Gyroscopic Investing

Slotine wrote:
No.  Excluding 1980 there was no bull market in gold. 

That's incorrect.  The bull market in gold began in the 60's and was a direct precursor to the Nixon shock.  Overseas redemptions of U.S. gold were accelerating due to the fiscal decisions made in the 60s.  Overseas investors (especially governments) could redeem dollars, accept gold and sell on the international market at a premium to the officially recognized value of $35/oz. 

Slotine wrote:
That aside, the ups and downs in the 70s are merely a reaction to the inflation expectations that was coming and going.  Inflation was already on an uptrend curve before the end of Bretton Woods.  Dropping the peg merely shifted the responsibility of dealing with it to the private sector.  If inflation had been dropping, as it did mid 70s, you would see the free floating gold price drop, as it did.  So attributing the start of a free floating dollar to rising gold prices is a mistaken bias.  If you we're truly objective on gold and the government, Nixon didn't make a difference.

Nixon had to close the window or the U.S. would have been drained of all its reserves.  As the reserve currency, the U.S. enjoyed the largest stock of gold post WWII at over 20,000 tons.  By 1970, redemptions had reduced that amount by 12,000 tons.

When the dollar was no longer redeemable in gold, the price continued to elevate until real rates moved positive as MG mentioned above (75/76).  Upon resumption of a negative real rate environment, gold continued its upward acceleration until its market became so popular that even the shoe shine boy owned it by late 1979.

The gold bull market lasted about 15 years and had several corrections along the way, as most bull markets usually do.  It wasn't until Volker moved rates well ahead of inflation that the gold bull was finally derailed.

The Hunt Brothers were major players in the silver market throughout the 70s, but to say they drove the gold market is not accurate.

Well the Asian markets are open and (dramatic gasp)... gold and silver are trading near flat. Their stock markets are mostly down but not by disturbing percentages.

Ad Orientem wrote:

dkalder wrote: So

• Stocks are overvalued
• Gold and commodities are overvalued
• Bonds are already near 0% and thus historically totally overvalued
• Cash is flooded onto the market by the central banks and thus overvalued

And certainly my PP of the mid of last week was overvalued compared to today (around - 4%) ...

The question is: what is not overvalued and in relation to what? Preferably in relation to stuff like shoes, bananas and similar stuff I really need.

That would depend on what economic condition we are in... inflation, prosperity, tight money, or deflationary depression.

Clearly there is no sign of inflation and just as clearly the FED is not raising interest rates. That would suggest either prosperity or deflation. I can't rule out the possibility that we may be in the very early stages of an economic recovery, but if we are it is well disguised at the moment. To my mind the answer is deflationary depression. That would suggest that both gold and stocks have been overpriced.

And your suggestion that bonds can't go any lower is clearly mistaken. They can go MUCH lower in their yields as the great Japanese deflation has proven. Our LTTs are still yielding around 2.7% Japanese LTTs were below 1% the last time I looked. Any comparable move on the part of US Gov't securities would be HUGE.

Don't worry about short term movements in your portfolio. The PP is not like a Swiss watch where all the gears move in tandem with one another. But on a year over year basis your chances of taking a really bad hit are extremely low.

See this excellent chart courtesy of MG...
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9

Don't get wrapped up in specific movements or short term ups and downs. Keep your eye on the horizon.

Deflationary depression would sound reasonable, if my German EUR consumer basket showed it. But it does not: rent, gas, bananas, shoes - all rise in a clear inflation. The only reason this inflation is not more pronounced are the productivity and logistics progress making so many appliances of any kind cheaper and cheaper and thus keeping the CPI at bay.

Probably the real problem of all this overvaluation is that the money gets lost in some dark channels. The robber barons of the 21st century are obviously quite sophisticated, no matter if they are located in Nicosia, New York or Singapore.

Wonk wrote:

Slotine wrote:
No.  Excluding 1980 there was no bull market in gold. 

That's incorrect.  The bull market in gold began in the 60's and was a direct precursor to the Nixon shock.  Overseas redemptions of U.S. gold were accelerating due to the fiscal decisions made in the 60s.  Overseas investors (especially governments) could redeem dollars, accept gold and sell on the international market at a premium to the officially recognized value of $35/oz. 

Slotine wrote:
That aside, the ups and downs in the 70s are merely a reaction to the inflation expectations that was coming and going.  Inflation was already on an uptrend curve before the end of Bretton Woods.  Dropping the peg merely shifted the responsibility of dealing with it to the private sector.  If inflation had been dropping, as it did mid 70s, you would see the free floating gold price drop, as it did.  So attributing the start of a free floating dollar to rising gold prices is a mistaken bias.  If you we're truly objective on gold and the government, Nixon didn't make a difference.

Nixon had to close the window or the U.S. would have been drained of all its reserves.  As the reserve currency, the U.S. enjoyed the largest stock of gold post WWII at over 20,000 tons.  By 1970, redemptions had reduced that amount by 12,000 tons.

When the dollar was no longer redeemable in gold, the price continued to elevate until real rates moved positive as MG mentioned above (75/76).  Upon resumption of a negative real rate environment, gold continued its upward acceleration until its market became so popular that even the shoe shine boy owned it by late 1979.

The gold bull market lasted about 15 years and had several corrections along the way, as most bull markets usually do.  It wasn't until Volker moved rates well ahead of inflation that the gold bull was finally derailed.

The Hunt Brothers were major players in the silver market throughout the 70s, but to say they drove the gold market is not accurate.

Yeah, my memory of the 1970's comports pretty closely with Wonk's comments.  Gold got a little ahead of itself in late 1974 (up to nearly $200), probably mostly because of the over-hyped news of the coming lifting of US private ownership restrictions on January 1, 1975.  But the year and half slide after that (to mid 1976) was really more of a cyclical pull back.  Markets are seldom neat and smooth.  The Hunt Brothers were an entertaining sideshow in the silver market in 1980 -- they made great villians for the media and some in Congress (there is nothing more dangerous than a Congressman in search of an issue). 

Slotine wrote: I don't know why I keep getting pulled into the 70-79 date range.  I don't discount the rational fear that drove the markets then, and I get that a lot of people feel that those reasoning are justified even this day.  But there's a big gap between that natural market and early 1980.  I tend to agree with MG in that it's a "matter of perspective" because one could say the Hunt's actions were the market.  After they started it, a number of other large syndicates followed suit - or were they just innocent bystanders?

SBSS 28.  The Real Hunt Brothers Silver Story, Part 2

Most of the beginning is to set the background for the Hunts' rationale and the slow ramp up to 79.  Silver Thursday isn't just a figment of a congressman's imagination.  As for the Hunts being drawn into a witch-hunt, that much I agree.  Much like AIG today, they weren't the only ones playing it fast and loose then.  But their conviction to buying silver and having what appeared to be the means to continue it indefinitely made them stand out from the crowd. 

So maybe on that analogy to AIG, I'll rescind my statement that it's unlikely to happen again.  But I wouldn't bet on it

Yes, I'm quite aware "Silver Thursday" wasn't the figment of a congressman's imagination.  But the "outrage" at subsequent congressional hearings and in the media afterward were really rather silly.  The Hunt brothers were protrayed as greedy villians.  In reality (to me, at least) they were really just a little naive and somewhat pathetic.  In the 1979 events leading up to it all, they had never tried to hide their intention to buy as much silver (directly, or on margin) as they possibly could, but they apparently never realized the exchanges could simply jack margin requirements whenever they felt like it.

I remember the incident pretty well because the very day that it all blew up in March 1980 I (as a naive young investor) walked into a "full service" brokerage office (Wheaton Securities) in Washington, DC, during my lunch hour and opened my first brokerage account.  I promptly bought $1500 worth of put options (paying some pretty hefty commissions) on several US blue chip stocks just as the stock market was bottoming, apparently because of the "liquidity" concerns brought on by fears of possible defaults in the commodity markets.  A couple of weeks later I sold the puts for just under $600.  It was quite a loss for someone with a weekly gross salary of about $325 at the time.

The main reason I'm recounting this trivia here is that the "put option package" trade was recommended in one of the first newsletters I received in early 1980 as a new subscriber to Harry Browne's Special Reports.  This was several years before he came up with the PP strategy we discuss here.  In all fairness to Harry, I do remember he clearly described the trade as a speculation only to be undertaken with money you could afford lose.

For some reason, the most memorable response I recall from the congressional hearings came when one of the Hunt brothers was asked about his net worth.  He replied, "Congressman, I'm really not sure.  In my experience, people who know exactly how much they are worth usually aren't worth very much."       

 

I thought this was an interesting summing up:
http://jessescrossroadscafe.blogspot.co ... -gold.html

I guess gold is all about how purchasing power is becoming distributed across the WHOLE World. It is all too easy to think of the USA and Europe and not beyond it. Much of the global economy is with the other 80% of the World's population. I guess the gold bull market is partly about Indian households being able to afford to pay more. If you think the purchasing power of Indian households is no longer on the rise, then perhaps that signals the end of the gold bull market. I haven't a clue myself; I'm just making the point that straying away from the PP rebalancing rules means getting involved in a very very complex global form of speculation not just what you see around you.

I came really close to buying Eagles when spot was in the 1300's, but I was out of town and could not take delivery. In a way I'm glad, because despite all the crazy stuff going on in the world that seems like the kind of thing that drives gold upward, it may well have further to fall. Maybe I can rebalance into it if I'm patient.

Anyone else noticed that gold has been slowly but steadily climbing since black Monday?

Ad Orientem wrote: Anyone else noticed that gold has been slowly but steadily climbing since black Monday?

So much for the apocalyptic sell-off of a lifetime.    Someone made a lot of money buying from the people panicking a week ago. 

Things could drop again tomorrow, but this is a good reminder of the power of staying the course.

Ad Orientem wrote: Anyone else noticed that gold has been slowly but steadily climbing since black Monday?

Yes.

Yes, and I believe my overall portfolio value is just almost where it was just before the "gold crash".

Tyler wrote:

Ad Orientem wrote: Anyone else noticed that gold has been slowly but steadily climbing since black Monday?

So much for the apocalyptic sell-off of a lifetime.    Someone made a lot of money buying from the people panicking a week ago. 

Things could drop again tomorrow, but this is a good reminder of the power of staying the course.

The genius behind this portfolio is that  you will not sell an asset at the worst possible time.  It takes luck to buy at the absolute bottom of a correction, but  in these periods of volatility, I am sure more people hurt themselves by bailing out at the worst possible time, than help themselves by perfectly timing a purchase.

I just wish the price would go down so I could buy!
I feel like Daffy Duck stamping his feet when he wants the treasure to himself. "No! No! No! Down! Down! Down! Mine! Mine! Mine!"

Hah, I feel the same way.

dualstow wrote: I just wish the price would go down so I could buy!
I feel like Daffy Duck stamping his feet when he wants the treasure to himself. "No! No! No! Down! Down! Down! Mine! Mine! Mine!"

That was a GREAT cartoon.

http://vimeo.com/48015450
(The bit with the referenced line starts at 1:35)

Wow. Gold is back up to $1474. That's a pretty nice comeback from the crash. What is interesting from my pov is that it didn't just bounce back up. This has been a nice steady creep back up. In fact I'm not sure if gold has had a down day since the crash on the 15h.

Gold dropped >2% starting around 11 am this morning.  Seems to correspond with the market close in Europe.  Wonder what's up....

cnh wrote: Gold dropped >2% starting around 11 am this morning.  Seems to correspond with the market close in Europe.  Wonder what's up....

My fault. I mentioned the rally. :-(

The gap was filled.  Exactly at 143.43 on GLD.  Filling gaps is like a nervous tick that muppets do.  Always unsure and insecure of themselves, they must test hither or tither.

A close below 140.04 will warn of a possible trend change.

cnh wrote: Gold dropped >2% starting around 11 am this morning.  Seems to correspond with the market close in Europe.  Wonder what's up....

One theory is that someone in Europe got a big margin call and had to sell something with liquidity...

Libertarian666 wrote:

cnh wrote: Gold dropped >2% starting around 11 am this morning.  Seems to correspond with the market close in Europe.  Wonder what's up....

One theory is that someone in Europe got a big margin call and had to sell something with liquidity...

Yeah, I read that too.  MG, looking at the GLD chart, isn't there a gap in the 138-139 area too that might want to be filled before any upward trend continues?

Libertarian666 wrote:

cnh wrote: Gold dropped >2% starting around 11 am this morning.  Seems to correspond with the market close in Europe.  Wonder what's up....

One theory is that someone in Europe got a big margin call and had to sell something with liquidity...

That would have to be one hell of a margin call and a massive gold position to move the markets that much.

Ad Orientem wrote:

Libertarian666 wrote:

cnh wrote: Gold dropped >2% starting around 11 am this morning.  Seems to correspond with the market close in Europe.  Wonder what's up....

One theory is that someone in Europe got a big margin call and had to sell something with liquidity...

That would have to be one hell of a margin call and a massive gold position to move the markets that much.

Yes, it sure would.

cnh wrote: Yeah, I read that too.  MG, looking at the GLD chart, isn't there a gap in the 138-139 area too that might want to be filled before any upward trend continues?

I don't see any unfilled gaps in that area?