Gyroscopic Investing

Wonk wrote: Most asset classes rebound in some way after a >25% selloff--very rare if they don't.  Although I'd love to see a panic liquidation down to $1000 or so, I'm not betting on it.  I didn't add to any positions on the way down from $1900, but I've added heavily to current positions at these prices.

A lot of the "gold's bubble has popped" articles fail to account for the possibility that this is a mid-term correction in a long term secular bull market.  The gold market had a similar 2-year correction from 74-76.  Of course I may ultimately be proven wrong, but my bets are on a resumption of gold's secular bull at some point in the near future (6-18 months).

portart wrote: Talk about the chance of our lifetime to make huge money if gold really breaks up hard and gets near it's highs. You could really see 300% percent gains or more in this crapped out sector.

sophie wrote: Your prediction is as good as mine :-)

I suspect that gold will continue flat or may drop further as long as the stock rally continues and optimism remains high.  The real question is when the stock market will tank, given that 2/3 of the US economy is driven by consumer spending.  With incomes that haven't budged for at least 5 years and ever increasing living costs, that spending can't keep increasing indefinitely.

Reub wrote:

sophie wrote: Your prediction is as good as mine :-)

I suspect that gold will continue flat or may drop further as long as the stock rally continues and optimism remains high.  The real question is when the stock market will tank, given that 2/3 of the US economy is driven by consumer spending.  With incomes that haven't budged for at least 5 years and ever increasing living costs, that spending can't keep increasing indefinitely.

I'm betting that the stock market will tank towards the end of the year, when it will no longer be a necessity for this Administration to artificially prop it up any further to gain votes.

portart wrote: The market is on shaky grounds, especially considering last year's outsized gains. Any hard core negative news on the consumer end in the US would send them tumbling fast as hell. I am underweighting stocks and adding to gold, silver and a little on gold stocks on selloffs. Silver looks especially good to me here having lagged gold on the recent run up. The only thing to be careful of in the miners here is that an all out assult on stocks could bring all equities down. This happend the last time gold took off and the miners didn't participate getting caught in the stock downdraft. It could be different this time though considering their depressed stock prices. I am keeping the ones I have but not going crazy on them in case the market gets pummeled. No one knows for sure what will happen but you don't see stocks rise double digit in consecutive years very often and most especially, from artificial government intervention propping up from a hard recession a few years ago.  It looks like gold may take a rest here for awhile but if it holds the gains, that in itself would be bullish. The market on the other hand.....

portart wrote: Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

Kshartle wrote:

portart wrote: Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

Libertarian666 wrote:

Kshartle wrote:

portart wrote: Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

Or they can just buy stock futures, which gives more "bang per buck".

Kshartle wrote:

Libertarian666 wrote:

Kshartle wrote: Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

Or they can just buy stock futures, which gives more "bang per buck".

How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

Libertarian666 wrote:

Kshartle wrote:

Libertarian666 wrote: Or they can just buy stock futures, which gives more "bang per buck".

How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

No, they can just buy thousands of S&P futures in one order and jack the price up very rapidly. I believe that's how they stopped one of the past stock market meltdowns, although that was never admitted.

Kshartle wrote:

Libertarian666 wrote:

Kshartle wrote: How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

No, they can just buy thousands of S&P futures in one order and jack the price up very rapidly. I believe that's how they stopped one of the past stock market meltdowns, although that was never admitted.

Does buying a futures contract directly raise stock prices? It's a derivative...not the underlying security. I'm not clear how buying the forward contracts actually raise the price of the actual stocks.

Libertarian666 wrote: It's not exactly direct, but professionals who sell futures generally buy stocks to avoid the risk of getting killed from the market going up, so making a big stock index future purchase will push up stock prices. In any event, it is much more direct than buying bonds to reduce interest rates to make stocks more appealing.

See http://www.marketoracle.co.uk/Article464.html for a summary of this approach.

annieB wrote: I would guess the FED has bought these in the past to halt a
big decline.