Posts filed under “Valuation”

12 Rules of Goldbuggery

Yesterday morning, I mentioned the extent of cognitive dissonance surrounding the Gold was surprising (What Are Gold’s Fundamentals?).

The reaction to Gold’s crash has produced some astonishing rationalizations. The refusal to acknowledge basic trading facts leads us to recognize that Gold bugs and traders have very specific rules that they MUST follow. These social conventions look less like a debate about asset classes and more like a religious cult.

The advocates for any sort of investing thesis have their rules, metrics, heuristics and biases. Here are the rules we teased out for the Gold Trade:

 

The Rules of Goldbuggery

1. Gold is a Currency: This is rule number 1. It is not a decorative or industrial metal, it is a permanent store of value, as dictated by Greeks in Lydia around 700 B.C. And, it shall be ever thus.

2. The price of gold cannot fall, it can only be manipulated lower: When gold’s price falls, it is an unnatural act. It can only occur as the result of an international cabal of Central Bankers and politicians. Its a conspiracy, and we know who the guilty parties are.

3. If the price of gold is rising, it is doing so despite enormous and desperate efforts by manipulators to prevent the rise: This is the corollary to the prior Rule of Gold manipulation. Gold runs up despite the overwhelming opposition to it.

4. The world MUST return to the Gold Standard one day:  It is inevitable that we will return to a Gold Standard. We all know this to be true. When we compare the size of the money supply to past amounts when there was a Gold Standard, we can derive prices of Gold in the $7,000, $10,000 even $15,000. Hence, we know its cheap even at $2,000.

5. Central Bankers are printing money relentlessly, and this can only drive Gold prices higher: NOTE: You must ignore, for the moment, that Gold has not gone higher for the past 2 years as Central Banks around the world have ramped up QE. This only means that ultimately, Gold will go much much higher.

6. Gold works whether the economy is good or bad: When we have a red hot economy, Gold is your hedge against inflation. When we have a bad economy, Gold is a safe harbor against collapse. It is a one way trade that never fails!

7. Gold will survive after the world economy crumbles: Gold is the ultimate currency, as it has a value that will survive even after the whole world tumbles around you. Get yourself some gold coins and a Glock and you will be just fine when the whole world goes to shit. We welcome the era envisioned in the movie Mad Max.

8. Never admit that Gold is essentially a sucker’s bet: Never discuss how in the last century, gold has run up only be to trounced in repeated massive sell offs (always blame rule #2 for this). Do not discuss how this has happened in 1915-20, 1941, 1947, 1951-66, 1974-76 1981, 1983-85, 1987-2000 and 2008.

9. Gold is a rejection of government, and their control of fiat money and finance: There are no printing presses that produce gold, it is finite, natural and God created. How much we scrape out of the ground each year is limited, and the only variable to the old equation. (Just ignore Man’s natural tendency to organize into to City-States over the past 12,000 years).

10. All Gold discussions must contain ominous macro forecasts: Your description of why Gold is going higher must consist of spurious correlations, unprovable predictions, and a guarded expectation of bad things in the future. Avoid empirical data at all costs.

11. Gold is always rallying in one currency or another: Sure, it may be down 30% in Dollars, the reserve currency it is priced in, but you can always find a currency falling faster than it does and claim you own it in that denomination. Last week, it was up in Japanese Yen. This week, it is up in Zimbabwe dollars.

12. China & India know the value of Gold; the Western world does not: The massive buying of gold by consumers in Chindia reflects the culture, intelligence and investing savvy of the people in these countries. The West doesn’t get it, and it is their loss.

Bonus rule: Never admit Gold might be falling because it trades on human emotions and psychology and has no intrinsic value whatsoever.

 

The enormous amounts of dollars involved in the Gold trade has attracted all manner of charlatans and frauds to the Gold trade. Although this list can help you separate the true believers from the criminals, time has proven them to be both are enormous money losers.

Ignore the risks of being a gold bug at great peril to your portfolio . . .

 

Category: Gold & Precious Metals, Humor, Psychology, Rules, Valuation

What Are Gold's Fundamentals ?

In a piece published in Barrons.com’s on Friday (Is Gold Nearing Capitulation?) the selloff in gold was described as “a contrarian’s dream scenario.” John Hathaway of Tocqueville Funds wrote in Barron’s: “The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like…Read More

Category: Gold & Precious Metals, Really, really bad calls, Trading, Valuation

What Are Gold’s Fundamentals ?

In a piece published in Barrons.com’s on Friday (Is Gold Nearing Capitulation?) the selloff in gold was described as “a contrarian’s dream scenario.” John Hathaway of Tocqueville Funds wrote in Barron’s: “The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like…Read More

Category: Gold & Precious Metals, Really, really bad calls, Trading, Valuation

Broad Market Lagged Price to Earnings Ratio

Click to enlarge Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management March 31, 2013

Category: Investing, Valuation

Sequestration Impact on Top 10 US Military Contractors

click for larger graphic

 

 

Here’s a little surprise: The top military contractors have all been doing pretty well since Sequestration hit.

I know what you’re thinking: They already got hit in anticipation of Sequestration. Only they didn’t.

Boeing (BA) and Oshkosh OSK are near 52 week highs, while United Technologies (UTX) and McKesson (MCK) 20% are at all time highs. (Table below)

So much for the impact of these government cutbacks on Military contractors . . .

 

See also:
Chuck Hagel on defense budget cuts under sequestration: ‘We’re adjusting to the realities’ (NBC)

The case for the sequester’s defense cuts (WonkBlog)

McKeon ‘Very Concerned’ About Sequester’s Military Impact  (Washington Wire)

 

 

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Category: Markets, Trading, Valuation

Discuss: Is Anything Cheap?

click for larger graphic     All of the major markets have had a huge run off of the lows (though they are barely flat since the 07 peaks). What does this mean? Are markets too expensive, or are they better priced than last time? What say ye?     Source: Is Anything Cheap? JASON…Read More

Category: Digital Media, Investing, Valuation

Why Investors Should Ignore Politics & Economics

> My Sunday Washington Post column this week looks at two of the major topics of financial news – Politics & Economics. The column draws the counter-intuitive conclusion that these aspects of daily life are mostly meaningless to investors much of the time. Under the headline Voters should pay attention to politics. Investors should ignore it,…Read More

Category: Apprenticed Investor, Psychology, Valuation

Apple, Amazon, Google, Microsoft Market Caps (2006- )

Click to enlarge Source: Daring Fireball   Fascinating chart via John Gruber looking at the relative change in market capitalizations of four of the largest publicly trading tech companies. The ongoing strength of Amazon is nearly amazing as the continued weakness in Microsoft. All the while, Google keeps chugging along . . .

Category: Digital Media, Valuation, Web/Tech

How Cheap Are Equities ?


Source: Société Générale

 

 

To answer that question, look at the chart above, courtesy of Société Générale’s Albert Edwards, who asks the question “Are equities really “unambiguously cheap”?“. (Cyclical Earnings charts after the jump).

Shiller’s CAPE chart shows that while US equities are fairly reasonably priced, they are not, to use Edwards term, ““unambiguously cheap”.” But for about a week in March of 2009, they were, but if you blinked you may have missed it.

Europe, on the other hand, appears to be appreciably cheaper than US equities. (Funny how recessions tend to do that). We have about a 16% European weighting, primarily through ETFs like GAL and DVYE.

Regardless, contrarians may wish to take note of this from a valuation perspective.

 

 

Source:
Are equities really “unambiguously cheap”?
Albert Edwards, Global Strategy Weekly
Société Générale, February 14, 2013

 

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Category: Contrary Indicators, Earnings, Investing, Valuation

History Of The S&P 500′s Biggest Components

More looks from various decades of the the top 10 S&P500 caps.

 

Click for Complete History

More charts after the jump

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Category: Digital Media, Index/ETFs, Valuation