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On Markets

|Includes: PowerShares DB Agriculture ETF (DBA), FXE, GLD, SLV, USO

I realized that I thought so highly of this article it formed the foundation of an entire post..
The author basically says that one can avoid considerable grief in one portfolio by avoiding the metals (I assume mainly precious metals) entirely.
One needs to keep in mind, to try separate, investing and trading with personal philosophy and opinions.  One needs to focus on what the market is trading AND that not all facts are always represented in the market, and if they are not all to the same extent.  The fact that I wear black dress socks purchased from Giant Tiger, five days a week, is not a reason to invest in Giant Tiger.

The author basically says that being long metals is not the way to go BUT that being short that sector also has risks.  Makes sense, currently, I have been writing on the fact that currently the gold story is downwards but have been unable to develop a case for shorting them.  He has shown that there is no case for shorting metals.  Creating a rewarding short position in gold involves taking on such risk as to not make the rewards worthwhile.

He goes on to say, that if one wishes to trade the inflation story, a better place to do so is in the energy sector.  His article may or may not have the best predictive value, only time will tell.  But it is an excellent primer on HOW to invest and trade.  Basically, trade on a realistic story.

Many may have chosen to invest in gold because the fear of the collapse of the US dollar.  Others may have invested based upon the impending Quantitative Easing (and unknown at the time QE2).  Basically, the collapse of the dollar has not come to pass but QE1 and QE2 have.  Moreover, the QE story was inevitable where as the dollar collapse was just fantasy.  I am not saying it can 't or won 't come about BUT clearly if you invested in gold in early January based upon impending collapse, you are now at a loss position.  Those who chose NOT to take the gold plunge based upon the lack of a more tangible story have protected their capital.  The lesson to be learned here is that although ALL gold investors who got in two years ago profited, that doesn' t mean that their thesis was correct.  As it is said, "don 't confuse genius with a bull market".

Basically, gold has risen approximately 50% in two years, definitely as a result of QE and to some extent the fear of dollar collapse.  The question we have to ask is that can we expect similar gains going forward.  We know there is no more QE on the horizon.  The GDP growth is positive, yes, not as much as we like but as long as there is growth we are moving forward, fear is subsiding.  Yes the budget deficit can (and probably will) come back to bite us. But for now, gold is down 6% this month.  Mid-East turmoil is causing a spike today of 2%, if you get in today, and the turmoil subsides over the weekend, are you prepared to take the 2% hit?  Of course you can create various strategies to manage that risk but ultimately are you comfortable investing on MidEast turmoil.  I can understand why one would trade on quantitative easing.  Congressman and senators stay in power based upon their stand on how to support the economy.  I can even research and predict how the market will move based upon the actions of a congressman.  But do you expect to invest based upon whether some unknown malcontent throws a Molotov cocktail?

Sorry, you have to give me a better reason than that.  Too risky for my blood.