(Or, SO GOLD IS A VERY RATIONAL INVESTMENT)
The tweet heard ’round the world makes those who claim GOLD is an irrational investment appear to be the true FOOLS. In 140 characters, one man’s opinion added $40 BILLION to the equity value of a corporation. This is insanity and makes the idea of a rational capital market structure very suspect. The number of outstanding shares of Apple Inc. is 908 MILLION, thus a rally of $45 puts on more than $40 billion dollars of equity. This makes the recent rally in GOLD a very rational rebuttal. One man did the work of what thousands of sell side analysts failed to do. (And they wonder why the retail investors have been sidelined). The HFTs are pissed because they didn’t get the news two seconds early. The efficient market hypothesis may be correct during a certain amount of time, but in today’s algo-driven market and tweetable investments it is difficult to refer to any market as rational in the traditional sense. Warren B., you got a lot of explaining to do. But until then, don’t denounce GOLD as a haven in the times of monetary insanity. Oh well, back to the tapering!
***Today’s most important article was in the Financial Times and called into question the role of ETFs . The article, “Fitch and Fed Warn on Risk of ETFs Triggering Crashes,” warns that the use of leverage in the corporate bond ETFs could create instability in the financial markets if there was a mass exit from positions. Recent FED Reserve research “… warned that trading activity by leveraged ETFs during bouts of market volatility could lead to a “cascade ” reaction.” The recent moves in the bond markets have unnerved some but much of the move has been because leveraged positions magnified losses. Again, leverage is a great tool when the markets are trading in your favor, but upon further review think of the housing bubble. The recent instability in the debt markets merely reinforces the theory of Fed Governor Jeremy Stein. The ETF market will again show the retail investor to be EVER THE FOOL.
***MORE ON CAUSATION AND CORRELATION. In recent days the talking heads and every sell side analyst has been promoting the idea that the best investment for the next year is to buy European equities. This may well be a solid investment but I will wait for more clarity on the economic situation in Europe to search for “bargains.” The idea of Europe seems to rest on the idea that because the SPOOS and DOW have risen to record highs it is time for the laggards of Europe to catch up. See, it is all about correlation. “EUROPEAN BANKS ARE CHEAP,” the talking heads scream, but they forget the recent TEMPLATE of the Cyprus BAIL-IN of depositors to finance a bank rescue. Besides, it is truly amazing how “positive” the economic data has been out of Europe, four weeks before the key German elections. Even Portugal has a GDP of 1.1% growth.
Sorry, but I will not go chasing rabbits down this hole. I might miss some investment opportunities but I know the little birdie has not tweeted yet. Yes, correlations provide trading opportunities but as a longer term position on Europe I will seek out causation. The constant drumbeat to buy Europe is making me deaf to the “pundits'” pleadings. The French GDP that surprised to the upside? Well, much of it was the result of the auto sector and that does not jive with recent data on auto registrations, which are down considerably year over year. Some data just does not correlate.
***TO MY READERS: HELP A BROTHER OUT! A long-time reader of Notes From Underground is trying to put together a review of some of the favorite posts over the last three-plus years. He has put out requests for your contributions. This blog has had a mission statement of being a fomenter of knowledge and profitable trading scenarios but not touting. By looking back at some previous insightful posts, it may help shine some light on trading ideas going forward. SO I ASK THAT THE READERS HELP BROTHER MARIO’S QUEST. E-mail him at mario@vfund.com. And maybe we can all come together for a major investment jam session one of these months. As always, thriving in the world of the unbalanced where 2+2=5.
Tags: Apple, ETF, European banks, Gold, Twitter
August 15, 2013 at 7:21 pm |
Amen Yra for sounding the trumpets and can think of a couple to send Mario BUT this blog tonight is as good as it gets.
August 15, 2013 at 8:23 pm |
“This is insanity and makes the idea of a rational capital market structure very suspect.”
That’s an amen, brother.
August 15, 2013 at 8:50 pm |
“Markets can remain irrational longer than I can remain solvent” is credited to Keynes. I’d like to warp that a bit to fit the 21st century by saying, “Faith placed in the efficiency of markets and the power of models leads to more disappointment than a eunick in a bordello”
August 16, 2013 at 6:42 am |
Commodities are on the run for sure, silver, gold, potash, copper.
Everyone send me the name of your favorite article of send link and we can sum this all it and make it happen. Send to mario@vfund.com. Lets get this rolling along….
August 16, 2013 at 9:37 am |
Great point on ETF’s (add ETN’s to this). As a somewhat knowledgeable investor, I have tried to look into ETF’s and ETN’s and precisely how they work. This month’s AAII Journal has an excellent piece by Neil Leeson of Ned Davis Research, on this topic.
I think that people are more reactive to momentary swings in the market since they/we have become used to the momentary requirement for “results” and the 140 character communication.
So, rereading King Lear, focusing capital on not losing it first, then, as with the UTX bought in late Oct 87 after it was more than halved, will look for genuine bargains. (did see a 2007 SL55 AMG for sale that might fit the bill)
August 16, 2013 at 5:40 pm |
“it is truly amazing how “positive” the economic data has been out of Europe, four weeks before the key German elections. Even Portugal has a GDP of 1.1% growth.”
Exactly what I was thinking, a great sell signal.
Once burned, twice shy: I still don’t comprehend what’s going on with commodities though, oversold bounce or are they following oil? When does the FED call their friends and let them know some cash is in the mailbox intended to take the price back down?
August 17, 2013 at 10:00 am |
Your prediction that the yen was likely to fall was one of your posts that I remember, but it was only one of many that have helped me try to understand the markets.
Many thanks for sharing your knowledge.
August 20, 2013 at 8:17 am |
An investment jam session would be awesome. Count me in for a trip to Chicago! 😉