I agree with Jonathan Hoenig's thinking regarding Gold. This is a brilliantly written article.. It's vastly underowned, and the market capitalization of all of the gold mining stocks is only around 30 billion or so.
In my long term Macro Model of the World economy, after the era of financial assets (stocks and bonds) outperform for a number of years, they then go into longer term bear markets, we have a period of economic
weakness and generally declining prices of just about all assets, stocks, real estate, hard assets, commodities
bonds, etc. some currencies benefit some are hurt). This can last for a few years and in our current cycle could
continue into 2003 or so.
Then as the Central banks reinflate the economy and stem the deflationary trends (since few people have any interest in deflation, there is a cry for higher prices.
As steps are taken to create more liquidity, and expand the monetary aggregates, this means that there is more
currency out there, so it will flow to some asset classes, and investors who have been badly burned by tech stocks
and stocks in general will go to the latest "smart investment". This smart investment will be what has
been doing well the past few years. It always works that way. Why did people buy tech stocks and internet
stocks in 1999 and the start of 2000? because they were going up, and there were reasons for them to go up
more.
GOLD stocks have ALREADY outperformed the SPX for the past 2 Years, when Gold stocks have outperformed
for the past 4 or 5 years, even Rukuyser of Wall Street Week will have a Gold Analyst on his show. He's
made so much fun of Gold the past 2 years, and made lots of fun of everyone who was not long stocks.
This is the classic way in which Market Psychology works.
Life is cyclical in Nature, So is the Macro Economic cycle. War and periods of upheaval are also cyclical in
nature. What's interesting is that with this War on Terrorism, which the Administration is now saying may last
5 years or more, they are, in one sense, writing a blank check to a new Paradigm.
We could/should have a fractured world, divided into different factions, The Pro US; The terrorists, Arab
sympathizers who feel that Islam is being mistreated, and those countries and groups who want to stay
neutral, as it will seem safer.
I'd highly recommend watching the 1980 movie "Rollover" staring Jane Fonda and Kris Kristofferson
In the Movie, He is a banker and she is a wealthy widow, who has inherited a large company she is running.
Over the course of the movie they realize that there is a conspiracy to move funds out of the US Dollar, and US
Assets and into Hard currencies, Gold and other Safer Assets.
Of course, they only make movies with the most popular actors starring, when a trend is so well known that the
end of the trend is certainly not far off. No one's making movies about this now.
cnbc commentator Bill Griffith just commented that the US Dollar typically seen as a safe haven, is not seen as
a safe haven recently. Not only are they moving out of the US Dollar, but out of the Euro to and into the Swiss
Franc.
A continuing significant decline in the US Dollar, which I've been expecting and continuing to expect is very
possible fundamentally, due to several international groups that want to move out of US Dollar denominated
Assets, get out of US Stocks, and out of both US GOVT , Agency, and Corp Bonds and Notes.
This cyclicality would play out even without the horrific terrorist attacks on the World Trade Center and the
Pentagon. History shows that a wide variety of fundamental developments can occur when the Mass Mood
has shifted against and out of a country that has had a Financial Mania. We need to look no Farther than
the Japanese experience of the 1990's.
I would like to point out that I was calling the US Dollar the KingBuck, due to it's strength the first 6 months of
this year. Several posters on the Clown Free Zone, had taken to calling the US Dollar the ClownBuck, this
past year and I was in agreement with the Mighty MythMan that the Greenback was no Clownbuck
rather the MightyKingBuck....Hey it's all good as long as it's going up. And the US Dollar was still
trending up, until July.
As have all been shown in the past several years, markets can have large divergences from fundamental reality
for fairly lengthy periods of time, this is due to the Herd-Trending tendencies of Investors. I'm highly
confident that this will be the case far into the future.
my missive is long enough that I'm posting Jonathan Hoenig's article on "All that Glitters"in the next post.
John |
