Long Gold, Long Short
Sometime in the first quarter of 2003
I hit the wall! I discovered that if I were to continue writing
articles at the pace I'd set in the previous 12 months that
I would, in all likelihood, be repeating myself consistently.
So, I decided to stop writing and concentrate on other life
issues - and let the long slow secular bear market unfold -
as the bull market in gold also played itself out.
by Richard Lancaster
think there were many individual issues that contributed to
my decision to hang up my keyboard for a while, not least
of which was the completely inexplicable behavior of the markets
and the price of gold. Daily thrashing around on the explicability
of it all seemed too much of a burden to bare - so it was
off to the real world of working for a living, spending more
time with the family, and generally getting other stuff done.
Of course the distraction of war and the incessant drone of
terrorist fear mongering also played in to the behavior of
the markets and my perspective of them.
Since I stopped writing nothing has really
changed (although now we control Iraqi oil reserves, the dollar
has been allowed to drop, the markets have risen and gold
has inched back from the large drop it made off nearly $390),
so in order not to bore you - and me - with meaningless verbiage
I will keep this short.
Here is what I have come to say (please
bear in mind I am no financial adviser, analyst or pundit
- just a guy with a desire to tell it as I see it):
I am Long Gold and Long Short.
By that I mean that I have taken a very
long-term view of the gold market, I've purchased approximately
20 US and Canadian gold and silver stocks, mid-tier (Meridian,
Glamis, Goldcorp) and exploration stocks (Wolfden, Nevsun,
Wheaton. etc.), and I've kept 3 precious metals mutual fund
positions (the likes of Tocqueville & Gabelli Gold). These
have all served me well over the time I've invested in them.
Periodically I check out the portfolio, do some trading and
re-balance everything. I've had some huge wins and one howler
- Vanderbilt Gold Corp (VAGO) - otherwise I'm generally in
I've also taken a long-term view of selling
short the DOW, S&P and Nasdaq with the purchase of 3 mutual
funds (USPIX, RYVNX and RYTPX) in the summer of '02 - these
funds rise or fall twice what the general markets move in
any given day. Needless to say since this enormous bear market
rally begun I've been "losing my shorts" so to speak!
But I'm holding the line on these positions. I cannot time
the top of this rally - I suspect it could go as high as 10,000
although that would be incredible should it happen. The rally
has brought much pain for me and my positions, at the beginning
of this movement I looked at my position and suspected I was
in for a rough ride - I paused with my finger on the trade
trigger on my keyboard, and then determined to stick it out.
These short mutual funds are locked up
inside retirement accounts that are limited in terms of the
number of trading options I have. I'm also absolutely steadfast
in my interpretation of the economy. We haven't begun to flush
the enormous debt out of the system, to return stock prices
to levels where they truly represent good value or to begin
working our way out of this predicament through sound economic
effort - good old Austrian style, you know
key data point I've held on to in relation to my short positions
is that "the market always returns to its mean"
over time. That puts the DOW somewhere south of 3,000 at some
point in the not too distant future. The current bear market
rally is nothing more that the last vestige of irrational
exuberance being squeezed (ironically) out of the investing
public's pocket by the very same Fed that warned us all in
the past of such behavior!
So, the long and the short of it is this:
Buy gold, some physical, some stocks and even precious metals
mutual funds if that is the only option you have in your retirement
funds. Then diversify a little by shorting the markets or
individual stocks that represent the market. In the years
ahead I see the dollar taking a long bath, gold and oil rising,
and the markets finally capitulating. I can't tell you when,
so place your bets and hold on to your shorts!!