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goldminingXpert (29.46)

How Far Will DownWithInfidels Fall?

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16

March 20, 2008 – Comments (12) | RELATED TICKERS: GLD , SLV , GG

I'm watched with great interest as DWI has rallied to as high as #5 on the fool with his 2 sector bet plays: long commodities, short financials. As my industry of interest is gold, I saw DWI involved in all the stocks I follow, and he was long all of them, even though some of them weren't very good. Now that the commodities bubble has spectacularly and unfixably blown up, it is clear that DWI missed the trend change. His overall score has dropped 1800 points since the beginning of March. All of his 19 most recent picks are now in the Red. DWI was a nice story, but if you bet on a sector, you will eventually die by that sector.

Take note all you financials or homebuilders haters... not every company in the field will succeed or fail... just because half of our homebuilders will fail doesn't mean that every stock in the sector will fail. The gold bull is over, and while I am still long (in real money) a couple gold stocks, I've largely sold and gone home... Jaguar Mining (JAG) is my favourite stock and it has, of course, held up well in the recent sell off. However, the worse gold companies, like Randgold (GOLD) and Goldcorp (GG) are falling mercilessly. As gold is going to 700 in the short run, only the strong commodity plays will survive. Be careful about sector bets... I will soon be passing DWI in rank, and it isn't because of my amazing abilities.

If you still own the commodity funds... bail out fast, the 50 day moving average blew up for both gold and silver... still down another $1 an ounce on silver and $25 an ounce on gold to find any support.

12 Comments – Post Your Own

#1) On March 20, 2008 at 1:05 PM, lquadland10 (< 20) wrote:

Think again. Our money is made of air and your will need gold to trade with.

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#2) On March 20, 2008 at 1:13 PM, goldminingXpert (29.46) wrote:

All fiat currencies die eventually... the dollar isn't dead yet... if you bought gold in 1979, or last week of 2008, you will remember that painfully clearly. Don't marry a thesis, things change.

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#3) On March 20, 2008 at 1:15 PM, kdakota630 (29.56) wrote:

Don't call my wife a "thesis."

LOL!

Sorry, I couldn't resist. 

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#4) On March 20, 2008 at 1:28 PM, dwot (47.53) wrote:

I have fallen that many points in a month...

I'm not changing my way of thinking...  I exited in the fall with a plan to watch for about a year.  I will consider re-entry next fall, but before I do I will reassess what I think the state of the economy is first.

Meanwhile, I've been talking to myself in my last blog... 

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#5) On March 20, 2008 at 1:30 PM, camistocks (< 20) wrote:

This is a correction in an ongoing bullmarket that will last for 10 more years or so.

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#6) On March 20, 2008 at 1:43 PM, Gemini846 (48.98) wrote:

I'm going to loose on my GLD position I know that. I stayed in Freeport Mining too long and had to eat a loss there too.

I went short SLV and other commodities this morning but I'm not sure how much more they can fall.

I reshorted some financials including Fanny Mae and Freddy Mac. They are surging right now. I'm not convinced this financial rally is upon us. If it is there should at least be a pullback on Monday afternoon or Tuesday. If I think the market is in a long term rally at that time I'll close.

Homebuilders I think are about as low as they can go. I dont think they are going to come surging back, but I don't think they have much room to fall.

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#7) On March 20, 2008 at 2:03 PM, Harold71 (21.79) wrote:

Yeah I exited gld a bit ago ($94), fearing this down fall.  The rotation is on.

 The financials have probably bottomed for awhile.  Sounds crazy huh.  We did a nice panic sell on financials on that BSC fallout.  Then recovered nicely, now trending up.  So price action is starting to indicate a bottom.  If the financials bottomed for a few months, the market may done the same.

I don't think Dow 10K is in our near future (as some predict), and not till after November for sure.  Then all bets are off.  I predict a down/depressed stock market for the next decade, starting around Nov.  Don't believe me?  Watch it happen...

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#8) On March 20, 2008 at 2:13 PM, EScroogeJr (< 20) wrote:

He will fall all the way down to zero and then some. His two-pronged strategy consisted in shorting builders and buying gold. Now he is like a mountain biker racing happily at full speed when both his wheels fall off.

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#9) On March 20, 2008 at 3:08 PM, goldminingXpert (29.46) wrote:

lol, you got that right EScroogeJr... his score could go below 0--he has banked enough accuracy that he'll never fall into the bottom 20, but it is and will continue to be a stunning fall from grace.

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#10) On March 20, 2008 at 4:36 PM, XMFSinchiruna (27.47) wrote:

Mirroring Camistocks comments above.... I strongly believe that this is but a normal market correction within a secular bull market with several years left.  There is NO evidence that this is a broken bull.

Gemini 846... if I may say, it sounds as though your position is about as unenviable as I can imagine.  Shorting SLV at this stage after a 20% blow-off just sounds like suicide.  Sure, it's possible silver could go sideways here for a few weaks before resuming the bull... but SLV would be among the last things I would want to short... not that I short at all.

My target for Freeport McMoran, by the way, is $120 for 2008, and that has by no means changed this week.

I respect everyone's view, and I can see why this correction might look like the end of the bull as you're watching it unfold, but I advise anyone else thinking to run from gold and silver to think carefull about the underlying fundamentals that drove the bull in the first place, and whether you have seen a real reversal in those.

As for wishing for anyone's demise in CAPS.. I think that's just silly.  I think the beauty of CAPS is that we can share ideas openly and freely and learn from each others' mistakes as well as successes.  Sure, his posts are over the top with all his infidel-speak... but in real life he's probably losing real money, as I am this week... and I think it could do us all some good to have some compassion for our fellow CAPS members.  We have all seen some rough times for our portfolios... it seems the only ones getting rich are the JP Morgans of the world (in a wildly ironic repeat of history).  I just want CAPS to function as a community, and communities thrive on mutual respect and compassion.

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#11) On March 20, 2008 at 5:29 PM, goldminingXpert (29.46) wrote:

Sinchura... no evidence the bull is over?

How about that hedge funds can't get leverage like they used to and so they can't buy futures contracts? How about that fact that silver is down 20% this week? How about the fact that there is no particular geopolitical threat to raise commodities. A 20% drop in any other market is a bear market... admit it, the bull fling in commodities is over. Move on, try something else.

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#12) On March 21, 2008 at 11:38 AM, XMFSinchiruna (27.47) wrote:

goldminingXpert, I'm thankful for this opportunity to engage in a debate about this very issue, because I think it's crucial for so many CAPS members to interpret the events of this past week correctly.  With all due respect, I believe you are misinterpreting this correction completely. Not a single hedge fund is needed to support the price of gold.  Did hedge funds create this bull market by buying gold?  No.  This bull market in gold, silver, and commodities began when the dollar began tanking in earnest in 2002 as a result of increased money supply... an increased money supply that became so severe the government ceased publishing the M3 data needed to track it.  The bull market in commodities cannot be declared over until the underlying fundamentals that drove the rise in the first place have reversed... but they have done the opposite... the fundamentals are even more supportive of still higher prices than they've ever been before... more on that below.  But first...

Sure, silver is down 20% this week, but you have to zoom out in time a little to put that into perspective.  In the May/June 2006 correction, silver dropped more than 33% from $15 to below $10.  I think you'll have to concede that under $10 silver was a fantastic buy.  Gold dropped 20% as well.  Same thing here, only this correction will not be nearly as protracted as the last big one (it took 15 months that time to break back out over $15, the same timeframe during which the Fed rate was stable at 5.25%).  This correction will likely be over in a matter of weeks, as evidenced by the nationwide shortage in physical silver which belies the action in the paper markets.  Go to APMEX's website (www.APMEX.com) for an example.

Let's talk for a moment about underlying fundamentals.  As I stated above, gold and silver began their rise as a response to a weakening dollar.  It's important to note that most of the rise in the price of gold since 2002 occured when fundamentals were not nearly as strong as they are now!  Interest rates were rising steadily from June 2004 to June 2006, which normally would be considered a downward indicator for gold as it suggests that inflation will remain in check... but gold kept rising because the dollar continued to fall.  The noteworthy acceleration in gold's rise towards the end of 2007 coincided with the sharp cuts in the Fed rates, heightening fears of inflation on top of everything else spooking investors.

With that in mind, let's look at the events of the past week and consider whether any of them are supportive of the dollar or suggest that inflation will remain contained.  Quite the opposite.  The Fed introduced a new $200 billion facility in which it will accept toxic mortgage-backed securities as collateral for loans of U.S. treasuries.  That's on top of the $210 billion that's already been lent through the Term Auction Faility which began in December.  Throw in an extra $30 billion to back the Bear Stearns debacle, and you have $440 billion injection by the Fed since December.  We've become de-sensitized to such numbers... but that's a lot of money, and it will have a severe impact on the rate of inflation going forward.

Thanks to a well coordinated media and public relations blitz, and a corresponding smack-down of gold and silver by some of the very same banks that comprise the Fed (as well as some illiquid hedge funds as you correctly point out), they actually managed a tiny little bump on the US Dollar index from under 71 to 72.75.  A look at the monthly USDX chart tells the more accurate story though.

Foreign investors, currency traders, and foreign central banks are likely smirking at the current pr blitz to shore up the dollar, because they see that while our leaders' words point in one direction, our policies are completely contrary.  Unfortunately, the misdirected Fed actions, the continued de-leveraging of derivatives, and out of control spending by this administration (and others before) all combine to make the continued decline of the dollar unavoidable.  Because of the broad disconnect between the reality of the Fed's anti-dollar actions versus the pro-dollar media blitz, this correction in commodities will be shorter than the last big correction... the cat is out of the bag.

It might be a matter of days, weeks, or even a couple of months at the most, but gold and silver will surge again through their previous highs, and like the correction before... investors will come to see this event as the last best chance to buy gold and silver.  Corrections in a secular bull markets are gifts.

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