As usual, all the standard disclaimers. Past performance is no guarantee of future success, beware all ye who enter the giant casino known as the stock market, etc., etc. Do as I do at your risk, all that good stuff. Here is what I believe to be true. Gold is going down. The dollar is going up. Gold and the dollar trade in an inverse manner. The Fed is going to raise interest rates as much as they can to help the banks and the pension funds. Capital flow on a global basis will start pouring into the US on the " least dirty shirt " basis. First the chart of GDX the gold miners ETF.
As you can see it has broken down below the 50 day moving average line thereby issuing a sell signal. I dumped my shares of OCANF earlier this week. Next I will post a chart of DZZ which is the inverse of gold ETF fund. It has issued a buy signal. Monday I will buy some shares of DZZ on the theory gold has further down to go. As usual any questions will be cheerfully answered.
If one is going to end something it's a good thing to end it on a high note. I think I accomplished that yesterday. I closed out my last 2 bets at the close of business Dec 8th. My bet on shorting oil was the single best bet I have made in all the years I have been playing the markets. I bought SCO at $26.38 and sold it at $58.06 a gain of a whopping $120%. Something about a blind pig finding the occasional acorn comes to mind. The other bet I had going was for the Dow to go up. I bought DDM at $125.00 and sold it at $135.64 for a gain of 8.51%. That leaves me with nothing on the table. I turned 75 in October so I feel it is time to get my affairs in order. Toward that end I will no longer be placing bets on the stock market and will direct all my efforts toward monthly income stream equities. This will be my final posting on the markets. Part of the reason for my quitting are two fold. At this time the markets have become so manipulated and tortured by the Federal Reserve and the Politicians they no longer make any sense plus I think we are rapidly approaching an inflection point in our history where things are going to get really ugly. In any event I will post my list of trades for 2014 below. I may from time to time post my thoughts on how things are going in a general way but as of right now I am retiring from actively following the market.
As you can see my bet the price of oil would go down is up an astonishing 94.5%. Almost as astonishing is my bet the Dow would go up is up 9.10%. Now we get to the everything is connected part. It all goes back to the Saudis and Roosevelt. Roosevelt made an agreement we would keep the Saudi Kings and Princes in power as long as they kept the price of oil cheap. At that time gold was $35 an ounce. The Saudis agreed to keep the price of oil at a ratio of about 1/15 the price of an oz of gold. Wonderful. Everyone was happy. The Saudis had stable oil prices and we had cheap oil. This all came about because the Saudis do not understand fiat currency. To them dollars are just pieces of paper but if they could sell 15 barrels of oil for one ounce of gold they were happy. Gold they understood but not paper money. Then along came Nixon who did away with the gold standard. This created OPEC which was an attempt to regulate the flow of oil to maintain the old 15-1 ratio. For the most part it worked. There were lags on the way up and lags on the way down but for the most part the oil gold ratio stayed at 15 to 1. Recently we had $1500 gold and $100 a bbl oil. Now we have $1100 oil and $70 oil. All of this is driven by the dollar index. As the value of the dollar goes up the price of gold goes down and vice versa. Recently the dollar has been getting stronger which means the price of gold is going down and the price of oil is going down with it. It's all connected. Ok, where does that leave us. The dollar is getting stronger because it is the least bad of all the other fiat currencies. As the world's economies swirl around the toilet bowl there is a flight to the safest currency which is the dollar. That drives the dollar up, the price of oil and gold down. At a minimum I would look for $900 an oz gold which should give us $60 a bbl oil. If things get as bad as I think they will in 2016 I would look for $600 gold and $40 oil. This would drive the dollar up to about 120 or so from it's current level of around 90. The Dow will go to unimaginable heights because Central Banks are no longer buying bonds or lending money but buying stocks in anticipation of government defaults on bonds. If this thing plays out you will see Dow 20,000 to 25,000. The next couple of years are going to be very interesting.
I currently have 3 wagers placed in the Model Portfolio. The first is DZZ which is a bet the price of Gold has will go down. DZZ is currently up 1.49% since Oct 31st when I placed the bet. I am close to being stopped out on this one. Next I am betting the stock market has more upside ahead of it if for no other reason than we are entering the positive season for the stock market. Historically the market goes up from November to April. DDM is a bet the price of the Dow will go up and so far it's up 5.54% since Oct 31st. Last we have our bet the price of crude will go down. This falls under the blind pig finding an acorn category. SCO which is a short of crude oil is up a whopping 59.5% since July 30th when I place the bet. Longer term I'm guessing the Dow will remain positive till late 2015 with an upside potential of 20,000, Gold will continue to fall going down below $1000 an oz and oil has probably run it's course and will stabilize at current prices in the $70-$75 a bbl range. Total Model Portfolio gain is 14.23%.
We are now entering the so called " positive " season for the stock market which runs from now until about May. Beyond that I am suspicious we may rocket up to unimaginable highs in the stock market between now and late 2015. If I am right this will be the mother of all blow offs that will be bigger and better than the run up to 2000. As the stock market rockets higher Gold will enter the final collapse phase. Look for Gold to melt down to the $900 range and possible even down to $600 an oz. Friday I dumped my wager on DUG as it dropped below the moving average line. I bought it at $39.75 and sold it at $46.07 for a quick pick up of 15.9%. As of right now I am short oil and gold and long the Dow. Below is the list of the cumulative trades for 2014 and below that the current Model Portfolio.
The first of the week I dumped my imaginary shorting the Dow experiment with a small loss of $20.00 on DXD. On paper I paid $25.15 and sold for $24.95. I'm guessing the correction is over and we are off to the races now. Note the chart of DXD which is the bottom of the three charts. The middle chart is DDM which is long the Dow. I added 100 shares of DDM to the Model Portfolio at the close yesterday at $125.00 a share. We'll see where that leads us. In addition to that I added 100 shares of DZZ to the Model Portfolio at $7.37 DZZ is a short of Gold which I think has more downside ahead of it. The chart of DZZ is right below.
So far the correction has worked pretty much as expected although it's a little late in coming. Now the question is whether it is over or half over. I'm going out on a limb here and saying there is more downside to come. For now I'll post the model portfolio below and await further developments. My short of oil is up 33.81% so far.
This is my example of the short of the Dow which I didn't place a bet on but enclose it as an example of shorting the market in a correction. Up a paltry 4.61% which leads me to believe there is more to come. As usual will keep you posted.
