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11.15.2017 - Free Investment Newsletter Bookmark

Gold Part II

 

Over the weekend I was talking about how it’s my belief that Bitcoin was launched as an alternative to gold and silver. But, it was launched by the globalist elites, not some hermit Japanese guy who wanted to save humanity.

 

I was talking about how since Bitcoin was released, it’s been marketed as the “true” anti-money and how it is so convenient, anonymous, and wonderful.  And, it has worked. Gold and Silver have done absolutely nothing for years, while Bitcoin hits a new high every week. Bravo.

 

I am NOT going to dive into our fearless new year predictions yet. We’ve still got some time for that. But it is my opinion that 2018 is going to bring us all manner of interesting situations. None of them will be particularly stable. Just for an example, it is no secret that a major shake up has taken place in Saudi Arabia. It is also no secret that the Saud’s have been a lot more chummy with China and Russia.

 

The ONLY thing that keeps the dollar as the Global Reserve currency is the “petro-dollar” deal that was set up in the early 70’s, to where the US promised to keep the House of Saud in power, and at the same time support them militarily. In return the Saud’s agreed to only sell oil in dollars.

 

Thus, if you’re the Joe-Blow country and you need oil, you first have to exchange Joe-Blow money for dollars and then use the dollars to buy the oil. This arrangement has kept a constant global demand for dollars for over 40 years. But, it’s creaking and groaning. The Saud’s know that their nation is deeply indebted, they know that American Shale players and Frackers have created competition and they know that China’s reserves are going to be completely depleted by the end of 2018.  Consider this:

 

Nafeez Ahmed

 

A new scientific study led by the China University of Petroleum in Beijing, funded by the Chinese government, concludes that China is about to experience a peak in its total oil production as early as next year.

 

Without finding an alternative source of “new abundant energy resources”, the study warns, the 2018 peak in China’s combined conventional and unconventional oil will undermine continuing economic growth and “challenge the sustainable development of Chinese society.”

 

This also has major implications for the prospect of a 2018 oil squeeze — as China scales its domestic oil peak, rising demand will impact world oil markets in a way most forecasters aren’t anticipating, contributing to a potential supply squeeze. That could happen in 2018 proper, or in the early years that follow.

 

So there’s a pretty good chance that the Saud’s are going to sell oil in exchange for Rubles and Yuans. If that plays out, the Dollars role is going to change dramatically.  People will want out of it.

 

I suggested that until I see China and/or Russia moving to sell their gold holdings, I have to think that they know there’s a “value” there that they want more of. Russia and China have not only ‘not” sold any gold, they continue to buy about as much as they can.

 

Then we see anecdotal’s.  What’s that? Well, things like Ray Dalio.  Bridgewater is the world’s biggest hedge fund.  Do you know what their 4th largest holding is now? It’s the GLD, which is the proxy stock for Gold. In fact, Bridgewater is now the 7th biggest holder of ALL the GLD stock.

 

Now, I don’t know Ray Dalio. But you don’t run the biggest hedge fund on earth by being stupid. So why did he go ahead in the 3rd quarter and buy up 100 million worth of Gold ETF’s?  I tend to think that like me, he sees some rocky times coming in the not so distant future. Sure you can argue that he didn’t buy “real gold” as it physical metal, but at his level, buying 100 million worth of bullion would be a bit of a problem.

 

While you and I can buy all the little gold coins we want, at the Kilo-bar level, supply is very tight. Between India, Russia and China buying up all they can get, there’s huge premiums on bulk gold sales.  Then of course you have the cost of “storage” in a secure vault. It is simply easier to deal with the ETF’s at his level.

 

But the point remains the same. The head of the biggest hedge fund on earth wants some pretty big exposure to gold. Yes that old relic that has done absolutely nothing for the last 6 years. Why is that? Again, I can only speculate, but it is my guess that a man with that kind of wealth under him, has “connections” around the globe that suggest to him that things could get rocky in the next year.

 

Again, I’m not ready to lay out our 2018 predictions, but I do tend to think that some pretty spectacular events could play out next year. Maybe Dalio thinks the same. Or maybe he just thinks that after 7 years of doing nothing it’s time for another leg higher? We don’t really know, but from what he’s said, he thinks the atmosphere is ripe for some market rattling events.

 

I’m not a big fan of the GLD. I’m more of a physical gold guy. You all know that. However, as long as the markets function, there is something to say about the ease of trading it. Likewise the miners. When gold is in fashion, the mining stocks do incredibly well. When they’re out of fashion as they have been lately, you’d be better off tossing your money in the gutter.

 

Right now the crypto currencies are the alternative of choice for a lot of people. But one does have to wonder about its staying power in the face of something truly ugly. For instance and NO I’m not predicting this, but let’s say a real shooting war breaks out in the Middle East and then something goes awry with North Korea. History tells us that in a situation like that, Gold and it’s stepchild silver tend to rise.

 

But what about Bitcoin? Will people still see the value in it during a time of heavy duress? We don’t know, it’s not been around long enough to live through such a thing. However I do feel confident that History would indeed repeat itself concerning the metals.

 

Money is a funny creature. Something, anything, only has value as a money because we agree to it. For instance gold has been thought of as money for 5000 years or more, yet you can’t eat it. It doesn’t shine your shoes, or plant your garden. It simply sits there and does nothing. Yet we “value” it because of it’s purity, rarity, inability to be produced out of thin air, etc. It also serves all the requirements of money such as utility, portability, durability, homogeneity, divisibility, malleability, Cognoscibility and stability of value.

 

In history, many “things” have been labeled money. Shells, tree bark, stones, plants, etc. But all of them lost their attractiveness and people turned back to gold and silver. Will the crypto currencies likewise eventually be shunned for something more 3 dimensional like the metals again? Time will tell. My guess is that yes it will.  Do I say that because I’m some sort of “gold bug?” No. Not really. I say it because I’m cave man enough to continue to think that for something to have value, I should be able to touch it. Feel it. Hold it. Look at it. Weigh it.

 

I think that in the right situation, a lot of people are going to feel the same way. I also have a hunch that the events that could lead up to “the right situation” could be staring us in the face next year. The world is more unstable each passing year and let’s face it, we all know that “somethings” going to give.  If you don’t have any at all, I don’t suppose it would be a bad time to buy a ¼ ounce, half ounce, or one ounce gold coin or two. Prices have been stable around the 1150 to 1300 level for 4 years, and it’s probably going to break out, or break down. My guess is break out.  Just sayin.

 

The Market:

 

I want to put out a note to all the paid for members of the Insiders Club. Back in September I did an entire daily update about the “pot stocks”, especially those of Canada. The reason is simple, the push for legalization continues to grow and it is widely believed that Canada will legalize pot throughout the entire nation by July.

 

We put out ACBFF at about $2.35 and we put out MEDFF at about 7.30. Well, ACBFF has run to over 5 bucks ( 100%) MEDFF was over 15 just two days back. (over 100%)  So that’s had quite a few members asking if they should hold, or sell or what?

 

My feeling is DON’T PULL AN AG ON YOURSELF.  For those that don’t know what that means, we put out an options “Vegas play” on AG which took a 19K dollar investment, to 244K dollars in under SIX months. Yes, we did. I urged folks to consider taking it off the table, or at least selling half. Most did. Some didn’t and held it all the way down to nothing.

 

So it’s the same with these pot stocks folks. While I think the future is bright for the companies that are going to provide “clean” pot to all the people that want to get high, you have to put things in perspective. A 100% gain is a 100% gain. While you might still want to be in the play, why not sell half your position…lock in those gains and let the balance ride?  If it rolls over and crashes, you’ve got your profit. If it continues to go higher, you’ve got a half position in play.

 

That’s what I’m doing, and I think that’s an idea you should explore. While I’m not a broker and can’t/won’t tell anyone what they should do, I can tell you what I’d do. I’d sell half. Okay? Good. Let’s move on:

 

Monday, the day started with the DOW down about 78 points, but they scratched and clawed it all the way back and ended slightly green. Tuesday we opened rather punk and we were soon down about 160 DOW points, but the magic levitation machine kicked in and they “almost” got us green. We ended with the DOW off about 30.

 

Today was a reply of yesterday for the most part. The futures suggested a punk open and we got it. Then they attempted the levitation act, but this time it didn’t work. After being down around 165 points, the DOW was off just 80 around noon time. But it couldn’t keep the traction and heading into the close, we faded way back, with the DOW down about 135 and the S&P down about 14.

 

It shouldn’t surprise anyone. If the market was acting purely upon real economic activity, we’d be horribly lower. Everything from the velocity of money, to the value of our money to you name it is in the toilet. Yet the market has been wildly positive in spite of it all. Why, you ask? It’s still simple. Consider this:

 

ECB ramps up balance sheet expansion. Despite booming Eurozone,  Total assets rose by another €14.5bn to a fresh life-time high of €4,387.7bn, equal to 40.7% of Eurozone GDP.

 

There you have it. Until that stuff ends, the idea of any real market roll over is very hard to imagine. Yes there’s some fund managers locking in profits, but the ones that are still buying so they look good for the year, have access to some of that liquidity. Amazing. 

 

The market is heavy. It’s working under a Hindenburg “omen”. The small caps are below their 50 day moving average. If we didn’t have synchronized central bank printing, it would be simple to say “we’re selling out and going short”. But we do  have those CB’s printing. And, that money goes somewhere. Can you say stocks?

 

Things look ugly, the market is heavy and it feels like it could go lower. Yet we all have seen similar set ups in the past and then “boom” a wicked rally unfolds. It could happen again.  So, while things don’t look great right now, I’m not ready to consider anything on the short side. Not until we see a lot more indicators roll over. Good luck out there folks. 

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