It can hardly be a coincidence that the news of a civil (NOT criminal) SEC action against GS broke on an options expiration day and that precious metals were taken down more than stocks as a whole. The whole thing stinks.
If we see some more of this sort of stuff that will likely lead to GS paying back the government with our own money but that generates good headlines, then we will have the fake downleg of the bear market a la 2002: a post-recession down-move that allows the Fed to stay easy for longer and that provides the volatility that GS and its confreres thrive on.
The S&P 500 VIX is only 18 and should exceed 20 to even classify as a minor correction.
The strongest stocks to hold are in my opinion those that retain the strongest support today and are in a short-term uptrend despite any down-moves today. Think MCD, IBM and ORCL. Traders who don't own "enough" GLD or the like may want to be brave and buy on the close. The rumor is that "they" are taking the precious metals down because Paulson & Co., GS' counterparty on the short side for the toxic CDOs Goldman sold, is long lots of GLD. I doubt this has legs, and to the extent that the SEC action shines a new light on old shady deals, it may remind people of the house of cards that comprises so much of our financial system and thus may draw them anew to gold. On a trading basis, GLD is down much more than the smaller Canadian ETFs (stock symbols) GTU and PHYS, even though they now trade rich, at about 8% premiums to net asset value.
Copyright (C) Long Lake LLC 2010
Showing posts with label John Paulson. Show all posts
Showing posts with label John Paulson. Show all posts
Friday, April 16, 2010
Monday, March 1, 2010
Bloomberg Joins Gold Bears as Proven by Misleading Headline and Intro to Article
The gold bears are growling. This time they have been joined by Bloomberg.com, which titles a piece on gold, apropos of no breaking news, with the slanted headline of Soros Signals Gold Bubble as Goldman Predicts Record.
The obvious take-home message for those who read only the headline is that Goldman is getting people into gold at the top. The first paragraph continues that message:
George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.
If you read "below the fold" on the computer screen by scrolling down, however, here is Soros' actual position:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
The article then goes on to show that Soros has been joined by independent stars of the hedge fund industry, whose own money is at risk in the positions of the fund:
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Soros, Jones and the unquoted Paulson and Einhorn do not do what Goldman did with CDOs, which is sell one thing to the bagholder and then bet against it. Will they be correct? That's of course another story. I am personally long gold, because I do not trust the promises of the authorities who deal in electronically-created and printing press "money". I hope gold does poorly and the real economy does great for years to come, with real wealth creation so that gold can become a barbarous relic indeed. But one needs to invest with one's head as well as one's heart. My head says that a Federal government with about $2 T in revenues and uncountably large promises to pay its debtholders and especially its own retirees and poor is leverage at least as much as were Bear Stearns and Lehman Brothers and nearly as much as Fannie and Freddie.
The structural bull market that the price of gold has traced out-- a fact not a prediction-- and the growing number of top-tier investors as described in the Bloomberg article-- and the out-of-nowhere transparent effort by Bloomberg to assist the gold bears-- all suggest to me that the gold bulls are aligned with the major trend, whether or not ultimately the price of gold will ultimately crash and thus could be bought at today's price some years in the future.
Copyright (C) Long Lake LLC 2010
The obvious take-home message for those who read only the headline is that Goldman is getting people into gold at the top. The first paragraph continues that message:
George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.
If you read "below the fold" on the computer screen by scrolling down, however, here is Soros' actual position:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
The article then goes on to show that Soros has been joined by independent stars of the hedge fund industry, whose own money is at risk in the positions of the fund:
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Soros, Jones and the unquoted Paulson and Einhorn do not do what Goldman did with CDOs, which is sell one thing to the bagholder and then bet against it. Will they be correct? That's of course another story. I am personally long gold, because I do not trust the promises of the authorities who deal in electronically-created and printing press "money". I hope gold does poorly and the real economy does great for years to come, with real wealth creation so that gold can become a barbarous relic indeed. But one needs to invest with one's head as well as one's heart. My head says that a Federal government with about $2 T in revenues and uncountably large promises to pay its debtholders and especially its own retirees and poor is leverage at least as much as were Bear Stearns and Lehman Brothers and nearly as much as Fannie and Freddie.
The structural bull market that the price of gold has traced out-- a fact not a prediction-- and the growing number of top-tier investors as described in the Bloomberg article-- and the out-of-nowhere transparent effort by Bloomberg to assist the gold bears-- all suggest to me that the gold bulls are aligned with the major trend, whether or not ultimately the price of gold will ultimately crash and thus could be bought at today's price some years in the future.
Copyright (C) Long Lake LLC 2010
Wednesday, February 10, 2010
Gold Goes Nowhere. Literally
Actually, the thing about gold is that, unlike oil or even platinum, it mostly goes nowhere. It's more boring than watching grass grow, because grass actually grows. The classical reason to own gold is simply to preserve purchasing power. Gold falls out of favor when capital can reliably be used to create additional purchasing power. The easy time to do that was when Volcker made interest rates soar well above declining inflation. Who needed gold then? No one, and a huge bear market in gold ensued, with massive loss of purchasing power from peak prices even through to today's nominal higher prices. Over historical periods of time, gold prices have tracked general inflation levels.
This is the core argument for long-term buy and hold gold investing.
Now, to trading of gold.
Newcomers to gold investing/speculating are feeling glum and worried. My new most favorite precious metals technician, Clive Maund (http://www.clivemaund.com, with interesting recent free material on the site), is quite bearish short-term on the precious metals, with gold the least bad amongst them in his view; and he makes a living recommending such things as small gold mining stocks. Optimism on the anti-gold asset (the dollar) is at a 15-month high, per Bloomberg.com reports today in a poll of its users in the Bloomberg Professional Global Confidence Index.
Meanwhile, the headlines at the WSJ and other business publications are reporting, perhaps with more than a touch of schadenfreude, that the king of the subprime shorts, John Paulson, has mistimed the gold market significantly. Here is one of several articles on the subject: John Paulson Gold Fund Said to Tumble 14% in Its First Month. Mr. Paulson has $250 million of his own money in the fund. Minimum investment duration is 3 years. The fund is, I believe, the single largest holder of the ETF known as "GLD".
I too want to be optimistic on Larry Kudlow's "King Dollar" and thus bearish on or simply uninterested in gold, which was my attitude from 1980 to 2001. Everything changed in that regard after 9/11/2001.
We learned that the bin Laden goal was economic ruin of the U. S. He has not failed.
We all want to pinch ourselves and simply choose not to believe that our rich country has created a fiscal nightmare. Out of plenty has come a California using scrip to pay its bills. Phony accounting rules in Big Finance and in D. C. We are given the Big Lie that the Federal deficit is only 60% of GDP, and won't hit a Greece-like level for 10 years or so. Ha! Why don't they try putting Fannie/Freddie on budget, plus a realistic estimate of the coming FDIC and FHA bailouts? (Plus smaller stuff such as unrealized losses on TARP etc.)
And let us recall that all workers get a Federal statement saying what their Social Security benefits will be. Where is the funding for those benefits?
Dollar optimism?
No. It's simply Euro and yen pessimism.
For now, the dollar may be less flawed than the above fiatsco currencies. But gold just sits there. It has no unfunded liabilities. Its supply cannot be gunned by a Fed that wants to reward its buddies who own the bonds of Big Finance companies. Gold rose to the level of the Dow, not the current level of the S&P 500, during the reign of the last Democratic president whose focus was jobs, jobs and jobs and who had an overtly easy-money Fed chairman (Jimmy Carter, till he was forced to install Volcker). Currently gold's price is closely tracking that of the S&P 500.
With the political imperative in the White House and Capitol Hill to retain power via money printing and pushing for economic growth, we can assume that just as in 1933-6 and 1977-79, price inflation is desired if it will bring higher employment levels (so the thinking goes, that it).
Deflationists such as Gary Shilling have great points, and Treasuries can rise in price even as inflation heads from around 1% to 3%, but until the Fed actually gets Volcker-like, I suspect that the articles about troubles in Paulson gold-fund-land are more likely than not signaling a bottoming action in gold prices. You should however worry if a year or three from now you are long gold and you start seeing headlines about what a genius Mr. Paulson has again been proven to be because his fund is up so much.
Most likely Mr. Paulson is trying to preserve his purchasing power via the anti-dollar, in the true hedgie spirit.
It is at core a conservative strategy. However, the Paulson fund buys stocks of producing companies as well as GLD. I am yet more conservative. I believe in going only for refined gold, 0.9999 fine etc., and not trusting that there is any value to gold trapped underground in ore form. That gold may go nowhere and may never be able to profitably extracted, and the company owning the mine may still have an overpriced stock even if it can remove the gold profitably.
With all the above said, gold is being advertised heavily on bubblevision, so there are clearly some cross-currents that to a skeptic raise the question of whether it is "too" popular right now.
Given a 15-month high in dollar optimism and a 15% sell-off in gold in 2 months to a level just above its 2008 highs, and a price only 25% above its prior cycle high price 30 years and one month ago, the bubblevision ads are not enough to scare me into selling. Gold stocks are not cocktail party talk, a better warning sign of a major top.
Along with John Paulson, Paul Tudor Jones and David Einhorn, I shall sit with a modest portion of my financial assets with the inert perpetually shiny metal and root for all the other assets to do so well that the gold does poorly.
Copyright (C) Long Lake LLC 2010
This is the core argument for long-term buy and hold gold investing.
Now, to trading of gold.
Newcomers to gold investing/speculating are feeling glum and worried. My new most favorite precious metals technician, Clive Maund (http://www.clivemaund.com, with interesting recent free material on the site), is quite bearish short-term on the precious metals, with gold the least bad amongst them in his view; and he makes a living recommending such things as small gold mining stocks. Optimism on the anti-gold asset (the dollar) is at a 15-month high, per Bloomberg.com reports today in a poll of its users in the Bloomberg Professional Global Confidence Index.
Meanwhile, the headlines at the WSJ and other business publications are reporting, perhaps with more than a touch of schadenfreude, that the king of the subprime shorts, John Paulson, has mistimed the gold market significantly. Here is one of several articles on the subject: John Paulson Gold Fund Said to Tumble 14% in Its First Month. Mr. Paulson has $250 million of his own money in the fund. Minimum investment duration is 3 years. The fund is, I believe, the single largest holder of the ETF known as "GLD".
I too want to be optimistic on Larry Kudlow's "King Dollar" and thus bearish on or simply uninterested in gold, which was my attitude from 1980 to 2001. Everything changed in that regard after 9/11/2001.
We learned that the bin Laden goal was economic ruin of the U. S. He has not failed.
We all want to pinch ourselves and simply choose not to believe that our rich country has created a fiscal nightmare. Out of plenty has come a California using scrip to pay its bills. Phony accounting rules in Big Finance and in D. C. We are given the Big Lie that the Federal deficit is only 60% of GDP, and won't hit a Greece-like level for 10 years or so. Ha! Why don't they try putting Fannie/Freddie on budget, plus a realistic estimate of the coming FDIC and FHA bailouts? (Plus smaller stuff such as unrealized losses on TARP etc.)
And let us recall that all workers get a Federal statement saying what their Social Security benefits will be. Where is the funding for those benefits?
Dollar optimism?
No. It's simply Euro and yen pessimism.
For now, the dollar may be less flawed than the above fiatsco currencies. But gold just sits there. It has no unfunded liabilities. Its supply cannot be gunned by a Fed that wants to reward its buddies who own the bonds of Big Finance companies. Gold rose to the level of the Dow, not the current level of the S&P 500, during the reign of the last Democratic president whose focus was jobs, jobs and jobs and who had an overtly easy-money Fed chairman (Jimmy Carter, till he was forced to install Volcker). Currently gold's price is closely tracking that of the S&P 500.
With the political imperative in the White House and Capitol Hill to retain power via money printing and pushing for economic growth, we can assume that just as in 1933-6 and 1977-79, price inflation is desired if it will bring higher employment levels (so the thinking goes, that it).
Deflationists such as Gary Shilling have great points, and Treasuries can rise in price even as inflation heads from around 1% to 3%, but until the Fed actually gets Volcker-like, I suspect that the articles about troubles in Paulson gold-fund-land are more likely than not signaling a bottoming action in gold prices. You should however worry if a year or three from now you are long gold and you start seeing headlines about what a genius Mr. Paulson has again been proven to be because his fund is up so much.
Most likely Mr. Paulson is trying to preserve his purchasing power via the anti-dollar, in the true hedgie spirit.
It is at core a conservative strategy. However, the Paulson fund buys stocks of producing companies as well as GLD. I am yet more conservative. I believe in going only for refined gold, 0.9999 fine etc., and not trusting that there is any value to gold trapped underground in ore form. That gold may go nowhere and may never be able to profitably extracted, and the company owning the mine may still have an overpriced stock even if it can remove the gold profitably.
With all the above said, gold is being advertised heavily on bubblevision, so there are clearly some cross-currents that to a skeptic raise the question of whether it is "too" popular right now.
Given a 15-month high in dollar optimism and a 15% sell-off in gold in 2 months to a level just above its 2008 highs, and a price only 25% above its prior cycle high price 30 years and one month ago, the bubblevision ads are not enough to scare me into selling. Gold stocks are not cocktail party talk, a better warning sign of a major top.
Along with John Paulson, Paul Tudor Jones and David Einhorn, I shall sit with a modest portion of my financial assets with the inert perpetually shiny metal and root for all the other assets to do so well that the gold does poorly.
Copyright (C) Long Lake LLC 2010
Saturday, December 12, 2009
John Paulson Apparently Really Hearts Gold
A blogger has estimated quite a factoid about the hedge fund manager John Paulson and gold in
John Paulson Likes Gold…More Than a Friend. Here are excerpts:
Based on several analyses of his filings, Paulson's wagering roughly 15% of his $30 billion hedge fund in the precious metal ($4.3 billion). His investment is spread out between ETFs, physical bullion and shares of gold mining stocks, but for the purpose of this discussion, we're going to look at them in the aggregate as representational of a bet on gold (which they are).
As can be seen in the chart above, Paulson holds more gold than many nations with individual populations in the millions and economies in the hundreds of billions. His reasoning for being so bullish is that there are roughly $200 trillion investable assets (in dollars) in the world, but only $800 billion of that wealth is in gold.
No guarantees, but I'd rather be joined by this Paulson (forget Hank) as a gold investor than be on the other side of any of his positions, especially an uber-long one that he has researched up, down and sideways.
Meanwhile, re short-term-ism, Mark Hulbert has a caution in Beware the Goldbug Infestation:
THE GOLD MARKET HAS suffered an enormous amount of volatility over the last few trading sessions. From its high trade on Thursday, Dec. 3, through Tuesday's close, Comex's spot gold contract shed $75, or 6.1%.
Unfortunately, according to contrarian analysis, we are likely to see more downside volatility over the next several weeks.
This sobering assessment can be traced to the high levels of bullishness that currently prevail among gold market timers. Current bullishness is higher, in fact, than on the occasion of each of the last four intermediate-term tops in the gold market.
Let's put Hulbert's info in a larger time frame. He goes on to say:
To put the HGNSI's current level in context, consider that in early October, which is when I last wrote about gold sentiment for Barrons.com, this sentiment benchmark stood at 32.2%, or less than half of where it is today. That low level of bullishness was a bullish sign, as I wrote then, suggesting that "higher prices are in store." (See Hulbert on Markets, "Climbing the Golden Wall of Worry." Oct. 8, 2009.)
Spot gold on the Comex stood at around $1,050 per ounce when I wrote that column.
Gold is not all that much higher already. Also, Hulbert cautions:
Let me hasten to add that this contrarian concern only applies to the short-term horizon -- the next month or two. That's because contrarian analysis, to the extent it works, is only a short-term market timing tool; my statistical analysis of the HGNSI shows that it sheds little light on where the market will be in, say, one year's time or even in six months.
Putting the above together along with some technical analysis that I am not at liberty to share, my working hypothesis is that gold probably has more downside action, perhaps under cover of a rising U. S. "fiatsco" (i.e. U. S. dollar loses value more slowly than that of other countries' fiatscos and thus the USD "rises") as the money-printing plus normal business cycle effects provide upside surprise on our economy, but that the gold price breakout above the winter 2008 highs (GLD around 100) was powerful and considering that it has already survived one chart test of said breakout as recently as late October, a one-month pullback from giddy breakout highs is entirely normal in the context of a larger move.
No matter where the stock market averages are, the Fed will remain "easy" all December, our housing market will remain dependent on Fed/government largesse, the Federal deficit will remain gigantic, unemployment will remain elevated, and thus all the political priorities of the Party of Government will work against sound money. Do you think that having apparently built a very large position in gold, John Paulson will suddenly sell his gold because it has dropped 10-20% vs. fiat "money"? Will David Einhorn say that he was bamboozled the way he could have said had he gotten AIG wrong as it was dropping (not that Einhorn was in AIG)? No. No way, no-how. If anything, they saw what I saw and trimmed their holdings at the top.
Now, anyone who has almost all of his/her retirement savings in gold is taking quite a gamble. This is not what I am advocating.
But if on a 5-year horizon, your choice is a T-note in which your $100 today will turn into $111 in 5 years, do you think it is likely that at some point within 5 years, gold will rise in price a mere 11% from what it is today? Heck, if you're a nervous holder, you can buy GLD and sell a call option at a bit over today's price and bring in 13% by agreeing to sell your GLD a mere 13 months from now. If it's not called away, you have 4 years to sell more options or just wait for GLD to at least get back to today's price and you will have beaten the T-note.
No guarantees, but a la John Paulson, David Einhorn and other superstar money managers, gold is at today's relative valuations a "forever" asset class within a diversified portfolio.
I went to zero on my GTU holdings over $48 and bought a core GLD position given what was then an overvaluation of GTU. These holdings have been added to as gold price collapsed recently. Given that I believe that gold (and GLD etc.) is now moving from weak to strong hands, I expect to increase my GLD/GTU holdings if gold continues to fall in price this month (I prefer GTU but want its premium over NAV to come in just a bit more).
Also, given the cyclical strength in the economy and my distrust of bank financial strength, I am inclined to increase my speculation in silver and platinum through direct metal ownership in ETF form. Note this is speculation rather than investing.
We may well be a bit late in the precious metals move, as we are 8 years from the bottom, but we are nowhere near a dangerous price level based on prior peak prices of these metals (but who knows what the future will bring!). Thus investors and speculators may have a comfort level with long-term ownership of these assets as I do, and as I had for stocks between 1979 and 2000 but have not had ever since the mother of all bubbles that peaked nearly 10 years ago.
Copyright (C) Long Lake LLC 2009
Monday, October 12, 2009
The Message of the Markets and a Master of the Markets on How to Allocate Assets
Skeptical minds are wondering why Bloomberg.com is running Rallying S&P 500 Never Cheaper in Europe on Dollar. I don't recommend that you read all of it. That would IMO be a waste of time. Its point can be summarized as follows: The U. S. stock market has been going nowhere in international units of money. The article is dangerous because it suggests that despite the massive inflation in asset prices of stocks, the media continues to flog them. What are we to make of the prominence given to an obscure financial researcher, as follows?
“The valuation for the market is still below normal levels,” said Jason Pride, director of research at Haverford Investments, which oversees $6 billion in Radnor, Pennsylvania. “We still believe there’s a fairly good, positive bias in the direction of the market.”
What is that valuation?
The MSCI World was valued at 27.7 times the earnings of its 1,659 companies in September, exceeding the S&P 500’s ratio by 7.75 points, according to monthly data compiled by Bloomberg.
In other words, global stock markets are at bubble valuations. The U. S., the epicenter of the latest global financial crisis, is merely at fully-priced valuations that were sustained for a while in the 1950s but still has emergency zero short rates in place because . . . supposedly there's a crisis.
Meanwhile, as I complete this post, GLD is up 0.80% and SPY is up 0.6%. Quietly, gold continues its outperformance. Someone is accumulating it and has been doing so ever since the U. S. began a guns and butter-type economy following the 9/11 attacks. In general, the collective accumulator is to some degree the public via exchange traded funds, but the signs of a peak in public enthusiasm for gold are not very visible. Check out the small ETF with the symbol GTU to see that it is only today even beginning to emerge from a bearish chart pattern of several months duration, despite the bullish configuration from the better known ETF GLD for quite some time. If the public were fully engaged, GTU should have been flying.
Technically, gold has no overhead resistance. Think stocks, circa late 1982 or early-mid Clinton years. Fundamentally vs. other asset prices, gold is neither overvalued nor undervalued. More fundamentally, the massive Federal deficit is a gift that keeps on giving. So, it is not hard to see gold moving toward a richer valuation, and possibly an over-rich one (think NASDAQ late 1990s). IF that happens, then it would be a "don't buy" or "sell". But that has not happened yet and may not.
To conclude with a quote from John Paulson (from Your dollars are just Monopoly money by Bill Fleckenstein), the hedge fund manager who made billions in 2007-8 largely from shorting subprime at the right time:
"What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think, with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."
If by 2012 it is Springtime in America again and Barack Obama is headed for a 49 state electoral sweep because the economy is growing and adding lots of jobs and he has justified winning the Nobel Peace Prize, and therefore my gold holdings have underperformed inflation, I will be so happy for my children and for the majority of my assets that are not gold that I will be a happier person than if times stay unsettled and I own gold that continues to outperform cash and stocks.
In other words, one does not have to be a "gold bug" to own gold. One simply has to ignore the spin from the MSM and focus on facts and preservation of purchasing power of one's mostly electronic assets we call money.
Copyright (C) Long Lake LLC 2009
“The valuation for the market is still below normal levels,” said Jason Pride, director of research at Haverford Investments, which oversees $6 billion in Radnor, Pennsylvania. “We still believe there’s a fairly good, positive bias in the direction of the market.”
What is that valuation?
The MSCI World was valued at 27.7 times the earnings of its 1,659 companies in September, exceeding the S&P 500’s ratio by 7.75 points, according to monthly data compiled by Bloomberg.
In other words, global stock markets are at bubble valuations. The U. S., the epicenter of the latest global financial crisis, is merely at fully-priced valuations that were sustained for a while in the 1950s but still has emergency zero short rates in place because . . . supposedly there's a crisis.
Meanwhile, as I complete this post, GLD is up 0.80% and SPY is up 0.6%. Quietly, gold continues its outperformance. Someone is accumulating it and has been doing so ever since the U. S. began a guns and butter-type economy following the 9/11 attacks. In general, the collective accumulator is to some degree the public via exchange traded funds, but the signs of a peak in public enthusiasm for gold are not very visible. Check out the small ETF with the symbol GTU to see that it is only today even beginning to emerge from a bearish chart pattern of several months duration, despite the bullish configuration from the better known ETF GLD for quite some time. If the public were fully engaged, GTU should have been flying.
Technically, gold has no overhead resistance. Think stocks, circa late 1982 or early-mid Clinton years. Fundamentally vs. other asset prices, gold is neither overvalued nor undervalued. More fundamentally, the massive Federal deficit is a gift that keeps on giving. So, it is not hard to see gold moving toward a richer valuation, and possibly an over-rich one (think NASDAQ late 1990s). IF that happens, then it would be a "don't buy" or "sell". But that has not happened yet and may not.
To conclude with a quote from John Paulson (from Your dollars are just Monopoly money by Bill Fleckenstein), the hedge fund manager who made billions in 2007-8 largely from shorting subprime at the right time:
"What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think, with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."
If by 2012 it is Springtime in America again and Barack Obama is headed for a 49 state electoral sweep because the economy is growing and adding lots of jobs and he has justified winning the Nobel Peace Prize, and therefore my gold holdings have underperformed inflation, I will be so happy for my children and for the majority of my assets that are not gold that I will be a happier person than if times stay unsettled and I own gold that continues to outperform cash and stocks.
In other words, one does not have to be a "gold bug" to own gold. One simply has to ignore the spin from the MSM and focus on facts and preservation of purchasing power of one's mostly electronic assets we call money.
Copyright (C) Long Lake LLC 2009
Thursday, October 8, 2009
In Tangibles
A nice, concise bullish post on gold by Bill Fleckenstein. The ending quote is from one of the obvious financial geniuses of our time, John Paulson, who made himself and his investors billions by shorting subprime residential real estate at the right time.
The more that New York publications such as The New Yorker lionize Wall Street's great friend Larry Summers, the more you should fear for the financial future of this country. (For a HuffPo critique of that article, click HERE.) And the more you should consider owning tangible things rather than derivatives of those things, including publicly owned stocks.
Copyright (C) Long Lake LLC 2009
The more that New York publications such as The New Yorker lionize Wall Street's great friend Larry Summers, the more you should fear for the financial future of this country. (For a HuffPo critique of that article, click HERE.) And the more you should consider owning tangible things rather than derivatives of those things, including publicly owned stocks.
Copyright (C) Long Lake LLC 2009
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