Those of you who caught the weekend edition should be aware of my new idea for investing in Gold. With the market moving up a bit today, the fear fueled gold rally is taking a bit of a breather.
My idea for investing in gold is DGP- the 2 for 1 ETF, is new closing in on an excellent entry point. I’m looking for this security to pull back and fill the gap that was created last week when the market tanked and gold gapped up.
As you can see from the chart, that entry level is in the $21.30 to $21.50 range- As I make today’s notes, DGP is trading at $21.86- within striking distance of my ideal entry level.
If you see the $21.50 level, don’t hesitate to begin accumulating this one. Gold is going to do well this year. Fear is driving the price right now. Inflation expectations will drive it later in the year.
I know you are out on ETF but I was hoping to get some input. I held in after your stop limit, of course i have been pulling out my hair, but it seems to finally be making the move back up after all of the gvts various inputs…do you see ETF going much higher? It just seems to me the banks have been so beaten there must be some upside soon, we have to have banks right.? I just wish I had the ba–s to some at the low end. curious what you think…
Editor: The bank stocks are a very hard call right now. I believe they might start to trade much better after we get some data about the “stress” tests the Obama administration is going to look at. A far better solution for Wall Street might have to suspend mark to the market for some other sort of value of the assets on their balance sheet. As an example, AAA mortgages orginated since 2007 are now being marked at 32 cents on the dollar. This assumes a 68% default rate, and assumes that if 100% of them default, the banks will at best recoup .32 on the dollar. To me, that’s seems as pessimistic as the market can possibly get. It’s more a function of no buiyers for these things, and no bottom to the real estate market. The market is now trying to price in the nationalization of a lot of huge banks (i.e. Citigroup, B of A, etc). Until the assets on the balance sheet of these financial institutions are priced accurately, this is going to be a tough place to be. In short, I think you can do ok, you just have to be patient.
I found news that the House Financial Services Committee will be reviewing mark to market rules on March 12. If they decide to repeal these rules do you see a large upside to the bank stocks?
Editor: I do think that would create huge upside in the bank stocks. However, I don’t think that’s the best answer. Mark to the Market is a tried and true long term method for establishing value. The “Stress Test” results just might do it. It will make the market realize “Marking to the Market” is creating some inefficiencies between financial statement value and real value for those assets. Here’s the only problem. With a normal business, if your balance sheet is adversely effected by a major disconnect in the market, it’s just a balance sheet issue- it doesn’t hurt your ability to do business. Banks are different. What they are allowed to do is regulated by the government based on their balance sheet. So, when the balance sheets get weak thanks to this massive market inefficiency, the banks have to actually alter the way they do business, which has a huge effect on our economy. No financing in the business world has a ripple effect through everything, which is why we are pouring money into the banks. It’s not working yet. They are not back to business as usual, but it’s very early in the process. The short answer- the results of the stress test might do it without changing Mark to the Market for this special circumstance.