Financial topics

[aedens]

http://new.elfagr.org/Detail.aspx?nwsId ... id=1&vid=2

http://thecable.foreignpolicy.com/posts ... _patterson

El Fagr reported that, during their most recent phone conversation, Patterson demanded that Egypt's recently appointed Supreme Commander of the Egyptian Armed Forces, General Abdul Fatah al-Sisi, release all Muslim Brotherhood members currently being held for questioning: "And when Sisi rejected this order, the American ambassador began threatening him that Egypt will turn into another Syria and live through a civil war, to which Sisi responded violently: Neither you nor your country can overcome Egypt and its people.

[aedens]

http://www.whitehouse.gov/sites/default ... update.pdf

[Higgenbotham]

After the Google miss, I added the shorts back that I covered last Friday at the close.

This looks like yet another place the stock market can top. If that happens, I think it's possible that gold, silver, and the precious metals stocks have already turned up off their lows and the Dow/Gold ratio is due a reversal from 12.

This seems like a good time to review the big picture themes from the past few years.

[aedens]

Anyways ask Detroit about who is going to pay for a dead city and national mandates.
http://www.nytimes.com/interactive/2013 ... ref=health

[Higgenbotham]

First is the Dow/Gold ratio.

This hasn't been looked at in awhile here. It's risen to its highest level since the 2008 collapse. I've made some suggestions that the current level might be a reasonable retrace level. The ratio currently sits at the red line at 12 and my guess is a reasonable retrace range might be 10-15. I certainly don't think it can get into the 18-20 area, which is where it sat in 2007 before the housing and mortgage collapse.

Which, as an aside, the gold stocks are priced lower than they were in 2007 while the Dow is priced higher.

I would suspect that, if this ratio were to decline, it will be as a result of gold prices moving higher and stock prices moving lower, or gold prices staying about steady to slightly lower and stock prices moving a lot lower. It might be reasonable to expect this ratio to see a value of less than 2 from a peak in this area near 12.

My (generally useless) opinion is that being long gold stocks and short broad index stocks is the best trade out there.

longtermdowgoldlogtr1800.png (67.69 KiB) Viewed 3398 times

[aedens]

http://news.morningstar.com/stockReturn ... turns.html

http://news.morningstar.com/stockReturn ... turns.html

[Higgenbotham]

I've collected a few old charts of the DOW/HUI ratio.

The HUI itself made a low of about 35 in late 2000, rose to about 640 in 2011 and now has fallen to about 230. The last time the HUI was in the 230 area for a long time was in 2004 and 2005 when gold was priced around $500.

First is 1996-2004 as the ratio made a high.
Second is 2010-2013 as the ratio has increased off its low.

The DOW/HUI ratio is currently 68.

DOWHUI 1996-2004.jpg (37.22 KiB) Viewed 3393 times

DOWHUI 2010-2013.png (126.05 KiB) Viewed 3393 times

Sources of attachments
http://www.lemetropolecafe.com/Pfv1.cfm ... APTAINHOOK
http://www.wealthwire.com/news/metals/4856

[aedens]

https://upload.wikimedia.org/wikipedia/ ... o_City.PNG

[Higgenbotham]

While gold's own secular bull was born in April 2001, the HUI's started a bit earlier in November 2000.

http://www.321gold.com/editorials/hamil ... 12012.html

A search for this fact yielded only 8 reference articles (some were duplicates too). Gold stocks will generally bottom before the price of gold. If the gold stocks have bottomed, it's not likely that gold and silver will see their lows until later this year.

[Higgenbotham]

BERNANKE ON GOLD:
"Gold is an unusual asset. It's an asset that people hold as disaster
insurance. A lot of people hold gold as an inflation hedge. But movements of
gold prices don't predict inflation very well, actually.
"But anyway, the perception is that by holding gold you have a hard asset
that will protect you in case of some kind of major problem. I suppose that one
reason gold prices are lower is that people are less concerned about extreme
outcomes, particularly negative outcomes and therefore they feel less need for
whatever protection gold affords...
"Gold price going down is not necessarily a bad thing from that perspective.
It suggests people have somewhat more confidence, and are less concerned about
really bad outcomes. But let me just end by saying that nobody really
understands gold prices, and I don't pretend to understand them either."

http://www.reuters.com/article/2013/07/ ... IF20130718

I'll redo Bernanke's words for another possible fit. My changes are in caps.

"But anyway, the RECENT CHANGE IN perception is that by holding gold you have a hard asset that will NOT protect you in case of some kind of VERY major problem SUCH AS A SITUATION WHERE SUPLUSES DISAPPEAR AND THE ECONOMY BECOMES STRICTLY A BARTER ECONOMY. I suppose that one reason gold prices are lower is that people are MORE concerned about extreme outcomes, particularly EXTREMELY negative outcomes."