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mdtrader

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  • Amazon Upgraded, Target Set at $100 [View article]
    You have to laugh at these analysts. They never cease to amaze me, whether it's dot com stocks, house prices, mortgage paper, it really doesn't matter. Keep buying and disregard the valuation. It's this attitude and the inability to correctly value assets and risk, that has helped to create the fiscal mess, we are now in.

    How about some good old fashion fundamental analysis where stocks trade on sensible PE's? Now there's a thought.

    seekingalpha.com/insta...

    MD
    Jul 8 11:57 AM | 1 Like Like |Link to Comment
  • 5 Reasons to Avoid the Gold Rush [View article]
    I'm loving the fact, that despite being one of best performing asset classes over the last 10 years, there are still plenty of people that hate gold. A sure sign that we nowhere near the top yet. Gold has been around for thousands of years, and has outlasted every paper currency or stock certificate you care to name, and yet still they come, telling us that gold isn't really worth anything, and paper assets are better. Try asking the shareholders and employees of Lehman or AIG, whether they would prefer gold or share certificates!

    Every major inflation of 10% or more since the 30's has resulted in stock P/E's being compress down to single digit multiples. The S&P is currently trading on 15 times 2009 forecasts!

    The following article was published in the FT in 2004. The genius that wrote this piece declared that gold was a pointless and basically concluded that it was finished. Gold was around $400 per oz at the time! How I laughed and bought some more.

    Going, going, gold
    Published: April 16 2004 5:00 | Last Updated: April 16 2004 5:00

    The barbarous relic, as Keynes called it, is crumbling to dust. When even the venerable NM Rothschild has quit the gold market and the Bank of France, among the most stubborn of the official goldbugs, is thinking again about its bullion holdings, the end of gold as an investment has come a little closer.

    It will not be before time. The fetishisation of shiny yellow metal, decades after it ceased to be used as the anchor of the international monetary system, is a lingering anomaly in modern financial markets. Perhaps Rothschild's last service to the bullion market could be to keep a live gold trader on display behind glass as a reminder of a bygone age, like the former coal miners who now make a living giving tours of defunct pits.

    The one advantage of gold as a reserve asset is that, unlike assets based on fiat money, governments cannot make it worthless by inflating it away. But in an era of low inflation, and given that independent inflation-targeting central banks are the norm across the industrialised world, that risk has very sharply diminished.

    Indeed, for both private and official investors, gold is now a rather risky asset with a nil or low return. The intrinsic value of gold, determined by its use in various industrial processes, is well below its market price. Gold does not grow. So its value to any one investor as an asset is dependent on other investors also holding it as an investment asset. The gold price hangs precariously by its own bootstraps.

    For private investors to hold gold on this basis is their own foolish affair. For central banks and governments to hold it as a reserve asset is a betrayal of the public on whose behalf they are acting. Despite recent sell-offs, governments and central banks still hold about a fifth of the world's bullion. Their large holdings relative to the size of the market by themselves make gold particularly ineffective as a reserve asset: the very act of official selling of bullion on any large scale to raise cash will itself drive down the price.

    This danger was amply demonstrated by the UK's unhappy experience of trying to sell some of its gold holdings. Announced in 1999 in a sensibly open and transparent fashion, the sales sparked such a fall in the global bullion price that a group of central banks signed a concord limiting such sales. That has recently been superseded by a new agreement providing for limited official sales.

    Given the pointlessness of holding gold, the speed of its official sell-off scarcely matters, unless leaching the gold into the market bit by bit somehow maximises the return to the public purse by limiting the impact on the price. That would imply some irrationality on the part of the market. But then holding gold is irrational in the first place. Perhaps the central banks are right to go slowly.

    Whatever the speed, the direction is clear. Gold is on its way out as an investment and a reserve asset. Three cheers for that.
    Jun 21 02:37 PM | 2 Likes Like |Link to Comment
  • Why Amazon Is Overvalued [View article]
    At close to $80 a share, an investor would need 20% compound EPS growth for the next 5 years, in order to normalise the PEG to 1. Even if the company achieved such monumental growth, the stock would still be trading on 21 times earnings, 5 years out. If you look back at the previous 5 year period, Amazon did in fact achieve 20% compound EPS growth, but it did so starting from $5 billion revenues, with very favourable economic conditions. Today the same level of growth is expected but starting from $20 billion in revenues, not to mention that economic conditions and internet saturation levels are clearly less favourable.

    Wall Street may love Amazon at $80, but one day they will wake up and find the stock trading at sub $40. Great company, but the valuation is way too high for me.
    May 2 04:05 AM | 1 Like Like |Link to Comment
  • The Fear Bubble: Treasuries and Gold [View article]
    Gold is one of the few assets classes in a long term bull market. It's amazing that there is so much bearish commentary. Gold was trading around $250 at the start of the century, and here we are at $870. Can you imagine everybody being bearish of the Dow if it had just risen 250% in the last 8 years?

    Bernanke spelled it out for people yesterday, for those who did not pay attention to his 2002 speech. There will be no deflation, not while the FED still has printing presses anyway. The penalty for the reflation will be the dollar. See you at $1200 per oz.

    MD
    Dec 17 02:17 PM | 1 Like Like |Link to Comment
  • The Deflation Risk Keeps Rising [View article]
    You are not going to have deflation. American cannot have deflation when it is so heavily indebted to the rest of the world.

    What will happen is the US dollar will be devalued. Why do you think gold has jumped from $700 to $820 recently? It is because the market can see what is coming.

    If you don't believe me then take it from the man in charge of the FED. He has already told people what will happen if there is a risk of deflation in his 2002 speech.

    www.federalreserve.gov...

    MD
    Dec 14 05:19 AM | Likes Like |Link to Comment
  • Own Gold? Time to Fold [View article]
    How do you get deflation when your beloved FED chairman wrote this?

    "To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system -- for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation."

    By the way gold is up 60% in sterling terms in the last 18 months or so.

    MD
    Dec 8 12:33 PM | 3 Likes Like |Link to Comment
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