Long Gold - Short Financials Trade Unwinds

The trade that has been working since early 2007 has finally fallen apart in the past 2 weeks. Gold has fallen precipitously from $1,000 an oz to under $800 per oz. It looks like gold can fall much further perhaps as low as $500-600 an oz despite the seasonality that often benefits the gold price between September and January.

Gold Chart - Can you say TIMBER?




Financials have rallied sharply but I consider this an intermediate lull. Short trade should continue to work. The important part of the gold / financials pair that is unwinding is the "long" part. Long anything is not really working other than to play the sharp and fast bear market rallies.

The bear market across all asset classes is accelerating and the specter of deflation again hovers over everything despite the massive monetary stimulus provided by the Federal Reserve over the past five years. Why is this? Too much CREDIT has been created without enough underlying income or intrinsic asset values to support the growth of the DEBT.

New movie coming out - I.O.U.S.A. - watch it to get a feel for where we are heading. In the meantime sit back and watch the bear market ravage the stock market and real estate markets.

When we start to go hyperinflationary, there will be clear tipoffs in both the gold market and US treasury bond market. Watch both. Those are your indicators.

-BG

I am seeing things clearly now

Just got back from a one week vacation in Seattle and Vancouver Island in Canada. Was a really fun trip and I even caught up on some sleep!

I was also able to organize my thoughts a bit more on the debacle we are facing right now in the markets. My end conclusion is ...... lets be bears. We are still in the relatively early stages of the debt deflation cycle. Real estate prices are down 50% in my home town but the banks have only written down 5% of their loan portfolios. The banks are insolvent. Credit is being choked off to the economy as we speak. So we are going to have a bad recession.

What's the take away? Lets be bears. Lets short the bad sectors of the market, or sit in cash in strong currencies (i.e. not dollars). Back during the mania in 2000 when so many of the technology related companies fell 90% or even 99.9% many value hounds including myself wanted to go long while we were still in the bear market (aka - circa fall of 2000). Bear market went on for another 2 years! - with market not finally bottoming until fall of 2002.

We are maybe twelve months into a bear market that should be worse than the prior bear given the deflationary debt spiral implications of massive bank failures (props to Irving Fisher). So we'll let the rally run some more. Maybe we have another two weeks of the bear market rally left with a nice bump after the Fed meeting tomorrow. But lets not kid ourselves - we are in crisis mode in the economy and banking sector and it does not get better in the foreseeable future. So after the rally we reshort and trade this sucker.

-BG