Not Safe Havens

Nicole Elliott from Mizuho made an interesting comment on CNBC Europe yesterday: Anything that can go down 10% in one week cannot be considered a safe haven…of course I am talking about the Swiss franc and gold. Both the franc and gold each had big drops (at different times) in August. Not putting too much in these things has been a major point here over the years and these week-long dips serve as microcosms for what can happen. Gold might be working its way back up to $1900, it certainly has bounced and for now the franc is still headed lower but at a flatter trajectory. The problem with gold in this context is that it is very volatile. Some advise putting 20% in gold which I have never understood because of the potential volatility. I think gold works because it usually has a low correlation to equities. From 1980 to about 2001 it mostly went down as equities went up (low correlation) and since 2001 it has gone up a lot as equities have drifted lower (again low correlation). Two big issues with the Swiss franc is that it is a very small currency and the run up from early this summer was evident of a buying panic. The currency is small enough that the SNB has tried several times to intervene in the currency market. It did not succeed but it obviously thought it could. Another issue, more of threat that might be on the back burner for now is that the banks are much bigger than the country in a similar vein as Iceland. A recurring...

Not Safe Havens

Nicole Elliott from Mizuho made an interesting comment on CNBC Europe yesterday: Anything that can go down 10% in one week cannot be considered a safe haven…of course I am talking about the Swiss franc and gold. Both the franc and gold each had big drops (at different times) in August. Not putting too much in these things has been a major point here over the years and these week-long dips serve as microcosms for what can happen. Gold might be working its way back up to $1900, it certainly has bounced and for now the franc is still headed lower but at a flatter trajectory. The problem with gold in this context is that it is very volatile. Some advise putting 20% in gold which I have never understood because of the potential volatility. I think gold works because it usually has a low correlation to equities. From 1980 to about 2001 it mostly went down as equities went up (low correlation) and since 2001 it has gone up a lot as equities have drifted lower (again low correlation). Two big issues with the Swiss franc is that it is a very small currency and the run up from early this summer was evident of a buying panic. The currency is small enough that the SNB has tried several times to intervene in the currency market. It did not succeed but it obviously thought it could. Another issue, more of threat that might be on the back burner for now is that the banks are much bigger than the country in a similar vein as Iceland. A recurring...

The Market Loves Gold!

Gold has gone parabolic this year, really over the last couple of months, as a perceived flight to safety for fear of ongoing US dollar debasement. You may have heard that the SPDR Gold ETF (GLD) is now bigger than the SPDR S&P 500 Trust (SPY). The fundamental argument for gold is pretty good as there appears to be a willingness to sacrifice the greenback in trying to revive the US economy. While I cannot be certain I think the non-investing public is far more aware of what gold is doing than it was two years ago. To me, this is evidence of mania, really a mania that has been ongoing for a while now. In addition to the fast rise in price we are seeing price targets continue to go up faster than the actual metal. We are close to $2000 which would not be a heroic move but as $2000 gets closer, the extrapolaters are now calling for $3000 or higher. Our clients have obviously benefited from our position in GLD as I view it as a core holding as a form of insurance against certain types of shocks and as an asset that usually has a low correlation to equities. However against the mania I perceive we sold 1/3 (subject to rounding) of our position early in the day on Tuesday. A lot of the behaviors with gold now are ones we have seen before. For example is gold a “chip shot” from $3000 (a reference to a comment by the late Joe Battipaglia about the Nasdaq going to 6000) and GLD becoming the biggest ETF...

The Market Loves Gold!

Gold has gone parabolic this year, really over the last couple of months, as a perceived flight to safety for fear of ongoing US dollar debasement. You may have heard that the SPDR Gold ETF (GLD) is now bigger than the SPDR S&P 500 Trust (SPY). The fundamental argument for gold is pretty good as there appears to be a willingness to sacrifice the greenback in trying to revive the US economy. While I cannot be certain I think the non-investing public is far more aware of what gold is doing than it was two years ago. To me, this is evidence of mania, really a mania that has been ongoing for a while now. In addition to the fast rise in price we are seeing price targets continue to go up faster than the actual metal. We are close to $2000 which would not be a heroic move but as $2000 gets closer, the extrapolaters are now calling for $3000 or higher. Our clients have obviously benefited from our position in GLD as I view it as a core holding as a form of insurance against certain types of shocks and as an asset that usually has a low correlation to equities. However against the mania I perceive we sold 1/3 (subject to rounding) of our position early in the day on Tuesday. A lot of the behaviors with gold now are ones we have seen before. For example is gold a “chip shot” from $3000 (a reference to a comment by the late Joe Battipaglia about the Nasdaq going to 6000) and GLD becoming the biggest ETF...