interesting.

Good Luck all

U.S. Economy: Partying Like It's Still 2005 and How to Turn Things Around

Excellent article.

Unfortunately your voice and many of the others on Seeking Alpha are very much in the minority. The majority isn't interested in paying the piper... ever. They will keep looking for an easy exit until the next time, until there are no easy exits and a depression like no other arrives.

How many times can we repeat the bubble-jobless recovery-bubble cycle, I don't know but I have a feeling this is the last time since the Lender of Last Resort is becoming over-leveraged.

The fact is just like your teenagers that have to make their own mistakes, the US and the world must make a big one right now. The "I want it now" lifestyle that has infected the global psyche simply will not die until there is no way it can be resurrected.

Thus it will be long and painful. No one will listen to your well versed arguments and logical rational thinking, because its hard and they are used to easy. They don't want to hear and they won't.
Only after the fact will they face up to the fact of "What were you thinking" and realize "I don't know".

The only thing is, we are not there yet, no one is saying that yet. They are all trying to figure out how to get back to the old normal, how to have the V-shaped recovery, how we can put this bump in the road behind us. Except its not a bump in the road, its just the bump in front of the crater ahead and the music is going full blast so no one in the majority will hear the warnings until its too late.

Good Luck all

Tuesday Outlook: Commodities, Global Markets

Short term, I feel like we are due for another pullback. Going into earnings expectations are too high and that is bad risk/reward scenario. It could play out as expected, but I'd rather adopt a wait and see stance.

Medium term, I expect the mostly sideways to slightly higher trend to continue as easy money flowing to the trading desks means that all dips are being bought. If we get a dip, I'll be a cautious buyer, looking to trade the range.

Long term, fundamentals are simply awful. The list of shoes waiting to drop are endless and the political will for bailouts and stimulus packages will be missing when the 2010 election season begins. Look for "fiscal responsibility" to be one of the leading issues and effectively tying the hands of the Keynesian crew. But again I don't see this trend really starting until spring of 2010. Once they take away the punch bowl its going to get very nasty, although it might take a slow downward slide for a period before a catalyst even triggers another steep drop (similar to 2008).

Of course these time frames are subject to compress or expand based on the policy coming out of the central banks, but I remain very confident in the mid and long term results, regardless of the exact timing.

Good Luck all

Friday Outlook: Commodities, Global Markets

The Aussie Central Bank raised rates, but that wasn't seen as an end to easy money but a sign of recovery. Everything gets spun these days.

It's pretty clear that this an easy money rally with trading desks leading the charge. Unfortunately for even the most astute retail investors, the first major signals that the easy money is coming off the table likely won't be as visible as an interest rate increase, likely it will be something more subtle like the Fed cutting back on some its under the cover lending programs. And of course it will be lost in the endless spin jobs being spewed out by the MSM.

This is why this rally is so dangerous. It's too profitable to be sitting on the sidelines but at some point someone is going to inform all the trading desks that one of these "buying opportunity" dips is really a feint and then back half of the "W" will begin. Trade carefully and make sure you have a reserve of cash or have some downside protection.

Good Luck all.

ETFs Take the Lead: Will Mutual Funds Fade Away?

Another nail in the "buy and hold as a viable investment strategy" coffin. Sure the average investor still wants someone else to manage their money but they want to be able to pull the ripcord themselves.

Good Luck all.

Recession Is Over; Depression Has Just Begun

Excellent article. An extremely well written piece that mirrors exactly what I feel has occurred and will occur.

The fact is, when faced with a serious debt problem (denominated in its own currency), there are only a few ways for a government with the issue, namely:

1. Pay down the debt (via spending cuts / tax increases)
2. Monetize the debt (print your way out)
3. Default (you didn't really think we'd pay you back, did you?)
4. Positive Balance of Trade (Want to buy a CDO?)
5. Economic Growth (but only real growth - what is that?)

Obviously 5 is the most palatable option, with 4 being a reasonably good alternative. The problem is most of America's growth was not in manufacturing but instead financial based. One can not reasonably expect any non-bubble growth in financials, and without major unexpected innovations one can not expect strong growth in manufacturing.

Achieving a positive balance of trade would require such a devaluation of the US dollar to make it unacceptable. Plus since this is a global depression, there is hardly any other economies eager to run a balance of trade deficit.

Which leaves the other 3 options. None of which are pretty. Printing = dollar devaluation and hyper-inflation. Spending cuts / tax increases are politically impossible currently. And Default - need I discuss the ramifications of that?

This is what makes a depression almost inevitable, whether the decision any of the three of the above, someone is going to lose a lot of wealth regardless of what is decided, and undoubtedly that will create a fearful, hunker down mentality that is truly deflationary.

Good Luck all

Yet Another Finger of Instability

John,

The answer is as simple as looking in a mirror, when all the grains of sands are fundamentally flawed, driven by the opposite emotions of greed and fear, how can a solid base be created. Even if one were to devise the perfect system, or perfect plan, if the medium of execution is flawed the type of stability you are trying to envision is simply fantasy.


On Oct 04 12:51 PM John Lounsbury wrote:

> John - - -
>
> Great discussion of instability. I know you like to think outside
> the box so let me wander outside the sandbox.
>
> Why do all the grains of sand have to be added to one point, piling
> up until a steep, unstable pyramid is formed, leading to collapse?
> Why can't the sand be added across a broad area, with the base ever
> expanding. This could lead to a structure that never achieves steep
> walls.
>
> This is analogous to comparing the financial system structure we
> have achieved to a broad, and diverse structure that never sees the
> fatal fingers of instability except in a very local way. Interconnectedness
> may be very productive, but interdependence can produce collapse
> (domino effects). Maybe we need to find a way to divorce the two.
>
>
> The fatal flaw of primal capitalism is that it allows the concentration
> of economic power until it eventually becomes so concentrated that
> there is nothing left to support it.
>
> The fatal flaw of communism is that it has the lethal concentration
> of economic power at conception.
>
> Unregulated capitalism matures into the fatal condition; communism
> is born with it.
>
> The ideal economic system has yet to be devised. Perhaps it never
> will be. How can you prevent unsustainable concentration of economic
> power without removing incentives for the masses to strive for economic
> advantage?

Yet Another Finger of Instability

Happy 60th.

A fine view of the mess we are truly in. I think most people on here would agree that sooner or later we will have to pay the piper for years and years of easy money stability. The question is not "if" but "when". Let's face it, we could have another "easy money" party left in us, in fact we're right in the middle of it.

But the problem is each subsequent party has a larger hangover and requires more liquid(ity) to get the party going again. It's hard to know what to do in this environment since we're either going to have one heck of a farewell bash or this thing might be the time that there isn't enough liquid left to kill the hangover, either way I agree with you, it's an exciting and dangerous time to be an investor.

The pendulum seems to swing daily between a deflationary depression and an hyper-inflationary stagnating banana republic. It is difficult to position oneself since they are polar opposites.

Do not be surprised that people are reading your writings, when in a time of instability it is important to listen to as many learned opinions as possible, because no one can know for sure what the future will bring, but we can prepare for whatever may arrive.

Good Luck all.

Friday Outlook: Commodities, Global Markets

The absence of stick saves and dip buying is very noticeable. The jobs report was worst than expected. I'm thinking we could see another solid triple digit down day on the DOW again. Back to back triple digit down days are something that hasn't happened since this rally began.

Personally while I am already mostly in cash, I think its time to close up most of the long positions and get real cautious. If next week continues to bleed red it would probably be safe to say that recent high was the bear rally top and we may see a sizable correction which of course means it will be time to start looking for good short positions.

Good Luck all.

Joining the Chorus Against the ETF Explosion

No one forces people to buy poor ETFs. If the ETF is not valuable to investors it will become illiquid and likely be redeemed and shut down. This argues that (retail) investors should have less selection in ETFs and/or are incapable of making informed decisions and need to be protected from their own naivety. But if you believe the latter then perhaps we have to remove the ability for them to invest at all since they can make equally bad decisions by buying penny stocks, bankrupt company stocks and stock options.

Presumably, they could previously buy Mr. Dent's (or similarly created) mutual funds albeit through an intermediary, so what if they can now buy it ETF form. We had literally thousands of crummy mutual funds for years (which often had early redemption fees) and no one complained about that, how is having more ETFs as an alternative (a more liquid one I might add) a bad thing? No question, the example ETF provided above sounds like a poor investment, but to that I say caveat emptor.

Good Luck all.

Friday Outlook: Commodities, Global Markets

Monday might be interesting. Obviously on an options expiry day there is no room for reality. Everyone should be taking this market day by day. I am. Sure we are in a liquidity driven bubble here but I'd like to note the following:

In 1930 the DOW rebounded 48% off the lows without the magic printing press running at top speed (and buying treasuries in a loose attempt to convince us that the Fed is not monetizing the debt). But this time, the Depression-learned Bernanke has it all figured out, he's determined not to make the same mistakes they made back then, he just wants to make bigger ones (albeit in the opposite way).

Our savior Helicopter Ben, is going to build the biggest bubble ever and do it with the Lender of Last Resort (so there will be no one left to bail us out when it bursts). Sure we have retraced 60%, but if this turns out to be the biggest bubble of the them all, it could go much higher. And of course, if he succeeds, the following crash will make the great Depression look like a mild hangover.

But as I said in previous posts, you would be silly not to profit on the way up and the way down, as well as being prepared for the moment that the music stops (QE stops) because it won't take long after that to get new Everyday Low Prices.

Good Luck all.

Thursday Outlook: Commodities, Global Markets

Trust me, I'm painfully aware that the fundamentals are not there. They are simply awful, but they always are in a bubble (I mean did you think buying a house back in early 2007 was a good idea fundamentally?) This most definitely has all the appearances of a bubble. I truly believe that the crash after this bubble will be even worse than the one we just experienced but at the same time I think it is silly to not take advantage of the bubble. I am being very cautious, putting in stops that I am comfortable with and only investing a portion of my portfolio.

Until the government stops or at least slows quantitative easing, we are staring another bubble in the face and if you want to wait it and the subsequent crash on the sidelines, that's fine, part of me applauds you but the trader side of me sees an opportunity here and I can not ignore that.

Good Luck all


On Sep 17 01:10 PM fjd10595 wrote:

> IT is the wrong time to deploy money, the fundamentals are not there
> and if that is not enough, we zoomed 50% in a few months. This,
> after the greatest financial stress since the depression? If you
> think it has reversed in one year, you are wrong.

Thursday Outlook: Commodities, Global Markets

Against my true feelings, I put some weight back into equities not because I believe in this market but I fear it. I read a comment somewhere we are in a barbell market, where on one side we have many people playing the deflation trade and on the other many are playing the hyperinflation (but really stagflation) trade.
It certainly does feel like we are walking a high wire here with a barbell as our balancing pole and no net below.

Anyways, the recommendation was you weigh your portfolio equally for each outcome so thus I have still a lot of cash (for deflation) but have put the rest into assets that will win in a stagflation environment - precious metals, commodities, equities tied to those markets as well as beaten down equities.

Yesterday I timed it well making my moves at 10 o'clock dip, dropping my UUP hedge (betting against this market is foolhardy so I removed my hedge) and buying back some older positions that remarkably had dropped in the past 3 weeks. Obviously trailing stops are critical.

As I mentioned above I fear this market more than I believe it in, but I fear a parabolic ramp here. I suspect this market will go parabolic before it crashes and I feel I have to position myself to take advantage of that possibility using a portion of my portfolio.

Dave you nailed it, we are in Hotel California, where do I sign up for an ARM to buy a McMansion before they take away my leg? All hail Bernanke and his broken dreams of stagflation for everyone.

Good Luck all.

Wednesday Outlook: Commodities, Global Markets

It is very easy to want to take profits in a market like this, as an underlying awe in the disconnect with fundamentals lingers in the back of everyone's mind.

Personally, I took profits in late August fearing a September crash that has yet to materialize and have been largely on the sidelines since then (except gold / silver and a small position in UUP as a hedge).

The hypothesis that September would result in increased trading failed to materialize (so far) and leaves me with the question - What now?

Sadly, against my true feelings, I feel one must be positioned neutrally in this market, so I will gingerly start picking up my long positions again, and will probably drop my UUP hedge.

Fundamentally, I remain convinced that this is just a bear market rally and sooner or later we will return to the mean, but in the near near term I see little catalyst to prevent the HFTs and trading desks flush with near free government cash from continuing to bid the market up. Clearly this has nothing to do with fundamentals which remain awful but banks are not lending but rather are "investing". A rising tide (of liquidity) lifts all boats and one must respect that (even if one knows the tide will eventually go out again).

Further to this effect, the fact that the Fed did not even mention the dollar (save for some passing remark from SF Fed Jen Yellen) tips their hand. It leads me to believe that they will do everything in their power to prevent deflation and will meekly accept stagflation instead. I do not have any confidence that they will succeed long term, but short term to bet against them while they are still trying is pure folly, so I will return to a more neutral stance and pick up some longs that I feel have a relatively good risk/reward.

Good Luck all.