Thursday, June 02, 2005

Bill Cara: Capital Markets & Social Equity

Bill Cara: Capital Markets & Social Equity

Bill continues to like Gold shares. I say stay away.

It takes at least two to make a market and investors can both be right if their time frame is different.

Bill trades short-term and I hold winners for years and years and years. I trade out of loses to take advantage of tax savings and because I made a mistake in buying the stock in the first place.

Bill does appreciate the rock and the hard place between which the Fed sits. It can be expressed many different ways. For example, old Europe is near recession and the US yield curve is forecasting a gradual slowing of the US GNP from 3.6% to as low as 1%, while at the same time unit labor costs have been rising after years of declines.

It is likely that the FOMC will go up one more quarter point. It is also likely that Greenspan will speak some of his special words designed to allow the bulls and the bears read what they want.

Bill will probably prove to be right in that the Greenspan words will lead many to the conclusion that the tightening is over and gold shares will rally. The rally should be short lived. Put another way, short rates will be higher two years from now. We are not talking about Greenspan lowering rates-less than a 5% probablity in the next year. We are talking about taking a month to month pause in increases.

I am more inclided to buy the users of gold. For example, INTC will make a lot of computer chips in the next 5 years. Industry has become more and more efficient in regard to the use of materials including metals. The mines are producing enough to satisfy industrial demand. Even the treat of major war is less now than a few years ago.

The bottom line is that the only reason to buy gold now is to catch a short-term trade. I wish Bill success. I am not short or long gold shares but if I were forced into a 2 year bet, I would sell short. In the absense of the bet, I will add to various stock positions.

My family owns FON and/or NXTL. We believe FON will soon strike a deal with a major cable TV carrier to offer wholesale cell phone service. If we did not already own a substantial postion, we would buy more today.