Tuesday, January 10, 2012
Random lines, Random pronouncements
Many say the gold bull is dead. Every single pronouncement you read to this effect is based on lines that are drawn on graphs. I'm not kidding. A bunch of guys and gals with high school level math - Algebra 2 will basically give you all you need to know to perform this parlor trick - plot price bars on a graph and calculate moving averages and then tell you if you're in a bull or bear market. In a theoretically free market (a market where all participants can participate with equal efficacy) with unlimited price discovery - which means absolute transparency of purchase and sale records by all participants - this method has some validity.
If you think that gold, or stocks, or options, or futures constitute a free market with valid price discovery then I have a bridge to sell you. It connects Brooklyn and Manhattan. Very useful. You can take ownership after transferring a million dollars into my private account.
The fact is that nobody has ever made much more than a dime in the markets through this type of technical analysis. The great experts of the art are guys and gals who make money writing newsletters and charging for the service. If they could make money trading off this information they would. They know they can't so they write the newsletters encouraging others to trade in this fashion. Other morons.
If you want to make money - or at least preserve the money you still have - you'd better have a point of view that is impervious to this type of nonsense. I'm serious. This is crucial to your financial survival.
Here's my point of view. Debt of the level we're experiencing is highly deflationary. As deflation takes hold all risk assets deflate - but essentials (food, gas, heat, rent, medical care, education) continue to inflate causing everyone to become poorer and poorer. In other words the currency is worth less and less even as risk assets deflate. Governments fight this by furiously printing money. This causes some risk assets to inflate again, while continually debasing the currency in terms of essentials. Eventually, the printing is rejected by an increasingly impoverished populace and risk assets again deflate.
And over time everyone moves to gold as the only stable currency. Gold may fluctuate wildly in any given short term period. Over time it only increases in value.
This has proved a financially useful point of view for the last ten years. It should be good for at least another ten.
That's my point of view. What's yours?