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| Buy, buy, buy! Gold is cheap! |
Today's Market
by Dr Invest
I want to reaffirm, do not expect any spectacular increases in the market. And please... I'm asking, pleeeese don't believe anything the financial media says.
Mark Kiesel at Pimco exhorts, "Now is the time to buy houses.", while Gary Shilling predicts a 20% decline in housing prices in 2012. Yes, I said in 2012. Both men are looking at similar telemetrics with very different interpretations.
See: http://www.bloomberg.com/video/93205371-shilling-housing-will-decline-20-percent-in-2012.html
What's Up?
As reported yesterday, the most probable track of the market will follow the seasonal chart. As I said, "bad news" can change that track. If the "bad news" doesn't persist, the market will return back to the seasonal track most of the time.
"Good news" will quickly push the market higher because of the exuberance still present in the market. Greedy sales people lead people to believe that the market hasn't lost its momentum, and the present losses are "buying opportunities". Listen, if the professionals are confused about whether the market is moving up or down, then I'm not interested in investing into it.
What to do?
It seems that having a reliable investment method is critical to increasing your profits. Go to the 1st of May and begin reading this entire blog. Understand, that the financial reports you are getting from companies, are reports from APRIL. If just 1/3 of the companies are reporting profits less than projected, these reports of losses will get worse as the companies report for MAY. Don't get suckered into buying more stocks and immediately put STOP-SELLS on your stocks. That is what I have done. Again, the needs of each individual investor is different, so methods that I am utilizing are solely for discussion and thought. As you follow this blog, I will be candid and honest in the returns from my positions. At the end of the year, we can assess the results my investment strategies.
The higher the risk, the higher the return. What we want to do in a volatile market is to lower the risk and maximize the return. A 6% return for 2012 would be admirable and an 8% return would be remarkable. Remember, we have diversified our portfolio by dividing it into thirds. 1/3 is kept in stocks, 1/3 is kept in bonds, and 1/3 is kept in cash. The 1/3 set aside for bonds is invested only when the time is optimal. The 1/3 in stocks is sold when the market turns down and re bought when the market is most optimal at the end of October. The final 1/3 is kept in cash in case there is a sudden downturn in the market. (see previous blogs starting in May)
About that 1/3 in Cash
This is my opinion, but DO NOT PUT 1/3 YOUR PORTFOLIO INTO GOLD. Gold is a "speculative investment" and as recently experienced by "gold bugs", gold does go down in value. In the 80s gold sold for $200 per ounce, rising to $830 per ounce, then falling back to $300 per ounce. One of my friends leveraged (borrowed money) their investment into gold at that time, losing all of their money and part of a brokerage's money when the gold market settled.
Looking at the S&P 500 from the year 2000 til' the present, we see a SIDEWAYS movement. This is either a consolidation toward a downward movement or a consolidation toward an upward movement in the market. Because gold is a commodity, when there is "market destruction" gold will also turn downward as it did in 2009. (see http://en.wikipedia.org/wiki/Creative_destruction) Look at the gold price in 2009, marked in red on the chart to the left. Debt is not only sinking world economies, but our economy as well. Among many economists, the feeling is that the market will proceed in a downward trend. All that is really clear here, is that there has been a LONG-TERM CONSOLIDATION in the market. Gold prices LAG the market. In the ORANGE BOX is a line showing the beginnings of a CONSOLIDATION or sideways movement in the price of gold. Note the five-year chart below.
This gives us a clearer picture of what is going on in the ORANGE BOX. This would tell me that there is a TRADING RANGE in a downtrend. If gold makes a move ABOVE THE BLUE LINE, it will be a BULLISH MOVE, but if the price continues BELOW THE BLUE LINE, it will be a BEARISH MOVE. If you draw a line at 1600 across the two lowest points that gold has recently touched and draw a line from the most recent high price from 1800 to 1600, you will have a descending wedge pattern suggesting a bearish trend.
Some people swear by these kind of technicals, but at best, technicals are only suggestive of a potential move.
Before launching out to buy gold, you should be wise (educated) to how our government has grown to handle gold and a fiat currency. For your homework is a FREE book on Google book search... and look for FREE e-books. We are looking for "The Economic History of the United States" by Ernest Ludlow Bogart and in particular, the subject is "The Financial panic of 1873". Read Dr. Bogart's history on the panic starting on page 385. (see: http://books.google.com/books?id=cS0XAAAAIAAJ&pg=PA390&dq=financial+panic+of+1873&hl=en&sa=X&ei=-Xe8T7rKD4ae2gXxoOWtDw&ved=0CDkQ6AEwADgK#v=onepage&q=financial%20panic%20of%201873&f=false )
If you don't understand the development of currency, banking, and legal tender in the U.S. you will put your hopes for a quick gain at risk. An understanding of the "Greenback Party" and the interaction of the "gold standard" to "fiat currency" is critical to the gold investor. In 1933, F.D.Roosevelt issued a national emergency confiscating all gold bullion. (See http://www.the-privateer.com/1933-gold-confiscation.html) And yes, today's president has the power to issue such an order without the permission of Congress.
I would not put the 1/3 you have set aside for CASH into GOLD. Put the 1/3 CASH into CD. In the panic of the great depression, the market collapsed so rapidly that there were "no buyers" for stocks. Having their entire savings in the market, they lost everything. Especially in a volatile market as we have today, having at least 1/3 of your life savings protected could be a comfort.
Most importantly, don't think that the market can't crash that way again. Do you remember the FLASH CRASH? (see http://en.wikipedia.org/wiki/2010_Flash_Crash) With computerized trading, the right set of parameters could bring deep sell offs over a few days. To get OUT OF THE MARKET, you need someone who wants to GET INTO THE MARKET. It is theoretically possible be stuck in the market with no one to sell to.
So protect yourself by keeping 1/3 of your portfolio in cash. If you have three million dollars in your portfolio, keeping one million in cash may not apply... and you wouldn't need this blog's thoughts anyway. But for someone with a smaller portfolio, keeping around that 1/3 of your portfolio in cash would be a positive thing.
(note: the above information is for entertainment purposes only and not to be used as investment advice.)
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