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goldminingXpert (29.38)

Dear TMFSinchiruna: I Was Wrong

Recs

74

June 24, 2010 – Comments (22) | RELATED TICKERS: GLD , SLV , UUP

I've been reflecting on the past recently. As part of that, I've read through my older blog posts. Honestly, I'm kind of disappointed. I noticed two things. A) I've been quite immature at many times during my stay at CAPS, and B) I'm wrong far more often than I'd like.

My discussions with TMFSinchurina have shown both points A and B to be true quite well.

As those of you who've been here awhile know, I've been bearish on gold for awhile. Since at least the middle of 2008, I'd generally had a negative, or at best neutral, outlook on gold. This despite ever-increasing prices in the metal. I based this belief, particularly since summer of 2009, on a belief in the likelihood of a large dollar rally. I quote myself from September 2009 (comment #45) -- http://caps.fool.com/Blogs/just-marking-time/264283:

"I expect somewhere between 81 and 86 on the dollar retrace. The dollar's fundamental health is continuing to decline, so a rally to a point as high as last year (89.6) would be unexpected. However, the anti-dollar crowd is almost as fervent as last year, so there is a lot of amateur money, particularly in the FOREX market, that is short dollars but will cover/be margined out as the dollar starts moving higher. Basically, I'm calling for a global short squeeze on the dollar -- particularly since it has been used as a carry-trade funding currency, when the dollar starts to rise and the assets purchased with the carry-trade funds (e.g. US stocks) start to fall, you're going to just hammer the plethora of hedge funds running that trade on both directions of said trade."

This indeed happened. We almost reached 89.6 on the US$ index, and we precisely hit 1.17 which was my target for the Euro which I called for in that same post. That said, my calls on the stock market as a whole and on gold in particular were dead wrong.

What happened?

I didn't forsee the breaking of the correlation between the U$D and gold (or the stock market). It appears that instead of fleeing from all other assets into the U$D and treasuries, investors instead abandoned all assets perceived as risky, and fled to the usual suspects, which did include U$D and treasuries but ALSO included the yen, the commodity currencies, and some of the metals (gold and silver anyway.) I also missed, and it's quite obvious in retrospect, the increasing fears of sovereign default. I should have, but failed to realize that a Euro at 1.17, as I had forecast, would set off panics about the credibility of sovereign debt across the world.

While I was right about the dollar, I missed the broader picture of what a rising dollar would achieve. And being right on one premise (the dollar), I arrogantly lashed out at critics who rejected my misguided conclusions reached from that correct premise. In fact, TMFSinchiruna was right with his calls for gold to keep rising due to various other reasons that did in fact play out. I was wrong and he was right, and I apologize for the arrogance I used in dismissing his spot-on analysis.

22 Comments – Post Your Own

#1) On June 24, 2010 at 2:48 PM, cbwang888 (25.81) wrote:

USD may have peaked already.  Current quote 85.62. 

I'm with TMFSinchiruna on gold will continue to rise.

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#2) On June 24, 2010 at 2:51 PM, binve (< 20) wrote:

GMX,

Wow man! This is an *incredibly gracious* post! I have always admired you for your blogging and your obvious intelligence and elocution on many of the topics that we have agreed on (despite a few topics that we disagreed on). But today you have shown how much of a class act you are. Bravo my man!!

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#3) On June 24, 2010 at 3:23 PM, outoffocus (22.81) wrote:

OMG Gold must've topped!! Just kidding =)

+1 Takes alot of strength to admit when you're wrong. Takes even more strength to admit when someone else is right.

Sinchy is very passionate about commodities and precious metals, almost to the point that he may come off as a "goldbug".  But when you dig beneath the surface you see that he puts alot of time and research into commodities and understands the industry probably more than anyone else on this site.

I admire both GMX and Sinchy and both are very passionate with their beliefs.  Makes sense that if theres disagreement, the discussion can get alittle heated. Glad you're able to make amends.

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#4) On June 24, 2010 at 3:28 PM, kdakota630 (29.47) wrote:

Great post, GMX.

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#5) On June 24, 2010 at 3:43 PM, JaysRage (88.96) wrote:

I echo binve's sentiments.    This post is pure class.   I agree that both TMFSinchiruna and goldminingXpert are two of the finest in the realm.   

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#6) On June 24, 2010 at 3:57 PM, cthomas1017 (82.98) wrote:

My forecast...  GMX reaches parity with gold.

 +10 Recs.  (And a prediction that you have just crossed a threshold to a new level of investment perspective.) :D

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#7) On June 24, 2010 at 4:06 PM, XMFSinchiruna (27.36) wrote:

GMX,

As binve says above, that is incredibly gracious of you to say, but there are several things I'd like to say in your own defense. :)

1. While you may have underestimated the strength of the broader bull market trend in precious metals, you continued to operate effectively within the shorter time-horizon moves that comprise your own personal trading style. With an amazing accuracy rating of 87.76% over a total of more than 1,800 picks, the unavoidable truth is that when it comes to picking stocks, you're not wrong very often.

2. We were all pretty fired up back in 2008 when everything was falling apart around us. When immense manipulation combined with a counter-cyclical dollar rally to rip gold and silver prices to shreds, and indiscriminate selling of equities left valuable mining shares in the gutter, I too was certainly in a frame of mind to jump down the throat of anyone who bashed gold and silver while they were down in the dumps. Rationality was scarce in the markets. We were both feeling the strength of our own convictions in a complex macroeconomic landscape, and we butted heads accordingly, but as far as I'm concerned we buried that hatchet long ago.

3. I never wanted to be right. I've always said I would rather lose every penny I've invested and be proven wrong about what I was seeing in my fundamental analysis of the macroeconomic landscape, then to turn a profit while watching my country and its people suffer the ill-effects of seemingly infinite deficit spending and the unslayable derivatives beast. I invested according to what I saw coming, but have always hoped I would be wrong.

4. I've been wrong plenty, too. You can't spend as much time as you and I have around these blogs sharing our every thought about every major financial issue without racking up our fair share of misguided calls. You'll recall that when you called a top in equities last Spring/Summer, I was right there with you expressing my wholehearted agreement. I grossly underestimated how far momentum and misinformation can carry a market beyond its respective fundamental foundation. When the March 2008 gold and silver correction hit, you were correct to sound the alarm. Although I have recovered most of the hit therefrom, many of my mining share positions from 2006 and earlier remain in the red even to this day. I have no regrets about having held through the correction because I will live and die by the fundamentals, and I knew that fundamentally the bull market would continue for many years, but by not raising cash on March 20 I missed out on the deals of a lifetime in those October 2008 deals in mining shares (like SLW at $2.51!!). I may have been right about gold's bull market remaining intact despite the deep correction, but I totally underestimated how deep the correction would run once it got underway.

5. The strength of this site emerges through the respectful clashing of diverse ideas and perspectives. Once we stopped attacking each other as foes, I think many of the discussions we had must have been extremely valuable for those Fools who were busy trying to formulate their own ideas about complex and dynamic topics. You have brought tremendous value to this site through the years, and I look forward to both of us continuing to call the shots as we see them goinbg forward ... whether we agree, or we agree to disagree. :)

Fool on!!

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#8) On June 24, 2010 at 4:26 PM, imobillc (< 20) wrote:

Great post and even better response!

1+ REC

Mars 

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#9) On June 24, 2010 at 4:54 PM, jesusfreakinco (28.82) wrote:

As far as I am concerned - you guys both rock!  I have learned a lot from both of your blogs.  No one gets is right 100% (or even 70%) of the time.

Sinchy - I think many of us underestimated the ability of the rest of the world to buy into the US lie.  It seems the squid is able to do a much better job fooling the rest of the algos than any of us imagined.  One day, it will all come crumbling down...

The one huge blessing is I have been able to get more physical over the past year and feel properly hedged (or close to it...).  I have been feeding friends and family a steady diet of article from CAPS and other place (ZH admittedly is my favorite site).  Some of them have also picked up some physical and been able to make some other significant moves.  So... in the end, I think I am glad the squid bought me another year to prepare.

Great performance by gold today, eh, in the face of OE.  Looks pretty promising going forward...

JFC

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#10) On June 24, 2010 at 5:00 PM, zCreator (94.82) wrote:

You just gained my respect. It takes a lot to admit ones wrong.

+1 REC

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#11) On June 24, 2010 at 5:08 PM, JakilaTheHun (99.93) wrote:

A simultaneous rise of gold and the US$ can actually be well explained by broader currency distortions.  The China Dollar peg artificially suppresses the value of the Yuan.  This keeps the US$ artificially high, but it also boosts demand for gold, as the Chinese try to find a way to protect themselves against their own weakened currency. 

The situation with the Euro is similar.  It has redistributed wealth in Europe, creating a disaster for the PIIGS, while Germany/Austria/Netherlands/Finland all benefit.  The end result is extreme economic instability.  This benefits gold, as well.  

The idea that "fiat currencies" are all being destroyed isn't really accurate.  What's actually happening is that between the Euro and the Chinese Dollar peg, the entire world economic order is being thrown into chaos.  The artificially weak Yuan and global instability increases demand for gold. 


While some might reason that relaxation of the Chinese currency peg would help gold by weakening the Dollar, this isn't necessarily true.  Between the US and China, it's the Chinese that are the primary buyers of gold; not the Americans.  By strengthening the Yuan, gold suddenly becomes less attractive to the Chinese populace, weakening demand.  There might be some increase in demand in the US, but it likely would not be as large as the offsetting decrease in China.  

That said, China and a large chunk of East Asia continue to use mercantlistic ploys to distort currency movements and the Euro still exists.  I suppose it's possible that gold could continue climbing.  That's how bubbles work, after all. 

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#12) On June 24, 2010 at 11:28 PM, Tastylunch (29.22) wrote:

Well done GMX!

You've always been smart, but being able to be civil with those you disagree with can be a lifesaver in life. It can prevent needless fights and somteimes allow to recognize when you yourself may be mistaken more quickly. It's saved my butt more than a  few times.

That and being honest about your mistakes is critical to survive in the market!

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#13) On June 25, 2010 at 1:44 AM, BigFatBEAR (29.13) wrote:

Woohoo!

The inner-child of divorce inside me was getting tired of playing peacemaker.

You've matured, good sir.

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#14) On June 25, 2010 at 2:14 AM, TMFUltraLong (99.95) wrote:

Damnit... way to go GMX... now I'm officially the most arrogant person on CAPS.....

Binve.... where are my macaroni pictures?

UltraLong

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#15) On June 25, 2010 at 3:05 AM, ralphmachio (24.62) wrote:

Hey wait, I was wrong about something, I just forgot what it was...

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#16) On June 25, 2010 at 8:35 AM, binve (< 20) wrote:

UL,

Right here my man :) --- Mmmmmmm.....UltraLong Macaroni

 

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#17) On June 25, 2010 at 5:54 PM, mickeyc21 (29.38) wrote:

Wow - congrats!

This has to mean gold is getting ready for a pullback though... 

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#18) On June 26, 2010 at 6:57 AM, APPLERD (< 20) wrote:

You may be correct in your self reflection. I saw the way you responded to a citibank investor recently.

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#19) On June 28, 2010 at 10:13 AM, goldminingXpert (29.38) wrote:

citibank investor

That's right up there with "jumbo shrimp" on the list of leading oxymorons.

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#20) On June 28, 2010 at 6:12 PM, XMFSinchiruna (27.36) wrote:

goldminingXpert

citibank investor

That's right up there with "jumbo shrimp" on the list of leading oxymorons

100% agreed. :) And BOA's no different.

http://www.fool.com/investing/general/2010/01/21/the-worst-stocks-for-2010-bank-of-america.aspx

 

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#21) On June 30, 2010 at 11:27 PM, starbucks4ever (97.50) wrote:

GMX,

After your post I know that the time to short gold for real has finally arrived. Today I'm officially calling the top of this gold market. 

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#22) On July 01, 2010 at 12:01 AM, goldminingXpert (29.38) wrote:

Gold's up $7/oz since I put up the original blog post. Not that I'm using it as a timing indicator, but if you wish to, more power to you. Good luck with your trades.

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