This Week in Barrons – 2-17-2013
Should I sell all my Gold – NOW?
Every day someone is writing to tell me that gold is done, and equities are where you have to be. They often give me 3 reasons:
Every day someone is writing to tell me that gold is done, and equities are where you have to be. They often give me 3 reasons:
-
The Ben Bernanke (while speaking at the G-20) told
everyone that our economy is improving and it might be time for him to consider
"easing up" on the monetary stimulus.
- George Soros (the
noted billionaire) cut his GLD holdings last quarter by almost half.
-
And the stock market has continued to move higher
and higher, while gold has languished since August.
Let’s review these one at a time.
The Ben Bernanke – in a G-20 meeting in Moscow
stated: "Stronger U.S. growth benefits the world economy". He then alluded to stronger growth allowing
him the flexibility to ‘ease up’ on the Fed’s printing press. Philosophically I couldn’t agree more, but I question
his words: stronger growth? Especially
when (on the same day) Mr. Jerry Murray (Wal-Mart’s VP of Finance and
Logistics) sent an e-mail stating: “In case you haven’t see a sales report
these days, February MTD sales are a total disaster. The worst start to a month I have seen in my
7 years with the company.” Wal-Mart (a)
is the largest retailer in the U.S., (b) is the largest employer in the U.S.,
and (c) sells more ‘stuff’ than the next 3 retailers combined in the U.S. And consider that Mr. Murray has been there
during the economic crash, the credit crunch, the housing crash, and the
foreclosure crash. How is this possible
that one person (on the ground) smells “disaster” and another (in the clouds) is
thinking of backing off the stimulus? So
if I’m thinking of selling my gold because things are so wonderful, I need to
consider who’s telling me that it’s so wonderful.
Moving along to Mr. Soros. Mr. Soros knows that his voice and his actions, combined with a very simplistic rationale will indeed move markets. The #1 Rule in business is: “Buy Low, Sell High.” We have a stock market that seems to be rising incessantly. And when that happens, people get excited and want in. So, given a choice between holding gold (which is going nowhere lately), and holding stocks (which have been going somewhere), I would chose-holding stocks. Is the public ever right about their stock market timing? Virtually never. John Q. Public invariably buys high and sells low. In fact, when John Q. Public starts telling you about how great the stock market is – get cautious, get really cautious, and then get out. And by the way, the stock market is ONLY moving higher because The Ben Bernanke is handing out $85 Billion a month to the banks. But is a rising stock market a reason for gold to fade away?
Moving along to Mr. Soros. Mr. Soros knows that his voice and his actions, combined with a very simplistic rationale will indeed move markets. The #1 Rule in business is: “Buy Low, Sell High.” We have a stock market that seems to be rising incessantly. And when that happens, people get excited and want in. So, given a choice between holding gold (which is going nowhere lately), and holding stocks (which have been going somewhere), I would chose-holding stocks. Is the public ever right about their stock market timing? Virtually never. John Q. Public invariably buys high and sells low. In fact, when John Q. Public starts telling you about how great the stock market is – get cautious, get really cautious, and then get out. And by the way, the stock market is ONLY moving higher because The Ben Bernanke is handing out $85 Billion a month to the banks. But is a rising stock market a reason for gold to fade away?
On March 5th, 2009 during the big economic collapse,
the DOW hit a low of 6,594, and gold was around $850 per ounce. In August of 2012, the DOW hit 13,200, and gold
was about $1,800 per ounce. So gold
gained about $1,000 per ounce (roughly doubling) during a time when the stock
market gained 6,500 points (roughly doubling). By this evidence, a rising stock market
doesn't ALWAYS mean gold is going down. So
a rising stock market by itself is no reason to dump gold any more than The Ben
Bernanke lying to us is a reason to dump it. And I certainly won’t
chastise Mr. Soros for talking the gold price down as he sells high.
Behind the scenes we have Plot #1: Venezuela, Germany and now Switzerland, Azerbaijan, and the Netherlands are requesting their Gold be returned. Why are sovereign nations beginning to pull in their gold reserves? Could it possibly be that the stated amount of gold in bullion banks is bogus and they know it? Could it be that as more and more derivatives, forward leases, sales and swaps are placed against the physical assets – the real powers know that one day the call might go out to redeem all that gold, and their gold will NOT be there? DS and JA both wrote me about the GATA (Gold Anti-Trust Action Committee) report – citing Adrian Douglas’ calculation that in 2010 there were approximately 45 claims for every actual ounce of physical gold in the market. My research shows that in 2013 that number is more like 80 times and accelerating.
Further behind the scenes Plot #2: As our own Central Banks are printing money like it’s going out of style, it seems that they are buying MORE gold than ever before. Imagine that. Consider the following from CNBC: “Central Banks purchased more gold in 2012 than they have annually in nearly half a century as they sought to diversify reserves”, the World Gold Council (WGC) said on Thursday. It seems that Central Banks bought 534.6 metric tons of the precious metal last year - the most since 1964. Net purchases by central banks accounted for 12 percent of overall demand in 2012, compared with a 10 percent share in 2011.
So it seems that the same people that are telling us that the rally in gold is over, are the same ones that buying more gold than they have in the past 50 years. Are they really going to print fiat currency into oblivion, and when inflation finally goes hyper, and the economies implode – they (having all the gold) will be the only vestige of wealth? If you believe that having the US, the Eurozone and now Japan printing untold amounts of fiat money will actually solve the issues we face, and all these economies will rise out of the ashes of the crashes and thrive, then YES you would probably want to SELL your gold and silver and take your profits and get dollars for them. If on the other hand however, you think that all the debts, all the promises, all the funny money printing is now beyond the scope of normalcy, and into a period of unsustainability, then just what else would you want besides gold and silver?
Can gold go down – absolutely. In 2006 gold fell from $720 to $560 – over 22%. In 2008, Gold fell from $960 in February to $715 in September – down over 25%. George Soros has it right. Buy Low, Sell High!
The take away is: gold has had a spectacular run. It has outperformed everything between 2000
and 2012. It deserves a rest. Thus far gold is only off 15% from its high. I can see another 10% coming off. If it does, that is when I will buy more. But understand I’m not in gold for a
trade. As the currency wars come back
into focus over the coming weeks, gold’s biggest job will be to offset
inflation and maintain wealth. As I look
at a solid gold coin, a $100 bill, and my son’s Ten Trillion Dollar Zimbabwe
note – I know which one I want.
Many of you have written in asking for a ‘How To’
turn your 401k’s into GOLD without taking a penalty. I’m going to address that in next Sunday’s
letter. Thanks for your patience!
The Market:
Are we in a pull back? I hope so. It feels right, looks right, and the technicals say yes. But we have been in this position several times in the past year and each time the market confounded me and pressed higher. Why would this time be any different? It wouldn’t. If the only reason the market is in this position is because of The Ben Bernanke’s printing of money, then if Ben is still printing money, why would the market retreat? Unfortunately, in this market, things don’t ebb and flow in reaction to supply and demand, they go where the "central planners" and the banks want them to go.
We are well overdue for a good correction – one that scares people. But each time the market has started a pull down it just magically rises. Well, it’s not ‘magic’; it’s really The Ben Bernanke with his POMO injections. POMO stands for Permanent Open Market Operations by the US Federal Reserve Board. With a POMO injection, the Fed buys the US Treasury debt and pumps liquidity into the system. The idea is that the money freed-up from holding US Government bonds will be put into use in boosting the spending and thereby the economy. You can actually draw an EXACT line between POMO injections and a goosed (going-higher) market. Just about every time the market is on the brink of having a really bad hair day, here comes Benji with his POMO money. If that doesn't change, then there will be no pull back – no correction.
Will POMO happen again? Probably. Each time the market sets up for a pullback, I go into a defensive mode. I don't want to be caught carrying a lot of equities when a real correction hits, and The Ben Bernanke isn't there to save the day. So right now, I’m still leaning long, but our fingers are awfully close to the sell button. In fact, we sold out of some stocks on Friday and took profits.
Tips:
The Market:
Are we in a pull back? I hope so. It feels right, looks right, and the technicals say yes. But we have been in this position several times in the past year and each time the market confounded me and pressed higher. Why would this time be any different? It wouldn’t. If the only reason the market is in this position is because of The Ben Bernanke’s printing of money, then if Ben is still printing money, why would the market retreat? Unfortunately, in this market, things don’t ebb and flow in reaction to supply and demand, they go where the "central planners" and the banks want them to go.
We are well overdue for a good correction – one that scares people. But each time the market has started a pull down it just magically rises. Well, it’s not ‘magic’; it’s really The Ben Bernanke with his POMO injections. POMO stands for Permanent Open Market Operations by the US Federal Reserve Board. With a POMO injection, the Fed buys the US Treasury debt and pumps liquidity into the system. The idea is that the money freed-up from holding US Government bonds will be put into use in boosting the spending and thereby the economy. You can actually draw an EXACT line between POMO injections and a goosed (going-higher) market. Just about every time the market is on the brink of having a really bad hair day, here comes Benji with his POMO money. If that doesn't change, then there will be no pull back – no correction.
Will POMO happen again? Probably. Each time the market sets up for a pullback, I go into a defensive mode. I don't want to be caught carrying a lot of equities when a real correction hits, and The Ben Bernanke isn't there to save the day. So right now, I’m still leaning long, but our fingers are awfully close to the sell button. In fact, we sold out of some stocks on Friday and took profits.
Tips:
The
past week we sold out of KSU (-1.00), WFT (-0.50), SLB (even), SPN(+1.50), MS
(+4.25), PTEN (+4.50), and SPY (+10).
I’m
still looking to purchase more in the 3D printer space. When President Obama mentioned the area in
his State of the Union, the stocks shot higher but are settling down nicely
with rumors of a correction. We did
however manage to nab PRLB before the talk – so that was good news.
-
Looking to purchase shares of 3D Systems (DDD) on a pullback
– potentially as low as $55 (currently $59.40)
-
And shares of Stratasys (SSYS) on a settling of the pullback
– potentially pulling the trigger shortly as it’s down to $68.50.
My
current short-term holds are:
-
PRLB in at 43.48 (currently 47.24) – no stop
yet
-
SIL – in at 24.51 (currently 19.73) – no stop
yet
-
GLD (ETF for Gold) – in at 158.28, (currently
155.68) – no stop ($1,608.80 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 28.79)
– no stop ($29.84 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades
– my handle is: taylorpamm.
Please be safe out there!
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