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I look at both geo-politically leveraged stocks and companies which have an underlying grasp of the socio-economic factors that are driving their customers. If a well run company changes it management style to maximize short term profits, I'll sell within days of the announcement since history... More
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Biome Applied Research
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  • What will happen with Gold prices over the next 2 years?
    Gold's a strange thing whose main purpose is to be an alternate currency based on the perceived value held by others.  Today the gold price (NYSEARCA:GLD) underwent a noticeable readjustment in perceived value as you may have noticed.

    As an investor some key question to ask are: 

    A) Are the charts getting toppy?

    B) The rapid drop today indicates an unexpectedly large number of stop-loss orders triggered.  Why the lack of confidence among institutional investors large enough to move markets?

    C) As the Chinese property market bubble pops and the gold bubble pops, how are the Chinese middle class going to re-allocate their assets as the bubble is popping?

    D) After the Chinese property market bubble pops, how are the Chinese middle class going to re-allocate their assets as the property market bottoms out?

    A compounding factor will be the gradual decrease in Indian gold demand as inflation in India gets under control over the next 2 years.  As that happens gold holdings in that country will start to be sold to provide investment cash and the property portfolios themselves will increase in relative importance over gold as collateral.

    For me, one of the key stocks to watch for confidence in the Chinese economy's ongoing is Posco Steel (NYSE:PKX).  Even taking into account the overall market this current dip in the stock price has me wondering if the smart money is already evacuating companies heavily exposed to Chinese demand in the future.  As one of the world largest steel producers based in Asia PKX sure fits the bill. (And yes, I am aware of Posco's huge multi-billion dollar plans for Indian expansion)

    At the end of the day I leave you with this: gold as a safe haven is not the same as gold as a safe bet.
    Tags: GLD, PKX, PKX
    Aug 24 2:51 PM | Link | Comment!
  • The mentality behind the summer slump of 2011

    I'll start off by saying that I'm not a sophisticated trader who's into puts, calls, options and so on.  But I am a keen observer of human nature and here's some of my thoughts on this week based on that point of view. 

    As I've been watching the timing of the cascading waterfalls that are the global markets from Monday - Today (thursday) of this week it's struck me more than once the close similarity to the global patterns that occurred in the 1987 crash leading to a feedback loop of automatic trades and individuals pulling their money out of mutual funds and individual stocks. 

    Why is this important? To make sense of the market mob mentality, I see investors like a 7 layer cake.
    - The 1st layer is the active day trader.
    - The 2nd layer is the technical trader.
    - The 3rd layer is active interest, who'll trade with a time period of a few days to a few months while being aware of the overall trend (I'm one of these)
    - The 4th layer is more buy and hold to minimize the tax cost, but will actively trade individual companies undergoing a quick run in prices.  They're also willing to get out within a few days of things going sour.
    - The 5th and 6th are those who watch the closing prices occasionally and major market news.  I feel they are the most likely to miss the early part of a bull and get the most burned in a bear because they're always looking to trade on a trend with old information.  You may recognize this person - It could be your brother-in-law or cousin who did one good trade in a bull market and considers themselves to be as wise as Warren Buffet and won't let you forget it at family events.
    - The 7th is "set it and forget it". They leave it all to their investment advisors and come back in retirement to take their money.

    As everything stands right now I believe that the 5th layer of investors have reached a critical mass that are now liquidating their mutual funds which causes both a flood of shares on the market on opening bell, and sharp dips in the last few minutes of the trading day.  The 2nd level traders cause the dead cat bounces like what happened yesterday.

    The question I have is this - in studying the 1989 scenario what was the publicly observable trigger that caused the market to bottom out.  Do you the reader have that insight you can share? From a socio-economic point of view I feel that the bottom will be a critical mass of 4th and 5th level investors giving up on trying to cut their losses, throwing up their hands and deciding that in the end they should stop everything and the market will come back eventually anyway.  The supply and demand curves for shares will get switched and the funds who maintained strong cash positions will come charging in and cause record surges in the indices as they invest their cash reserves.  Those big fund managers will be the heroes of Wall Street in 2012

    As for the 6th level investor - He/she will get hosed either way and complain the market cycles are completely rigged by the big bogey men of wall street while he/ she steadfastly refuses to take responsibility for investing with minimal skill and time instead of handing it to an expert investment advisor.
    So, what's going to be different about this one? This may be one of the first major market corrections where large percentages of funds were held in cash prior to the dip which is a new factor. Active technical traders are buying the dips more aggressively knowing this fact and consequently reducing the slope of the downard slide relative to 1987, but the trend is still there.

    What am I doing? I’m selling what I can at a maximum 3% loss with the sole purpose of freeing up cash to buy at the bottom. I’m not panic selling and if I can’t get cash right now, then I’m holding tight with what I have and awaiting the return of the market by December 2011.  I see things either bottoming out within 2 weeks, or dropping further till the Dow hits 8,700.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SDS over the next 72 hours.
    Aug 04 12:42 PM | Link | Comment!
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