Inflation, deflation, gold and currencies

[richard5za]

What am I missing here?

I am trying to find an accurate way of explaining the situation. I am sorry to say that the anchor presenters on CNBC talk a great deal of nonsense. I have no idea how they get away with it. If you are genuinely serious that you want to understand stock markets I will do the necessary work to assist you. I don't know why I am making this offer because it will be a lot of work. Richard

[thomasglee]

What am I missing here?

I am trying to find an accurate way of explaining the situation. I am sorry to say that the anchor presenters on CNBC talk a great deal of nonsense. I have no idea how they get away with it. If you are genuinely serious that you want to understand stock markets I will do the necessary work to assist you. I don't know why I am making this offer because it will be a lot of work. Richard

My main point is that he and other "experts" are still spouting the market is under-priced, yet PE's are outrageously high.

[richard5za]

My main point is that he and other "experts" are still spouting the market is under-priced, yet PE's are outrageously high.

Correct

[richard5za]

Money is merely our mental measure of wealth - it is NOT wealth.

- Martin Armstrong

On my screen, in colour green is the above. When I try to reply in the normal way its not there:
Mr Armstrong, are you aware of the hardships and heartbreak associated with living on less than $ 2 a day? About half the population on this planet live in this way. Not having potable water, cold in winter, hungry. Watching a child die because you can't afford medicine? Mental measure indeed!!!

[richard5za]

A thought for the short term traders
This may or may not be a good thought for a source of trading profit for the short term traders, like Higgie or Vincecate: Have a look at this chart from the Kitco website showing the gold price, in particular the red line showing the 24 hour price on 11 October. At about 9 am London time the price dropped. This has been quite a regular pattern recently - The East is buying gold and the West is selling. So the thought is to short gold before the London market opens. Or go long before the Eastern markets open. Any use?

gold 11Oct2011.jpg (76.69 KiB) Viewed 3445 times

[vincecate]

This may or may not be a good thought for a source of trading profit for the short term traders, like Higgie or Vincecate:

I certainly don't think of myself as a short term trader. I basically have one idea and keep adjusting over time as things go up and down. My idea is that they are printing too much money and so the price of silver will go up as the real value of the dollar goes down. I am playing this with highly leveraged options. To hedge for times when the dollar goes up I have puts on the S&P which tends to go down when the dollar goes up more than the silver goes down. So as silver and S&P go up and down I move a bit of money back and forth sometimes and into longer term option. However, I am not doing "technical investing", I am not really looking at charts or the usual short term trading type things.

Part of the germination of my investment idea was that the Dow Jones valued in gold was almost sure to go down. Bernanke may be able to print enough money to keep the nominal value of the stock market from going down, but I don't see how he could save it from going down in terms of gold or silver.

So another way to look at this is that I have S&P puts betting that the stock market is going down, but am hedged against paper money becoming worth less and less so that the market does not go down in nominal terms. This is hedging the Bernanke factor. Bernanke wants to print money to support the stock market.

http://www.beyouranalyst.com/2009/05/do ... stock.html

Also, I really don't spend much time watching the market. Often I just glance at things once or twice a day. I probably trade 2 or 3 times a month. I sort of feel my position works fine no matter what happens so I don't need to monitor it too much.

[richard5za]

I basically have one idea and keep adjusting over time as things go up and down. My idea is that they are printing too much money and so the price of silver will go up as the real value of the dollar goes down. I am playing this with highly leveraged options.

Thank you for the most interesting explanation, Vince. Higgie is a short term trader and I thought you were too. I have similarities and differences to your strategy, and will share with you my strategy:

First of all I prefer to be invested in high quality general equities in times of a long term bull market e.g. from 1981 to 2000 you got a 12 fold increase in your investment. I define a bull market as one that starts with a low PE ratio usually below 8 and ends with a high PE ratio usually above 19. A bear market is the reverse - starts with a high PE ratio ends with a low one. If you examine the Dow for the 100 years from 1900 to 2000 there were 4 bull markets and 4 bear markets. The first bear market of the 20th century lasted 20 years from 1900 to 1920 so the market periods can be a long time. The bull that followed it, using my definition was 1920 to 1929, and so on. There are ups and downs during both bull and bear markets but: Not once in the last 100 years has the index value at the end of the bear market been above the start index value, and generally in the bull makets the index value increased many fold.

So my basic strategy for retirement savings is to be fully invested in general equities in bull markets, and then sell out and in cash in bear markets. I sold out in 1998 and then took a chance 2005 to 2007 when I sold out again. By now I was retired so I took 5% of my savings and put it into gold and gold miners as a retirement interest. And its done well; more than doubled. And I've enjoyed the interest especailly the technical and economic analysis.

Its now 2011 and the 95% portion of my retirement savings haven't grown much at all. In 2009 I took a retirement job with a charity and they pay me a modest salary, and my wife works and enjoys her job so fortuneately we are not spending retirement savings in a period of low interest rates and growth. I run my retirement savings like a business and my objective is to obtain a minimum annual growth of 10% plus inflation, and I am falling badly short on this target. And there is no end in sight to the bear market; it may go on for another 10 years before I can get back into general equities. Plus, horrors, real horrors, the Western world is going mad printing money, which as you say will in due course make gold more and more valuable in comparison to the Dow. Of course, unless there are some really bad policy decisions and we start to deflate. But with vigilance I reckon one could see this coming and sell out. In the 70's quality real estate was my main inflation hedge but for safety sake I want inflation hedges that are very quick to trade, so gold is ideal. (I own the house I live in and there is no debt on it, but I don't regard my home as part of my investments. We all need somewhere to live)

So I have increased the amount of my savings available for investment to 40% of the total and am more aggressively seeking to exploit opportunities in gold and gold miners. My theory is that if you are riding a bull trend you are more likely to do well. The investment periods from buy to sell are anything from 5 to 15 weeks. So one to three completed deals a year. The buy and sell signals become very important in this strategy. Hence my focus upon technical analysis. Currently I am fully invested i.e. all 40% invested in gold and gold miners and currently showing a lowish % profit.

[Higgenbotham]

Higgie is a short term trader and I thought you were too.

I'm primarily a long term trader, but I also trade short term in order to minimize risk. Very rarely do I take a short term trade in opposition to my long term directional positions. In other words, it would be a rare case in which I would go long anything in a bear market; the setup would need to be very good.

I was long real estate from 1984 until 2004, was long precious metals related items from 1993 until 2011, and was long gold stocks from 1998 until 2006.

I've been shorting stock indices since 2004.

Also, my major strategy from 2004 through 2007 was to play the Dow Gold ratio, as Vince mentioned.

I was a few years early on all of these long term ideas, and have learned it's important not to get too far behind in the short term when I'm early on the long term trend that is developing.

A thought for the short term traders
This may or may not be a good thought for a source of trading profit for the short term traders, like Higgie or Vincecate: Have a look at this chart from the Kitco website showing the gold price, in particular the red line showing the 24 hour price on 11 October. At about 9 am London time the price dropped. This has been quite a regular pattern recently - The East is buying gold and the West is selling. So the thought is to short gold before the London market opens. Or go long before the Eastern markets open. Any use?

I've done 2 similar short term trading strategies in the past.

In 2003, Europe was selling US stocks in the morning US time. Once Europe finished their business day, the US was buying US stocks in the afternoon US time. This worked for about 4 weeks and I made some money buying stocks that were in trading ranges in the early afternoon and selling in the late afternoon.

Also in 2002 and 2003, after the NY Comex gold pit closed in the early afternoon, the gold mining stocks would also trade back and forth for the remainder of the day because the Comex pit was no longer giving direction. I wanted to be long gold mining stocks at that time and was accumulating more. They were thinly traded at that time but there were people who wanted out at the market and people who wanted in at the market. I would put a bid in on a few thousand shares down at the bid and get filled nearly every afternoon, then sell at the offer and get filled on that nearly every afternoon. I consistently made several hundred dollars per trade doing this until the stocks took off to the upside and it stopped working.

So, yes, I believe an alert trader can make some money with these kinds of strategies.

[vincecate]

Also, my major strategy from 2004 through 2007 was to play the Dow Gold ratio, as Vince mentioned.

Did you play it by being long gold and short the Dow? Or some other way?

[Higgenbotham]

Also, my major strategy from 2004 through 2007 was to play the Dow Gold ratio, as Vince mentioned.

Did you play it by being long gold and short the Dow? Or some other way?

I was already long some gold, silver and gold stocks in 2004. In 2004 I bought a lot more gold and silver and shorted S&P 500 futures.