Friday Wasn’t Quite Black, But It Did Lose A Bit Of Its Shine

“Fight Against Stupidity And Bureaucracy”

You couldn’t exactly call yesterday “Black Friday” the way financial pundits like to do, but that traditional “safe haven”, gold, certainly lost a lot of its shine.

In fact the price of gold went into freefall, plunging the best part of $100 an ounce in a massive selling spree and ending up below the magic $1500 mark for the first time in a while.

I don’t think anyone is sure yet just what triggered the almost panic sell off on the Comex, but my gut feeling is that, once started, the computer generated trading gizmos used by the big hedge funds etc., kicked in big time and made matters go from bad to worse.

These automatic trading monsters trigger sales when a pre-chosen stop loss figure is reached, one stop loss sell off triggers the next and so on until there is a massive market plunge, as happened yesterday. The same could just as easily happen on the stock market.   

What most ordinary folks don’t realize is that the majority of traders in the financial markets are idiots. They just hang around looking at their screens and then follow whatever they see happening. It’s the herd mentality syndrome. When the big boys start to sell then the little boys follow suit and the whole thing goes from bad to worse, often without anyone really knowing who started it or why it is happening.

That seems to have been the case yesterday as there were no catastrophic economic indicators, like major inflation fears, currency collapses, etc., to trigger a significant movement one way or the other.

Whatever caused it, it is a warning to investors to be cautious. It could be a blip or the harbinger of turbulent times ahead.

Although there are many doom-and-gloom merchants with their “the end is nigh” web sites urging their followers to dump paper money, fiat currencies they call them, and stock up on gold, the truth is that gold has not been a good investment in recent months and years.

By definition the very worst a good investment should do is hold its value in line with inflation – if it doesn’t you are losing value.

For almost two years now gold has been steadily falling in value. Anyone who bought, for example, in August or September 2011 has seen their investment fall significantly in value – down by more than twenty percent in fact. You put $10,000 in, you get less than $7,900 out, and the dealers take their cut both ways.

So will the bear market for gold continue or was Friday just a glitch? Well, if you could answer that one for certain you would be able to make a lot of money.

My feeling, for what it’s worth is that the price will probably fall further. Maybe not so dramatically as yesterday, but it could easily trickle downwards to the $1200 region.

That assumes no dramatic sell offs by bankrupt governments and banks, because that is definitely a last resort measure that they would be most reluctant to take. If or when it does happen it means BIG financial trouble for everyone.

So will gold ever be a good investment again?

Warren Buffet never thought so, but it could be. Possibly a very good investment. But probably not a long term hold. Many western economies are just hanging together at the moment. The amount of debt and insolvency has to mean that at some stage the normal investment vehicles like currencies, stocks, bonds etc., will start to suffer and people will turn back to “safe havens” like gold.

IF you buy at the right time, and remember that you need to get rid of it and fast when the cycle turns again, you could do very well. But I wouldn’t jump in and buy it just yet.

Take it away Shirley….

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Have You Heard Of The Herd?

“Fight Against Stupidity And Bureaucracy”

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Today was originally scheduled for the latest part in the short series about the curious and amusing phobias some people seem to have. But it’s a holiday week for most of us and I have put that post back until next week.

Instead I feel the urge to say something else. Two things actually.

First one is, have you heard of the herd? In particular the herd mentality, where people do something they have no need to do just because other people are doing it?

It happens a lot. Far too much in fact.

We witnessed it during the recent election campaign where people formed opinions not on the basis of their own analysis of the candidates and policies, but because of something someone else said or something they heard on tv.

We saw it again very recently after the dreadful murders in Connecticut where the unthinking herd ignored the real problem and  jumped on gun control as a solution to senseless attacks such as this. They might as well call for a ban on knives, axes, chainsaws, bows and arrows and gasoline when they are at it as any of these could do the same job in the hands of a mental defective.

And on December 24 we witnessed another example in grocery stores throughout the country (throughout the world even) as hoards of the unthinking joined the herd and bought up bread and food supplies like the shops would not be open again for at least a month. They are open again today you dummies!

These three examples have been going on for years and people never seem to learn, they just keep on following the herd without a thought in their heads.

And this leads me on to point two which is how little thought most of us give to what we are doing and what we are buying the already well off and pampered.

I know for a fact that Santa had orders for laptops and ipads and iphones and all sorts of other expensive playthings. And I also know that he hadn’t the sense to say no, but just bought them anyway. Mea culpa as much as anyone.

Then I got to thinking that life was a lot different when I was a kid. Yes we liked to get presents at Christmas, but they were a lot less sophisticated and a lot less expensive – even in relative terms. When I was eight, for example, I didn’t need a smart phone, or any phone come to think of it, nor was my social life so complicated and hectic that I had to have a chauffeur for all my must-do activities for every day of the week.

When I was a kid we had our toys, but we also had a thing called an imagination and we could make our own fun out of very little.

So what is the problem today? Why are kids so incapable of making their own entertainment? Why are they constantly “bored” without clicking a button on a computer consol or without someone else to do their thinking for them?

Like a lot of other things, it all boils down to money at the end of the day. Now I’m not advocating poverty as a solution to the world’s ills. Far from it. I like to make money, the more the better, and the thought of being, perhaps not rich, but comfortably well off is a very nice one. But if we had to we could all make do with a lot less. And I don’t think we would be any less happier in the process.

People in other countries seem to manage quite well. And they still seem to have the mental capacity to enjoy what little they have and make their fun out of next to nothing. In other words they are happy. If things do ever deteriorate to the extent that some of the doomsday preachers are telling us, there are a lot better prepared people in the world than there are in rich countries like America, or Britain, or Germany, etc.

Think about giving your kid or nephew or niece an old oil drum from the local garbage dump next Christmas instead of an ipod touch or some other overly expensive apple. I wonder how much music and entertainment they could get out of that?

Check out the video and you will see what I mean…

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