Posted on | August 10, 2011 | Comments Off
Tough to be a money manager these days with the market moving up and down in 400 and 500 point swings in the Dow. Crazy indeed.
The good news is that our investment strategy is playing out completely as we have been anticipating. Our patience is paying off. While the masses were buying up stocks with the Dow over 12,000 and the S&P over 1300, we’re not looking at stocks approximately 15% lower across the board. Nibbling at strong stocks at current levels isn’t a bad idea.
There’s a legitimate chance that we’re in the early phases of a currency crisis which means this is very different from the 2008 stock market crash. This isn’t a liquidity issue, but more a sovereign solvency issue in places like Europe and Japan (and maybe the U.S. to a lesser degree). Owning gold in this situation is crucial as it represents legitimate insurance against the solvency issues and currency issues that are beginning to unfold.
The dow/gold ratio and the S&P 500/ratio is at record lows, now well below the March 2009 lows we saw which marked the nominal bottom in stocks for the 2008/2009 crash. Yes, we’re beneath those lows if you price the market in gold. This is something we’ve been discussing at length – read more on this here.
If you have a very very large chunk of cash, you may want to start nibbling at dividend stocks. Could we go lower? Yes, but I don’t think we hit lows like we did in 2008/early 2009.
Should you sell gold? I don’t think so. I still think the dow/gold ratio approaches 1 or 2. I think there will be major events on the horizon that will decimate confidence and create much more turmoil in the markets. When gold starts jumping $100 in a single day, we’ll know we’re in the final stages of the run and we’ll be on high alert to possibly exit the position and pile that money into very cheap stocks like Walmart, Microsoft, McDonald’s, etc.
Until then, hang on tight and try to remain calm.