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Which means that, if you like to follow the financial news, and read financial newsletters, then you should be aware of this fact. Now suppose I write and say, be in cash, be in gold... i.e. be out of markets... there then are no nice sexy returns, there is no excitement.... and being on the sidelines is boring.... and also takes discipline. I cannot tempt you with enticing returns, I can only advise being in gold. let's say... something that anyone can do....if they are inclined to it. Now suppose that we enter a time where any returns are really not worth the risk, but are actually speculative and over priced....(something I have been writing about). Do you really think that the majority of the investment community, financial news writers and brokers and so on, are going to tell you that...that you should be out of the markets, when they make their entire living on you being IN something they recommend? You see, there is a moral hazard for them, should they really know that one should be out of the markets, but there is no money, commissions, or even readers in it for them... so they will try to beat the odds and still recommend stocks and other things. Interestingly, Bill Bonner just put out a Gold-Eagle editorial that I really liked. The Importance of Doing Nothing Now, I feel happy that I am not the ONLY (it seems that way, anyway) guy recommending that people just buy gold and be out of the markets. (for now) I am not a guy who would say always be out, I just say be out for NOW. Of course, there are going to be sectors that will perform well here and there, but the overall risks make seeking those more costly (potentially) than they would be worth seeking, sort of like playing a poker hand, where instead of having a good two pair hand that would probably win the pot, you all of a sudden have to get at least three of a kind to have any chance... and that kind of situation is called chasing... you stay in a hand calling bets (analogous to being in the market) when you are likely to get beat, though of course you might win still, until the last card is dealt. Now, if I recommend that you just be out of the market, what do you gain by that???? It certainly isn't a very exciting or sexy recommendation now is it???? (of course what you might gain is avoiding some big loss) But, Jesse Livermore, speculator par excellence, wrote precisely about this situation, ie the temptation to be in a market at all times... the thinking being, that your money isn't 'working' if it is not invested. Livermore stated that there were times when markets would languish, for months and possibly even a year or two... and he would close out every position he had and go fishing in the gulf.... Evidently he realized the idea that one should not ALWAYS be IN a market... but be most definitely on the sidelines. Now Bonner said in that article above, that Buffett is sitting on a whole lot of cash, and even kind of lamenting about that in public comments, but he (Buffett) states that there aren't a lot of .....worthy investments! Gee, that's what yours truly is saying! Now then, since the gold markets are definitely heating up right now, of course there are opportunities right now, but over all...these are NOT times that are OVERALL friendly to investing....There will always be some hot aspect of a market, the question is do you ever feel that there are indeed times when the overall pricing of investing and risk is too high? My number one overall risk pricing tool is bond yields. As I have said many times recently, when quality sovereign debt yields are soo low for now several years, Japan about 1 percent, Germany about 2 percent, the US about 4 percent, Russia (now we are getting into speculative levels of yield) at 5 to 6 percent.... friends, all this tells us that there is a whole lot of money sloshing around seeking yield, but there just isn't much quality yield left in the picture now, and that is a world wide situation. This persistence of low yields in quality sovereign debt means that the entire yield universe has been analogously priced to high, and risk discounted too much. When yields stay low like this for a long time, that is because of things like overpriced stock markets, lack of any good solid businesses that can use capital, or things like, in the case of China, an over and malinvested manufacturing economy that is already wasting zillions of Yuan and Dollars, chasing the growth over there, with everybody and his grandmother and gardener sending their money to China.... Already, everybody and his grandmother and gardener, are totally committed into the real estate bubble...But that market is definitely peaking, and so there is no reason to be getting into THAT market just now either, though of course many will still be.... SO, year after year yields are staying very low, risk is under priced, investments come at a dear premium. In this kind of environment, shouldn't you consider doing what Jesse Livermore would do (that is if he saw the markets right now the way I am) and be out of the markets???? Now, of course there are other scenarios, when markets peak some people like to speculate and sell short, but that has to be the most risky thing to do of all, because selling short intrinsically has no limit of losses, you can lose more than you actually put up in the first place... and well you had better be right if you ever do sell short. If having to be a short seller is the only viable way to make money, since there are no investments at this time (with the possible exception being gold stocks) then why would you be in the markets at all? Short selling is only for the most ambitious speculator, with a cast iron stomach.... something only few can do well.... So then we get to Bonner's recommendation, in said article, buy gold!
The Prudent Squirrel newsletter is Chris Laird’s weekly macroeconomic gold newsletter. A month or so ago, I predicted the short term gold bear market is over based on the weak USD and the continuing concern in the Mid East. That has proven to be true – holding up gold in spite of weakness in the base metals…. Stop by and have a look. CONTACT
INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
