This is from Gains and Pains Capital and is an interesting read - note the link to another article at the bottom.
Ladies and Gentleman, I present to you America’s Financial Branch of the Government: Goldman Sachs.
Trying to detail exactly how integrated Goldman has become to the Federal Government would be like trying to track the peanut butter swirls in Ben and Jerry’s Chocolate Peanut Butter Swirl ice cream. Indeed, with the exception of Ben Bernanke and a few other officials, Goldman Sachs provided all the lead characters for the Tragic Comedy that is our latest Financial Crisis.
Central to the entire mess is Hank “the Hammer” Paulson, our former Public Money Privatizer or Secretary of the Treasury as he is commonly known. To chronicle the full intricacy of Paulson’s web of cronies and the methods he used to funnel public funds to them and their business during the Crisis would require a book, not an essay.
However, one can draw a great deal of conclusions about Paulson’s central beliefs on business and politics by mentioning that one of his first positions of power was serving as assistant to John Erlichman, the central architect of Richard Nixon’s Watergate Scandal: a man who believed that when it came to wining seats of power, it’s best to break and enter, steal, and destroy one’s enemies at all costs.
Erlichman was convicted on conspiracy, obstruction of justice and perjury. Paulson went on to become CEO of Goldman Sachs.
Beyond Paulson, Goldman’s reach in this crisis is virtually unending. John Thain, former CEO of Merrill Lynch was a former Goldmanite. So was Robert Rubin, the Chairman of Citigroup. Then there’s Robert Steel, the head of Wachovia, Ed Liddy, who Paulson put in charge of the nationalized AIG, Mark Patterson, the current Treasury Chief of Staff, Neel Kashkari, the guy in charge of allocating TARP funds… heck, even Tim Geithner was mentored by the afore-mentioned Robert Rubin.
What’s staggering is that no one seems outraged by all of this. It’s not too difficult to connect the dots on what happened: a former Goldman exec was put in charge of allocating public funds to other former Goldman execs who in turn allocated the funds to their employees in the form of bonuses and enormous salaries. Indeed, it’s telling that Paulson’s original proposal for the $800 billion bailout entailed NO curtailing or oversight of executive compensation at the firm’s receiving our money.
I’m starting to run out of room here. But if you’re interested in these issues and learning more about Goldman Sach’s involvement in our Federal Government, I STRONGLY urge you to read Matt Taibbi’s recent expose on the firm in Rolling Stone magazine. Be forewarned, you will be infuriated by what Taibbi reveals. But if it gets people contacting their local representatives and Senators asking why we haven’t launched any investigations into Paulson’s allocation of public funds... That is, of course, assuming you can find a non-former Goldmanite to be in charge of the investigation.
You can see Taibbi’s article online at:
http://zerohedge.blogspot.com/2009/06/goldman-sachs-engineering-every-major.html
Gold doesn’t care if it’s inflation or deflation.
One of the central arguments for financial commentators right now is whether the US is currently facing inflation or deflation. Everyone (at least everyone with a functioning cortex) is aware that the US (and the rest of the world for that matter) will face more difficult times ahead. However, whether it will be an environment of increased inflation or increased deflation is up for debate.
Personally, I have been in the inflation camp for some time now. However, when it comes to investing, it never pays to grow complacent with one’s thinking. So I did some research into how gold performed during inflationary vs. deflationary periods. The results were rather shocking, to say the least.
According to Scott Reamer of Vicis Capital, gold and the dollar index has shown an inverse correlation of -.28 over the last 17 years. Now, a correlation of -1 would be a perfect inverse correlation, meaning that every move the dollar index made would be mirrored to the inverse by gold (the dollar falls 1, gold would rise 1).
As Reamer points out, a correlation of -.28 is not a strong correlation at all. So to claim that gold will spike if the dollar rolls over because the two are inversely related is overly simplistic. A far more reasonable assumption would be to say that should the dollar collapse, gold will rally due to safe haven seeking by investors.
Indeed, it is gold’s status as a safe haven of wealth (the ultimate currency if you will), NOT its inverse relationship to the dollar, that makes it so special. Gold has been the ultimate storehouse of wealth going back thousands of years. But what’s truly remarkable is that it has maintained this quality even during periods of DE-flation.
The ultimate text on this matter is Roy Jastram’s The Golden Constant. I don’t recommend looking for or reading this book because a) it’s out of print b) it’s a very dense read.
To summarize, Jastram performed a study of gold’s performance over a 416-year period in England’s history (from 1560 to 1976). He found that historically, gold has acted like a storehouse of value throughout wars, plagues, and the like. However, what’s most striking is that gold actually INCREASED its purchasing power during periods of DE-flation.
Deflationary Periods in England | Purchasing Power of Gold |
1658–1669 | +42% |
1813–1851 | +70% |
1873–1896 | +82% |
1920–1933 | +251% |
This last point is absolutely extraordinary when you consider that the thought pattern “gold rises in inflation and falls during deflation” is one of the most commonly believed investing mantras out there. Indeed, gold has undergone a seismic shift in the last year, largely due to inflationary concerns.
Consider the following: Global gold demand jumped 38% in the 1Q09. Three years ago, demand for gold as an investment only comprised 10% of global gold demand. Today it’s over 30%. That’s an unbelievable increase in investment demand.
From an anecdotal standpoint, I’ve begun hearing numerous “we’ll pay cash for gold” radio advertisements. And just yesterday at the gym I saw G. Gordon Liddy on TV touting gold as king and the dollar as garbage (he actually crumpled a dollar bill up on camera). When a guy like Liddy (central architect of the Watergate break-in) becomes a spokesperson for distrusting the government, then you know the general public is growing anxious about the currency.
But my main point is this: Gold will perform well in ANY investment environment going forward, whether it’s inflation OR deflation.
If the dollar rolls over and tanks, gold will benefit greatly from a flight to safety or a desire to seek a non-fiat currency.
And as Jastram’s book shows, if deflation takes hold (as credit and household wealth contracts further) gold will ALSO perform well just as it did during numerous deflationary periods between 1560 and 1976.
How’s that for a win-win?
1.) They forget to look at bigger picture and adjust style as markets adjust. Some traders think using the same investment approach for trending markets and range-bound markets is being “consistent.” But in range-bound markets, you have to be more mindful of when things are at the top of that range or falling towards the bottom.
2.) Overcomplicate things rather than just keeping it simple. In short, dummy it up a bit. Accept the fact that trading is really a game of up, down, and sideways and you can inprove your trading profits.
3.) Fear of missing out on that home-run trade. Trading is really about making small money on a lot of trades rather than hitting that $1 million trade. All traders miss out on a great trade somewhere in the world. In fact, the home run trade could actually turn out to be a whiff. Remember, sometimes the best trade is the one you don't make.
4.) Think “I have to be right on a lot of trades to make money.” Wrong! Some of the best traders in the world have winning percentages lower than 50 percent. Success in trading really is about how much you make when you're right, and how much you lose when you're wrong. Keep that spread wide, and you're on your way to success.
5.) Believe they have to trade without emotions. First of all, it's impossible because all humans have emotions. What you need to do is learn how to control or compartmentalize them so they don’t end up making decisions for you. Keep your emotions in a bottle and you're on your way to success.
6.) If I lose money, I stink. Sometimes, you make money on bad trades and lose money on good trades. More important is the caliber of your trades. Do they have edge? Are they high-caliber trades? Judge your success based on that information, rather than your P&L.
7.) They take losses “personal.” The market is not out to get you or anyone else. We're just operating within its context. If you treat it like a business, you're much more likely to have success in range-bound markets."
From Bespoke Investment Group ( I would note oil to nat gas ratio is around 20 right now while history says it is usually around 10) - you do the math:
While you wouldn't expect it from the price of natural gas, trading in the natural gas ETF (UNG) has recently become extremely active. For much of the last few years, investors who wanted exposure to energy related commodities bought USO. Over the last several weeks, however, investors have been increasingly flocking to natural gas. Over the last 50 trading days, the total dollar value of trading in UNG has risen to 77% of the dollar volume in USO, and it is up over 900% from levels we saw in March (7.6%). For all the new buyers of UNG, if only the price of natural gas could follow suit.
Also, check these articles:
http://seekingalpha.com/article/142908-time-to-go-long-natural-gas-and-short-oil
http://seekingalpha.com/article/142300-natural-gas-should-get-a-boost-from-china-s-new-demand
http://seekingalpha.com/article/142827-3-commodity-etfs-with-high-probability-of-near-term-success
Here's one I added late on the problems with commodity ETF's and the rolling issue - talks specifically about UNG
http://ftalphaville.ft.com/blog/2009/06/11/56933/the-problem-with-commodity-etfs/
I am long UNG
3:30 rally monkey "business" starting.
This article courtesy of Omnisans Investment Research's Graham Summers
How’s this for a bubble?
In 1965 one in ten Americans owned stocks. In 1990, one in five Americans owned stocks. Put another way, it took 25 years for stock ownership to double in the US. And most of that growth came between 1983 and 1990 with the introduction of 401(k)s, IRAs and other stock-based retirement plans: suddenly anyone with a large scale employer could invest in stocks without having to open a brokerage account.
Thanks to the Internet and low fee online brokerage accounts, it only took seven more years for stock ownership to double AGAIN. Put another way, the rate at which new participants entered the stock market accelerated four fold between 1990 and 1999. By the end of the 20th century, 48% of US households owned stocks.
This is the one bubble no one talks about.
I’m talking about the bubble in “investing in stocks.” Never before have so many Americans done this. It gave us one of the biggest bull markets in stock history: a mega-18 years run from 1982 to 2000. But it also means that stocks have got a long ways to fall to get back in line with their historic relationships to other asset classes.
Particularly gold.
A lot of commentators talk about how gold is near an all-time high and that stocks have fallen 50%, making them cheap again. However from a long-term perspective, gold and stocks are nowhere near their normal relationship.
According to Dr Marc Faber, editor of the Gloom Boom Doom Report, gold and stocks move in distinctive long-term trends. Over the last 110 years, these trends has staged six major phases:
Overall, the median stock to gold ratio for the last 106 years is 5.4. In other words, throughout the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.
Today, gold trades at $980. The DJIA trades at 8,500. This puts the ratio of gold to stocks at 8.6. Thus, the DJIA needs to fall to 5,292 (a 37% drop from today’s level), gold needs to rally to $1,574 (a 60% rally from today’s level), or some combination of the two, in order for gold to be appropriately priced relative to stocks again.
When exactly this will happen is anyone’s guess. The gold vs. stocks trends over the last 106 years have ranged in length from three years to 29 years. However, judging from the Fed’s money printing and the recent action in gold, it’s quite possible we’ll see a mammoth run in the precious metal sometime in the next 18 months.
During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50%.
From mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, it even fell to $700, a 30% retraction. Granted, it wasn’t a full 50% retraction like the one that occurred from 1974-76. But we are experiencing a financial crisis. And gold is the most common catastrophe insurance.
If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold’s recent peak was $1,014 in March ’08 (roughly 14 months before the writing of this report). If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold’s bull market in the ‘70s).
In fact, it’s already happening…
According to Capital Gold, a precious metals dealer, the demand for gold from self-directed IRAs has more than doubled since January 1, 2009. The World Gold Council notices similar spikes in demand for the gold ETF, writing “Inflows into gold ETFs continued to grow throughout the quarter, with investors buying a record 469 tonnes of gold, dwarfing the previous quarterly record of 145 tonnes, set in the third quarter of last year.”
Globally, entire gold markets that didn’t exist in 1980 are now beginning to buy the precious metal. Vietnam started trading gold futures in June 2007. Already the exchange trades around $100 million in gold futures a day. China’s Shanghai Futures Index started trading gold futures just a few months ago. The latter country has already surpassed the U.S. as the second largest consumer of gold behind India.
Bottom line: don’t let the talking heads fool you. Stocks are not cheap, especially compared to gold. And the bull market in gold is nowhere near over. Over the last 35 years, more Americans began investing than at ANY other period in history. As stocks collapse later this year, they’ll either pull out their money pushing the DJIA lower OR they’ll shift their money into alternate investment classes like gold. When they do, the DJIA will fall further and gold will erupt higher.
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