GOLD BUBBLE NOW WHAT? WILL THIS BRING STOCKS WITH IT?
It is now time for all sorts of experts to come out and explain why this huge decline took place. The bearish people have one story and the bullish people have another one. There was one in particular that was made about some looming huge default of something or another. I have been asked what I think happened?
What happened is simple, the market was in a down trend and it had an expansion of price and volume in the direction of the trend, exactly what we should expect to see from time to time. There is no doubt this was one heck of a move, but it was in the direction of the trend, so from that stand point it is business as usual. One of the things people need to learn and it takes time and some lumps like this to learn it is, you need to trade in the direction of the main trends. You will not always be right, but what you will get is the larger moves.
For those of you who are reading desperately trying to understand "what went wrong" you are wasting your time. Let's say you finally find the one MIT grad who truly turns out 20 years from now to be the guy who identified some exact intricate pattern that triggered this acceleration, what good does that do you? Wouldn't you rather be a dumb ass who just knew the trend was down and knew nothing about fiat currencies, stores of value, Jim Rogers, etcc and was just short the market because you did not know any better?
I did see one story that someone sent me a link to where one gold bug actually admitted Gold is really just a commodity and it is not a store of value. LOL! Of course, that is what I have been telling people. Think about this and look at the next chart. What about if you knew Gold was a commodity that generally but not perfectly tracked the stock market. You were in the year 2002 where Stocks were completely out of favor and you wanted to go long stocks. Wouldn't it have made sense to the simpleton to have bought Gold?
I am not sure about you but if I showed a 5 year old this chart and asked him if it looked like these two things moved in the same direction or in opposite I am sure he would tell me they move the same. All of us want to engage ourselves in understanding the why of things but it is the what that in the end matters. I personally cannot imagine going through all the brain damage you have to in order to go through all of these arcane economic theories of macro economics and then trying to make a trading decision from it. How about just following the trend putting on the trades, then going to a sports bar with your hat on backwards with your buddies and saying fuck a lot!
Going back to my reference to the movie Arthur, "of course I took the money I'm not crazy." That is the guy I want to be not the one with the bow tie, horn rimmed glasses and flannel slacks wowing audiences about economic theories. There is a reason economists rarely catch bubbles correctly, they are tied up in their underwear with all of this nonsense. The way it looks to me now on just the basis of being a dumb ass with no other ideas, the next price target appears to be 724. Does this mean we will get there, of course not. It is simply the next significant support point. Often these targets are not hit and even if this one is it will take time to get there. The moral of the story is we are in a down trend, sell the rallies. We might get a good sized rally in this one based on how sharply this dropped, but it will be a sell when it happens. Keep it simple.
Will this result in a stock decline?
The same logic should apply to this discussion. The stock market is still in an up trend so it is not the same scenario as we had with Gold which was in a down trend. There are ideas going around about whether we will get a margin call selling wave in stocks and I don't think that will necessarily happen. What you have to keep in mind is that the stock market is where it is because of the way the FED is manipulating the ES, so will the FED have margin calls? Will they stop calling B of A ( allegedly ) and telling then what they are about to do in t 30 minutes so they can front run? I doubt it. The individual investor leveraging is not what has created or carried this rally.
I am concerned that the stock market is a bubble but as we saw with Gold and Real Estate and the Internet bubble, these things can often inflate for longer and go farther, than most people can anticipate. The trend has not broken yet.
I like to keep it simple in this regard, time for the sports bar and the swearing, and oops don't forget your hat!