I find the soothing talk a little scary

[meiroy]

A slowdown in China other than what was mentioned here means lower commodities costs, lower goods costs etc. and this has benefit on its own that can balance things out. There are two sides to the coin.

 

Of course it's more complicated than that, but so far the US economy is resilient, look at new house sales and consumer sentiment from yesterday.

 

And yes there's Europe and Japan who might eventually blow up and all the commodities countries etc. etc. but who knows if it's tomorrow or five years from now (will be faster than we expect when it happens, yes).

 

This drop yesterday seems like technical issues, bots plus low liquidity ETFs and whatever, more than fundamentals.

 

Regarding the general suckiness of the rest of the world there are great opportunities with currency pairs. So I'd go with cheap US equity +  Long USD Short Foreign Currency. Recent bounce in Yen and EUR is silly, it will flip back.

 

 

And just to end this with a way overly optimistic opinion:  this has been happening due to lack of liquidity, no doubt thanks to recent excessive regulation. Maybe, just maybe it will cause some people to wake up and let the financial institutions do what they are supposed to do.

 

 

 

[original mungerville]

I feel a sense of panic among the esteemed value investors on the board. Equities have been trading at a very high P/E multiple and how can we be so sure that they do not continue to trade at high multiples. Rates are likely to stay low worldwide and in such an environment, won't companies that can grow their earnings even ~5% or so be a good investment. European QE has further to go and that will perhaps provide a boost to the European equities. With the continued strength in the US dollar and decline in emerging market currencies, will the Fed be really able to raise the Fed Funds rate? Isn't the Fed supposed to be raising rates only if the US economy is steaming hot? With the US economy growing so slowly, the Fed would be a blockhead (using Gundlach's words) to raise rates. Summer and Dalio are already talking about QE4. What happens if the Fed gives indication that they will not be raising rates in the near term due to all the global concerns? Will that lead to a rally in the equities? What happens if they don't raise rates at all in 2016 due to the upcoming elections? Will that lead to a rally in the equities?

 

The Chinese economy has been slowing down since long. There's no new information about it lately to have caused such a decline in the US equities market. Also, we all saw how the Chinese equities markets were going up in a parabolic manner, with barbers and taxi drivers all jumping in. We all knew that it was a bubble and that it would burst at some point of time.

 

The worldwide growth is low. That should keep rates low. In such an environment, will equities not be the only game in town. And if rates do rise, that would be if the economy is doing well. That should lead to increased earnings which could mitigate some of the headwinds due to P/E multiples normalizing.

 

You too had a hard time engaging the enemy after you lost Goose. 

 

There is something to be feared in fear itself, as the economy is in part a confidence thing.  Large market collapses and currency crises can feed into the real economy.  Will they?  Well, we'll see.  The odds are higher with a collapse rather than without one.

 

Soros: Reflexivity. Bad shit causes more bad shit to happen and good shit can cause more good shit to happen. Said otherwise, its a complex adaptive system with multiple possible "end-states" although there is no real end as it is constantly changing.

[mcliu]

Seems like maverick's the argument for equities is:

 

Slow growth -> low rates -> higher multiples -> buy equities [because higher multiples > slower growth]

 

High growth -> higher rates -> lower multiples -> buy equities [because higher growth > lower multiples]

 

 

but it seems like you can make the same argument for:

 

Slow growth -> low rates -> higher multiples -> sell equities [because higher multiples < slower growth]

 

High growth -> higher rates -> lower multiples -> sell equities [because higher growth < lower multiples]

 

Conclusion: inconclusive  ::)

 

 

[original mungerville]

How is it that so many here know so much about all this stuff?

 

 

Because in this know-nothing-but-think-they-do central bank money-printing debt-laden fucked up economic and financial system that the Greenspans, Summers, Geithners, Rubins, and execs in banking with perverse incentives feeding at the socialist-on-the-downside-capitalism-on-the-upside trough of compensation that this world created for us it can be important from time-to-time as we find ourselves trying to value invest.

 

The economy has grown so well over the past 40 years in large part because of ever increasing amounts of debt (enabled by the aforementioned system of ours) which can be used to buy stuff and increase GDP. The one thing that has been there for the last 40 years to permit the debt to keep growing is spread. Spread since 1980 on the long-end and short-end (Greenspan-Bernanke-Yellen). Every time there was a recession or financial system problem, bond yields had room to move down across the spectrum, permitting the debt levels to be maintained, the economy to recover and the financial system to create more debt/or create more GDP (because you buy shit with debt its like increasing the money supply) which in turn juices all risk asset values, against which you can borrow more debt.

 

Problem is, there is no spread left in Europe (witness negative yields). There is a little bit of spread in the US left (10 year around 2%) on the long-end. Fed thought they could lift off the short-end to ensure there was spread on the short-end (say 1-1.5% by 2017), well I guess not. Basically, we are one US recession away from a major inflection point (especially if it is at a time of global weakness). Watsa doesn't have deflation hedge losses for the fun of it. Either we go into recession then depression OR they print a shit ton of money to counter the next recession. Neither of those outcomes are particularly good long-term as at some point either risk assets (in the first scenario) or the bond market (in the latter scenario) will say "No Mas".

 

At some point we will reach a point of inflection - not necessarily right now, but not in 5-10 years either, around the time of the next US/global recession. When that happens, this little correction we are experiencing is going to look like a fuckin' walk in the park. I don't think this is it but if a US recession is here, well...a lot of people are eventually going to lose a lot of money either in bonds or stocks.

 

Its not like I wanted to know about this shit, I just wanted to buy cheap stocks as a value investor - its a lot more fun. While I am at it, the Fed is clueless. I have no idea why people feel the Fed can help when I can't remember the last time they got anything right - other than avoiding the collapse in 2009 which they in large part helped create through loose monetary policy, loose regulation, and overlooking the fact that just like you don't let gas truck drivers drive drunk, you don't let banking execs and traders have asymmetric pay packages.

 

I think I am done.

[maverick]

http://www.marketwatch.com/story/bridgewaters-ray-dalio-sees-fed-launching-quantitative-easing-measures-2015-08-25

 

Markets have been propped higher by central bankers (Yellen, Draghi, Kuroda). Have the markets come to realize the impotence of the central bankers? Or are the central bankers still capable of pursuing further with their financial repression leading to inflated asset prices?

[original mungerville]

http://www.marketwatch.com/story/bridgewaters-ray-dalio-sees-fed-launching-quantitative-easing-measures-2015-08-25

 

Markets have been propped higher by central bankers (Yellen, Draghi, Kuroda). Have the markets come to realize the impotence of the central bankers? Or are the central bankers still capable of pursuing further with their financial repression leading to inflated asset prices?

 

Debt is a demand for money by a certain time. If the debt doesn't get the money it implodes. With no more spread left in the developed world (other than a little in the US with 10-year at 2%), the only option left is to produce more new money to keep the game going (because unlike before, you can't produce more new debt to pay the old debt unless lower spreads help you juice the economy and asset values against which the new debt can be borrowed). This is why Dalio thinks they are going to need to monetize - especially if we get a US recession.

 

OK, I read the link. He is saying what I was saying. Not raising rates is like bringing a knife to a gun fight. Its QE forever - thanks to all my "heroes" noted in my above post. I have said it before, but I'll say it again: you should all have at least 10% of your net-worth (or more) in precious metals. Right now, I would split that 50% gold miners, and 50% silver. I've heard the Buffett dig gold out of the ground and put it in a safe thing and he is right stocks will outperform Gold over a 100 years because although gold maintains purchasing power, it does not have a ROE above the rate of inflation like equities do. But, when we hit the inflection point noted in my above post, I think Gold will outperform stocks and bonds by a very wide margin.

 

[rb]

And just to end this with a way overly optimistic opinion:  this has been happening due to lack of liquidity, no doubt thanks to recent excessive regulation. Maybe, just maybe it will cause some people to wake up and let the financial institutions do what they are supposed to do.

 

Why do you think there is a lot less liquidity than it should be under normal circumstances in a market like this? Do you see excessively wide bid-ask spreads which is the classical sign of lack of liquidity? Or do you refer to the fact that there may be less liquidity than in smooth markets? If so why do you think it is the fault of excessive regulation as you put it? Isn't it more likely that in the current choppy markets the HFT guys took the fake liquidity away? I don't see the legitimate market makers pulling liquidity from the market. Oh and btw, the liquidity that went away is unregulated.

[rb]

http://www.marketwatch.com/story/bridgewaters-ray-dalio-sees-fed-launching-quantitative-easing-measures-2015-08-25

 

Markets have been propped higher by central bankers (Yellen, Draghi, Kuroda). Have the markets come to realize the impotence of the central bankers? Or are the central bankers still capable of pursuing further with their financial repression leading to inflated asset prices?

I really don't understand why everyone jumps on the macro thing? Oh markets propped up, it's the ECB, it's the FED, etc. Why can't this be just the classical case of a stock market that got a bit ahead of itself and is correcting back to where prices should be like it did many times in the past.

 

Where do you think a fair price for the market is? S&P at 1,000? If stocks are overvalued by 10% or 20% what do you think it's more likely that the markets got a bit overexcited as they normally do or that there is an international central bank conspiracy to pull all the stops to push stock prices up by 20%? Maybe everyone needs to watch a little less CNBC.

[CorpRaider]

We all gonna' die (we really are). Feel better op?

[original mungerville]

http://www.marketwatch.com/story/bridgewaters-ray-dalio-sees-fed-launching-quantitative-easing-measures-2015-08-25

 

Markets have been propped higher by central bankers (Yellen, Draghi, Kuroda). Have the markets come to realize the impotence of the central bankers? Or are the central bankers still capable of pursuing further with their financial repression leading to inflated asset prices?

I really don't understand why everyone jumps on the macro thing? Oh markets propped up, it's the ECB, it's the FED, etc. Why can't this be just the classical case of a stock market that got a bit ahead of itself and is correcting back to where prices should be like it did many times in the past.

 

Where do you think a fair price for the market is? S&P at 1,000? If stocks are overvalued by 10% or 20% what do you think it's more likely that the markets got a bit overexcited as they normally do or that there is an international central bank conspiracy to pull all the stops to push stock prices up by 20%? Maybe everyone needs to watch a little less CNBC.

 

Look, if the US decided to go to a budget surplus along with Europe in order to actually pay back the debt, the S&P would be below $1000. If we find a way to maintain the current levered economic and financial system for another couple years, well maybe this little 10-20% correction is adequate for now. If we hit the inflection point I noted in my above post, or if the market loses confidence in the Fed, we will realize that in real terms, we already hit the highs for the next 15 years. In nominal terms, the Dow could be at a trillion in 15 years though. So I don't think this is straight-forward. It depends on your outlook and your timeframe. But I think everyone can agree that printing money and ever-increasing debt can not end well. It has to end horribly.

[maverick]

How is it that so many here know so much about all this stuff?

 

Basically, we are one US recession away from a major inflection point (especially if it is at a time of global weakness). ... Either we go into recession then depression OR they print a shit ton of money to counter the next recession.

 

At some point we will reach a point of inflection - not necessarily right now, but not in 5-10 years either, around the time of the next US/global recession.

 

 

I agree with most of what mungerville has written. I am myself very negative about both worldwide and US growth. In the US, the Q2 GDP was propped up due to inventory build and the payback from that could lead to a low Q3 or Q4 GDP print. I agree that we are manufacturing $1 of growth by borrowing more than $1. The deleveraging which was supposed to happen after 2009 has not really happened and the debt level now is >trillion dollars higher. Due to all this I believe that the worldwide rates could stay low for much longer (till the market loses confidence in the central bankers, however that is not a near term risk imho). And I think that the financial repression that comes due to low rates would continue to force investors into seeking higher risks leading to inflated equity prices.

 

What is wrong with owning good businesses such as INTC, GM, LVLT, GILD, Malone's, etc.

[rb]

Look, if the US decided to go to a budget surplus along with Europe in order to actually pay back the debt, the S&P would be below $1000. If we find a way to maintain the current levered economic and financial system for another couple years, well maybe this little 10-20% correction is adequate for now. If we hit the inflection point I noted in my above post, or if the market loses confidence in the Fed, we will realize that in real terms, we already hit the highs for the next 15 years. In nominal terms, the Dow could be at a trillion in 15 years though. So I don't think this is straight-forward. It depends on your outlook and your timeframe. But I think everyone can agree that printing money and ever-increasing debt can not end well. It has to end horribly.

Well if the US did something like that maybe the S&P would be worth 1000. But I don't really see your point? Why would the US want to suddenly go to a surplus to pay down some debt? That would be horrible economic policy even as you put it. So in order to pay down a bit of debt, the US should cause horrible human suffering through unemployment, etc. Probably go into deflation, destroy the profitability of its companies and a lot of value... for what? to feel good that they paid down some debt? We could go around like this forever. If my grandma had wheels then she'd have been a bicycle but she didn't she had legs, and the S&P is not worth 1000.

[original mungerville]

I should end positively by saying that we can all make Alpha with good long-term value investing. I just would not count on a big wind at our backs - in real terms at least. This is what I have been trying to do and continue to do.

[rb]

I should end positively by saying that we can all make Alpha with good long-term value investing. I just would not count on a big wind at our backs - in real terms at least. This is what I have been trying to do and continue to do.

This is where I agree with you fully. The CNBC crowd is all about the FED. I think the community here can make nice returns without worrying much about all of that.

[original mungerville]

Look, if the US decided to go to a budget surplus along with Europe in order to actually pay back the debt, the S&P would be below $1000. If we find a way to maintain the current levered economic and financial system for another couple years, well maybe this little 10-20% correction is adequate for now. If we hit the inflection point I noted in my above post, or if the market loses confidence in the Fed, we will realize that in real terms, we already hit the highs for the next 15 years. In nominal terms, the Dow could be at a trillion in 15 years though. So I don't think this is straight-forward. It depends on your outlook and your timeframe. But I think everyone can agree that printing money and ever-increasing debt can not end well. It has to end horribly.

Well if the US did something like that maybe the S&P would be worth 1000. But I don't really see your point? Why would the US want to suddenly go to a surplus to pay down some debt? That would be horrible economic policy even as you put it. So in order to pay down a bit of debt, the US should cause horrible human suffering through unemployment, etc. Probably go into deflation, destroy the profitability of its companies and a lot of value... for what? to feel good that they paid down some debt? We could go around like this forever. If my grandma had wheels then she'd have been a bicycle but she didn't she had legs, and the S&P is not worth 1000.

 

Right, I didn't say it was worth less than a 1000, I said it was worth somewhere between that and a trillion. The center can hold for as long as there is confidence in currencies and the debt does not implode the economy. But to have Dalio start talking about QE again might make people wonder just how many QEs are there going to be and when does this end, does it ever end? 

[original mungerville]

I should end positively by saying that we can all make Alpha with good long-term value investing. I just would not count on a big wind at our backs - in real terms at least. This is what I have been trying to do and continue to do.

This is where I agree with you fully. The CNBC crowd is all about the FED. I think the community here can make nice returns without worrying much about all of that.

 

Well, just to be clear, I am not saying to disregard this stuff. I am saying try to establish cheap long-term asymmetric hedges against this stuff with a small portion of your portfolio so that you don't have to worry about this stuff with the rest of your portfolio and you can go along in your merry way value investing like we all just want to do!!

[rb]

Look, if the US decided to go to a budget surplus along with Europe in order to actually pay back the debt, the S&P would be below $1000. If we find a way to maintain the current levered economic and financial system for another couple years, well maybe this little 10-20% correction is adequate for now. If we hit the inflection point I noted in my above post, or if the market loses confidence in the Fed, we will realize that in real terms, we already hit the highs for the next 15 years. In nominal terms, the Dow could be at a trillion in 15 years though. So I don't think this is straight-forward. It depends on your outlook and your timeframe. But I think everyone can agree that printing money and ever-increasing debt can not end well. It has to end horribly.

Well if the US did something like that maybe the S&P would be worth 1000. But I don't really see your point? Why would the US want to suddenly go to a surplus to pay down some debt? That would be horrible economic policy even as you put it. So in order to pay down a bit of debt, the US should cause horrible human suffering through unemployment, etc. Probably go into deflation, destroy the profitability of its companies and a lot of value... for what? to feel good that they paid down some debt? We could go around like this forever. If my grandma had wheels then she'd have been a bicycle but she didn't she had legs, and the S&P is not worth 1000.

 

Right, I didn't say it was worth less than a 1000, I said it was worth somewhere between that and a trillion. The center can hold for as long as there is confidence in currencies and the debt does not implode the economy. But to have Dalio start talking about QE again might make people wonder just how many QEs are there going to be and when does this end, does it ever end?

Let's just leave the valuation of the S&P to the side. At this point it's like saying it's between zero and infinity.

 

Now Dalio may be a smart guy but he's no oracle either. We may have another QE at some time, but so what? The CNBC crowd thinks that the FED is more concerned about the stock markets than the real economy. I hold the opposite view. The thing is that at this point I don't see why the fed should tighten - inflation is very tame. I also don't really see why the should loosen much - job growth is going at a decent pace, though there is a long way to go. If the current problems in other parts of the world spill into the US then they will probably loosen (so QE4) and that will be the right thing to do.

[maverick]

http://www.marketwatch.com/story/bridgewaters-ray-dalio-sees-fed-launching-quantitative-easing-measures-2015-08-25

 

Markets have been propped higher by central bankers (Yellen, Draghi, Kuroda). Have the markets come to realize the impotence of the central bankers? Or are the central bankers still capable of pursuing further with their financial repression leading to inflated asset prices?

 

I have said it before, but I'll say it again: you should all have at least 10% of your net-worth (or more) in precious metals. Right now, I would split that 50% gold miners, and 50% silver. I've heard the Buffett dig gold out of the ground and put it in a safe thing and he is right stocks will outperform Gold over a 100 years because although gold maintains purchasing power, it does not have a ROE above the rate of inflation like equities do. But, when we hit the inflection point noted in my above post, I think Gold will outperform stocks and bonds by a very wide margin.

 

I am a newbie writer to this board, though I have been reading all the posts here since a long time. I tend to agree with most of what original mungerville has to say. I am myself painfully long the gold miners. I was even longer but have been cutting my longs after realizing that I was wrong in my assessment last year that gold has bottomed. Right now I believe that gold has more downside and could easily go below $1,000. However, mungerville is right that gold will shoot up when the markets lose confidence in the central bankers. However, I don't believe that to be an imminent risk. In the near term any bounce in gold should perhaps be faded.

[rb]

the Q2 GDP was propped up due to inventory build and the payback from that could lead to a low Q3 or Q4 GDP print. I agree that we are manufacturing $1 of growth by borrowing more than $1. The deleveraging which was supposed to happen after 2009 has not really happened and the debt level now is >trillion dollars higher. Due to all this I believe that the worldwide rates could stay low for much longer (till the market loses confidence in the central bankers, however that is not a near term risk imho). And I think that the financial repression that comes due to low rates would continue to force investors into seeking higher risks leading to inflated equity prices.

 

What is wrong with owning good businesses such as INTC, GM, LVLT, GILD, Malone's, etc.

I don't see much of your point here about debt and deleveraging? You say of debt has gone up by >1 Tn! No deleveraging! Ok which debt? How much has GDP moved during that time? Debt has definitely gone up since 1920s too. Are we more leveraged now than then? You may want to pay closer attention to these things.

 

Btw, household debt to gdp has gone down from 98% in 2009 to 80% now. Sure looks like deleveraging to me. I'm not gonna spend time now pulling the corporate debt numbers but those have gone down too. So how exactly is deleveraging not happening?

 

Regarding financial repression as you put it, I see no shortage of sophisticated private investors lining up to buy US treasuries.

[original mungerville]

Look, if the US decided to go to a budget surplus along with Europe in order to actually pay back the debt, the S&P would be below $1000. If we find a way to maintain the current levered economic and financial system for another couple years, well maybe this little 10-20% correction is adequate for now. If we hit the inflection point I noted in my above post, or if the market loses confidence in the Fed, we will realize that in real terms, we already hit the highs for the next 15 years. In nominal terms, the Dow could be at a trillion in 15 years though. So I don't think this is straight-forward. It depends on your outlook and your timeframe. But I think everyone can agree that printing money and ever-increasing debt can not end well. It has to end horribly.

Well if the US did something like that maybe the S&P would be worth 1000. But I don't really see your point? Why would the US want to suddenly go to a surplus to pay down some debt? That would be horrible economic policy even as you put it. So in order to pay down a bit of debt, the US should cause horrible human suffering through unemployment, etc. Probably go into deflation, destroy the profitability of its companies and a lot of value... for what? to feel good that they paid down some debt? We could go around like this forever. If my grandma had wheels then she'd have been a bicycle but she didn't she had legs, and the S&P is not worth 1000.

 

Right, I didn't say it was worth less than a 1000, I said it was worth somewhere between that and a trillion. The center can hold for as long as there is confidence in currencies and the debt does not implode the economy. But to have Dalio start talking about QE again might make people wonder just how many QEs are there going to be and when does this end, does it ever end?

Let's just leave the valuation of the S&P to the side. At this point it's like saying it's between zero and infinity.

 

Now Dalio may be a smart guy but he's no oracle either. We may have another QE at some time, but so what? The CNBC crowd thinks that the FED is more concerned about the stock markets than the real economy. I hold the opposite view. The thing is that at this point I don't see why the fed should tighten - inflation is very tame. I also don't really see why the should loosen much - job growth is going at a decent pace, though there is a long way to go. If the current problems in other parts of the world spill into the US then they will probably loosen (so QE4) and that will be the right thing to do.

 

Agree, it will be the right thing to do to hold the center - so this correction should be limited to 10 to 25%. But of course the risk is, that at some point, maybe soon, may in a few years, maybe in 5 years or even 10. At some point, ever increasing amount of debt and QE have to lead to disaster. Would you not agree?

[ERICOPOLY]

Gold is just something that ought to shoot up if there is QE, but it hasn't yet.

 

GLD finished at 109 today, and it was 91 at the beginning of 2009, before all the QE. 

 

More than 6.5 years later, it's only up 19.7%.  That's a bit less than 3% a year.

 

That's after QE1, QE2, QE3!  Why is QE4 going to produce better results for GLD?

 

[rb]

Agree, it will be the right thing to do to hold the center - so this correction should be limited to 10 to 25%. But of course the risk is, that at some point, maybe soon, may in a few years, maybe in 5 years or even 10. At some point, ever increasing amount of debt and QE have to lead to disaster. Would you not agree?

This is a better and harder question that you pose. It may or it may not. That's not entirely sure. I personally think that it won't. What you are talking about is debt at the federal level because the private sector has deleveraged quite a bit. The FED has a lot of ways to tighten. It can do it gradually by not repurchasing treasuries as they mature, they can do it faster by selling treasuries (sort of a reverse QE) if the economy picks up steam. But does it make sense to create a crisis now (by tightening, doing austerity, whatever) just so we don't have a crisis in the future that may or may not happen? Especially when you don't have to?

 

Personally from an investing point of view right now I am way more concerned about a revision to the mean of profit margins. Though even if that happens I don't think it will be as bad as the bears think for US equity.

[original mungerville]

Gold is just something that ought to shoot up if there is QE, but it hasn't yet.

 

GLD finished at 109 today, and it was 91 at the beginning of 2009, before all the QE. 

 

More than 6.5 years later, it's only up 19.7%.  That's a bit less than 3% a year.

 

That's after QE1, QE2, QE3!  Why is QE4 going to produce better results for GLD?

 

Well, I have a theory that the developed world central banks have been selling gold to the bullion banks who have been selling paper gold into the market as QE1,2,and 3 were implemented. But I think that that game ends at some point because there will be a failure to deliver physical Gold on the Comex at some point which will send the price upwards quite fast.

 

Its not unlike the situation in Fairfax shares where the bad guys were naked short-selling into the US market effectively producing unlimited amounts of Fairfax shares at will at key points to take down the price. I saw the action then in Fairfax shares, and I see it now in Gold. Same for the action in Overstock shares around the same period. This stuff can persist until the physical takes over. Like when did Fairfax start paying a dividend? Remember, it seemed odd given their capital position at the time...but when you pay a dividend, if the market maker specialist / broker on the NYSE has permitted naked short selling on behalf of his clients, that broker has to pay dividends on every paper share it created. So if 100% of shares were sold short (and not covered - ie naked shorted) by a broker, that broker effectively owed clients double the dividend amount in aggregate. At some point the physical takes over, and I think the same will happen in Gold.

 

I should also say that with enough QE and ever-increasing amounts of money printing, one would think confidence in paper currency would decrease exponentially at some point. This just seems logical and the value of Gold is one divided by the value of paper currency.

[ERICOPOLY]

I admit that I don't understand the issue -- but genuinely I am amazed that all that QE did pretty much nothing to the gold price.  Perhaps it permanently propped up a gold price that was already in a bubble (but isn't anymore after the QE).  Just don't know.

 

 

[rb]

I am a newbie writer to this board, though I have been reading all the posts here since a long time. I tend to agree with most of what original mungerville has to say. I am myself painfully long the gold miners. I was even longer but have been cutting my longs after realizing that I was wrong in my assessment last year that gold has bottomed. Right now I believe that gold has more downside and could easily go below $1,000. However, mungerville is right that gold will shoot up when the markets lose confidence in the central bankers. However, I don't believe that to be an imminent risk. In the near term any bounce in gold should perhaps be faded.

As you say, you are a newbie on this board (I'm not a veteran either) so don't take this as I'm picking on you. But why do you think that it's a wise idea to invest in gold miners. You should have a better business/economic case than oh QE, or markets will loose confidence in central bankers.

 

Ericopoly has a very good post of physical gold vs. QE.

 

I'm going to look from the side of the gold miners - what you actually bought. Firstly in the past 5 years there were a lot of projects developed by gold miners that assumed a $1,500 price for gold to be viable. Those projects subsequently had a lot of cost overruns. Why do you think it's good to hold those in current price environment for gold (you could argue upward leverage to the price of gold.... ok).

 

But let's look at the performance for gold miners. Barrick - the largest. Back in 1999 (the furthest back google finance lets me go) was $28 a share. Today is $9.39. You may argue I cherry pick data but all the miners look different shades of bad. Back in 1999 the price of gold was about $300 an ounce now it's say $1,100. So you have a case where the price of your product went up 267% and your stock price went down by 76% is that the business you want to put yourself in? Do you think that if Coke can triple its selling price its stock would go down?

 

Btw in that period BRK.B went from $35/share to 127.79 today a 265% increase and you didn't need to do much work there or think too much about the FED.