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"Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 02:24 PM   #1
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"Pieces Of Eight, *Pieces Of Eight"

Ay mateys, an' Comex gold 'as closed at a 16 year high today.

I do love the barbarous relic, its luster, its sensual weight.

I love its heaviness around the neck, its radiance against a woman's rosy skin tones.

But back to money for a moment. The facts are this- the near month on the world's most liquid gold exhange closed higher today than it has in the previous 16 years. NY Comex Dec gold closed at $429.90, up $4.30 or 1% on the day.

Gold has undergone a devastating bear market, with lots of rallies and harbreaking falls along the way since it peaked at $850 in 1981. It appears to have bottomed around $250 almost three years ago.

It's on the way back now, and this normally risky asset may actually have the best risk/reward of any asset class right now.

As a commodity investment I actually prefer oil, but I am up to my gills in oil investments, and have been for several years. In nominal dolalrs, oil is making new alltime highs. It will go higher in the years to come, but there may be some wicked volatility along the way.

OTOH gold is just breaking out. Another positive factor IMO is that gold has not captured many people's fancy beyond the usual dyed in the wool gold-bugs.

Tech is busted. Americans are addicted to gambling. It wouldn't matter if gold were just batts of wool, once it starts moving and getting press beyond gold-bug publications it will be off to the races. Just watch it when Maria Bartiromo starts touting it!

Mikey

PS: If any of you are missing the rush of the late 90s, give a listen to Joey Ramone's "Maria Bartiromo". It's on the CD he made just before he died, titled DON'T WORRY ABOUT ME. It captures the crazy unreality of that era, and also the sadness.
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Re: "Pieces Of Eight,  Pieces Of Eight"
Old 10-25-2004, 02:56 PM   #2
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Re: "Pieces Of Eight,  Pieces Of Eight"

My husband agrees with you and has "a lot" in metals, especially gold and silver. Makes me nervous. Then again, everything to do with investments makes me nervous. I would rather go to that "happy place" and plug some numbers in firecalc and have it tell me I have a 100 percent chance of success.
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Re: "Pieces Of Eight,  Pieces Of Eight"
Old 10-25-2004, 05:55 PM   #3
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Re: "Pieces Of Eight,  Pieces Of Eight"

There's no place like FIREcalc. There's no place like FIREcalc. There's no place like FIREcalc. (click click click)
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 06:24 PM   #4
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Re: "Pieces Of Eight, *Pieces Of Eight"

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The facts are this- the near month on the world's most liquid gold exhange closed higher today than it has in the previous 16 years. NY Comex Dec gold closed at $429.90, up $4.30 or 1% on the day.
Congrats, Mikey. I guess that means that gold only needs to double from here for somebody who invested at the peak of the market almost 20 years ago to break even, eh?

Gold simply hasn't been a great long-term investment. It no longer has the intrinsic value it once had. It's a purely speculative play. Sell!
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 07:06 PM   #5
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Re: "Pieces Of Eight, *Pieces Of Eight"

"Gold simply hasn't been a great long-term investment. It no longer has the intrinsic value it once had. It's a purely speculative play. Sell

Oh ye of little faith in the barbarous metal,the ancient metal of kings,the only monetary asset that owes nobody nadda.Best gander at your favorite chart of the US dollar.Of course if you live in the land of euro's then gold isnt doing to well.But for us in the new world,its a different story.Then perhaps do a google search for Fed govt. Mcteers comments perhaps 1 week ago or so allow me to butcher in plain paraphrase"Without real fiscal restraint,the dollar has nowhere to go but down."
As long as this trend continues,in general all real assets especially commods should continue to rise (in US $'s)
As to the poor souls who bought @ 800?,thats what makes a market fear/greed.I was fearfull when i started accumulating physical gold ~270,silver ~4.90 and various PM stocks.(ok,enough tooting my own horn).Try this some time,put a stack of crisp 7 $100 bills & a $50 in one stack,then immediately to your right place a nice 100 oz bar of silver .Now tell me which catches your eye
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 08:34 PM   #6
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Re: "Pieces Of Eight, *Pieces Of Eight"

I like assets that pay a return --dividend, interest, or can grow intrinsically like shares of living companies. Metals may rise and they may fall, but they have never paid a dividend. Isn't that somehow a current that total return has to buck?

Also, in the short term, gold/precious metals do a great job of dampening portfolio volatility and making a bad week or month look better. (when people panic in stocks or bonds, they buy gold) This might lead you to believe they have Modern Portfolio Theory volatility dampening benefits. However, when you look at even one-year data, the negative correlations with other asset classes disappear in large part, and gold tends to trend with the other asset classes. And we who sell only 4% or less of our portfolio in a year (maybe lots less if you spend dividends first) need long-term non-correlation from our asset classes, not short-term.

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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 08:46 PM   #7
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Re: "Pieces Of Eight, *Pieces Of Eight"

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Congrats, Mikey. I guess that means that gold only needs to double from here for somebody who invested at the peak of the market almost 20 years ago to break even, eh?

Gold simply hasn't been a great long-term investment. * It no longer has the intrinsic value it once had. * It's a purely speculative play. * Sell!
Well Wab, you sure slew that straw man. But I am not sure what it has to do with my thesis, which is that IMO gold and some gold stocks have now and have had for a few years an attractive risk reward profile.

I agree gold isn't a good long term investment. But then, it would have taken a very maladroit speculator to buy 20 years ago. One in the same league with those who bought techs in the final 1999 run-up in the Nasdaq. It is a speculation, one of the things you buy to sell, not to hold. But at times it can deliver.

Mikey
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 09:03 PM   #8
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Re: "Pieces Of Eight, *Pieces Of Eight"

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I like assets that pay a return --dividend, interest, or can grow intrinsically like shares of living companies. *Metals may rise and they may fall, but they have never paid a dividend. *Isn't that somehow a current that total return has to buck?

Also, in the short term, gold/precious metals do a great job of dampening portfolio volatility and making a bad week or month look better. (when people panic in stocks or bonds, they buy gold) *This might lead you to believe they have Modern Portfolio Theory volatility dampening benefits. *However, when you look at even one-year data, the negative correlations with other asset classes disappear in large part, and gold tends to trend with the other asset classes. *And we who sell only 4% or less of our portfolio in a year (maybe lots less if you spend dividends first) need long-term non-correlation from our asset classes, not short-term.

ESRBob
I had to quote your whole piece, because you make two separate but important points. On the first, I also prefer a grind-out investment where there are earnings, dividends, etc. Mining companies of course do have earnings, and sometimes small dividends. But overall, you are right, they are bought to be sold. But in this regard I feel that they are typical of most investments available today- what cash does a tech stock give to the holder, unless he has made a successful greater fool trade? Likewise, many other stocks are so overvalued that few people would would make an irreversible long term commitment to them. They are really being used as specualtive vehicles for the most part.

Even long term bonds- would you put substantial money in a 20 year non-indexed treasury at 5%, knowing that you had to hold it for 20 years?

It's a giant game of old maid. I just happen to think that the game in gold is younger than other games at this time.

As to your second statement about correlations, I think the perfect co-existence of a 20 year bear market in gold, and a 20 year bull market in stocks is all the negative correlation I need.

Mikey
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 09:18 PM   #9
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Re: "Pieces Of Eight, *Pieces Of Eight"

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I agree gold isn't a good long term investment. But then, it would have taken a very maladroit speculator to buy 20 years ago. One in the same league with those who bought techs in the final 1999 run-up in the Nasdaq. It is a speculation, one of the things you buy to sell, not to hold. But at times it can deliver.
OK, let's take this at face value. * To make money in gold, you need to have a well-timed entry and exit. * What makes you think now is a good time to enter, and how will you know when it's time to exit?

Gold has already nearly doubled in the last couple of years. * *And that was in the face of a nearly perfect storm: falling dollar, skyrocketing commodities, factors pointing to higher inflation, and perhaps most significantly, a monetary policy that virtually forced investors into "alternative" asset classes.

The only way for gold to go up from here in the near term is for a true doom-and-gloom scenario to play itself out. * Not impossible, but not especially likely in my opinion.

If you just want to go by charts and momentum, take a look at the rally and fade from 85-90. * I think that's more likely than a replay of 1980.

But I'm not much of a betting man when I know that my chances of getting both the entry and exit right are only about 25% (assuming no intrinsic value to guide me).
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 10:32 PM   #10
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Re: "Pieces Of Eight, *Pieces Of Eight"

" like assets that pay a return --dividend, interest, or can grow intrinsically like shares of living companies. Metals may rise and they may fall, but they have never paid a dividend. Isn't that somehow a current that total return has to buck"

Well put,but ughm..well what about :ENE,MRK,AIG,LU,WCOM,MMC?,not to hard to figure out what there corps look like.With china/japan holding fully 40% of our debt,and the only 2 ways out of our debt problems either devaluation or the mother of all booms,makes risk free treasuries in for some turbulent times.ill take mine at a discount plse,or close to it.No PM's look rather attractive as a hold/trade.its sorta like the anchor in the boat,wont catch any fish but sure comes in handy sometimes.like any asset,you have to figure out your risk tollerance and appropriate allocation--ak
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-25-2004, 10:35 PM   #11
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Re: "Pieces Of Eight, *Pieces Of Eight"

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OK, let's take this at face value. * To make money in gold, you need to have a well-timed entry and exit. * What makes you think now is a good time to enter, and how will you know when it's time to exit?
These things can't really be debated. People have their opinions, and that is good!

I read all the time what can't be done. But I am a very ordinary person, and I have it done many of the things that can't be done over and over.

I made money on gold stocks in the 70s. I did it again in over the last few years, during which time I held at various junctures Dundee Precious, Barrick, Buenaventura Mines, and Goldfields South Africa. I sold a lot, and re-entered with partial positions last fall. Now I own MNG (an explorer), Randgold, Newmont, Cambior and Fidelity PM. I have small gains on my present basis.

As regards all your reasons why it won't work, I categorically reject all of them. But it would be too hard, too boring to others, and useless to try to go point by point.

Perhaps you wouild like to sell gold short? Let us knowhow it works out, say 5 years down the line.

If I lose it all, I am so far ahead the last few years that while I will be unhappy, it won't last long.

I expect that I will not have to face that however.

Mikey

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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-26-2004, 05:43 AM   #12
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Re: "Pieces Of Eight, *Pieces Of Eight"

Precious Metals are a type of what are commonly called "zero-sum" investments. *What that means is that their return over a very long time (say 100 years for example) is 0%. *Look up a few precious metals over 100 years and verify that. *Worse, they are also highly volatile, and volatility is the enemy of a short-term investor. *So..... *there's two real good reasons why they're both poor investments for long-term, and short-term.

The only time you'll see experts recommend these is to consider it for up to about a max of 10% of your portfolio to give yourself some protection during especially hard economic times. They also work great for portfolio stability simply because they show either no correlation, or sometimes inverse correlation to other common investments such as stocks or bonds.

Fundamentally, they just dont make sense to me anyway. *I like knowing my money is working just as hard as I do. *Buying chunks of earth isnt exactly accomplishing that.
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Re: "Pieces Of Eight,  Pieces Of Eight"
Old 10-26-2004, 06:24 AM   #13
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Re: "Pieces Of Eight,  Pieces Of Eight"

Just a thought, did it ever occur to anyone, that an additional reason oil and gold and other commodoties have skyrocketed is because of the pathetic performance of the US Dollar? It's downward spiral is almost (Tongue in cheek) proportional to the increase of Gold and Oil, etc. Well you know what I am aiming at. If you hold Euros Gold is 30% cheaper that in the US.

If I was a producer, a market trader, or holder of commodoties, and had market influence, I would lobby to keep putting the prices of all commodoties up to compensate for the weak and ailing US Dollar. Unless of course the markets get fed up with the US Dollar, and change the trading currency to the more stable new kid on the block, the Euro. This is a real issue that government officials do not seem to care about. But Europeans are lobbying for.

So they (Government) simply let the Dollar spiral out of control, making the American people poorer day by day. If that is not enough, they ship their jobs off-shore, and incent companies to so. Oh, where is the respected America of Old? Will she ever regain her dignity... (Dollar Wise)

Off Soap Box.......

I am, unlike our current government, against a weaker than ever Dollar. Notice how the subjected is avoided by the media and politicians right now.

SWR
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Re: "Pieces Of Eight,  Pieces Of Eight"
Old 10-26-2004, 12:00 PM   #14
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Re: "Pieces Of Eight,  Pieces Of Eight"

Arrrr mateys! Be it "international talk like a pirate day" again already?

Shiver me timbers and avast ye!

Alright, I got nothing. I do own a little of vanguards precious metals fund, but I think I only have 10 or 15k in it. Bought it earlier this year. It was up about 18% last time I looked.

How about a little pirate joke?

Pirate walks into a bar and the bartender notices he has a ships steering wheel shoved down the front of his pants. He says "Arrr...what be with the wheel in your pants?". The pirate replies "Arrrr...it drives me nuts!".
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-26-2004, 08:02 PM   #15
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Re: "Pieces Of Eight, *Pieces Of Eight"

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" .its sorta like the anchor in the boat,wont catch any fish but sure comes in handy sometimes.--ak
AK, that is the best quote i've heard in a long while -- LOL. We actually do have some PM -- the Chinese mother-in-law gives us a coin every anniversary... 16 years and 16 ounces -- may be worth something again some day? If nothing else, I'll take the "good luck" that it's supposed to confer -- that's a dividend that's hard to quantify, but may be better than anything stocks can turn out.


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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-26-2004, 08:46 PM   #16
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Re: "Pieces Of Eight, *Pieces Of Eight"

PM's are nothing more than the opposite of the dollar,dollar down,commodity's up,plain and simple.you could own scrap stainless,copper futures,exotic hard wood flooring unfinished or even a share in a hard wood plantation,doesnt matter.the only difference between this group and PM's,is PM's are more fungible.I realize its not very bogle or bernstien right,but i like things that go up in value,plain and simple.Yes that requires work and keeping a pulse on things.but thats my method of reaching portfolio optimization.As a matter of fact i sold off nearly all my small spec PM plays today and went long equities.And may pare back on long term core PM holding if neccessary.Ive been waiting for months for this allocation move,protective stops will be used to control risk.since the bond allocation isnt up to 40% ill be adding some blend of treasuries/corps single issues some time in the spring and let that side ride it out as i suspect we may see a rise in the dollar from here.
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 10-27-2004, 01:47 PM   #17
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Re: "Pieces Of Eight, *Pieces Of Eight"

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Congrats, Mikey. * I guess that means that gold only needs to double from here for somebody who invested at the peak of the market almost 20 years ago to break even, eh?

Gold simply hasn't been a great long-term investment. * It no longer has the intrinsic value it once had. * It's a purely speculative play. * Sell!
Gold makes sense as a long-term investment. *It doesn't make sense as a short-term investment (unless you are into speculation/gambling/timing). *The people that bought at $800 were speculators/gamblors/timers that lost due to the very nature of the game.

The point of gold as an investment is that it won't lose its value, and it *does* provide a return that matches inflation (over the long term). *It provides protection against inflation. *I wouldn't recommend more than perhaps 5%-10% of your portfolio in gold/silver.

Gold stocks and derivatives are a different beast. *There *were* such good investments recently. *But whether they will continue or not is debateable.

Interestingly, there's only been about .6 oz of gold ever mined per person on this planet. *If everyone wanted as much gold as possible, the average person would only have about 1/2 oz (~$200 worth). *For silver, it's about 7oz per person (~$50 worth).

Also, remember that the price of gold is quoted in US dollars, so a lot of the change in the price of gold is due to the poor performance of the US dollar.
* * * * * * * * * * * * * * * * * -Scott

P.S. If anyone is looking to buy physical gold/silver, you need to check out http://www.tulving.com and http://www.ajpm.com . Both have proven over a number of years to be trustworthy, and both have extremely good prices (better than any other Internet sites I've seen). You just need to be careful to buy from a trusted source, to avoid counterfeits (which are rare).
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Re: "Pieces Of Eight", -Update
Old 11-18-2004, 10:37 AM   #18
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Re: "Pieces Of Eight", -Update

Gold has continued upward from when I first posted this thread, but at a restrained pace. I have small gains in my gold stocks which are basically dwarfed by gains in my long "standard equities positions". This is bothersome to me, becaue I have considered stocks overvalued, and have actively looked for negative correlations to US stocks for my portfolio.

On another thread I mentined that I have put options on the QQQ. The only good thing I can say about this investment is that I am glad that I bought puts to satisfy my bearishness, rather than going short the QQQs.

Time value decay and strong gains in the QQQ have clobbered my puts, and if somethig dramatic doesn't happen a bunch of them will expire in Jan 05. That seemed so far away when I bought them.

I also have Jan 06s, and 07s.

Although I have considerable realized gains in 04, I think I will not sell my expiring puts, but just let them expire in 05. That way I won't waste short term losses to offset long term gains. Maybe I will have some ST gains from my puts in 05, and can use the losses then. My 04 losses already expired are about $4500, and I have about $10,000 more set to die in early 05. It seems that it would take a miracle to move them into the money with only 2 months remaining.

The first year of a presidential cycle (05) is historically a year of low returns, so things should be looking up from a bear's POV sometime during that year. I probably should have been more respectful of the presidential cycle when I made these committments.

I tend to get blinded by value. If it is overpriced, I want to sell it. Can be a dangerous idea it appears!!

I did resist the urge to completely purge ordinary stocks, which is good because they have made me money this year.

Mikey



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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 11-18-2004, 11:52 AM   #19
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Re: "Pieces Of Eight, *Pieces Of Eight"

Mikey, your moves almost always manage to pique my curiosity. * So far my efforts to get you to expound on your reasoning have failed, but let me ask you a few unvarnished questions if I may:

-- Why the heck didn't you sell those QQQ puts when they were in the money? * Do you have a specific valuation you're shooting for before you pull the trigger?

-- It looks like the pressure is coming off of oil prices, and I have little doubt that this administration will aggressively keep the oil flowing (from Iraq, Alaska, Libya, and other untapped resources). * Are you still bullish on oil?

-- Gold's recent rise has been directly related to the fall in the dollar. * Personally, I think the recent pressure on the dollar was a direct response to Bush's re-election, so I don't expect it to be sustained. * What factors make you bullish on gold?

-- You appear to expect a replay of the "typical" post-election-year blues. * Doesn't Bush's "ownership society" agenda make you question this conventional wisdom? * If any of his stuff gets pushed through (which I doubt), this could have the same sort of upward revaluation effect as the introduction of IRAs and 401-k's in the 80's, IMHO.
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Re: "Pieces Of Eight, *Pieces Of Eight"
Old 11-18-2004, 01:21 PM   #20
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Re: "Pieces Of Eight, *Pieces Of Eight"

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Mikey, your moves almost always manage to pique my curiosity. * So far my efforts to get you to expound on your reasoning have failed, but let me ask you a few unvarnished questions if I may:

-- Why the heck didn't you sell those QQQ puts when they were in the money? * Do you have a specific valuation you're shooting for before you pull the trigger?

-- It looks like the pressure is coming off of oil prices, and I have little doubt that this administration will aggressively keep the oil flowing (from Iraq, Alaska, Libya, and other untapped resources). * Are you still bullish on oil?

-- Gold's recent rise has been directly related to the fall in the dollar. * Personally, I think the recent pressure on the dollar was a direct response to Bush's re-election, so I don't expect it to be sustained. * What factors make you bullish on gold?

-- You appear to expect a replay of the "typical" post-election-year blues. * Doesn't Bush's "ownership society" agenda make you question this conventional wisdom? * If any of his stuff gets pushed through (which I doubt), this could have the same sort of upward revaluation effect as the introduction of IRAs and 401-k's in the 80's, IMHO.
Wabmester, thanks for your interest. I'll try to answer your questions as best I can. As you can see, I have not been exactly spot-on with my timing.

1) I didn't sell the puts because I think the QQQ is way overvalued, and I thought I had enough time left to get more. From a strictly delta POV, they were right about where I should have sold them, and rolled down in strike, but the market intervened and rallied the Qs. Too bad, but I probalby don't have a mental algorithm that deals with this.

2)Definitely you are right about the pressure being off of crude prices at least for a while. They have come down $9 or so from the peak. I am more or less agnostic about oil prices in the short to medium term. Long term I expect they will be higher. My investments are not in crude futures, they are in an oil sands producer, and natural gas producers. Some I have held for many years, and would not want to sell unless I felt they were egregiously overvalued. My themes here are long life reserves.
I also have investments in oil service, that I think are still well priced, as long as oil doesn't plunge. For the moment I hold them. All were made at considerably lower prices than are available today. Additionally, oil service has a different dynamic from producers. For Bush to "keep the spigots open" we will need increased drilling, workovers, fracturing etc., even if the oil price backs down from here. Here my themes are international operations and financial strength.

3)Gold is also perhaps not as compelling as it was, but I am not sure your take on the determinants of gold pricing is complete. Again, my investments are in particular companies with particular strengths and weaknesses, and reflect though do not mirror gold per se. According ECRI, inflation risk is getting higher. And as we saw with the last CPI, may have already started to climb. Lastly, although gold has increased from about $250 to $440, or 75%, the $250 reading was a spike down, and although it is difficult to demonstrate, I believe that gold the metal is even today below trend. Long bear markets tend to become long bull markets, and although it will fluctuate, I feel that it will fluctuate higher. No real proof, though. I have 6% of assets here. It is a fair amount of money, but if it has some countertrend function, it is fairly cheap insurance.

4)As you said, "if",and "I doubt". Given this uncertainty, I'll go with the background or Bayesian case- first years suck.

I am eager to admit that all of these things are soft. But as Uncle-Mick says, "dance with the one who brung ya". I ERd largely because of directiional bets, heavily influenced by value considerations. Coupled with reasonable lifestyle cost control, I put together a stash. At least half my invested assets today are in cash, so I don't think that gold or oil are as compelling as say REITs were in 2000. Still, oil may be in process of a long lasting upward revaluation, so I think that it will be volatile, but have the wind at its back barring a world recession.

I hope some of this makes sense

Mikey
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