Tell me what you think

[JDH]

Many of you often comment on what I post in my weekly commentary, so I thought I'd create a board to allow you to do so.  You can read this week's commentary here: http://buy-high-sell-higher.com/2008/09/27/september-27-2008-barber-shops-and-gold/

Then, agree or disagree, let me know what you think.  If you disagree and think I'm nuts, great.  I won't delete negative comments, provided your reasoning is given.  I don't really care what you think; I am more interested in why you think what you think, so give us your thinking so we understand your point of view.

[richmanch]

I thought we were going to get the story about how everyone in the barber shop was talking about buying gold--now that would be a different message altogether. I agree with your analysis, more or less.

On the one hand, aren't we supposed to buy stocks when the outlook is the bleakest? I have a retirement account that is very diversified and pretty aggressive, and probably beaten down (I'm afraid to look). But it's only about five years old, and I am going to be holding it and buying into it every two weeks for the next 25 to 30 years. So in the grand scheme of things, this bear market is perfect. I am not going to try and overmanage that thing. But how many of our investments have that long of a horizon?

I keep hearing how this crisis is different. Check out this quote: "J.P. Morgan forecast a 58% peak-to-trough slump in California home prices if the U.S. enters a severe recession. In Florida, house prices could fall 64% in such a scenario, while nationwide prices could drop 37%, the bank said." If houses fall that far in Florida, it's going to completely deflate consumer spending. 
Main street has been largely unaffected by the crisis, and I think that's going to change. I agree that RIMM was oversold and worth a chance, but I'd be pretty careful with consumer driven stocks.

I've been accumulating gold mining stocks, and am going to research some more this weekend, especially some of the juniors. But gold doesn't always do what it's supposed to do, so I'm wary. I can't afford to get a quick 30% "haircut." But let's face it. If gold was $1200 this weekend, and all the stocks were at new highs, we'd be falling all over each with recommendations and predictions of how it's going to 3k.

[Bottomfeeder]

JDH that was a real good commentary again, I thought.

My issue with gold is that the world functions on credit, and for the forseeable future will continue to do so.  I like gold as a safehaven, I really do, but for me I am looking for a return on my cash, preferably a positive return, for a change!

The problem that I have with the gold miners is how they have traded vs. spot for the last 12 months or so, which has been down.  Should the markets enter a deeper bear market, I am not convinced that the miners will hold up and trade on their own.  Instead I think they will trade like the broad markets which is and would be downward.

Physical gold and silver, hey I get it, but I just dont have the committment to do it.  It just goes against my nature I guess to buy and hold physical things for a long period of time, whether it is a house, or just about any other asset.  I sell em when they pop too high.

That is what makes me an ETF guy primarily on the trade.  I have about 5% in gold and silver miners as my safe haven, mostly in speculatives, hopefully for that homerun.

I think that there are about to be some major changes coming from our government as it relates to credit reporting agencies and the mark to market requirements, which will stop all this insanity that is occuring with shotgun weddings and government interventions.

Remember, most of these crappy assets that are wreaking havoc on our markets, ARE STILL PERFORMING, yet the markets are having to respond or treat them as NON-PERFORMING.  If the changes in policy do not occur, than it will turn out to be a self fulfilling prophecy. 

My bet is that they change the mark to market policies(from quarterly to at least annually), begin to exclude stock price in credit rating profiles, and lower cash requirements for investors in banking institutions.  All of which will stop this insanity.

In the mean time the government is picking up HUGE assets at deep discounts, that upon re-inflation, will make our next president (whoever that is) look like they know what they are doing.

Remember, this is not the US government giving 700B for fun, they are actually acquiring assets for it.  I think we are going to see a big upturn in the stock market very soon, probably after the election.

[MetalMeister]

JDH,

I think you have chosen very good mining stocks.  They are not the ones with the most leverage but they are sure bets to loosely track gold and silver.

Investing in GLD and SLV are a mistake because I believe that they will default when the going gets rough and people will not be able to get bullion out of them.  I believe they are also hedged.

However, I think you may be missing the most important point.  GLD and SLV do not track the real price of gold and silver.  Go to any coin shop and you will find gold and silver selling way beyond the prices of GLD and SLV.  Sure they still have the spot prices as a basis but the premium are rising very quickly.  Someone told me yesterday that silver eagles were selling at $4.29 above spot in some places.  That is a big premium!!!

You are also missing the point on physical gold and silver.  Physical will decouple completely from the ETF prices and sooner than you think.  The best bet is to have possession of physical gold and silver.

If you want junior mining companies then best place to find them are:

silverstockreport.com and silverbullreport.com which cost $50 and $60 per month, respectfully.  The price is cheap for good analysis and timely information.

I don't know about anybody else here, but I am fully invested in gold, silver, and uranium.  Any additional monies I am receiving are going to the purchase of physical gold and silver, especially silver.  I have quite large bullion supply right now and getting larger.

Cheers!

Marshall

[jjj000]

well... I agree with the stubbornness aspect of the male psychology, that's for sure   No doubt applies to investing, too.  Pride, stubbornness, hubris... all make for bad investing decisions.

I'm still not convinced the time is right for gold, however.

US economy is in the crapper, that's for sure.  But the ripple effect is what I worry about.  US will be the first ones to bottom out.  I suspect it will spread outward like a disease.

Eurozone will be the next to offer bailouts is my guess.  It's not like US is the only central bank that prints money out of thin air.  We just perfected the game.  The others do it, too.

So I think it still all goes back to the importance of EUR/USD.  Commodities would drop again, as USD goes up relative to a sinking Euro - a Euro that still has a much farther way down to go than does the USD.  Gold may have temporary blips up on bad US news, but I think its trend is still down.

No one mentioned it on the board, but this week's COTs report showed a big CLOSING of long GOLD contracts by commercial traders [now 172K contracts long vs. 308K short].  A substantial increase in short contracts were opened.  We'll have to wait and see until the next Bank Participation Report comes out to see if it was these "3 US banks" at work again.  But last time the futures contracts were this far to the short side, gold took a beating.

But the "smart" money in gold is traditionally the commercials, not the retails/individuals - who are considerably long right now [146K long vs 33K short].  So if the retail/individual is buying up all the gold now... and there are shortages at all the sellers... sure, that could mean that time is running out to buy and the rush is on.  But it could also mean there are a lot of people about to have their behind handed to them in a gold hat   As has been observed many times before... often times the "rush" to buy indicates the top of the bubble.

So... for me... I think the trend is still down for gold.  I think world economic growth grinds to a halt.  Oil comes down with that.  All commodities follow.  China market will crash as growth peters out.  Brazil market will crash as commodities prices flounder.  Euro crashes on their own recession.  Middle East crashes on dropping oil and out of control inflation.

It looks bad.  It looks 2-year slump bad.

With the bailout in place... it might just extend the bleeding for the US... but provide us a "soft landing".  And as other world economies face their own issues... the US might start to look pretty good again... especially with all this private investment from Japan, Singapore, etc. flowing in to help prop us back up.

Just my opinion... wtfdik

-------------

PS - chart on RIMM looks scary to me.  I see 50 as an easy possibility.  I would hedge that long position with some Jan 40 PUTS.  In fact I might pick some of those up on Monday if RIMM bounces.

In this market... I think it's a little crazy to play against bad news on a stock.

[Depleted]

JDH - Nice story on the Barber shop. I think most men fall into that category of sticking with one stylist. I think it has more to do with reason and convenience than being trendy and having your hair cut by the fanciest place in business at the time. Men, as a generalization, are more mythodical, and tend to spend more time on things that seem more important to them, also.
The perfect haircut is not in my area of great importance, but a good one is. period.
P.S. I think we have all had too many haircuts in the past year or so, and we should maybe let out hair grow a bit longer...
On to the markets....
I have tried in the past to make predictions on future market confditions after reading about all the major factors that could influence the outcome, and that is precisely why I use TA so much. For every analyst that advises one thing, there are one or two others that contradict what you just read...Your gold chart says it all. Gold is in a short term downtrend, until it reaches the long term uptrend line. Near that point I would postion myself more in gold and wait for a breakout, but not before. The trend is still down, until it changes. Everyone has an opinion about it, but the chart doesn't lie. I wait for breakdowns, and breakouts, and if it hasn't done it, well, then it hasn't done it. I do suspect though, that silver will have more upside than gold, becasue I think it is even MORE undervalued right now, than gold is, and their spread needs to be closer. So if gold jumps, I am expecting silver to really jump.
One important lesson I have learned over the years is to only buy into a confirmed trend, and then place careful stops to protect downside risk.  To trade against an existing trend is usually quite deadly.
If the trend is not there for you, then stay on the sidelines, and wait for it to change, or look for some other bus that is going in the right direction. I cannot forsee the future, because it will do what it wants, when it wants.....I can only hope to react swiftly to it, once it's trend is confirmed..... 
So, on that...I am sitting and waiting for your election to happen so we can get on with it.
 ...cheers...d
 

[project1947]

I want to say ffrom the start that the old saw about the printing presses running full stream is incorrect.  Fed computers are creating accounting entries as fast as possible.   

But that does not mean there is suddenly a lot of new money!!!!

About $2 trillion dollars (conservatively) has gone to money heaven.  It doesn't exist any more!!!  It disappearing faster than the Fed can create it.

That is why cash is king.  People, funds, banks, etc. have been selling everything to raise cash.  Those that have cash have been trying to sock it away in Treasuries.

Everything in the economy is leveraged.  Great on the way up, but lousy on the way down.  Just a little selling in some areas shows up as big loss of value in prices of commidities, equities and any assets.

Many institutions have been "marked to market" by the market.  Lehmann, Wash Mu, AIG. etc.  Others are just waiting to be taken out and shot.  In this kind of atmosphere everything is under pressure.  The same guys that have huge amounts of toxic mortage assets, are selling off all the good stuff they have because they can't get rid of the bad stuff. 

PM are being manipulated to the max.  Paper gold and paper silver don't really exist much like accounting entries on many bank accounting sheets.  Futures prices don't reflect the actual gold and silver to satisfy the contracts.  For about a year now it has become harder and harder to find phyiscial gold and silver.  The US Mint running out of blanks is an example of this.   If the Hunt brothers were around now, the sellers of PM short contracts would be jumping out of buildings now.  I think the shortage of gold and silver coins and small bullion bars reflects the actual value (or more accurately the supply/demand situation) of PMs and the futures prices are a fiction which will one day have to be resolved.

 The two year gold chart you showed remains in down trend.    Maybe it is brave to go against right now, but it might also be very foolish.  When gold was around $1000 I sold calls on all my PM holdings.  Earlier this month I closed all of them out.  I expect gold to go up from here, but in a market crash nearly all stocks get creamed including PM stocks.  I wouldn't touch RIMM with a six foot pole here.  How many more new costumers can they add at this point?!!  I think their high price was discounting future growth which probably doesn't exist here in this envirnoment.

[Bottomfeeder]

Well welcome there 1947!

That was some introduction you just made, very well said.

I think you are right on with the dollars in heaven.  That is exactly what is going on, institutions need DOLLARS, right or wrong, to keep their companys ALIVE.  That is going to keep the dollar going up in my opinion.

You are also right on with gold too.  It is in my opinion a bet that could go either way at this point, I am looking down.

That is the way the world works without a gold standard unfortunately.

[jjj000]

Agreed... great points to consider,  '47.  Thanks for joining the fray.

[Uboat]

[ 

img][/img]

Stashing away gold in a bank safe anywhere might not be a good solution if the bank collapses.

On this photo there is plenty of gold outside the store.

[Uboat]

another try with the gold photo

[MetalMeister]

Exactly.  I along with Ted Butler, a friend of mine, recommend storing gold at home.  The only exception are 1000oz silver bars which weigh 70-75 pounds and you might want to store them in a private depository.  I store mine at home because the 52 year old man is in good shape.

[ 

img][/img]

Stashing away gold in a bank safe anywhere might not be a good solution if the bank collapses.

On this photo there is plenty of gold outside the store.

[jjj000]

PS - chart on RIMM looks scary to me.  I see 50 as an easy possibility.  I would hedge that long position with some Jan 40 PUTS.

These puts are up 1000% since then, as of this morning.

- jj

[whatsupdoc]

You can buy gold futures on the Comex, and most buyers never take delivery. You are buying
a piece of paper. So it’s fairly easy to manipulate the market.

Yeah, most buyers never take delivery. However, here is an interesting piece that suggests
investors should play the cartel at their own game by using the futures market to take
delivery of gold and silver that is offered a discount rate compared to the prices in the
real world.
"Gold in the hands of the public is an enemy of the state"
http://news.goldseek.com/LemetropoleCafe/1223914271.php

Here are some excerpts.

It appears that various governments and bullion banks are intentionally making it harder and
harder for individuals to buy physical gold. The US mint is restricting gold coin sales. The German
banks are saying they don’t have supply. Scotiabank says they are out. They are not banning
people from owning gold, they are just making it very difficult to buy because they say they have
nothing for sale.

Therefore, prices of gold and silver in the unofficial markets are taking off all over the world. The
price of gold in the real world is close to, or over, $1,000 per ounce and silver is $15 to $20 per ounce.

Thus, it is time for investors to learn, and wake up to, how to buy gold and silver on the cheap. The
Gold Cartel is GIVING AWAY EASY MONEY to anyone willing to take the time to learn what to do.

We know demand for gold and silver will soar in the future as supply becomes more restricted …
even mine supply is on the wane. So the prices for gold and silver in the real world are not going
to come down in the months, even years ahead … which means investors can lock in 20%+ profits
by taking delivery of gold and 50% to 100% profits in silver. All you have to do is take delivery and
then offer the gold and silver for sale in the free market at prices below what people are able to buy
the stuff on EBAY, etc.

[whatsupdoc]

JDH - Interesting that you mentioned  "Fidel Casto would be proud!",  in your recent piece
"The bottom? Really?"  because today in counterpunch.org  there is an article written by him:
"Racism, Obama and the Fall of the American Economy, The Law of the Jungle"
http://www.counterpunch.org/castro10132008.html

Here is an excerpt of his article regarding his thoughts on the current financial situation:

We might be wondering about the contribution of Bush´s administration to Socialism. But, let´s not
entertain any illusions. Once the banking operations go back to normal, the imperialists will return
the banks to the private business as some other countries in this hemisphere have already done.
The peoples always foot the bill.

Capitalism tends to reproduce itself under any social system because it is based on selfishness
and on man´s instincts.

The only choice left to human society is to overcome this contradiction; otherwise it would not be
able to survive.

At this time, the ocean of money being poured into the world finances by the central banks of the
developed capitalist countries is dealing a hard blow to the Stock Exchanges of the countries
which resort to these institutions in an effort to beat their economic underdevelopment.  Cuba has
no Stock Exchange. We shall certainly find more rational  and more socialist ways of financing our
development.

The current crisis and the brutal measures of the US administration to save itself will bring more
inflation, more devaluation of the national currencies, more painful losses in the markets, lower
prices for basic export commodities and more unequal exchange. But, they will also bring to the
peoples a better understanding of the truth,  a greater conscience, more rebelliousness and more
revolutions.

We shall see how the crisis develops and what happens in the United States in twenty-five days.