RE: The Stock Market Has Officially Entered Crazytown Territory

agip wrote:

bul kathos wrote:

Physical Gold is in huge demand but the price has been hammered down.

could you explain a scenario in which this is possible?

So where is your evidence that 'physical gold' is in huge demand?

Without getting the data on gold 'consumption', your assertion is just unsubstantiated noise. Go get the data, and if you do not know how, then you really do not belong in such discussions.

I would guess that the run-up in gold prices over the last half dozen years had lead to increased mining supply, but I am not going to bother go to get the data. The end of QE2 in a little while means that the longer rates will go up and that generally makes it more costly to hold gold; I think that if you go read some commentaries you will see that that is cited for one reason in the price decline. Another is likely the continued absence of much price inflation.

There is an old statement -- gold is barren -- meaning that it is a base commodity that just 'sits there' and is not productive as a use of capital. Flagpole might bring it gold's role as a hedge for several different risks and as those risks shift, gold demand can go up or down.

Stock prices are not driven by what is happening today. It is driven by what people think will be happening in 5 years. You might also want to check that huge apple profit growth. They sold 14 billion more in product in 2013 but made 5 billion less. That is why the stock has dropped. It is actually a lot more complicated (i.e. you have to consider how much is one time investments, delayed earnings, product cycles,....) but put simplely people expected able to grow faster than it did and are now worried that its growth curve is flattening out.Twitter is a fantasy stock. You either believe in it or you don't. Put me in the don't category.

MingeeMong wrote:

Buy low sell high. Invest in good companies with good practices.

I've doubled the money in my Roth IRA using this simple strategy. Used to have my Roth in Cd's. Put it in a Vanguard Roth account after the stock market crash in 2008.

The stock market is a strange place, when you see Twitter get to almost 80.00, and at the same time Apple stock is dropping, despite the huge growth in profits they'll be seeing in the next year, and Twitter probably won't make any profit at all.

Flagpole or someone would likely have pointed this out, but the stock indexes do not take account of the effects of dividends. When dividends are issued the stock price declines (and thus, so does the index containing it) because they pay out cash and the company is worth less by the value of the payout (trading at that point is referred to as 'ex-dividend'). Changes in tax treatment had increased the dividend rate lately but it has been on the order of 1-2%. Not a lot per year, but definitely a non-trivial effect over the long periods. 2% over 35 years amounts to doubling the index.

26mi235 wrote:

I would guess that the run-up in gold prices over the last half dozen years had lead to increased mining supply, but I am not going to bother go to get the data. The end of QE2 in a little while means that the longer rates will go up and that generally makes it more costly to hold gold; I think that if you go read some commentaries you will see that that is cited for one reason in the price decline. Another is likely the continued absence of much price inflation.

Such wisdom here at LRC.

Did you read that in Barron's, or maybe the WSJ? lol.

I'm sure you're right that anticipated higher interest rates makes gold go down... that must be why gold went down so much in the 70s.

Do you honestly believe that QE is going to end in a "little while"? Do you believe everything the Fed tells you? Haven't they been talking about ending QE soon for years now? I'm sure you're right - it's just around the corner.

The comments I made were ones based on reading the situation and just generally paying attention to the economic world. Sort of like Flagpole, although it pays more attention to the investing world a bit more than I do. While he and I rarely disagree on things, I do not put the same emphasis on things that he does. He and I do agree on such core things as not leveraging our investments just to go to multiply higher returns (his repeated commentary on paying down mortgages emphasizes this time and again). He and I take a 'modest' approach that diminishes some risks while not running away from the equity markets with their higher returns. We are at a bit different stages in lifecycle that also leads to both different choices and different experiences.

As for the Fed, they are not a player that can play the role that you seem to ascribe to them. If they repeatedly try to fool everyone they will be very ineffective, make the inherent problem of political enemies a bigger one and lose the US the esteemed position of monetary world currency. Every other country in the world would dearly like to be in that position, and it is stunning how little some in the US political system seem to realize the advantages (and the responsibilities) it provides the US. I think you seem to under-appreciate it or you would not make the remark in the form you made it, although I could be misreading your comment a bit (and it easy to do in this realm for a variety of reasons). I think that the Fed will edge back towards more standard Central Bank tools - an opinion picked up mainly from reading in places such as the WSJ, NYT, financial press, etc.

By the way, thanks for the comments.

I've pointed this out a number of times, but with respect to gold, the elephant in the room is the central banks. World macroeconomics is what you need to look at.

During the whole period between 2000 and 2011 and particularly between 2008 and 2011, the reason gold went up so much was that the central banks stopped selling it. The banks knew that the way out of the near-depression that GWB and Co. created was the reflate the world economy. So the thing to do was not stocks or gold but stocks AND gold, and I said this here several times and several years ago. Gold is simply a currency, and if the central banks want to see that currency go up, you are an absolute idiot to want to take the other side.

The fall in gold is simply the reverse of the above paragraph. My understanding is that the actual top in 2011 at around 1950 was put in place by the Japanese Central Bank selling a LOT of its gold to help finance Fukushima recovery. The fall in gold this year was triggered by European country central banks--AGAINST the advice of the European Central Bank--selling large amounts of gold to avoid bankruptcy. Who were they selling that gold to? The Chinese central bank. All of this is why in February 2013 George Soros sold is gold stake as did much of the "smart money", and I went from being long gold to being short gold.

In the short run, there may be a large countertrend rally starting soon, triggered in large part by the Cyprus central bank deciding to not sell its gold to save is government/currency, and thus the expectations of world economic growth (ex-US) are increasing and the central bank selling appears to have run its course.

Technical indicators are STRONGLY indicating a bottom (intermediate term at least) in gold. The expected countertrend rally would be expected to go to somewhere between 1400 and 1550, but if it generally follows the 1980-1990 period as an analog, this will be a place to get out (if long), not get in. This will likely be the last chance to close long at "decent" prices, and if it continues to follow the 1980's, gold will then lose another 50%. I will be looking to go long, maybe even this week, for the next 6-18 months, then go short again for the long term somewhere above 1400 for an eventual bottom somewhere in the 700-1000 range.

Please, do tell which European countries' central banks sold ANY gold and approximately how much they sold.

How much are you claiming Japan sold? (You know, since you say they sold "a LOT" of it)

So, Cyprus not selling its gold a year ago is only NOW going to trigger this countertrend rally? Dude...

Highlighter of Intelligence wrote:

So, Cyprus not selling its gold a year ago is only NOW going to trigger this countertrend rally? Dude...

Cyprus decided to not sell gold a year ago? Are you REALLY as STUPID as you "sound"?

It shouldn't surprise people that there are a bunch of people who actually know what they're doing (unlike posters on letsrun) that pay a lot of attention to what the central banks are doing. People here might not be able to read the first one if you don't subscribe to Financial Times, but the second link you can read:

What is very clear in the data is that about the time that I got into big arguments with Flagpole about the top in the stock market (Q3 2007, about the time I pointed out that private bankers were telling wealthy clients to move money from stocks into bonds), the central bankers moved from selling over 100 TONS per year to slight acquisition, and this is what pushed gold from about 930 when I bought in 2009 to over 1900 in 2011. And since then, we have had the reverse, which IN THE SHORT RUN seems to have run its course as the macroeconomic situation has changed.

The chart indicating an "imminent" (on a weekly basis) bottom. MACD is a trailing indicator:

http://www.barchart.com/chart.php?sym=GCY00&style=technical&template=&p=WC&d=M&sd=&ed=&size=M&log=0&t=BAR&v=0&g=1&evnt=1&late=1&o1=&o2=&o3=&sh=100&indicators=SMACD%2812%2C26%2C9%2C16737792%2C10053375%2C13421721%29%3BCCI%2820%2C6710886%2C100%2C26367%2C16724736%29%3BRSI%2814%2C0%2C100%2C10079487%2C10040064%29&chartindicator_1_code=SMACD&chartindicator_1_param_0=12&chartindicator_1_param_1=26&chartindicator_1_param_2=9&chartindicator_1_param_3=16737792&chartindicator_1_param_4=10053375&chartindicator_1_param_5=13421721&chartindicator_2_code=CCI&chartindicator_2_param_0=20&chartindicator_2_param_1=6710886&chartindicator_2_param_2=100&chartindicator_2_param_3=26367&chartindicator_2_param_4=16724736&chartindicator_3_code=RSI&chartindicator_3_param_0=14&chartindicator_3_param_1=0&chartindicator_3_param_2=100&chartindicator_3_param_3=10079487&chartindicator_3_param_4=10040064&addindicator=&submitted=1&fpage=&txtDate=#jump

The only question is how many runs the bears are going to take at blowing out the support at ~1180 before the give up for now. There is a clearly developed double bottom if the support holds--in the 1980's, there was a test of the top of the double bottom formation which got no higher, and it was all downhill from there.

So, what's next? That's the major question.