Friday, October 15, 2010

Bonds Vs. Gold

Investors are currently pouring their life savings into municipal bonds, corporate bonds, and long term treasury bonds in search of yield for their retirement income.  Most investors now have 75% or more of their portfolio the bond market.  They toast at dinner events and discuss the silly gold "bubble" they are hearing about on the news.

While bonds now represent a massive portion of an average portfolio, let's take a look at the average % in gold and gold mining stocks today compared to the past.  Does this look like a mania?

Wednesday, October 13, 2010

Bloomberg Interview

For those readers out there that I have not had the pleasure to meet in person, I'll give you a glimpse at what the Tuna looks like.  Bloomberg invited me on this week to talk about my favorite topic: Gold.  Instead of Tuna, my friends at the network just call me Mr. T.

Big Picture Focus

It is no secret to long time readers of this site that I love to focus on long term macro-economic trends.  I believe that markets move in cycles (tending to last 20-25 years) and that the best way to learn where we are moving in the future is to study the past.

My most popular cycle of discussion is stocks vs. commodities.  Stocks entered a bull market in 1980 which topped in the year 2000.  Since that point we have been in a long term bear market that we are currently in the heart of in 2010.

Commodities entered a long term bear market in 1980 that ended in 2000.  Since that point we have entered in a long term bull market that we are currently in the heart of in 2010.

Running concurrent with these two cycles is the multi-decade ending of the United States dominance as the global economic leader.  Depending on how you measure it, this point occurred in the year 2000 (real stock market high) or in 2007 (total national wealth high when factoring in real estate).

Many assume that the United States will decline slowly as the emerging markets fill the void in the global economic environment.  My view is that there will be no slow decline, there will be a collapse.

The collapse of our country in economic terms will come in the form of national debt default.  We will not have a formal default on our debt where we will ask our creditors to take a portion of the money owed, we will pay them back with dollars created from a printing press.

This event is referred to as the devaluation of the currency.  Creditors will be paid back with dollars that are worth far less than what was originally lent out.  Those dollars will purchase less oil, food, housing, clothes, and gold.

This will be the most important economic event of this century.  It will provide the greatest wealth transfer the world has ever witnessed.  Investors that have continued to invest in commodities over the past decade in anticipation of this event are now seeing the end game unfold.

Your goal as an investor is not to secure a 10, 20, or 30% return on your investment in gold next year.  Your goal is to accumulate as many ounces of gold, barrels of oil, bushels of wheat, and shares of companies that invest in or will benefit by these assets rising in price.  The dollar value of your assets will have no meaning when we reach the end of this cycle. 

The reason I want to focus on the endgame is that I see a very large pull back in prices coming in the commodities sector.  The bullish sentiment toward gold, silver, copper, corn, soy beans, oil, and everything else I love is at a fever picture as of this writing.

If prices pull back, this will be a tremendous opportunity to add to positions.  This is the reason I have be recommending holding your current investment positions, but keeping new incoming cash in just that: cash, as we wait for better opportunities to enter.

Warren Buffett said that he is confident to invest when people are afraid, and he is afraid to invest when people are confident.

I could not agree more.

Tuesday, October 12, 2010

Where's The Note?

A new website has just been created called "Where's The Note?", which takes homeowners step by step through the process of contacting the bank and forcing them to show they actually own the mortgage note.

If the bank cannot produce the note, the lucky homeowner has just found out they can now live for free.

God Bless America once again.

This story is only just getting started, and I will be going into it in much greater length as we move forward.  For those patiently waiting on the sidelines for housing prices to bottom you can comfortably sign another 12-24 month lease.

They Do Not Believe

Last month I discussed the Insider Confidence in the stock market by looking at the number of corporate insiders buying vs. selling.  To update, the ratio from the most recent week came in at 1,169 sales for every 1 purchase.  Insiders do not believe in the rally.

Last week we received word that it has now been 21 weeks in a row that retail investors (401k and IRA funds) have been net sellers of the stock market.  This is unprecedented and means that the average American has now been selling for three straight months.  They do not believe in the rally.

The New York Stock Exchange short interest this morning was at 14.35 billion shares.  30 days ago it clocked in at 14.36 billion shares.  Shorting a stock means you have sold it thinking its price will fall.  You then buy back the stock in the future and pocket the difference in price.

The short sellers (professionals) do not believe in this market rally and they have not budged an inch as the market rose in September.  They are still betting in a massive way that the market is ready to turn down.  They do not believe in the rally.

UBS reported this morning that their client only long funds reported a one week outflow of $783 million ending October 1st.  They reported a massive total outflow during the month of September.  The clients do not believe in the rally.

So if the public, insiders, and short sellers are selling stocks across the board, who is doing the buying to cause stocks to surge higher last month?

It is hedge funds (who buy with leverage), primary dealers (who buy with money they are receiving from the Fed's bond purchases), and high frequency traders. 

It is important to understand that when the market turns, these buyers will instantly become a cascade of sellers and they will have the ability to use leverage to the downside.

For a better understanding of high frequency traders, please take a look at the 60 minutes segment below.....