Thursday, December 08, 2005

Reserve Bank of New Zealand raises official cash rate to 7.25 pct -

Another bump! Central banks are ganging up on the Gold price. So far, the gold price is winning the fight. The problem for gold is that the more it fights the more central bankers it invites to join the fight.

Gold and oil trade with a strong r square coefficient. Oil bounced above its 200 day moving average only to stall out below the 50 day moving average; the momentum has died. Will gold join oil and roll over?

Bill Cara, who holds most of his money in T-Bills while trading short-term speculative contracts and gold company shares, sees a continued spike in the price of Gold. He offers some pretty dire predictions in regard to the economy and stock prices. This is music to my ears.

In my opinion, most successful investors are contrarians to a large degree. Even many growth investors are GARP investors which mean that they don't hop on the most popular growth stocks. More music to my ears came from Jim Cramer yesterday.

Jim wrote in his book and repeated on his show many times that one should never own airline stocks. This is the kind of attitude that is prevalent when it is exactly the right time to buy. Yesterday, when Jim was reminded that American Airlines (AMR) has been a wonderful investment for the past three years, he repeated his contention that airlines should never be owned and thus if you own them now it is time to sell.

Central banks around the globe are fighting inflation rather than encouraging growth. This is causing interest sensitive industries such as home builders to slow down. This slow down will free-up all the more funds to finance the business economic expansion.

Backlog orders indicate that capital spending is kicking into high gear. Businesses have picked up the speed and are about to turn on their cruise controls. The market talk is always mostly red herrings. The talk is to try to get you to make bets on the wrong things.

Gold is in the news; don't buy. Housing is slowing down; so what? Those who want to make some money need to have a draft of 10% of their pay going into a discount brokerage account each month. They need to seek the advice of an old experienced wealthy investor. They need to buy for the intermediate to the long-term. They should be contrarians and avoid the hot topic of the moment.

Finally: one of the most important rules is to never join a fight against the central bankers. The fed is bigger than you are. Greenspan and his buddies are fighting the price of gold. Gold is winning on market momentum but real interest rates, which were negative for 3 out of the last 4 years, are positive. The cost to "carry" gold is real. Gold is a poor long-term investment because it pays no interest or dividend. It is only good to hold if a depression is near or if real interest rates are negative. Neither of those conditions exists today. Make your bets with the central bankers!


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