I think we all realize we are in the grip of the bear at this point. Even Kudlow is starting to come to grips with the notion that we are going to experience a recession. What I don't see yet is despair. I see too many analysts trying to pick the bottom or the old "invest for the long term" crap being bandied about. We had a semi panic day on Tuesday but the Fed jumped in and saved the day. Actually they just made it worse. They are now guaranteeing that inflation is going to be spiking at the same time we are heading into an economic recession. What a wonderful combination! I'll be watching the COT's as usual for signs that the big money is buying. That will be our cue that it's time to jump back in the pool. In the meantime we need to be making plans for what we want to be buying when that bottom arrives. Well let's step back and look at what's going on. The Fed is now in panic mode just like I said they would be. The economy is slipping into recession and the politicians are freaking out. Incredible pressure is being brought on Ben to do something dammit. Well the only thing Ben can do is the wrong thing. Of course that doesn't matter to the politicians as long as it looks like something is being done. We need to be ready to take advantage of the Fed's actions. What's the one sector that is defying the bear? Precious metals of course. Gold and silver. Heck the precious metals are just about the only thing that's up so far this year. Now if they can hold up and actually rally while the rest of the market is failing can you imagine whats going to happen when this market bottoms and turns up?
I see quite a few analysts including Cramer beating the table on energy. I do think energy is going to perform well during the next bull but it's not going to be the leader anymore. Energy was the leader during the first phase of the commodity bull. We are now into the second phase. It's time for the laggards to catch up. Liquidity is going to flow into the undervalued sectors. That would be precious metals and agriculture. We are going to get the buying opportunity of a lifetime soon and you know what? Most investors are going to miss it. Not because they are afraid the bear isn't finished. No they are going to miss it because they will think that gold is too expensive or it's too overbought. Many will rationalize that they will be able to get in at a later date at better prices. I've got news for you in a raging bull market (make no mistake that is what's happening in the precious metals sector) the bull makes it very hard for investors to get back in if they lose their position. Anybody here lose their position in the Nasdaq in 99? This bull will end up going much farther than almost anyone can imagine including me.
Saturday, January 26, 2008
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http://news.aol.com/story/_a/high-gold-prices-spur-rush-to-alaska/20080125194109990001?ncid=NWS00010000000001
Dumb money getting into gold ?
A sign that a very few are starting to take notice of gold. Once you see everyone and their cousin buying gold you will have about a year to a year and a half to hang on for the ride of your life. I don't know about everyone else but most people I talk to are wondering if it's time to buy real estate yet. They have no clue what's going on in the PM sector.
Bottom Line: The average Joe six pack is a baby boomer quickly running out of time. His single largest asset, his primary residence, is deflating rapidly. This single largest asset is also the primary collateral for his single largest liability. His balance sheet is rapidly deflating as all his assets, from his home to his equity portfolio, all simultaneously deflate while his debt outstanding may actually still be increasing. His debt servicing are costs not dropping, despite aggressive rate cuts, and may actually be rising. It has also become damn near impossible to refinance certain mortgages as easy credit evaporates. On top of that, Joe six pack should now be seriously concerned about his job security. So when a cheque for $300 to $1500 arrives in the mail, Joe six pack is not going to spend it on a $200 steak dinner or a new computer or on a vacation. Got it people?
More on the stimulous package: (http://benbittrolff.blogspot.com/2008/01/fact-sheet-bush-stimulous-package.html)
TheFinancialNinja
Ben
That is about the most inaccurate description of a baby boomer that I have ever seen.
Hi Gary,
I'd like to know your opinion about this chart:
http://tinyurl.com/yqwyda
To me it says that the Dow will fall, while Gold stays static at best.
The argument for higher Gold prices is logical and intellectually stimulating, however the market may have other ideas.
Just trying to figure out where we go from here..
aaron -
i have not the wisdom of Gary, but that charts tells me that the DOW bull market ended in 2000 and that the bull market in GOLD began in 2003.
Mr. T.
correction: gold bull market began in 2001 when the red line peaked.
A,
Keep in mind one very important fact. Anything can happen. That being said and human nature being what it is. I think the Dow/gold ratio is going to continue down. Now whether the Dow drops and gold holds steady or the Dow rises and gold shoots up like a rocket I don't know. All I know is gold is going to continue to outperform paper assets until the ratio swings too far. That should put it somewhere close to 1:1 to 1:3 before it's all over.
I'm working on a Saturday update right now as to my thoughts on where the market is headed.
here is where the markets are headed...
http://www.lewrockwell.com/north/north599.html
Here is the end paragraph
"CONCLUSION
We appear to be in the early phase of a financial earthquake that will get into the history textbooks. The volatility of the American stock market indicates something severe, yet at present is being contained. Contained by what? By rumors and hope.
I do not suggest that you entrust your financial future to people who invest in terms of rumors and hope. These are the same people who advised clients that they should hold a balanced portfolio of American stocks back in early March of 2000. That portfolio is lower today by 21% due to price inflation, and if the portfolio was the S&P 500, lower by an additional 15% because of recent market declines.
The bad news is just getting rolling.
Stay tuned. CONCLUSION
We appear to be in the early phase of a financial earthquake that will get into the history textbooks. The volatility of the American stock market indicates something severe, yet at present is being contained. Contained by what? By rumors and hope.
I do not suggest that you entrust your financial future to people who invest in terms of rumors and hope. These are the same people who advised clients that they should hold a balanced portfolio of American stocks back in early March of 2000. That portfolio is lower today by 21% due to price inflation, and if the portfolio was the S&P 500, lower by an additional 15% because of recent market declines.
The bad news is just getting rolling.
Stay tuned. "
Enjoy
No one responded to my question last night but would like to ask again. Who here is buying physical gold?
I can't seem to get any GLD investor to talk about some potential issues with the GLD ETF. It's almost like the investors in subprime that the world is beating on today. You ask, how is it they thought it was a good investment? I am sure they didn't but they were making money and didn't care. It's primitive human instinct to ignore facts in the face of making money.
Please don't take this as some kind of rail against GLD. As a GLD investor myslef I want to make sure we all understand what is going on here and debate the risk merits. Heck, maybe the stuff I read isn't true. I just rather some be honest and say there are risks and well lets just ignore em, hope it never bites us so long as we make money. The human spirit I guess.
Anyway read this article and post your thoughts on whether or not there is reason to worry.
http://news.goldseek.com/ThunderCapitalManagement/1201035428.php
For those that just want the point of the article here it is:
"The following example a second grader should be able to follow. Yesterday GLD traded at a price of $87.05 while gold futures were $882.00 and spot gold was at $881.00. I called my best sources and the best quote I could get for purchasing one ounce of physical gold was $897.00. So here is the question: If you were buying ownership of gold at an effective price of $870.50 for an ounce of gold by buying the gold ETF at $87.05, how does the gold ETF turn around and purchase real physical gold for you when the spot price is $11.00 higher, the futures price is $12.00 higher and the physical price is $27.00 higher? That is a neat trick. I wonder how they do it. YOU SHOULD START WONDERING TOO! Do you really believe the GLD ETF can survive loosing $27.00 for every ounce of gold that they buy for you? Now you know why the custodian and sub-custodian’s agreements for these ETFs are so complicated and un-auditable. It would make sense that the GLD would have to trade at least $4-$5 higher than the price of gold if they were actually buying it, insuring it, guarding it, and delivering it. They say there is a sucker born every minute. This should help to prove that point"
Personally I buy physical gold.
I think what you are seeing is the .40% expense ratio. SLV is the same. You will incounter the same thing when buying physical as the ask is usually about $15 above spot. Just like regular stocks there is going to be slippage.
I also only buy physical bullion.
not sure what it proves, but you can look at $GOLD:GLD or $SILVER:SLV at stockcharts.com and see that since 2006 the cost to own either ETF has increased in relation to the underlying hard stuff.
Mr. T.
not sure why anyone would pay 900 an ounce for something that never pays you an ounce of cash to own, if gold were to go much higher, i think people would start melting their jewelry and selling it
Hi Gary,
I but outright futures, rather than the stocks. Please share why you think the "physical" purchase of gold is better that futures, etc. I'm not comfortable being long fertilizer stocks and the like, so could you share your best ideas on how to accumulate the agricultural commodities?
Thanks for the great work.
Joe,
I like physical for two reasons. It's harder for me to get nervous and sell on a pullback. I can't just click a mouse and two I don't like having a time component to my investment in PM. Gold may top in the next year or two or it may take 10 years. As long as I stay on the bull I will catch that rally no matter how long it takes. It will eventually make me rich as long as I don't do something stupid like lose my position.
From what I gather you can invest in Ag ETF's on the London exchange. That's about all I know about it or you could buy futures. Right now sugar and cotton look the best to me.
To Tim, The Operator..
You should read some foreign papers. Indians and other middle eastern people ARE selling their old jewelry as we speak. Have you not seen ads on TV, radio and in the newspaper encouraging people to bring in their old jewelry? Have you seen how big the scrap metal and scrap PM markets are becoming here in the US, never mind that most of the rest of the world is already ahead of USA?
The reason someone would pay 900 an ounce is to protect their wealth. When the price is $1500.00 an ounce in 2-3 years you will understand. But if hoarding paper is your thing, have at it. Unfortunatly history shows fiat paper currencies don't survive or hold their purchasing power. If you have evidence showing different then I suggest you write it up and publish it..you will no doubt win the Nobel prize.
My suggestion to you is to go back to your history books, read what Jefferson, Franklin and many others who drafted the Constitution had to say about money and banking. Research Andrew Jackson and the second bank of the United States.
Ask yourself why from about 1776 to 1913 prices in the USA basically were unchanged besides a few hiccups here and there. Ask yourself this: Since 1913, has the value of the dollar increased? Does one dollar from 1913 buy the same basket of goods today? If not, why not?
Hope this helps in your understanding of what is real money.
I intend to ride this bull right along with you. I'm currently long sugar and looking to add.
Good point on the physical vs. futures (or other electronic instruments). I had a nice position in DBA awhile back, and sold it at a nice profit. Well, it's gone just about straight up even after I exited. Losing a great position is probably the most upsetting thing for experienced traders. I am 100% committed to not making that mistake again. I'll still stop out of the losers, but when a trend is in my favor (and it clearly it with commodities), I WILL stay with them.
Have a good week everybody!
Let's also not forget that gold is not only owned as an investment and hedge against inflation but it has an appeal as a currency or currency alternative as well as protection against economic collapse. In fact gold for the past decade, until recently was purchased by either jewlers, for industrial, by numismatics or gold bugs who never trusted the gove't.
Only recently with Gold's rise and creation of ETF has joe six pack found out about it.
What's my point? Let's go back to gold as an inusrance policy. At what price would gold become an alternative to the US dollar? How bad would it need to get here in the US for gold to be hoarded? Now tell me how are you going to fill up your tank and put food on the table for your family with gold futures?
The ETF at some level is no better than a paper stock and the futures market is illiquid.
I strongly urge anyone who has taxable money either invested in stocks or in the ETf to diversify some out and buy physical gold and silver. It's easy and $5,000 worth wouldn't take up more than a shoebox.
Has anyone else noticed that the Fed's rate cut has so far produced a $75 rally in gold, a $6 rally in oil and a rally in the markets that appears to be faltering already. Come on Bennie give us another 50. Let's make sure we crush the economy with soaring inflation.
What kind of disaster would it take for SLV/GLD to become worthless and physical silver/gold to be the only asset in the world worth holding? I don't think any of us would want to live through something like that. Does anyone here believe that's a likely scenario? That didn't even happen in the 70's.
Gary -
When you sold your silver and switched over to gold, was it all the sale and purchase of physical holdings, rather than swapping SLV for GLD?
Thanks
I swapped physical for physical.
John, ok a disaster or economic collapse (depression) might be as they say a 10 sigma event but it seems that 10 sigma events are happening every three months now and this isn't the 70's. Just because it has happened in 80 years doesn't mean it can't ahppen again but let's look at it a different way.
You think the dollar can continue to decline and gold rise and it not be a currency alternative at some level? All fiat money at some point goes to zero whether it happens in 10 years or in 1,000.
This isn't the 70's either. I don't recall a massive unwinding of credit (deflation) happening in the 70's but I do recalll one happening in Japan and the US in the early 30's.
My point is a bad outcome to this may be a small probability but larger than it has been in quite some time.
Do us a favor and go read the streettracks prospectus and tell me where they have had their gold audited? It's a paper asset and nothing more. I hold it but I am not naive to think that they would ever be able to deliver me the gold or my money if things got out of hand.
Just my opinion and I think a well thought out one.
Also someone mentioned that people would be melting jewlery if gold was that great and going higher well....A new business is cropping up by jewelers. Instead of tupperware party's lady's are holding gold selling party's. missing an earning to a set? Have an old gold necklace? Want some mad money the mister won't find ut about? have you and 10 of your lady friends bring your gold and we'll give you cash!
I think I calculated the melt value of 14k gold to be around $16 a gram if I recall correctly and they are paying these lady's around $10. That's $6 in pure profit.
This will be happening more and more.
Geez, I look back at these posts and sound like a gold bug governemtn hating bomb shelter living crazy.
I visit alot of blogs and it bothers me that people see gold and dollar signs instead of what I think they should be seeing. Enough of me and gold.
Love the blog and the opinions.
Hey johnnyb,
I agree with your assessment. I'm thinking that if things get so bad that even GLD and SLV become worthless (along with every other stock and currency), then gold or silver in the vault won't save us. We'll all need to be living on a farm, providing our own drinking water, growing our own food, making our own clothing, and generating our own electricity! :-)
But, of course, anything is possible.
Gary, BTW, entertaining exchange between you and the bears over at Tim's blog. The funny thing is, other than the position sizing debate, I don't think your views are that far apart!
Gary
When did you change your bullish position on silver. Did you not think that silver was going to significantly outperform gold even as gold was leading?
Gary:
I understand that Silver may not perform as well as Gold or Platinum over the next 12 months, but did you get rid of all your silver? You didn't keep any for longer term? Just curious.
I did switch all my silver for gold. Back in the first of Nov. when I pointed out the topping action in the metals I reduced my holdings back to my core position. During the first part of Dec. I switched the silver to gold and started adding to my core position as it became apparent that gold was most likely not going to break down. I will definitley be buying back into silver again at some point. I just felt that the extreme volatility in the financial markets might be more condusive to gold at this point. I may end up being wrong but I don't care since gold will still go up and I don't expect silver to outperform so much that I have to kick myself in the butt for switching. ie I'm still going to make great profits from gold even if silver outperforms.
BTW I do have exposure to silver with my SLW holding.
Gary
Maybe you should go back and read your turkey post. You said silver was going to make you filthy rich and you would never sell your core position.
How could you switch any significant amount of silver or gold. Isn't there a $10k limit or the government gets involved somehow?
"We'll all need to be living on a farm, providing our own drinking water, growing our own food, making our own clothing, and generating our own electricity! :-)"
You may not know how right you are. Put into the context of the following..what if you lived in New orleans during katrina?...What if another "event" like 9/11 happens only you can't leave your city?..you can't get access to water? Katrina showed the lengths people will go for basic necessities..trading guns for water...imho, if you live in a city, just "dress rehearsals" to whats coming.
I know that doesn't fit into the day trading model..but it should be in everyones long term planning.
As funny as this sounds, I swear thats where I want to be in 5 years. except making the clothing part...The division of labour will always exist so I will leave cloth making to others. however, land, access to cheap water and the ability to generate energy have always been the key components to human wealth creation. brain power is what allows wealth to multiply.
Well anything over $10,000 has to be declared. I didn't get rid of my core position I just moved it into all gold. Don't worry I will be back in silver at some point. Probably when we get the big spike down at the bottom of this 4 year cycle low. I suspect that everything will bottom at the same time.
Solars are the places to be for the next 3-5 years. Believe it!
Solars are a must buy now!!!
I agree w/ Beanster.....That is why I sold all my GLD and PM holdings on Fry-day...I am buying some solars but not much...Gld will be lower by 100 bucks later this year..then I will scale in the PM's again...
Do not buy PM's at these levels...w/ some patience you will be able to buy lower.
f
I wish I had your crystal ball to know for sure that gold will be lower. But let me tell you what's going to happen. If it does move lower you will then believe that Beanie is correct and that commodities are going to collapse. Thus you won't be able to pull the trigger when the price is right. That's how human nature works. I prefer to wait for a reason to sell. So far all I see is a bull market making new high after new high. To me that's no reason to sell. It might be a reason to add a little but definitely not sell. I don't try to time runaway bull markets. I made that mistake in 05 with some of my mining positions and I won't be doing that again. It was rather costly. Maybe you will get lucky and maybe you will be able to conquer fear and buy when gold is down. I doubt it. I know I won't be trusting luck or leave my investing decisions up to emotion. If we do get a pullback I'll just ride it out and add more at the bottom.
To Tim, The Operator..
You should read some foreign papers. Indians and other middle eastern people ARE selling their old jewelry as we speak. Have you not seen ads on TV, radio and in the newspaper encouraging people to bring in their old jewelry? Have you seen how big the scrap metal and scrap PM markets are becoming here in the US, never mind that most of the rest of the world is already ahead of USA?
The reason someone would pay 900 an ounce is to protect their wealth. When the price is $1500.00 an ounce in 2-3 years you will understand. But if hoarding paper is your thing, have at it. Unfortunatly history shows fiat paper currencies don't survive or hold their purchasing power. If you have evidence showing different then I suggest you write it up and publish it..you will no doubt win the Nobel prize.
My suggestion to you is to go back to your history books, read what Jefferson, Franklin and many others who drafted the Constitution had to say about money and banking. Research Andrew Jackson and the second bank of the United States.
Ask yourself why from about 1776 to 1913 prices in the USA basically were unchanged besides a few hiccups here and there. Ask yourself this: Since 1913, has the value of the dollar increased? Does one dollar from 1913 buy the same basket of goods today? If not, why not?
Hope this helps in your understanding of what is real money.
Holy mackeral, that psycho Two Sweets really has a problem w. you, doesn't he?
GARY
Look , I Had been holding GLD and some miners for 2 1/2 years. I had a huge profit in these plus I sold covered calls every other month for even added income. I had a great run but, I'm tired.
BTW I never said I had a crystal ball...I'm like you, I lost mine about 20 years ago...Thank God!!!!
f
yes 2sweeties is quite vocal. All I've been trying to do is point out how important position sizing is and it's turned into a free-for-all. I'm hurting to bad to bother with him anymore. It's off to a hot bath and some minor relief. I may end up at the doctor like you suggested in the first place. Hmm...I guess I'm hard headed too.
Some of those guys over there at the bear site were shorting strong stocks in the bull and whining for the start of the bear. Now that they've got their bear, they take large positions and try and catch the falling sword and been getting poked.
The psychology of it all...
China and Japan are not starting out the day on a good note. Lets see how the finish.
http://www.kitco.com/ind/Hamilton/jan252008.html
spx secular bears
gary, if you get a chance, read this article and tell me if it adds anything new to your understanding of the spx - longer term....
thanks,
Mr. T.
Exactly what I've been saying for 5 years now. I think I will elborate on this in tomorrow nights update.
excellent - look forward to reading your thoughts Gary.
Mr. T.
Gary,
Just a small acknowledgement of your work:
http://stocksshah.blogspot.com/2008/01/cot-report.html
asia is getting taken behind the barn and whipped once again...nikkei closed down 3.9%, hong kong is down almost 6%, and china is down 6%.
last night Cramer offered a new twist on the 75 bp cut. he said that in time we will find out that a major bank told the FED it was going belly up and to help prevent that from happening, the FED made the drastic cut.
of course i have no idea who or what to believe, but it is at least an interesting thesis.
clues anyone?
Mr. T.
Bottom line. China the engine of global growth is still faltering. The US markets aren't going to hold up if China and India fail.
Gary,
I agree on your sugar take. That chart is quite bullish. Agree too on your take on gold, just imagine the inflation down the road if Uncle Ben continues to slash rates at the current pace to avoid a bank to go belly up.
Tom2
just thinking out loud about the daily spx macd. man is that thing pushed down. except for a single 2002 downdraft, this thing has not been this far south in the past 10+ years.
looks like the inevitable pattern will possibly include an unsussessful test of the recent lows while the macd diverges upwards - then we could rally for a month or so.
we shall see.....
Mr. T.
Gary, DOn Coxe of BMO had some great things to say about sugar. Thinks prices are too low and looks for them to come up. You're in good company it seems.
Watching Platinum today. The rest of the PM will most likely follow.
FSLR will trade below $50 before the great bear has finished his work.
Gary,,
any thoughts on the Platinum group? Specifically palladium?..I'm thinking that as an industrial substitute for Platinum, palladium might benefit big..
I read somewhere that there is an oversupply of Palladium.
ethonol guys, this is th trend for this year, look at vse, avr, peix, vrnm, usbe, xnl. check them again next week if you don't believe.
GOOG still looking weak despite naz being up.
AAPL as well. Neither can get going.
Doesn't look good.
Rotation baby...
Sell tech and momo stocks AAPl GOOG and buy Fins and Home builders. This is what I did about three weeks ago!!!! Just got lucky though...
f
Much too large of a move in financials and home builders in way to short of a time to buy them now. Now would be the time to take profits if you managed to catch this move.
Gary,
time to load back up on SKF?
I'm putting togther the daily update right now.
What is the best way to play sugar. I like this play for a couple of reasons and have for a while. Gary endorsing it gives me even more confidence.
Josh, been loading SKF the past three days straight.
For what that's worth!
lol.
twm and eev looking pretty good
think i'll let em sink 2-3% more
then buy around noon on wed. after 50 bps hits
too easy!
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