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Minyan Mailbag: Bullish or Bearish?


I don't think in terms of bullish or bearish.


Prof. Succo,

I enjoy very much reading your thoughts daily, however I'm very confused here.

Your Buzz entry yesterday is confusing to me for the following reasons:

1) You say "Financial TV" didn't mention the gold stocks today. Is that bullish or bearish?

You assign today's gold move to careless bureaucrats. How do you know the reason(s)?

You see risk growing. That's vague. Are you saying growing risks to investors buying gold stocks and commodities? Risks to our economy? Risks to the overall market?

4) And then you reveal "position in gold" at the bottom. Are you long or short? I honestly can't tell.
In the fall, it appeared you and Prof. Reamer were short gold (though you liked gold longer-term, after a deflation scenario). Then in January, you said you were looking to buy gold stocks, thinking the ultimate hyper-inflationary period might indeed precede the deflation.

I'm not trying to be difficult. I'm trying to be objective. I very much like your analytical prowess, but I'm having trouble understanding your position.

Minyan John


1) Neither. Those that follow my writing will know that my comment was meant to reflect the fact that I believe you get a very skewed view of finance and the markets when reading or watching the financial media. Their analysis is normally one sided and incomplete. I thought the fact that they weren't talking about what was clearly the "story of the day" was indicative of that. The move in gold was telling the markets something, that central banks are erring on the side of liquidity at any expense, and that fact was either lost on them or not important in their view.

2) Gold is moving up because "someone" is buying it, but if you know me I advocate that it is essential to try to understand the reasons why that is. I have explained in detail in past articles how gold is like the "ultimate currency" and how the world's central banks are each trying to drive the value of their currencies down relative to each other. This is a strange phenomenon as each country is trying to spur its export economy with the weight of heavy debt on their backs. Our bureaucrats blame our export problems and loss of manufacturing jobs on China
for keeping their currency weak, yet we are the only country they run a trade surplus with: almost every other country exports more to them than they import. This is either lost on our bureaucrats or they are purposely using China as a scapegoat for our export problems.

3) Perhaps it is only vague if you are not familiar with my writings. MV is a platform with ongoing dialogue. It is impossible for me to fully explain myself each time I write and I don't think most Minyans expect that. They respect my time and effort and if they do not remember my views to which I quickly refer, they go back and find related articles/buzz posts. Readers should understand that I was inferring based on the rise in gold that central banks were exacerbating the same policies that have me so worried: rampant money supply growth causing ever increasing debt and leverage in the system.

4) Again, I have talked about my position in gold several times. Personally, I have sold some of my gold position, an amount equal to my profits, leaving me with my original core nominal position, not because I thought gold was going down, but as a matter of risk control. Professionally, my position changes all the time based on implied volatilities of the options market. In general, we have been long options, sold some out, but have bought them back as they became relatively cheap again. We are now long a fair amount of volatility and want the stocks to move around.

I again want to caution readers that when I write I don't think in terms of bullish or bearish. I don't think markets are efficient and are almost exclusively driven by sentiment: the amount of risk investors want to take. That is often manipulated by monetary policy, which causes compression (the over or under estimation of risk), which when overcome releases pent up market forces. I think the last several years have been a period of excessive intervention by central banks, capping a long period of credit expansion. The amount of credit in the system has now gotten to a point that is difficult to manage and is likely to lead to a credit contraction. A credit contraction is a deflationary environment, which will lead to central banks doing what they do best: hyper-inflate.

-Prof Succo.

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