SpreZZaturian
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Före detta hedgefondförvaltare, partner och VD på Futuris som utsågs till Årtiondets hedgefond i Europa för perioden 2000-2009
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3 augusti

The next 1000% trade is in gold mines

This post about gold refers to my post about uranium from the day before yesterday. The only real difference is that it's about gold.

Conclusion: I think it's about time to trade some of those expensive stocks for gold. Just as for URA there is a 5x potential in GLD here, and more so in GDX (miners).


The current technical case for gold

Talking about triple bottoms (see the URA trade), check out the senior goldminers ETF:

GDX

The chart is right at a pivotal point where the gold miners could break out upward, from the trend of lower highs toward a pretty solid constant bottom.


In a longer term perspective, the current formation looks like it's just the final confirmation pattern of a larger bottoming process:

GDX

The low point in early 2016 looks like an anomaly, a final "puke", where a lot of gold bulls simply gave up.

I should know, I did myself sell a minor part of my listed gold holdings there (to start making room for private gold exposure). Luckily, I saved the absolute bulk of my divestments for the peak in July 2016. That didn't mean giving up on gold altogether though, not even temporarily. I simply sold my listed GLD there, and bought shares in a private Canadian precious metals royalty streaming company instead. Read more about my investments here.

Since the Canadian company is moving a bit slowly for my taste with its contract signings, I've re-entered the listed gold market again as well, this time with exposure to GDX (gold miners):

Fair disclosure: My exposure to GDX is only about 1% of my net worth, while my investment in Canada is around 5%.


Looking at the underlying commodity through the GLD ETF, it seems more and more likely to me that the gold price correction (halving, approximately) that began 6 years ago is coming to an end, albeit slowly and hesitantly. Or is it just wishful thinking?

GLD

The fundamentals of gold, and the lure of 5x... or 10x

Gold doesn't really have a value per se (read more here). Nonetheless there are fundamentals pointing more and more acutely toward a surge going forward. Not least, China is hoarding the metal as a bargaining chip in a likely fiat reset or other currency accord.

Admittedly, these things take time, potentially decades, but the game is already afoot and I doubt gold can become much cheaper in USD. In contrast it can become much much more expensive.

I would be a little surprised to see the price of gold fall by more than 20% to new decade lows, and not that surprised to see it increase to 5x its current price in dollars. At the same time, I wouldn't be at all surprised to see stock markets halve over the coming 2-5 years, whereas I find it increasingly difficult to see where a 20% upside would come from, apart from a brief inverted puke.

Nota bene that while GLD just about halved between 2011 and 2016, the GDX fell by more than 80% to less than 1/5th of its peak price. If GLD only reclaims its previous peak of 185.84 (+54% from today's 120.77) it's probably realistic to expect GDX to advance by almost 200% from today's 22.79 to its previous peak of 66.92. Actually, I would expect more, thanks to miners having streamlined their operations during the long bear market for gold. Now, imagine what the miners might do if gold rose by 400% (i.e., 5x) instead of a measly 50%.

More recently the GDX increased by 2.6x (+160%) from trough to peak in 2016, while GLD increased by 1.3x (+30%).

You do the math.

(please note though, that there are huge differences between buying physical gold, a gold ETF and a gold mine ETF)

No matter, I'm getting out of the GDX trade as soon as I hear my Canadian venture is fully invested.


Summary

Gold has halved while stocks have tripled.

Gold doesn't have a valuation, but stocks are more expensive than ever (on, e.g., a median stock P/S multiple or Market Cap to GVA), and gold could be the go to place in a monetary reset. This is by no means a 100% safe trade, but it's way better today than it was back in 2009-2011.

The upside potential for gold is enormous, while technicals suggest the downside is quite limited. Conversely, the opposite holds true for stocks.


Continue reading about my views of macro, finance and investments here by the headline “INVESTMENTS”, e.g., this post about my holdings. Don’t miss my future musings on life, finance, health and happiness by subscribing to my free weekly newsletter — you’ll get my book on investing for free as well (we’ll see how long I’ll keep that up now that I’ve given away way over 10k pdf copies.

Taggar (blogg): 
29 september 2016

Death of jobs: leverage and accelerated automation

Topic: high leverage and faster pace of automation make it exponentially more difficult to re-train enough people for new jobs

Solution: Buy Google and gold (many more companies in my newsletter)

Length: very short (a few minutes' read)


Executive summary: Low interest rates and technological progress accelerate the ongoing process of automation, leaving more people needing -but less time for- re-training.

Low interest rates also mean more indebted consumers and governments, and thus less money for re-training the increasing hordes whose jobs are being automated away.

Swedish: Plus en länk till en paneldebatt i Lendifys och Börspoddens regi, om nya investeringsmöjligheter


Leverage and Machines are at the heart of the issue

low interest rates make capital relatively cheaper than labour 

investments in automation have picked up speed due to

  1. accelerating technological development ("Moore's law", or, rather Kurzweil's Law Of Accelerating Returns) is pushing technology over the threshold needed to replace humans in many areas in short order, thus attracting more investments
  2. low interest rates make investments in technology even more attractive

Thus, automation is proceeding faster and in more industries simultaneously than ever before, leaving more people than ever (at best) between jobs.

Low interest rates have fueled the build-up of debt among governments and private individuals. Despite lip service to deleveraging since 2008, debts are much higher today than at the "peak" 8 years ago, leaving less room for debt-financed re-training for new jobs. 


Leverage => more machines, more debt => less jobs, less re-training buffer

The same forces that make automation investments more attractive and all the more people lose their jobs to machines, also work to make it more difficult for people to be able to finance re-training (one, because they are already over their heads in debt*; two, it's happening faster and in more industries at the same time than before, leaving less time to re-train)

* Earlier, people hadn't maxed out on credit card loans, auto loans, mortgages and student loans, which meant the few who lost their jobs to machines had some leeway in time and money to re-train for new employment.

Now, more people are automated away at the same time and they have more leverage and thus no economic room for time off or investing in re-training.


Goldman Sach's take on the subject in a recent podcast of theirs called for new ways of financing re-training, including re-purposing (expropriating?) pension money. I, however, think that ship has already sailed.

So, what to do?

My 2 cents: Make sure you own assets that benefit from the changes, since I expect it to get really ugly first, in a way money printing can't mitigate, before it gets better and we can approach the Star Trek ideal of no money.

The Sprezza (and Star Trek) credo

The acquisition of wealth is no longer the driving force in our lives.

We work to better ourselves and the rest of humanity

You could, e.g., buy stock in automation companies of all kinds (robotics, software etc., including a few dozen companies on the list in my next subscriber letter). You could also buy assets that benefit from low or negative interest rates, increasing debt levels and a possible monetary re-set.

Google, IBM and gold spring to mind.

gold for consumption
palatable?

Please note, however, that I do think it's a little early to start preparing for a complete collapse just yet.

Taggar (blogg): 
27 juni 2016

Reality check after the UK's EU referendum

Summary: I'm reducing my shorts and gold holdings slightly, when the Swedish market opens tomorrow, for the first time since the Brexit


"The UK will remain in the EU and the slow and steady march toward doom can resume"

Oooops! That's what I wrote, just a few days ago, before heading to Istanbul for some Swedish midsummer celebrations.

So, I was wrong. Now what?

Right now I’m undecided between the negative Catalyst view and the positive Stimulus view (i.e., that the Brexit will trigger immense stimulus efforts and catapult stocks higher)


FYI: I'm 115% short stock indices, 25% long gold (and silver), and 15% gross long single stocks (some deep value, some hope(less) stocks. Considering the gains I'll probably make when the Swedish stock market opens tomorrow, Monday (it was closed on Friday due to midsummer so we have yet to see the effects of Brexit here), I will cover some of my shorts tomorrow. I think I will sell some gold as well.

My main reason for taking some short term profit on gold and index shorts is to make room for selling again, if there is a bounce on talk of Bregret, and or hints of massive stimulus efforts to counter the effects of an exit.

*********************

What's more important than the Brexit, is that stocks are ridiculously expensive in relation to corporate revenues and the general economy (GDP). Sooner or later that situation will be corrected - and most likely more than corrected since extreme overshooting tends to be followed by a similarly exaggerated move on the downside.

Still. last week's referendum result might very well trigger a new euro crisis, where not least Greece, Portugal, Spain and Italy once again question why they should stay in the union and honor their euro debts.

No matter, stocks are expensive and that will be corrected. After an unusually long and strong move upward, stocks are very sensitive to a change in risk tolerance. Just about anything could cause the long overdue correction, and there are many "anythings" hiding in plain sight: debts, valuations, interest rates, jobs, currencies, malinvestment, ponzi schemes, etc.

Hence, I'm convinced we are headed lower. Sigificantly lower. And rather sooner than later.

However, talks of Bregret and/or stimulus efforts could easily cause a temporary bounce of several per cent after the initial downturn. And the inverse of that is likely for gold.

In February I reduced my short positions by around 20% (in units, meaning the remaining exposure was about the same as before). Tomorrow (Monday June 27) I might do 10-20% as well as sell a similar share of my gold holdings.

Thus, I'm not becoming "bullish", and I haven't given up my scenario of a severe downturn in 2016-2017. However, I always want to make some room in my portfolio and take profits when I can and not when I have to. If the market keeps falling, I'll keep covering my shorts but at a slow pace of one per cent a week or so. And when it bounces I will add to my shorts on strong days. In time and if the market falls over time I will slowly work myself toward a net neutral portfolio and then start going long, almost as slowly.

 

What does the Brexit really mean?

What will happen now? I don't really know, but I expect nothing much will happen fundamentally.

New trade agreements are many years away, large scale layoffs that weren't already planned anyway too. Actually, the most immediate and tangible result could be stronger exports thanks to a weaker GBP.

 

Conclusions and summary

I still can't decide between Catalyst or Stimulus, but I think the inevitable downturn and a slow turnaround in sentiment had already begun. Fear of contagion and complete chaos is a relevant possibility, and if the S&P 500 index once again falls below its 200d MAV most of the last remains of optimism and risk appetite will disappear.

Consequently, no amount of stimulus, bar Zimbabwe style money printing, would have more than a brief and passing positive effect on stocks and bonds.

Gold should do well in both scenarios though.

All in all, I think a Brexit is a vote for freedom and a vote against the technocrats in Brussels. I think the UK citizens made a good choice, albeit in large parts for all the wrong reasons (including xenophobia).

For me all it does is change my short term trading pattern slightly due to my anticipation of increased volatility in the aftermath.

Big picture, I'm sticking to 80-90% of my shorts and gold holdings, meaning I will still be around 100% short stock indices and long 20% gold (both in terms of portfolio NAV). Hence, I'm not really turning into a bull (yet).

My four pillars of investing remain: Short stock indices, Long gold, Long cheap or promising/enticing small caps, slowly accumulate dogs, strong balance sheets, high dividend yields.

Hopefully this was my last article on Brexit, so if you are interested in my other favorite themes of personal development, health, wealth and happiness, please subscribe and share this article with your friends.

Taggar (blogg): 
5 juli 2015

Can you handle the truth about gold investments?

Takeaways: Buy gold now.

This post was originally published at http://mikaelsyding.com/ as http://mikaelsyding.com/can-you-handle-the-truth-about-gold-investments/

Yes, buy right away. The price is at a 5 year low, after correcting by 40% from its peak in 2011, erasing about half of the run-up over the last decade. That’s a bargain – unless the trend proves broken, which there are good reasons to assume it’s not (China hoarding, production costs, negative interest rates, money printing, flight to safety coming etc.).

Buy an ETF for speculative purposes (GLD for exposure to the gold price, GDX for gold producing mines, GDXJ for smaller, more speculative and exploration oriented mines), and physical gold to hide at your BOL, as insurance against the break down of society (not my preferred choice).

Gold bottoming out? It should be.

 

There is gold and cocaine all around us

– so close, yet so far

Twelve percent of annual gold production reaches its final destination in minuscule amounts in electronic devices.

That gold is just as inaccessible as the cocaine in money bills. It takes a couple of thousand of dollar bills just to make one single party line. Similarly, refining the micro grams of gold found in cell phones and other electronics just isn’t worth the trouble.

Even if Colombian pesos probably have a higher cocaine content, the smallest bill (1000 pesos) still costs 40 US cents. Even at 5x the cocaine “contamination”, the cost per line would amount to 160 USD. Gold in devices has the same characteristics.

Is that a gram?

 

Good as gold?

Nota Bene: This is not a comprehensive overview of everything about gold. It’s bits and pieces of my perspective on gold and gold investments. Further, it’s not a recommendation to buy or sell anything. Anything.

Warning: Gold is more or less intrinsically worthless. You can’t eat it, can’t sleep in it or under it, it can’t warm you and it’s almost useless as an industrial metal. You can wear it but be prepared to lose a limb or your life over it.

Okay, so you can eat it, it just doesn’t contain any nutrition

 

Gold has got ONE thing going for it – it’s eternal

What’s the fuzz about? Gold is eternal and limited. In addition it’s solid, heavy and pretty. It’s malleability makes gold ideal for jewellery (and apparently, clothes and oversize dildos as in this video with Swedish pop group Army Of Lovers).

All gold was made billions of years ago in supernovae and neutron star collisions. It’s practically indestructible as well as impossible to produce artificially.

Gold utility

A fun side story is that the genius behind the group (2) went to the same business school as I did. He has also released a philosophy/psychology book at my publishing company, Hydra. Also fun is that the girl (1) in the picture (and group member) lost to me in court after refusing to pay back a loan I granted her when she wrote another (Russian cook) book at Hydra.

Why gold instead of shells, pearls, qualified work hours, MIPS, BCAA (protein), energy (1 joule, e.g., or 1 kWh), potable water, arable land, dollars or bitcoins?

Even if gold itself is worthless, using it as the base for transactions provides alasting unit of account that can’t be diluted by producing more or lost due to destruction. If you want more gold, you have to dig it from the ground and refine it, which costs about as much as gold on the market does. The cost of producing gold increases over time due to inflation and increased difficulty in extracting gold.

Pearls and shells are fragile and volatile. Dollars can be printed (even if central bankers promised to neutralize the extra dollar once the crisis is over).

Bitcoins are a bit like gold, but can be destroyed by solar flares or EMPs – and it can’t be used as jewellery or electronic circuits. Bitcoins, unlike gold, face competition from other cryptocurrencies that can be constructed by anyone that so desires. What if Bitcoin is the MySpace, Nokia or Altavista of cryptocurrencies? Where is the Facebook, Apple or Google?

Meat Wallet

-not very practical

Actually, my own favorite among the alternatives is essential amino acids, due to the undeniable intrinsic value. Their biggest problem is the needed bulk per transaction. Another problem is the volume needed to back the sum of all transactions. There can never be enough protein around for that – just the promise of delivery if needed. Perhaps water is the answer after all. Or energy. Then again, (long term) storage is an issue.

 

Why buy now?

The price has fallen by 40% in USD, despite mad money printing since the peak in 2011, despite intense hoarding by e.g. the Chinese central bank (albeit not yet disclosed, but probably later this year. My guess is that China has expanded the country’s official reserves by at least 5x) and despite extreme increases in asset prices such as stocks and bonds (and Swedish real estate).

China’s gold hoarding

 

When should you own gold?

  • during inflation
  • during or after money printing
  • during hyperinflation (caused by falling production due to speculation and malinvestment in the preceding money printing boom)
  • in turbulent times – e.g., war

 

Who should consider owning gold?

 

  • Billionaires, dynasties: one atom of gold will stay one atom of gold no matter how you hide it. Gold might be the only way for a dynasty to protect its wealth over time. It’s not about returns it’s about stability.
  • Central banks, governments: pure fiat money has never worked for long. To prevent a collapse or to restart after the death of money a base is required and the most trusted base since gold was first discovered, 7-10k years ago, is gold
  • Doomsdayers: just note it has to be physical gold, hidden from governments, armies, fellow citizens and others
  • Speculators: okay, they don’t really need gold, but they are included among buyers at this point. Contrary to dynasties, speculators don’t care about gold per se or its insurance qualities.
  • Insurance: As part of a quattro stagione portfolio, as a hedge vs. stocks or consumer prices (cf ratios gold/dow, gold/CPI, gold/oil)

 

Why not gold now?

Again, gold is inherently worthless.

 

Valuing gold

What is gold actually worth? Ballpark?

Hello! Am I invisible? Nothing!

 

Okay, here is a stab at gold valuation:

There is about 200 000 tonnes of mined gold in the world. At current prices that’s worth 7.2 trillion dollars or pretty close to the amount of physical money floating around. However, it’s just a tenth of a wider money definition (M3=75tn).

What if all money had to be backed or replaced by gold? Easy, gold would have to be at some 12 000 USD/oz, rather than the current approximately 1200 USD.

In contrast, what’s a dollar worth? Well, the paper isn’t worth much and neither is the 28 ug of cocaine locked in the fibres of an average dollar bill (FYI: 99% of bills in London contain cocaine). The U.S. Fed has some 8000 tonnes of physical gold in its vaults. That’s enough to back less than 10% of the physical currency in the US and around (less than) 1% of its M3. China probably has a similar amount and thus a much better coverage, albeit still negligible as backing for its currency.

However, the power of taxation should mean something… It’s just that that power and value have been diluted by existing debt, as well as promises of pensions etc. that the USD is “backed” by a huge negative net value. Hence, the Bitcoin cryptocurrency is a better bet than the USD, despite having no intrinsic value or backing whatsoever.

Of the main contenders for money, dollars and Bitcoins get disqualified pretty quickly. The only thing Bitcoins have going for them is that they are much better than dollars and other fiat money.

Energy and water sound fine on paper, but there is at least one good reason why gold has won that battle the last 10 000 years. Storage (and stability – water goes bad and energy dissipates. Just as with proteins you only have the promise of delivery left and if you die that goes away, while gold remains).

Another theoretical valuation approach

Gold currently makes up about 1% of investment portfolios. To achieve significant diversification effects that should be at least 5%, and probably rather 10%. Some advocate multiples of that – at 25% (the Quattro Stagione strategy).

Even to just get to a more conservative 5-10% average portfolio weight, either other assets have to plunge dramatically (-80-90%), or gold would have to increase in price by some 500-1000%. Once again the evidence points to 10 000 USD/oz, give or take a few thousand. Well, if it weren’t for the fact that gold is worthless, that is.

Most likely there will be a combination of falling prices for stocks and bonds and a rising price for gold, as the sellers of other assets park their wealth in the safe haven of gold. Thus, even if you want to stay long stocks, you could hedge that position by adding gold. Everybody can’t go full retard as I have (both buying gold and shorting stocks).

Chartist’s view point to 5-6000 USD/oz

 

My first hand experience with gold is limited but rewarding

Have I put my money where my mouth is? What is my actual experience in investing in gold, except reading about it for my entire career?

I bought a batch of gold ETFs (gold price as well as junor and senior gold mine funds) and single stocks (single senior gold mining stocks) a few years ago, after the post 2011 gold price crash, and sold them at a 25% profit after just a few months.

Then I bought again about a year and a half ago, this time just the senior gold mine ETF and a gold price ETF. The reasons behind buying at that point were:

  • The price had fallen by 40% (just as low as when I bought the first time)
  • I expected turmoil, and consequently flight to safety (to gold)
  • I expected weakening peripheral currencies, e.g. the SEK, due to weaker global trade and not least a weakening Chinese economy
  •  I expected a stronger USD (flight to safety, US investors selling foreign assets)
  • Money printing (fear of inflation, rising asset prices overall, gold/dow ratio coming back)
  • Covert central bank hoarding being disclosed (foremost China)
  • Diversification, including something benefiting from money printing
  • I wanted to be anti fragile (if there was a crash or other problems, I wanted to benefit from it)
  • Peak gold production?
  • Refill coming at the Fed?
  • Gold becoming competitive vs. negative interest rates

 

So far, I only got the stronger USD part right. Nevertheless I am up by 20% on the second gold trade (thanks to the USD/SEK development), and I obviously expect much more to come. My current gold exposure is about 0.5-1m USD.

Please note that buying gold is pure speculation. It doesn’t produce any return. Actually it runs up a bill just owning it.

I simply hope to offload my paper gold to a bigger fool within a few years.

Since I don’t own any physical gold directly, I have no insurance against real and lasting trouble such as war or severe capital controls. Without returns or insurance qualities, only speculation remains.

 

Summary: buy gold now

Apocalypse, no? I’m not much for doomsday scenarios, so I’m gonna go with paper gold, for short term (1-5 years) speculative purposes, rather than physical gold buried at my BOL as insurance for when Game Of Thrones becomes reality.

Buy the ETFs GLD (gold price 1:1) and GDX (senior/large gold mines). Make it at least 5-10% of your portfolio, or a full quarter as part of your Quattro Stagione.

Stay away from GDXJ, unless you really like to gamble with your money. I made good returns on my GDXJ the last time round, but I still don’t want them this time. The same goes for single stocks like Goldcorp (GG) and Agnico Eagle Mines (AEM). There is nothing wrong with them, and I bought them and profited from them in the previous round, but I’d rather diversify away the company specific risk. I currently own GLD and GDX.

Why? Winter is coming.

Seriously? China is hoarding gold, stocks and bonds are due for a collapse or at least a serious correction, while gold is due at least a bounce after its 40% correction since 2011. In addition, gold is the ultimate debt-free safe haven in a world of monetary madness and crazy leverage upon leverage.

Just do it

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