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XMFSinchiruna (27.51)

Now Suddenly Everyone Wants to Slow it Down

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64

May 06, 2010 – Comments (35) | RELATED TICKERS: CEF , SLW , AXU

Our equity markets are broken, and in need of urgent repair.

This evening, at least, that's the consensus.

Everyone on the tube is spewing as though this was some kind of one-day revelation that showed no prior warnings whatsoever. The lack of intelligence pervading Wall Street and the media that covers it is truly astonishing. Cramer thinks the 900-point decline is "fake", and therefore "doesn't count".

Common sense dictates that nanosecond-trading supercomputers have long presented a systemic risk to capital markets due to their inherent impossibility for human oversight. Common sense also dictates that these same supercomputers render the equity markets an entirely unfair playing field for the retail investor that lacks these multi-billion-dollar systems and their complex trading algorithms. When I pointed out these inherent problems last July, I was amazed by the sheer number of even my fellow Fools who came to the defense of the status quo with statements like "I think it is a stretch to say that the use of supercomputers qualifies as market manipulation".

I responded:

"Think, Fools ... is it healthy for the (few remaining) major brokerages and/or their hedge fund kin to possess a trading advantage not shared by any of the non-beneficiary human beings participating in said market. Given what we've seen results when these houses were granted excessive freedom to act in their best interest, irrespective of consequences, I remain shocked by the level of unquestioning tolerance for the pre-collapse status-quo with which this story is being received."

portefeuille tossed out this glib response:

"No idea why tmfsinchiruna is so outraged that many are not as outraged. I don't know how old he is but his outrage is probably at least a decade too late ... "

In retrospect, porte, do you now feel that my outrage was a decade too late? 

I responded at the time:

It's about recognizing that the events of the past 15 months revealed layers of corporate malfeasance and roullette games played with your future and mine that have a direct impact upon our quality of life and our pursuit of happiness. To not question the procedures they employed to play their high-stakes games is lunacy in the context of the destruction they caused. I know high-speed trading platforms have been around for a long time, and I know this particular example is of greater interest to those poor Fools relying upon short-term trading, but it's yet another glaring example of a market rigged against the fair access of the common investor ... and whether it's been going on for ten minutes or ten years does not impact the injustice of it.

I am not outraged ... I am astonished at the apathy and the acceptance of many of those commenting here for the status quo in the investing world despite all that has come to light recently. I have known the Goldman Sachs of the world possessed unfair advantages and unfettered access to their ill-begotten fortunes for decades ... it is not new to me. Those who presumed everything was as it should be right up until the Bear Stearns collapse ... those are the folks whom I would expect to be expressing some outrage. 

It looks like everyone's ready to go right back to the way things were before Bear Stearns ... that sense of apathy troubles me.

Today, one of the world's most legendary living commodity traders, Mark Fisher (now of MBF Clearing), himself proposed slowing down the very hyper-fast trading platforms that he himself utilizes to make his fortunes. He characterized today as being "right out of The Matrix", and said as he saw the tape unfold he thought maybe a nuclear bomb had gone off. This is a guy with decades of experience, and a true expert in his field. He is right that today showed little more than that this same phenomenon can easily happen again with perhaps even more dire consequences if the sheer pace of automated trading is not reigned in to reflect a more himan time-scale. The days of hedgies and investment houses creating massive market volume on trades isued at a rate of 20,000 orders per secondare numbered, and we can only hope that reforms are enacted before another event like today triggers the ultimate domino effect.

 

Here's another painfully ironic hoot:

Suddenly today for the first time I saw the very same guys (the "Fast Money" crew) who exhibited complete ignorance about the nature of gold over the past several years expressing their reluctant bullishness towards it. Guy Adami said something rather poignant (there's always a first): [paraphrasing] "We've heard a lot of talk about gold as a currency, and perhaps today for the first time we saw gold finally performing as a currency". Well, Guy, I have news for you, gold never ceased to be a currency just because you failed to understand it as such. The only thing that changed for gold today was Guy Adami's perception of it, which resulted from a continued disconnect between the action on gold and the USDX due to the extreme relative near-term weakness of the Euro.

Kudlow actually just gave a mention to gold as "the new reserve currency of choice". When you have the wrong people uttering the right words, you know you have awatershed moment.

Indeed, gold was up today. Because I am heavily invested in gold, my portfolio gained today, but today was merely an iconic nanosecond on the long trajectory of strength ahead for precious metals as the European and U.S. economies and their respective currencies continue to degrade into a systemic delevering of this still-untenable financial system built atop an insurmountable mountain of toxic and overly-leveraged derivatives.

 

My long-held macroeconomic perspectives are being vindicated left and right lately, but I derive no personal satisfaction from it. I have always tried to make it clear that I continue to hope that my broad economic perspective would be proven completely incorrect, as I would rather lose every cent I've invested than witness the events that will ultimately unfold if my economic worldview is correct. If I am correct, then ever-increasing sums of money will continue to be printed and tossed at this insatiable debt and derivatives monster in a hopeless attempt to rescusitate a deceased economic paradigm based upon failed Keynesian principles. Trust me, you don't want me to be right about that, but I fear that I am. The implications for the world's major paper currencies are very serious, as once the strategy is in play the sums of money employed in that strategy will know no boundaries. I made this argument back in October of 2008:

http://www.fool.com/investing/general/2008/10/09/700-billion-was-a-drop-in-the-bucket.aspx

"The indications from Washington that dollars will be hurled at this crisis in totally unprecedented quantities raises legitimate concerns about the future purchasing power of the dollars in your wallet, your CDs, Treasury bonds, or other dollar-denominated instruments. Occurring in a vacuum, a deleveraging event like this one would be decidedly deflationary. In the context of these outlays, however, I believe stagflation and hyperinflation will instead be among the words used by historians to describe this period."

And in February 2009:

http://www.fool.com/investing/general/2009/02/02/the-scariest-balance-sheet-of-all.aspx

However urgent we're told each of the successive expenditures are, I believe that the fundamental unsustainability of this type of spending will result in the declining purchasing power of the U.S. dollar. Whatever your position regarding whether inflation or continued deflation will characterize the road ahead, neither scenario changes the underlying degradation of the dollar as the very perception of the nation's solvency comes into question.

The topic's not fun to consider, but I believe Fools must maintain an unfettered view of the dangers inherent in the present strategy of spending to confront the deleveraging process. Following a historic flight into Treasury bonds by investors worldwide as this crisis unfolded, many perceive a bubble in the making, which prompts the question: What safer haven exists than U.S.-issued debt? Trading at all-time highs against a host of major world currencies, and given recent gains against even the near-term relative strength in the U.S. dollar (compared to the British Pound, for example), I believe many investors are looking more seriously than ever to one time-tested safe haven asset: gold.

I think Charlie Munger is right on the money, unfortunately, as I expressed more recently in February 2010:

http://www.fool.com/investing/general/2010/02/23/charlie-munger-wants-to-scare-you-straight.aspx

"Although the tone of Munger's tale is inescapably morose, and the mere idea that the United States could be driving down a path toward a place that Munger calls "Sorrowland" is a tough pill to swallow, Fools can take solace by safeguarding some portion of their assets from such a scenario. I have been encouraging Fools to limit their exposure to the U.S. dollar for some time now, and regardless of what debt-borne illness may befall the euro, I believe that the deep-seated fiscal imbalance underlying the greenback will make its presence known with equal or greater vigor.

For the past nine years, gold has offered a safe haven amid a precipitous decline in the purchasing power of the dollar. Fund managers like George Soros have gone for the gold with holdings of the SPDR Gold Trust (NYSE: GLD) exchange-traded fund, and China's sovereign wealth fund has ventured into stakes in miners like Freeport-McMoRan Copper & Gold (NYSE: FCX) and Gold Fields (NYSE: GFI). China's central bank has made no secret of its desire to diversify its holdings away from U.S. dollars. I will say it again: I believe that any notion of gold being a bubble is patently false under the circumstances.

I take no delight in saying so because of the implications for the dollar, but I believe gold's likelihood of striking the $2,000 mark has never looked stronger. I believe that silver will surprise many with a run to $50 per ounce or higher before this precious-metals bull market eventually runs its course, which formed part of my rationale for selecting Silver Wheaton (NYSE: SLW) as my top equity pick for 2010."

 

 

Here is my perspective in a nutshell: We remain in the beginning stages of an economic depression within the old-guard economies that will be accompanied by rampant inflation as inneffective efforts to stave off the delevering beast with ever-larger sums of debt-based interventions are tossed onto the fire with no lasting effect. I believe that just as in the last great depression, the greater beast lies in the unforeseen consequences of the actions taken in response to the initial stages of contraction. I believe that history will view the recent equity rally in the very same light as it viewed the substantial rally that followed the initial 1929 crash. The pundits are calling for ECB quantitative easing as the solution in Europe, but I believe that few understand the extent to which Europe provides simply an advance glimpse of the next stage of crisis that is set to impact the United States. The dire financial condition of our states and municipalities present the likelihood of further bailouts there, and the GSE's are still standing there with their hands outstretched after the Fed has indicated there will be no upper limit to the aid they will receive. Banks continue to fail across the country at a rate that few investors take note of, and fewer still are aware of the troubling contracts signed directly between the Fed and several regional banks in recent weeks.

I believe we are living through the beginning of the end of the road for American/European economic hegemony, and that the resulting far-reaching structural shifts in the global economy will not likely transpire in a smooth nor orderly fashion. For key currencies, and in particular the reserve currency status of the two main fiat currencies, the future looks especially tenuous. I believe, and this is where my views become incredibly unpopular for understandable reasons, that U.S. and European citizens in general will encounter economic hardships of a scale that few have entertained as existing within the realm of possible scenarios despite all of the warning signs we have observed over recent years. I understand the psychology behind not wanting to believe that such an unfortunate economic fate could possibly befall the grand old-guard economies, but wrong or right, I will continue to prefer objective interpretation of the available evidence over wishful thinking any day.

This is all essentially what I saw coming in December 2007 when I wrote my 3rd-ever CAPS blog post, and indeed in 2004/2005 when I began shifting my investment assets into precious metals in a significant way. The trillions of dollars in interventions have delayed, but in my concerted opinion not prevented any measure of the delevering process. We must delever before we can move on in any semblance of fundamental strength, which is why I have viewed this entire equity rally as nothing more than a mythical semblance of recovery from its very inception. "Let them fail" would have been so very scary, but in the final analyis so very preferable to the steroids-injected end-game of a failed reflationary hail mary pass on two continents.

Once again, I hope I am wrong, but I fear I am right. My sole purpose here on CAPS remains a sincere desire to help my fellow investors to safeguard at least a portion of their hard-earned assets in a way that scenarios like the ones I have identified would briskly erode. I wish you all the very best of luck not matter what events transpire over the remainder of this decade and beyond.

Fool on!

TMFSinchiruna

 

 

 

 

35 Comments – Post Your Own

#1) On May 06, 2010 at 8:33 PM, portefeuille (99.60) wrote:

In retrospect, porte, do you now feel that my outrage was a decade too late?

at least a decade too late.

 

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#2) On May 06, 2010 at 8:39 PM, russiangambit (29.27) wrote:

I would really like to know what calls were made by Bernanke and Geitner this afternoon. Probably to JPM. GS an BK - someone stop this madness!

Bernanke just spent untold trillions to prop up this market now it is all going down the drain.

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#3) On May 06, 2010 at 8:53 PM, XMFSinchiruna (27.51) wrote:

portefeuille

well, that's one possible response, even if not the correct one. :)

By the way, please know I meant no offense by singling out your remark... it was more as an example of the indifferent attitude with which that post was received by the community at large.

russiangambit

I could have told Bernanke from the get-go that his trillions would ultimately prove ineffective at preventing a painful delevering event.

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#4) On May 06, 2010 at 8:53 PM, XMFSinchiruna (27.51) wrote:

Japan has announced overnight a $20 billion emergency liquidity injection.

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#5) On May 06, 2010 at 8:55 PM, mgrondin (< 20) wrote:

Dead on. I have been buying puts on the SPY in the last few weeks. But they are valued in US dollars. I guess in the initial phase of the crash there will be the usual "flight" to safety aka the US dollar and I will be able to move to gold afterward...

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#6) On May 06, 2010 at 8:56 PM, hybridinvestor (86.71) wrote:

Sinchiruna,

Even though I also noticed that gold held and went up today, with Cramer I too believe that today was way more about market manipulation.  My gut says that someone out there knows how to intentionally get these program trading systems to trigger by seeing what happened in especially P&Gs (PG) stock today.  There is no rational sane reason including the sh*t happening in Europe for a conservative, staples company like PG to drop instantaneously 30%+ without it being related to some massive real world event.  Fraud occurred yet again today and I will be sending many, many emails to the SEC and other agencies telling them they better investigate it, find out who caused the trades, and throw their sorry a$$es in jail.

Yes, today shook my faith as well in the belief that we can get to a level playing field in the markets more than it shook my long-term belief in the ability of our world, economies, etc. to grow.  It has made me feel much better about the rental units I own as investments that cannot be as easily manipulated as the market.  It makes me question just how much each of us relies on any investment that t is not a real, physical asset that someone needs and will pay for month to month or so.

Today also highlighted that the hedgies and institutions are run amuck and have gone too far.  It is past time to smack them down HARD and I railed for the past many years as well sending naked short info to the SEC left and right and telling them to just go look at buyins.net (and other places) and tell me how companies can sit on the lists for tens to hundreds of days with failures to deliver.

My only hope is that most of the big buys got burned bad today with their supposedly smart computers and sold off assets to folks (including me picking up BPL down 20%) for bargains.  Another thing I noticed is that it makes me glad mostly that I focus mainly on more thinly traded small and mid-sized companies.  Seriously, I saw many small companies today either hold up, go up, or act more normally in terms of their usual volatility than the insaneness that occurred.  It has been my long held belief that mirrors AAII views that one should not own or hold the market as a smaller investor because you are then jerked around more by the fast money and buy things that other larger, more fickle larger institutions HAVE to buy because of the size of their positions.  That's why I will continue to buy and hold great dividend paying, solid balance sheet companies like UTMD, HAE, SNHY, MDH, and the list goes on.  Let the "smart" money own the behemoths that got beat the hell out of today.

Today was not a good day for any type of investment whether it was up or down though.  Today was a red day....but I have to believe that the "sun will rise again".

cheers! 

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#7) On May 06, 2010 at 9:03 PM, BlackshearCaptL (< 20) wrote:

I don't think port was saying we shouldn't do anything about but rather we should have done something much earlier?  And that to question that now (if age relevant) is something you should have done a decade earlier...

Which would make me about 10yrs old. 

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#8) On May 06, 2010 at 9:17 PM, XMFSinchiruna (27.51) wrote:

Accenture wasn't the only offering brought down to $0.01.

I own shares of Provident Energy Trust, and I note that the stock sports a fresh new 52-week low of $0.01.

I can't wait to see how they explain this all away and deflect blame for the event that should never have occurred.

http://finance.yahoo.com/q?s=PVX

 

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#9) On May 06, 2010 at 9:17 PM, JGus (28.72) wrote:

Hey Sinchy - Here's proof that they lie when they say they had no warning!!!

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#10) On May 06, 2010 at 9:24 PM, XMFSinchiruna (27.51) wrote:

hybridinvestor

There is no rational sane reason including the sh*t happening in Europe for a conservative, staples company like PG to drop instantaneously 30%+ without it being related to some massive real world event.

That's just it ... when you have supercomputers empowered to conduct large trades based upon set algorithms, you run the risk of having a momentary cascading effect in selling action without any human involvement whatsoever to ensure that the trades are indeed "sane".

Time will tell exactly how this happened today, though my suspicion is that an inordinate number of hedgies and investment banks' trading platforms were set to trigger sell orders once the Euro broke key technical support at 1.27. Given the concerns over contagion in Europe, I would think it likely that an awful lot of money was poised to exit positions at such a pre-set currency development. At its core, as much as today was a technology-related event, I believe it was ultimately a currency event.

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#11) On May 06, 2010 at 9:30 PM, XMFSinchiruna (27.51) wrote:

The chart doesn't show it, and I don't own it, but I notice that the Power Shares Dynamic Pharmaceuticals ETF crashed down to at least as low as $0.15 during today's trading.

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#12) On May 06, 2010 at 9:32 PM, XMFSinchiruna (27.51) wrote:

Here's another ETF that hit $0.14 today

http://finance.yahoo.com/q?s=PUW

This runs a lot wider than just the few names that are getting mention on the tube.

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#13) On May 06, 2010 at 9:35 PM, XMFSinchiruna (27.51) wrote:

It will be fascinating to see whether some hedgies may have to fold as a result of today's action. This had to have wiped out some serious capital for the most heavily involved trading platforms.

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#14) On May 06, 2010 at 10:30 PM, ralphmachio (25.28) wrote:

The stock market is 'enhanced', more than 'manipulated' through the use of these computers. That accounts for the extremes that we see now, but if you look at technology, and transportation, and information, and every aspect of humanity, you see that computers are the new 'natural'. Wow. I just sounded like you know who... But it must be realized that our computers are the new measure of our trading capability, in that they are fast, accurate, and disciplined, and don't miss an opportunity. They create the environment where the rallies can go on forever, and when they correct, they do so with the determination and lack of compassion of the terminator!  

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#15) On May 06, 2010 at 11:30 PM, SnapDave (60.98) wrote:

I'd be worried about all that silver you have in the short term. This last week bears this out. Gold is actually up. Silver has acted like a commodity more than money most of the time. Keep in mind I'm very bullish on silver long term.

I wasn't sure today after close that the down trend will continue. After hearing everyone try to say 'nothing to see here it's just a fat middle finger or program glitch' you have to believe it's going to get worse for awhile unless you think the fix is really in then maybe they will reverse the slide. Glitch or no glitch the rally is done.

Nikkei down 3.74% right out of the gate tonite.

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#16) On May 06, 2010 at 11:57 PM, topsecret10 (< 20) wrote:

  I have been sounding the alarm myself for months. My last little alarm was on April 16th. You are right on the money Sinch. Cramer just confirmed what I already knew.... he's just a pumper,and his explanation and, or rationalization of todays events are laughable. http://caps.fool.com/Blogs/ViewPost.aspx?bpid=378369&t=01008014497619256705

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#17) On May 07, 2010 at 12:18 AM, Tastylunch (29.28) wrote:

>-Common sense dictates that nanosecond-trading supercomputers have long presented a systemic risk to capital markets due to their inherent impossibility for human oversight 

so very true

props to you SInchiruna for all that you do on this and other similiar issues

what's happened in the past 15 years has been increasingly disgusting perversion of our markets.

 I shudder to think what could happen, if a large amount of big money people lose faith in it at once

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#18) On May 07, 2010 at 1:44 AM, AndreylikesMTL (98.22) wrote:

Tasty

Its play money, and the Game can use some fireworks.

 

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#19) On May 07, 2010 at 7:33 AM, XMFSinchiruna (27.51) wrote:

SnapDave

I just tasked Goldman Sachs' $20 billion supercomputer to run its algorithms and gauge my level of concern regarding the prospects for silver. It took just 0.000000000000000000000000001 seconds for the machine to flash my concern level on a scale of 1 to 10. I'm not supposed to share the result because the computer is proprietary, but what the heck ... its days are numbered anyway. The computer correctly recorded my concern level for silver at:

0.000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000001 out of 10.

When you're truly and confidently long-term bullish, you don't get concerned for the short-term ... ever. After selling some gold positions at $1,220 in December, and moving that money primarily into silver below $16 in January, I am essentially all-in at this stage. If $15 doesn't hold as the near-term low for silver, I am a-ok with that ... I still saved considerable capital with the trade even if it turns out I missed the absolute low. However ... although silver can have days or even weeks where it gets lumped in with the commodities trade to an excessive degree, such moves are routinely followed by silver playing catch up as the outstretched slingshot which binds silver to gold like a tether snaps back. Silver was posturing to break $20 earlier this week, and that is the technical strength that I believe still underlies this irrational drop.

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#20) On May 07, 2010 at 8:41 AM, XMFSinchiruna (27.51) wrote:

I don't usually find much value in any of the seekingalpha content, but this one pretty well sums up my interpretation of the action in gold:

http://seekingalpha.com/article/203674-gold-decouples-on-international-debt-crisis-concerns-gold-forecast-to-reach-3-000?source=yahoo

You all know that I maintain $2,000 as my preliminary conservative investment target for gold, but of course prices of $3,000 or higher lie well within the realm of possibility. Likewise for silver: I have my sights set upon $50 as the first landmark price to attain, but beyond that the scope of potential highs for silver stretches out for miles.

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#21) On May 07, 2010 at 12:35 PM, SnapDave (60.98) wrote:

I didn't expect you to say otherwise.  I'm just saying $9 couldn't have been fun. 

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#22) On May 07, 2010 at 12:53 PM, imobillc (< 20) wrote:

You rock dude!

You are the Ron Paul of the FOOLZ....

1+ REC

Mars 

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#23) On May 07, 2010 at 1:01 PM, silverminer (30.77) wrote:

SnapDave

$9 was the result of pure market manipulation, plain and simple. There was no underlying fundamental rationale whatsoever behind that deep a correction.

As I reported at the time, and as has been confirmed since by the testimony of whistleblower Harevy Organ, physical silver was scarce and fetching enormous premiums. That should have clued investors into the criminal element within that erroneous spot price for silver.

Investing within a criminally manipulated market is never "fun", but once the manipulators are disempowered by those who are resolutely long and strong, silver will enjoy some very fun gains, I assure you.

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#24) On May 07, 2010 at 3:38 PM, XMFSinchiruna (27.51) wrote:

P.S.

How many times over the past 48 hours have you heard gold referred to as the "de facto reserve currency of the world"?

Are you able to recognize a sea-change in public understanding of gold as a currency at the very moment it unfolds?

All claims by the rapidly shrinking number of skeptics out there that gold is not a currency are quite simply false, and those hold-outs are encouraged to adjust their thinking before they miss out on gold's biggest moves to date.

Gold is within $9 of its all-time USD high despite the USDX remaining above 84. I hasten to point out that the last time gold reached this level in early december 2009, the USDX was beneath 76! Nuff said. Gold is far more than just a dollar hedge or an inflation hedge, it is the only currency in the world with zero counterparty risk, and that unique character is what will drive its value as denominated in each of those impaired paper currencies for years yet to come.

Sinch

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#25) On May 07, 2010 at 5:05 PM, binve (< 20) wrote:

Hey Sinchi!

>>Gold is within $9 of its all-time USD high despite the USDX remaining above 84. I hasten to point out that the last time gold reached this level in early december 2009, the USDX was beneath 76! Nuff said. Gold is far more than just a dollar hedge or an inflation hedge, it is the only currency in the world with zero counterparty risk, and that unique character is what will drive its value as denominated in each of those impaired paper currencies for years yet to come.

EXACTLY!!! I would love to see the gold haters / paperbugs explain that one. This is not a war between fiat currencies, it is a war between fiat currencies and real money. Gold is still at or near all time highs in every major fiat currency. The movement of the Dollar vs the Euro, while interesting, is a sideshow. 

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#26) On May 07, 2010 at 6:44 PM, uclayoda87 (29.23) wrote:

  TMFSinchiruna

First, I would like to thank you for your blogging efforts as they have helped inform me of the character and risks of the various miners that I eventually invested in.

Concerning your current blog, there maybe a very important teaching moment for the world occurring in Europe.  We should be thankful that the Greek government and its people are again contributing to the knowledge base of the world.  Not in a way that they would have liked, but in a way that is simple enough for us to understand.  If you live in California, France or Germany and you believe that a socialist system can deliver the promise of universal everything at little or no cost, you must now reconcile what you see happening in Greece with the real possibility that this country could become a failed state.  The similarities in the entitlement mentalitiy of Greece and California have lead to very similar financial debt and disarray.  Both belong to a union, but only California still has time to change its course.  Even if Greece succeeds in acquiring a short-term bail out, the cancer of progressive thought and entitlement will remain.  I think the Germans and French really know this, but they have been at a loss as to how to proceed.  If they can bring themselve to understand that the euro has been a failed experiment, then they can proceed in salvaging what remains of Europe by allowing the individual countries to relearn personal responsibilty and sound fiscal policy.

Can people in California learn this too?  We can only hope that the people who invented the internet (Stanford and UCLA) can also understand the concept of personal and fiscal responsibility.  We will find out if the pride that they have in their educational system is deserved.

As for the rest of the US, it may be an unfortunately true cliche that as California goes, so goes the country.

 

 

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#27) On May 09, 2010 at 1:53 PM, hybridinvestor (86.71) wrote:

Respectfully, I agree with a dissenting point earlier that showed that while gold seemed to behave this past week as the "currency of choice" silver and other metals did not do so as much.  Industrial metals got clobbered along with a lot of commodities related companies including gold miners.

My primary skepticism with gold, silver, etc. lies mainly in the fact that I think that in the many forms that it is "traded" anymore it is also quite prone to manipulation.  More so than most are willing to see or admit.  Most are not buying physical "gold" with these ETFs, etc. out there.  I am doing my own digging in this regard and Sinchi said he is investigating this point as well to determine the reality of it.  I will be very interested to see what the independent facts are in this regard.

Also, I generally do not like "known" stories or trades because that typically means there is too much risk.  How do I define "known"?  Simply, if the chart is anywhere near a 3-5 year+ high then it is something I'm willing to pass on it.  Additionally, it is exactly the reasons others state on these posts that gold, silver, etc. are also reinforcing the notions of a "known" or sure thing.  Look at the media lately.  Do a search on Google and look at the titles of more and more articles confessing the death of paper money.  Past experience shows that once an investment thesis starts becoming part of the mass media and collective psyche it is about time to start being cautious and likely to start pruning into strength as the greater fool theory kicks into overdrive.

For those who have been in gold, silver, etc. for a while, I say hats off to you for buying when you should be buying when nobody wanted it.  For those not in it (including myself), I think now is not the time to be "loading" up the dump truck but overall it is a time to be cautiously optimistic as optimism right now is INDEED contrarian!  Ha ha!

Per another point about liquidations of overleveraged hedgies, this past week likely caused some serious disallocations within their portfolios and the fast money may be forced to exit what I believe to be a fair portion of what has been giving commodities and alternative currencies part of their strength.  Not sure and I can't know for sure but it is fact anymore that any investment that shows a strong trend you can bet they are attracted to them.  It is just a fact of investing life anymore and something I try to steer clear of.  They may drive it higher in the near-term but I would be tempted to be prudent and use that to the advantage of taking some profits.  Anyone remember a year or two ago when it was deemed that the speculators initially did not "affect" commodities prices at all until they all exited their trades?!?!?!?  What happened to prices after that?  They did not go up.

Also, gold and its counterparts over time has indeed acted as a "fear gauge" just like the VIX.  Some say that is decoupling as it reasserts its role as an unmanipulatable currency.  I can't say for sure that it is but my gut says that it won't act differently when fear abates.  That is, it will lose some appeal as other investments become quite attractive.  Remember, a lot of times investing is about relative value as things either don't end up as bad as it seems or as well as it seems to the upside.

Sorry Sinchi....I know you and others have done a lot of work in this area but when I look at upside/downside it seems they are getting closer to about the same which doesn't make a convincing case for an investment.  It's more of a coin toss to me at this point on whether or not it will provide the risk adjusted return I like to see.

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#28) On May 09, 2010 at 2:01 PM, hybridinvestor (86.71) wrote:

Reposting this link just FYI for discussion.  The intent is to spark discussion of just how easy it is or isn't to distort and/or manipulate really ANY investment anymore.

http://www.nypost.com/p/news/business/feds_probing_jpmorgan_trades_in_gZzMvWBqOJpB55M7Rh9vwM

It sucks being an investor anymore but most of the time the ole "if it looks too good to be true then it probably is."

cheers with cautiously dissenting respect! 

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#29) On May 09, 2010 at 2:11 PM, hybridinvestor (86.71) wrote:

p.s.  Now those who hold silver might say well heck this article supports the view of holding it since the price is artificially being kept down.  I am not so sure as well maybe there is a chance of a short squeeze or similar event, but generally speaking no manipulated market is safe at highs.  If it is being manipulated down, then it can be manipulated up as well as we all have seen.

Overall, I am trying to figure out if the whole market _EVEN_ long-term is not just a big Ponzi scheme and if I should start looking to be into rentals for example more and more.

 

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#30) On May 10, 2010 at 12:08 AM, ttboydxb (28.79) wrote:

Hybrid,

 

I was watching Jim Rogers on tv (love the guy, calls it how he see it) and the host asked him why should anyone get into gold if it was flirting with it highs.  He replied that a couple of weeks ago, he was at an investor conference in Europe.  Someone there (I think it was him making the speech) asked how many of those institutional investors owned gold as 5% or more of their portfolios.  Only a few (I think he said like 5, but not sure) hands went up.  He said the time to sell Gold will be when everyone in the room raises their hand.

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#31) On May 10, 2010 at 12:26 AM, hybridinvestor (86.71) wrote:

Sinchi,

Careful with Rogers.  He is a smart man no doubt but he, Faber, Tice, Paulson, etc., etc., etc. all have their own agendas.  Not unlike Buffett for those willing to look deeper.  I would not be surprised if possible to see if they do not start unloading somewhat when "fear" reaches a peak here shortly.  Just a guess.  A hunch. And maybe I am wrong but willing to miss out on some investments.

Gold IMHO will never be a true currency for one simple reason.  There is not enough of it.  Ha ha!  Yes, you heard me right.  The same argument folks make for its appeal for being "precious" (now I sound like Gollum from Lord of the Rings) is the same argument that will not allow it to be a "widespread" currency even among various country "feds".  Everyone went off the gold standard a long time ago IMHO again for the same simple reason.  There was not enough of it to keep trying to back the amount of currency required to be in circulation.  One can argue that supports gold, etc.  I think Visa, Mastercard, etc. and our whole system of "credit" would argue otherwise.  We could have a very debatable argument about which is more valuable....credit or gold?  and even I know the Golden Rule.  That is, "he who has the gold rules!"

Just saying.  I trust Rogers, etc. about as far as I could throw a true brick of gold. ;)

cheers! 

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#32) On May 10, 2010 at 4:55 AM, XMFSinchiruna (27.51) wrote:

hybridinvestor

Sorry Sinchi....I know you and others have done a lot of work in this area but when I look at upside/downside it seems they are getting closer to about the same which doesn't make a convincing case for an investment.  It's more of a coin toss to me at this point on whether or not it will provide the risk adjusted return I like to see.

Don't apologize, you are entirely entitled to your opinion, and if gold or silver doesn't match your personal investment strategy at this stage because of the run in place, then I can't fault you for sticking to your gut.

More importantly, and this really is a crucial point ... someone getting into gold or silver with that sort of an unsure mindset about future price direction perhaps more dangerous to wealth preservation than someone who eschews the metals altogether. The reasons being, gold and silver will continue to exhibit but-wrenching volatility throughout the remaider of this bull-market move, and that can include multi-$100 swings in either direction. If the next swing were to happen to be downward rather than upward, those less certain of their own price projections will be likely to sell into weakness (perhaps even in some measure of panic) and take a loss. I have seen it before, and it will happen again. I sold into weakness during the first really major correction of this cycle in 2006, but given all that I now know, that won't be happening again.

You see, although my analysis tells me that gold is likely never to dip below $1,000 again before moving onward in this unstoppable march to $2,000, even if that important technical support were to fail under some unforeseen bout of selling pressure and some of the far-out calls for a dip below even $900 were to develop, I would not lose a minute of sleep not shed one drop of sweat. More important still, I would not sell a single position into that weakness, because my confidence in my own assessment of the longer-term pricing trend and the fundamental drivers behind it is pegged at 100% and completely unflappable. That is not to say that I am blind to incoming developments... not by a long shot. But because I understand what it would take to reverse gold's long-term trajectory, I am able to conclude that the actions taken with respect to the USD and the Euro already preclude that possibility.

Unless you have a conviction in the continuation of the long-term pricing trend that shares some elements in common with my own, I do not recommend buying gold or silver ... you will only be setting yourself up to sell into weakness at the most inopportune time. 

http://www.fool.com/investing/general/2008/05/05/gold-delivers-a-gut-check.aspx

Fool on!

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#33) On May 10, 2010 at 5:10 AM, XMFSinchiruna (27.51) wrote:

hybridinvestor

Jim Rogers is a stand-up guy, pure and simple. Through our e-mail correspondences, where he has been generous with his time for no personal gain of his own, I have seen where his heart is. He is truly saddened by the fiscal direction of the U.S. and the implications for the currency. He is forthright about the positions he holds when he appears for interviews, and I maintain that investors can rightly place him within that special breed of commenters who simply speaks his truth as he sees it.

As for your argument comparing gold to credit, I submit that perhaps you have not internalized the ramifications of the recent economic collapse ...while credit can go to zero for any individual holder, gold never will. Gold is already a true currency, and it has always been ... the only thing that changed was the public understanding thereof.

With respect to the silver manipulation story ... if you are not sure what to make of it from an investment perspective, why don't you ask someone who is sure? :) These manipulations are achieved only through the use of leveraged naked shorts, and therefore they can not be perpetuated in the light of day (once people are aware that the manipulation exists). Until now, only a tiny tiny fraction of the investment community was aware of these manipulations, and no major players moved to break the naked position in the absence of concrete evidence. Now that the evidence has been presented, major long-side buyers will call the bluff of the naked shorts, and silver prices will correct strongly upward to their rightful present value. It will happen at or around the same time that it happens with gold.

There is not a single implication of that story that can reasonably be twisted into a bearish case for silver prices, as a manipulation scheme out in the open can never be as impactful as one that operates in the shadows.

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#34) On May 10, 2010 at 8:54 PM, hybridinvestor (86.71) wrote:

I won't debate Rogers as I find most of the time in his interviews he says actually very little concrete info.  He offers platitudes a lot like "the market goes up, it goes down, that's what it does" without offering any very real or otherwise novel commentary to do anything other than move markets.

Now, www.contraryinvestor.com, those guys I like.  I offer a very key point they have offered lately (in their Monthly Market Observations about a month or so ago) about what real inflationary pressures we have seen (as I believe long-term investment demand or otherwise commodities track long-term inflation rates).  Read their MO but basically the question they asked themselves as I have pondered the same thing very seriously over the past year or so is the following question (and yes like The Matrix it is the questions that drives us!!!).

Are we entering an inflationary or deflationary period?  To make it a more leading question, I have asked myself with the massive, massive, unprecedented stimulus we have seen at home and abroad, where oh where is the corresponding expected massive inflation?  The Fed & gov't actions over the past year or so should normally be quite inflationary but strange enough we haven't really seen strong inflation.  I am not putting my head in the sand like the gov't figures that are meant to intentionally downplay inflation to reduce future obligations, but seriously a lot of things have come way down from the scary manipulated peaks (as a young coworker so eloquently noted that he does not mind a falling stock market because all of a sudden a lot of things got a lot cheaper again).  Falling home prices, assets (stocks, commodities, etc.) way down still from market peak highs, etc. seem to suggest we're battling some deflationary aspects.  But for the sake of argument, let's just say we're seeing reasonable inflation when it's all said and done because we live in the real world and don't trust the gov't.  So, again, the question drives us.  Why oh why didn't I take the blue pill?  Er um....sorry....other question....Why oh why are we not seeing quite elevated inflation which should be causing inflationary pressures in just about everything (asset inflation included)?

Well, here is where the astute boys at contraryinvestor.com offer a simple glimpse into what has happened.  That is, although massive in size, the Fed/gov't actions barely, barely just made up for a strikingly massive shrinkage in the biggest bubble of all we saw in the overall credit that was offered to anyone and everyone (and to my point earlier makes having credit today more valuable).  Something to the tune of only like a $70B increase in the equivalent of stimulus.  So, they have done nothing more lately than offset so far the very large and I would add per many decent pundits very expected decline in overall credit offered to the masses.  Longer-term the decrease in credit (credit to where credit is due) is healthy but in the near-term as I suspect it to play out the world is still considerably deleveraging, including all the money propping up stocks, commodities, rebounding home prices, etc. be it industrial, investment demand or otherwise.

That's just it with inflation. At some point when it is real, it really tries to creep into just about everything.  One doesn't have to do much more than own assets that can react to inflationary pressures to take advantage of them.  Not trivializing the decision but truly at some point that is what elevated inflation does.  It implies pricing power most of the time so companies though paying higher prices at some point can charge higher prices.  Also, agreed it implies a devalued currency over time.  But, that doesn't mean assets do well initially as rates rise to contain the evil beast.  (Whip inflation now!).  The goal becomes to kill demand while right now the goal is still to stoke it or at least in my point of view not have it literally fall off a cliff.  Managing it to be a more orderly decline.

But again....where is the massive inflation that comes with monetary expansion?  Right now I do not see it as we continue to see asset deflation across the world in spite of the "Feds" doing all they can otherwise to break-even.  So, from my vantage point, those who believe that all of this stimulus is devaluing currencies are missing what is really going on.

That's what I think we're seeing.  And why I still think there is merit in looking for the smaller companies that can grow in these times.  That is where I will continue to focus looking for the diamonds in the rough because their growth, doubling or tripling can lead to returns that seriously trounce other assets if one is patient enough to wait for the good buys on them. 

Counterpoints welcome and appreciated.  Hey, I don't mind being kept "honest".  It's good for the soul! 

 

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#35) On May 10, 2010 at 9:10 PM, hybridinvestor (86.71) wrote:

Very good new read from CI.com

http://contraryinvestor.com/mo.htm

 

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