Those Voices In Your Head That Are Born From Your Screen
I'm bullish on metals. It's like a dark confession as an investment manager to admit that you have developed a fondness for gold and silver. It's bad enough I tend to dwell in sectors that are loathed by the masses, it's quite another when the sector I dwell in is occupied by investors who carry zombie repellent on their belts and a half dozen headlamps in the trunk of their vehicles. In fact, it's one of the few portfolio moves I've made in my career where the decision itself has dictated calls and meetings with clients to explain exactly why I have chosen this path. There are many factors attracting me to precious metals down here. I discussed them extensively in this recent piece. This is really the first time I have even looked at metals since going angry brown bear on them in 2011 when investors were going gold crazy. The purpose of this article, however, is not to pound the table on investment attributes of gold and silver down here. I'll be doing that plenty over the next several months. *** After multiple decades in this business I have seen every type of investor rewarded. I have also seen every type of investor destroyed. I have seen paranoid investors outperfom. I have seen brilliant investors underperform. I have seen technology mavens get it absolutely wrong during cycles where they should be shining. I have seen gold bugs with years of gains that would be the envy of most investors. Point being that there isn't one rhythm for this dance floor. Every single thing in the markets is cyclical, including the punditry that is so common in finance today. The perpetual, hardened bears become absolute rock stars in certain market cycles. Nouriel Roubini and Marc Faber were worshiped as heroes a decade ago. Before Henry Blodget started Business Insider he was a rockstar tech analyst during the internet bubble of the 90s. Then he became an absolute pariah after technology destroyed the economy. Before Gundlach there was Gross. Gundlach will one day be laughed and made fun of when he utters a word. Everybody takes their turn. Just as investors should open their minds to different sectors of the market, they should also open their minds to different voices in the market. Those voices that are reviled now can be seen as genius level minds in the years ahead. Those voices that are currently considered brilliant will stumble. Knowing when to listen to what and who is just as important as which sector or stock you choose to invest in. It's all a part of the market ecosystem...
Making The Case For Gold
As an investment gold has a cult like following among a rigidly fanatical group of aficionados who like to use words like “fiat” and “ponzi” as often as possible. They discuss the metal as if it has mystical properties that will provide them with protection regardless of the circumstance, having thousands of years of history on their side as evidence of the utility of gold as an investment, a currency and ultimately an insurance policy against all the eventualities of mankind. For this reason gold is often seen by most investors as an instrument of the paranoid to protect against an unseen, unrealistic set of risks that are so anomalous that even mere consideration of gold as an investment is a waste of time. Outside of the realm of fanaticism and paranoia, the function of gold within an investor's portfolio is extraordinarily simple: During times of turbulence it acts as an insurance policy. It is effectively an unexpiring put option against monetary policy mistakes; aggressive acts of fiscal stimulus; conflicts between world governments; geopolitical risk AND tumbling equity markets. Before proceeding any further, let me clear: If it wasn't for the breakout that occurred in 2001/2002 for gold that propelled the metal from the $300 range close to $2000 before experiencing a 44% retracement between 2011 to present day, I wouldn't be discussing the metal at all. In other words, if gold was still sitting at $300 and the massive, long-term shift in the secular trend had not taken place, then it wouldn't be worth mentioning. Gold is only worth discussing because it is now in a long-term uptrend. The move down in recent years is simply a pause in that uptrend, with a resumption set to take place at some point in the not too distant future. As with everything I do in the markets, the foundation for my interest in gold is technical/pattern recognition driven in nature, further backed by fundamentals that support the technical/pattern recognition data. There are statistically significant patterns being developed in both physical gold and gold miners that are some of the most productive in a market devoid of productive bullish patterns. Most strikingly, perhaps, is the symmetry that has occurred between the secular low in 2000 for gold and the low in 1970, followed by the behavior in the metal in the years following. Here are some highlights: Both lows occurred at the turn of a new decade (1970 & 2000) Both lows occurred around shifts in the global currency system (1971 cancellation of Bretton Woods & 1999 introduction of the Euro) Both lows occurred after multiple decades of disinterest in gold...