Monday, December 29, 2008
Careful with Gold
I want to bring your attention to gold (ticker GLD top chart). Long time readers know my affinity for the precious metal. It is no ones obligation, nor can it be duplicated or altered via financial or physical alchemy. Readers also know I own the physical as a form of insurance against our politicians gone made with bailout fever.
That said, the chart above is to be ignored at very serious risk to a long gold portfolio. We seem to have formed a double top on the chart of some substance. The chart of the gold miners index or the GDX(2nd chart from top) confirms this as it paints a very similar picture with volume waning on the second leg of it's double top. The perma-gold bulls seem to not recognize or willfully ignore the deflation gripping our system via a massive and I truly mean MASSIVE amount of credit and derivative based destruction.
The Fed can create and create money all it wants but until it is re-lent under our fractional reserve system all it is doing is plugging holes and even that may be a stretch. The people who qualify don't want the money and the people who need it can't qualify. The politicians can wail and scream that the banks must lend but isn't that what got us into this pickle in the first place, lending to unworthy (putting it mildly) borrowers.
I keep hearing claims of hyperinflation from all this printed money and while I recognize this as a potential problem later on, right now this printing and creating of money is like sandbagging a levy or dyke that has been breached. It is futile. The other issue here is that the de-leveraging game is still going full bore and many are selling what they can sell. You must remember many financials cannot sell or will not sell these various mortgage backed securities because they think prices are too low. I have a news flash for them, their first loss would have been their best loss, as that 70 cent bid they had 14 months ago they thought preposterous on the downside now is a pipe dream. Ask tech bubble stock holders how hanging on employing the hope and pray method worked out for them.
I have brought the gold chart up because many are watching and believing gold is heading to the moon and while I agree that yes gold can and should go to $2200 plus, many are ill prepared for it to go to $600 first. Like the analyst who claims a $20 stock is headed for $40 but never mentions it may get there via $10.
As my notes indicate I will leave shorting gold to those with a much stronger constitution than mine but the many longs out there should tighten up their stops and be on high alert.
And like dominoes, the Dow/Kuwaiti government joint venture deal falls apart which has now sunk the Rohm and Haas deal. Such pain, such shortsightedness, all in an attempt to be part of Merger Monday with Maria. You remember that don't you? Deals to do deals as only an investment banker could love. Sherman McCoy would love all the crumbs.
I want all you housing turnaround bulls to take a peek over at Mr. Mortgages piece, Low Mortgage Rates to Spur New Wave of Defaults. It is well worth your time and should serve as a note of caution to those inclined to believe Jim Cramer's rantings that housing is bottoming.
Much thanks to reader Tom who brought to my attention the discrepancy in my long 1 unit position in the SDS. The position should read 1 unit at $70.40 with the stop at $68.12. Besides not being very bright, I also suffer from bouts of temporary dyslexia.
Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".
Long 1 unit Ultrashort Real Estate ticker SRS @ $54.10 stop @ $51.10
Long 1 unit Ultrashort Financials ticker SKF @ $103.20 stop @ $98.90
Long 1 unit Ultrashort S&P500 ticker SDS @ $70.40 stop @ $68.12