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Why I cannot feel bullish on gold, in a nutshell

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June 10, 2009 – Comments (11)

Well my fine fellow fools, I am going to offer why I cannot feel bullish on gold in real life.  You will not find a long rambling macro-economic thesis in this blog, you'll hear mention of no school of economics, you'll read nothing typed with grandiose or faith to make a necromonger proud.  You'll also find no graphs or charts, no mention of a resistance point, and no predictions.

You'll also find no dogma, no commentary on the impending demise of the US, its currency, the western world can go right ahead and keep on existing for all this blog cares.

I will offer just a quote, and then some commentary. 

The quote is interesting, and ancient as stock market quotes go, and its this:

WHEN THE SHOESHINE BOYS TALK STOCKS IT WAS A GREAT SELL SIGNAL IN 1929. SO WHAT ARE THE SHOESHINE BOYS TALKING ABOUT NOW?

By JOHN ROTHCHILD
April 15, 1996
(FORTUNE Magazine) – JOE KENNEDY, a famous rich guy in his day, exited the stock market in timely fashion after a shoeshine boy gave him some stock tips. He figured that when the shoeshine boys have tips, the market is too popular for its own good, a theory also advanced by Bernard Baruch, another vested interest who described the scene before the big Crash:

"Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day's financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929."

What he is saying is that when everybody and their mama "knows" about something,t he secret is out, and the odds of value remaining hidden there are slim. 

To me, from my spot on the floor from which I type, the secret about gold seems to be pretty much out.  I don't think I've heard someone say "don't buy gold" in months now.  I've read articles from here to there to everywhere on why buying gold now is the greatest thing you could do.

"everybody" can't be right.  Because once "everybody" is on the same train the odds of something remaining undervalued become slimmer and slimmer, and the odds of it becoming overvalued become better and better. 

When in history, when you look forward 5 years, has something that "everybody" was into turned out good?  Tech in 1999?  Even tech in 1997?  Real estate in 2005?  Even real estate in 2002?  Tulip anyone?  Shall we buy some shares on the Nikkei as the various keiretsu bid one another shares through the roof? 

How about when everybody was against it?  1974 and forever rising oil prices?  The repeated immediate ends to society about to be caused by one environmental catastrophe after another throughout my entire lifetime?  Stocks going to 500 just this march? 

I just don't know if I believe that "everybody" can be right, and I think gold is approaching a condition where "everybody" knows its a good investment.  I see threads on car forums about gold, I hear talk about it at golf courses, its the topic of the day.

That is it, that is my argument, and that is all the substance I care to present to back it.  There is no more, no 2nd page, no elaborate argument to counterpoint. 

I simply submit that I do not believe that "everybody" can be right.

11 Comments – Post Your Own

#1) On June 10, 2009 at 2:49 AM, awallejr (75.87) wrote:

I thought you were going to short it?

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#2) On June 10, 2009 at 4:09 AM, checklist34 (99.73) wrote:

hey awall, I swear I didn't write that shorting gold post.   ahem...  Some old chums were over that night and I may have drank a bit too much, and then one more.  And we all got to talking about stocks and investing andn all and I woke up the next day.  I don't think I typed that up, I think it was my chum who has tripled his money day trading BAC and more recently LVS in the last few months.  I haven't remembered to ask him.

But I never had any plans to short gold until reading that post myself, so I don't think it was me.

And that will have to stand as my official commentary for the permanent record. 

lol, really.  at least we didn't break anything expensive.

 

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#3) On June 10, 2009 at 4:17 AM, checklist34 (99.73) wrote:

I have returned late this eve to offer one last thought.

There is no doubt that once a mania gets started it can carry on for a good lot longer than it rightly should.  Witness the NASDAQ in 1998/1999 into early 2000.  It was far too expensive in 1998 and anybody thinking clearly would have gotten out then...  only to see it nearly triple again.

So if gold really picks up could it go completely hog-wild?  yep, i guess so.

But bubbles always pop, and that one will too if it materializes, and I hope some of you very bearish folks make some money there.  Sell it before the pop, take some profits, don't ride the roller coaster all the way up and all the way down. 

Best wishes to all the gold longs UNLESS their success is tied to misery for society at large.  If gold can go to 2000 while society recovers gradually from the edge of the abyss, great.  :)

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#4) On June 10, 2009 at 4:40 AM, JakilaTheHun (99.93) wrote:

I get your thesis here, but honestly, I haven't heard too many people talking about gold in the past month or two.  And when they do talk about it --- it tends to be about shorting it. 

I'm somewhat neutral on gold right now.  It'll go up if inflation goes up, but so will most stocks, so I don't see it as any greater of an inflation hedge than most other hard asset investments out there. 

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#5) On June 10, 2009 at 6:57 AM, cbwang888 (25.67) wrote:

Gold miner stocks outperform gold itself. :)

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#6) On June 10, 2009 at 9:08 AM, catoismymotor (< 20) wrote:

Checklist34,

I understand your thoughts. I plan to purchase gold for my portfolio next month. When I do it will not be with the mindset of a speculator. I am merely rounding out my portfolio. I plan to buy and hold, to watch it increase in value gradually over the years. Should gold rocket to $1500+ I will cash in my positions and wait for the price to settle. Then I will re-invest the profits again into gold as I would with steel, copper or silver.

Cato

P.S. - I like the quote by Kennedy. There is some truth to it.

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#7) On June 10, 2009 at 12:21 PM, kaskoosek (37.62) wrote:

I would like to re-word.

 

Why I can not feel bullish on $.

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#8) On June 10, 2009 at 1:00 PM, checklist34 (99.73) wrote:

thanks for the comments all.

kask, I don't feel too bullish about holding cash right now either, that wasn't the point.  But if one wishes to hold a commodity as an inflation hedge ones more necessary to society and NOT at or near all time highs seem like they might be a better idea. 

 

Along those lines.  My first taste of the stock market was as an adamant bear during the NASDAQ bubble.  Everybody lectured me on how dumb I was.  My boss at a restaurant where I was waiting tables said I should take some top money i'd saved (to shortly thereafter start my first business) and buy into an IPO, i was sure to double my money he said. 

A friend went 7x his money in 2-3 years and ahd long eloquent explanations for why tech wasn't overpriced adn why p/e didn't matter anymore. 

And 3 months ago a similar thing happened, but opposite.  I went to the doctor and he started talking about how he sure hoped I wasn't in the market.  Car forums were replete with threads about how the markets were dead and anybody long was an idiot.  Caps must have been 10:1 bearish to bullish comments at that time.  Interestingly, a great many normal every day people I talked to expressed interest in stocks.  A friend who's a basketball coach waxed sadly about his lack of cash to put in and wondered about selling his car at a loss to get in.  Everybody in the office, self included, bought like crazy.  I think the march lows may have been a rare time when the astute and polished investors were teh losers and commonfolk were the winners.   

Its definitely something to watch for.  But like everything else it'll never be perfect. 

But this, like any other indicator, isn't likely to

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#9) On June 10, 2009 at 1:19 PM, outoffocus (23.56) wrote:

Checklist,

I think you have a good argument about gold. It sounds similar to the Buffett's 3 I's theory.  Its also funny that you bring this up today because I've been pondering whether I should sell my relatively small holdings in ABX, pocket my 25% gain and move on. 

Many people on here have argued that gold has limited upside potential but other commodiities (such as silver, copper, and nat gas) have much more upside potential and can still help hedge against inflation.

If nothing else this blog has definitely given me something to think about.

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#10) On June 10, 2009 at 2:31 PM, kaskoosek (37.62) wrote:

Checklist

 

The downside for gold is 750.

 

That is a 25% decline. The upside is much more than that.

 

Rationally I do not think it is a bad store of wealth. The only commodities that are easily stored are precious metals.

Add fear into the equation then you have the possibility of a short term overshoot like that of the 80s.

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#11) On June 10, 2009 at 4:37 PM, checklist34 (99.73) wrote:

Kako, I don't pretend to know what the down or upside for gold is, although as my post in #4 indicates, I accept the possibility of a real bubble if mania builds.  But bubbles pop.

I just have to stand by my thought that "everybody" isn't likely to get it right.

:)

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