Wednesday, July 28, 2010

Unrepentant Gold Bull and Stock Bear

Looking to buy more physical Gold with one more price dip and looking to short the $%&@*! out of equities with one more price rise. I will be scaling into both positions. With Gold, it will be purchase of physical Gold starting at $1150. With the stock market, it will be primarily via puts on the UPRO triple bullish ETF that tracks the S&P 500 and also some puts on the triple bullish commercial real estate ETF (ticker: DRN).

I actually like the "pan-European" Dow Jones Europe Index ($E1DOW) for a good road map of where global equities are headed, as it has a "clean" chart that gives a good "big picture" overview. Here's a 12 year weekly log scale chart of $E1DOW to show you what I mean:

Perhaps another week or so to squeeze the remaining bears, but then it's showtime. I am waiting for one more significant up day to start scaling into short positions and will likely be using the December contract on UPRO and November contract on DRN. High-risk play with major leverage and potential for major rewards/losses. If you're going to bother playing in the rigged casino, you might as well make sure victory pays well.

When it comes to Gold, this is where I invest. This is where I put my savings. Trading is my "get rich or die trying" money (the hare), Gold is my safe and can't lose money (the tortoise). Not that Gold can't rocket higher and make me 50% in a year, but I don't use leverage, I don't trade it and I simply buy the dips. Gold stocks are just another paper play in the Wall Street casino. Those who think otherwise are ignoring shareholder dilution, ridiculous management pay, political risk, and the current lack of dividend yield that plagues the sector. I believe Gold stocks are for renting rather than owning at this point in the cycle unless you are a mining and financial expert who knows how to analyze a company from the ground up and stay in touch with day-to-day operational concerns or a very long-term investor unconcerned with severe draw downs.

Now once I think general equities are done collapsing, different story. I will be buying Gold stocks hand over fist on the next panic bottom. For now, I am putting my "safe" money into a safe investment. The only currency that can't be debased by decree. The only market besides U.S. debt that remains in an unequivocal bull market. However, U.S. debt is an accident waiting to happen while Gold is getting ready to go into its manic bull phase. You won't find me dabbling in the bond market, though I pay attention to it.

The difference between an equity chart of any country in the world and a long-term Gold chart is striking and shows where we are in the "big picture" type cycles that are important for most investors to focus on (12 year log scale weekly chart of $GOLD follows):

Bond yields at secular lows and Gold at secular highs is a hallmark of a Kondratieff Winter and is not seen in any other season. We are in a K-Wave Winter. It ain't close to being over yet.

The Dow to Gold ratio has been screaming higher along with the copper to Gold ratio and both are due for a reversal in the next week or so IMO. Here's a daily 1 year chart of the Dow to Gold ratio ($INDU:$GOLD) thru today's close:

I am in the Ian Gordon camp here. Banks won't even admit people are delinquent on their mortgages any more! Another collapse is coming - only the timing is in question. "Extend and pretend" works until it doesn't and then the first one to panic wins. True value for the S&P 500 is at 500 or less (500 is the optimistic scenario) and we will get there. I continue to wait patiently for a better buying opportunity in the GDX and GDXJ Gold stock ETFs (my road map for when I'll be buying Gold stocks can be found here). The Dow to Gold ratio will reach 2 and we may well go below 1 before the current cycle is over.

Sorry for the sporadic posting, but it's summer and all...

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