Gold...
Alright, here we go... impromptu poll. Everyone votes. One word only: 'buy' or 'sell'.
Gold at 740.
I say 'buy'.
Gold at 740.
I say 'buy'.
posted by Fresh at
2:48 PM
Thursday, September 27, 2007
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29 Comments:
I have the most bullish datapoint in the market, actually its not in the market b/c i am sure the market will tank when they find out that Chinese labor inflation is coming to the US very soon. AKA one of my retailers just told me NIKE IS CHARGING THEM 14% more next year for shoes & apparel....we haven't had apparel or shoe since the 1970s. If you look at gold and divide it by M2, M3, or Non-Financial Credit you see that gold is at dirt cheap valuations relative to history. I think the mean value is about 4x current levels and then remember you need to grow that by the 10% that credit grows by. I think 2.5yr target price should be about $3000 to $3500 range (aka 300% to 370% total return / 85% to 100% 2.5 yr CAGR).
BUY is my answer....remember stocks can buy 60% less gold then they could in 2001 meaning the market has underperformed gold by 10% to 11% a year since the market peak.
Also, i just did some more work and found out that gold has outperformed equities in the last 40yrs by 100bps, which is likely understated b/c indices have inherent survivorship bias that overstate the asset class's true performance.
BUY ON LEVERAGED BASIS>>>>>>NO USE HOLDING DOLLARS>>>>LEVEERAGE EQUAL SHORT ON DOLLAR MEGA LONG ON GOLD.
I am actually a hold. I am not buying at current prices because I have about a third of my worth and most of my retirement in gold and silver.
Although if I had to be pinned down, I would say long term buy, short term sell.
Another cash crop commodity getting hit by inflation:
http://www.canada.com/vancouversun/news/business/story.html?id=23c55bdc-8c4a-4431-8b90-62182dee83e5
Another interesting stat:
At $80 oil the U.S. spends 321 Billion per year on oil imports.
Since 911, Congress has approved 610 Billion in expenditures on operations in Iraq and Afganistan.
We have essentially spent two years of oil money on uselessness.
Given the responses, I must have forgotten how to count. Now that precedent has been set, I'll muck it up even more.
No opinion. In the short run, I think gold is dollar driven and I have no opinion on the dollar.
Question for Silver. Your retailer you cite, how much of Nike's price hike do you think they will be able to pass on to consumers?
not sure, they said they are passing it all on.
WHOA! Here we go...they are playing their cards & we will see if we either end up with massive inflation or else massive margin compression from current all time peak margin levels....either way its not good.
Redleaf is calling for a currency crisis due to the head fake credit crisis. Saying that Countrywide bypassed solvency and found liquidity. Genius.
I love that he focussed on Countrywide.
Buy.
Fundamentally, I'm bullish. Trade gold on the technicals. Always. Still holds true, it hasn't broken in a long, long time. Still only 14% above 65 week moving average. 23% is where it starts to get fishy, although in the major run a year or two ago it got to 40+% above it. If it gets to 23%, start trimming or if you are in the ETF write calls or something (if you can...I'm not sure)
NEW RULE:
If you are caught discussing technical analysis or qunatitative bullshit you receive a 2 month ban from the blog...Rich we have warned your ass about this before...remember this is the ASAP 2006 blog & we make the rules.
Another thing, real gold buyers don't trade in and out of gold (unless you are leveraged aka you are trading futures, which is by definition a tax inefficient method of investing but one that offers significantly higher returns...and losses for that mattter...but also warrants much more active trading strategy in the majority of situations. Anyways, I would say gold is someting that you buy and then buy more when the price drops because it is in a mega bull market that is only in the early innings of a massive up move. Who really needs to trade gold at 25% above moving average if moving average is like $680 when you know that gold is going to a minimum of $2000?????
If gold goes to 2000 and the dow is flat and the the cpi is flat. I'll make Brey the CIO of my new fund and Rich chief of anything he wants.
I was just at the Woodstock or capitalism midwest aka Pabrai's annual meeting in Chicago. I think I am moving to India after the event. So many hot Indian chicks so little time.
MK
Let's modify the BBrey no technical or quant rule. I wanna hear trading rules on commodities or currencies. No quant or technicals on stocks. If anyone ever quotes Elliot Wave or fibunocci stuff on a stock I will seak then down and impose medeval torture methods on them...
I want more Rich posts. I miss his blog. Bring on the technicals on stocks.
technicals on commodities and currencies is better than for stocks b/c there is no true intrinsic value like there is on asset, but look i assume everyone else in the market is looking at that same shit....how can you gain a competitive advantage from that? Its good to use as a gauge, but trading off technical analysis is a LT negative expected value technique.
As it applies to stocks:
1) fundamental and quant analysis are food and water. Doesnt always taste the best but its healthy. Just make sure you eat your veggies.
2) Macro/strategy is like alchohol. Its fun, good for socializing and in moderate doses, might be good for you. Just dont drive drunk or get addicted.
3) Technical analysis is like crack. It feels good, gets you through the day but highly addictive. And in the long run you end up broke and in the gutter.
If commodities have no intrinsic value I am jumping out this window. I do not understand that. Do stocks that produce commodities have intrinsic values? Does money have intrisic value?
I never follow that logic?
If everyone looks at the same shit, is fundamental analysis worthless?
I think strategy and the way you interpret the data (whatever the data is) is 100% of this game.
For instance I can talk until I am blue about housing data and some people still believe that housing is fine.
I can tell them all day about the operating leverage in rental companies combined with the financial leverage. I can show that they are the number one customers of Oshkosh. I can show the the financial leverage of that companies, and people think that China will save the day or that it will be fine.
All data is worthless to people who cannot compute it. I am not saying that I can. My marketocracy account is break even at best. But fundamental/technical it all there for there taking right?
i meant intrinsic value that can be calculated with some reasonably accurate forecast. Obviously commodities have intrinisic value, spoke incorrectly.
So the one word thing didn't really work, so I'll give my thesis.
We all know the gold story and the inflation story. Anecdotally, I am hearing about huge price increases (5% to 40%) in everything from Chinese goods to food to waste management to prisons to everything else I spend dollars on directly or indirectly.
But the Fed is cutting rates. Why? Because one item is deflationary... people's home prices. And it happens to be a front page issue. And it happens to be where most Americans' net worth is tied up. This is a highly political issue, especially with an election hanging in the balance.
I think there is phenomenal pressure on the Fed to try to do something for the consumer and the homeowner. This means further rate cuts, even though it is NOT what we should be doing.
This means a weaker dollar and more liquidity. Which means higher prices.
I'm with Ben in terms of being long. $2000 seems a bit ridiculous, but I suppose we shall see.
Ok, since this is my last post as I've been banned, let me take the time to say a few things:
1) We're all trying to make $$$ in the markets. However we're able to do it is all good. He who thinks his way is the only way is not much of a thinker.
2) Attitudes like, "when you know that gold is going to a minimum of $2000?????" generally wind up proving to be prior attitudes of broke men. Is 200% of your asset base invested in gold then? Put your money where your mouth is! (Besides, gold is still a very technically driven market, no matter what you way...) [having said that, it's hard for anyone with mass amts of money, Fido, etc...to do anything about it. But, for your PA, game on]
3) I understand this is a forum to talk a little shit and so on, so have fun...
3) My style's not like yours, so what. I like to scale in and out and never take 100% all-in or all-out approaches to positions. You can have a core position and lighten up when things are stretched.
4) BTW, Fresh, where do you come up with stuff like the bee stuff? Seriously, you must be an alpha generating machine. I'm stuck looking at boring ass media stocks that I can't seem to differentiate (for the most part) nor get excited about buying. Maybe some of the smaller ones (or the megacap one that y'all hate (GOOG) but nonetheless...it's pretty confining.
6) I want to be the Chief of Tourism at MK Management. Then I'll scout out the hotels around the world and test our trading platforms from them to ensure they're acceptable to do research from.
See ya on the 10x inferior '07 blog.
I think the threat of inflation is overhyped. I used to think it was a real threat but the massive investment going on in China, the housing bubble, and general overcapacity in many US industries lead to me to believe it is not a huge issue. The housing bust will constrain any wealth effect and without pricing power there is not much inflation. Rising wages in China wont increase export prices if there is excess capacity. This is a 180 from what I was thinking a year or two ago but I think I was wrong and arrogantly so as MK can attest to. Gold might rise because of a weak dollar, central bank buying (lack of selling) or demand from India and China though. Just my 2 cents and for what its worth, I think my equity investments are neutral to inflation/disinflation.
Cid, why don't you think the Chinese will pass through their higher wages? I would think that 6.5% CPI will be handled via higher wages that will inturn be passed on to you and me. The ultimately effect of that I am not sure but fewer imports from China is probably a good thing given the US current acct.
Anyone see that Paul's hedge fund got ranked 11 in Barron's top 50 HF. Nice work Paul
What Chinese businesses have pricing power? Put another way, if Kraft and P&G have a difficult time negotiating with Wal-Mart, how much clout will a chinese textile company have?
Additionally, all the capital investment is likely to create additional competition. Every new factory built, every new road to a rural village adds capacity. They will probably have to eat higher labor costs and suffer lower margins as they compete for market share. Granted this isnt an absolute but I would expect it to temper price hikes.
If people have data points contradicting this thesis, I am all ears.
What about all the crap that PG and others produce in China, those labors costs will increase is where I was going with that. The Chinese gov't has enough clout to to get wage hikes for those workers employeed with American companies.
RICH,
Not that DC isn't an alpha generating machine, but the bee shortage is kind of a well know thing brother. There have been articles about it in Business Week, Fortune, & Forbes, which are not exactly the places you first spot new ideas or trends.
You look at media huh? Buy NCMI.
It is true that much has been written on the honey bee phenomenon. That said, it is still under a lot of people's radar. I am not sure why. The impact could be minimal. But it could also be very significant.
Rich, I think you should keep posting.
NCMI is interesting. Too small for us but we did actually buy it in asap until MFed liquidated the fund.
Not sure what I think about them having to pay out 55% of fcf (if that's not the number my bad) - it just sounds shady, I guess. But I haven't done my homework on it like you, aside from having talked to media buyers who think the idea is interesting.
Anecdotally, I know that Wrigley's just made their first cinemercial. For whatever that's worth, but a major consumer brand co. shifting marketing spend to cinema would support the conclusion.
Blog Name,
Is the Chinese govt negotiating with P&G on the behalf of their companies or is P&G negotiating directly with some chinese supplier? I have no specific evidence but I would expect the Chinese to put a greater premium on full employment then on wage growth. And P&G can always move production to Poland or back to Mexico. Point being, if P&G, WMT and all the rest dont except price hikes then it just means the profit margins of the chinese exporter get squeezed.
Cid - I don't have enough evidence or exact knowledge but one thing, yes the Chiense want full employment but there will be even more unrest from the working people with 6.5% CPI cutting into to their miminal purchasing power and those people have greater pull than the unemployed, again this is anecdoctal talk. Also I don't see PG pulling out of China considering they have more sales generated in China than to WMT thus have production in that country in huge.
Anyway probably beat this thing to death
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