by JDH on August 20, 2011

Insanity: doing the same thing over and over again and expecting different results. – Albert Einstein

It was a fun week, if insanity is your idea of fun. Allow me to elaborate…..

The week started on August 15 with the anniversary of the of day, 40 years ago, in 1971, when U.S. President Richard Nixon killed the gold standard. So, I started the week with my thoughts on whether or not a return to the gold standard would make any difference. (Hint: with the politicians in charge, a new gold standard would not be guaranteed to do us any good).

Every fiat currency in the history of the world has ended in failure, and yet politicians continue to believe they can continue to print money with no tether to reality, with no ill effects. That’s the classic definition of insanity, if ever there was one.

But wait, there’s more! It’s not just the politicians that are insane.

Did you read about that woman in Arizona who wants to see if she can eat enough crap to get her weight over a ton! It’s true; her goal in life is to set the record for morbid obesity. To quote the article: “The unemployed mother … cannot work because of her weight.” Ya think? So presumably she’s on welfare, supported by the state, in her quest to become the fattest person ever.

That’s insane.

Speaking of food, did you know that famous junk food eater Bill Clinton is now vegan? Is that insane, or what?

Enough nonsense; what about the markets?

Strangely, the only thing acting completely sane is the markets. We have record deficits, high unemployment, and dramatically lowered consumer confidence, so you would expect the markets to be tanking. And they are.

After peaking around 12,750 thanks to QE2, like a kid crashing from a sugar high the Dow is now below 11,000, and I see no reason why we won’t see 10,000 in short order. 9,250 is also a possibility.

Of course when that happens the government will start QE3 to reinflate the market, and that’s when the true insanity will begin.

Also not surprising is the action in gold. You would expect that during a currency race to the bottom, gold would do well, and indeed it has.

It would appear that $1,500 is now a major support level, so while a correction from these lofty heights would not be unexpected, the longer term trend is obvious.

(Speaking of unexpected, you remember those 2011 predictions some of us made at the start of the year? On the JDH prediction page you will see that for September 30 I predicted gold at $1,800, and the Dow at 10,000. It would appear that even I, the Great Cynic, was not cynical enough…….).

Interestingly, there remains some insanity in the gold stock market. Let’s review. Here’s gold:

And here’s a senior gold producer, AEM.TO – Agnico-Eagle Mines Ltd.:

From $87.50 in December down to $52.50 this month, it has not been a fun ride. Clearly gold stocks don’t follow gold exactly in the short term. (I wish they did; I picked the trend correctly, but my investments in stocks have under performed).

Over the medium to long term, however, the stocks will rise, so I’m assuming that we will be playing catch up this fall, and that’s good news.

Of course some stocks have done better than others, which is why, for example, I’m glad I own FNV.TO – Franco-Nevada Corp.

So what’s the plan from here?

I wish I knew.

I was hoping for a drop in gold so I could load up; obviously that hasn’t happened. Fortunately along with cash I maintained my core position, so I have participated in the recent rally.

I don’t expect to do much buying this week, although I am tempted to grab a few puts on the market in general. We’ll see what kind of mood I’m in on Monday.

Thanks for reading, and see you next week, assuming I don’t go insane before then.

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