February 1, 2010
Featured Trades: (PIIGS), (EURO), (GREECE), (GOLD), (DOW/GOLD RATIO), (PRESIDENTIAL STOCK RETURNS)
2)Whenever I am confronted with non believers in gold, I love to pull out the chart below, showing the Dow Jones priced in the barbaric relic and smack them across the face with it. A 20 year bull market in the yellow metal took the stock index from 1.4 ounces in 1980 to a 40 ounce peak at the top of the dotcom bubble in 2000. It has been falling ever since, dropping to a mere 8 ounces by the end of last year. Today it is hovering at 9.2 ounces, but is definitely looking very heavy. When was the prior stock peak? In 1971, when massive deficit spending, spawned by the Vietnam War, forced the Nixon Shock, which freed gold to float from $34/ounce, sending the Dow fleeing from a 30 ounce valuation.?? Do you see any parallels with today? Iraq and Afghanistan maybe? If we return to the 1980 ratio, the Dow Jones has to either fall 85% to 1,540, or gold has to rocket 6.6 times to $7,300/ounce. With the printing presses in Washington running so loudly that my teeth are starting to chatter, I vote for the latter. The most likely outcome is some combination of the two, where we see stagnant or falling stock prices and rising gold. Do I hear $5,000/ounce anyone? My own $2,300 forecast, the old inflation adjusted all time high, is looking more conservative by the day. Me, conservative? Perish the thought!
3) Hail to the Stock-Promoter-in-Chief! Given the spectacular performance of the stock market since Obama’s inauguration, you might be forgiven for thinking that this was the best record in history. But you would be wrong by a big margin. A bounce back from the 1929 crash delivered an unbelievable 96.5% jump for Franklin Delano Roosevelt in the year leading up to March 4, 1933. He is followed by a postwar boom induced 30.9% appreciation that Harry S. Truman ushered in to January, 1946, the first time the Dow index recovered the 200 level in 17 years. Obama only comes in third with a relatively modest 29.5% pop since his inauguration a year ago. Who brought in the worst return? Jimmy Carter suffered a 19.6% fall during the chronic stagflation of the late seventies. The Vietnam War did likewise to Richard Nixon, with a 17% decline in 1969. Warning to Obama: after FDR’s fabulous first year gains, the market struggled for eight more years, until an expected WWII win sent it on a long term upward trajectory. If this president thing doesn’t work out for Obama, I guess he can always pursue a career as a Wall Street lawyer.
QUOTE OF THE DAY
‘By 2014, the GDP of emerging economies will surpass that of developed economies’?.The most attractive place in the world to invest right now is China’ said David Rubenstein, CEO of the Carlyle Group.