Saturday, January 1, 2011

Gold, Regrets, and Some of My Resolutions


From marketwatch.com at the close of business yesterday. Gold and Silver did fine. Stocks had a good year too.

My GLD and SLV positions did very well in 2010. Gold itself began the year right at $1100/ounce and ended over $1400, a record at both ends. Jennifer and I bought SLV awhile back, though it is but a quarter of our overall GLD position. Naturally, I wish I had more. One New Year’s resolution is to watch SLV more closely in 2011. Another entry point might present itself. About half of our position is in cash and, unfortunately, I was wrong about the stock markets in 2010.

The Dow (+11%), the NASDAQ (+17%), and the S&P (+13%) all preformed decently while word of improving unemployment claims, other positive economic news, and Ben Bernanke’s fiscal policy lifted the markets beginning in September. I have to admit I think Bernanke is wrong – you cannot generate wealth by essentially printing more money and growing the public debt - but you can’t argue that he’s been right at least short-term throughout the Great Recession, which is technically over without, perhaps, ever fully expressing itself.

I sold my DIAs in late 2009 at $104 for an 8-9% gain. Unimpressive. By late April 2010 they would have been worth $114, a much more impressive 19% gain. But, by July they were valued at $97, only 1% over my last, original purchase. The market was going nowhere and I felt I made the right choice in selling.

But in September the Bernanke Effect with QE2 began to take hold, apparently. The European Community also started coming to grips with its sovereign debt issues, despite social turmoil in Greece and France. The markets liked the influx of massive amounts of liquidity into the monetary systems and various signs of economic recovery, albeit a slow one. DIAs ended 2010 at $115 with most indicators pointing higher.

At the end of 2009 I thought that 2010 would be a blah, even negative year economically. But, thanks to everybody’s short-term optimism on the long-term folly of QE2, among several positive changes in the economic picture, I could have made another 11%. Instead, being in cash, that part of my portfolio lost maybe 3% due the value of the dollar. Not a huge amount and more than offset by what gains I did make, but not a smart investment either. I thought cash would be king again in 2010 as it was in 2008. It wasn’t.

Nevertheless, I hesitate to invest in this market at this time. Some predict solid new highs in 2011. Indeed, according to Dow Theory, in November 2010 the Dow and the Transports reached new highs for the rally and confirmed further upward momentum. It seems very strange to hold an economic theory so dear but not follow its own advice as I have with gold and at times in the previous decade with stocks.

But, here’s where Dow Theory finds controversy among its own adherents. Most Dow Theorists believe that the action of the Dow and the Transports trumps all other considerations in signally bearish or bullish action. But, more conservative, traditional Dow Theorists, like Richard Russell, whose newsletter I have subscribed to online since 2002 when he first convinced me to get into gold, believe there is a more important factor.

Russell clearly believes the action of the markets is of paramount importance. But, according to him, the original writings of Charles H. Dow (which were mostly letters and editorials, Dow never actually wrote his “theory” as a structured argument) indicated that values surpasses even market action in judging when one should invest. The making of money is all in the time of buying, Russell often says. Just because market action is positive doesn’t mean there is more upside than downside potential. That potential has to do with values not action.

Russell believes that stocks are overvalued. He says the price-to-earnings ratio indicates stock prices are out of line with actual corporate performance. He discounts the market action and says, whereas gold is undervalued and still a good buy, stocks are overvalued and more risky.

While such guidance has steered my own investment behavior it is nevertheless a fact that Russell missed calling this most recent rally whether it is a short-lived thing or not. It just goes to show you that when it comes to economics no one knows.

So, as the new year comes in I pause to look at my own recent financial history. Since 2007 I have avoided taking any BIG loses and my portfolio is larger today than in 2007, which is something many people probably can’t say, it is also true that I was too timid in 2010 and lost money by not keeping and adding to my 2009 position of DIAs.

It would have been nice to have remained in DIAs, or to have seen the rally for what it was and transfer a larger amount of cash into DIAs as Dow Theorist Jack Schannep advised. I could have probably made a good chunk of change. There are no shortages of investment mistakes or missed opportunities in my past, regardless of the advice I study.

But, I try not to sweat the small stuff. The fact is I have made money since 2007. It gets tougher to make money these days so you have to forgive yourself and remain patient and plan to improve as best you can. This isn’t the late-1990’s when I first started playing the markets and feeling the curious power that comes from using money (rather than labor) to make more money.

I still labor, however. Marketing a small company is also tougher than it used to be. What was successful for my market in the past no longer works; the market has changed so I must find new ways and means. Work takes up more time and personal attention than I want it to. I bring it home too much mentally. I get angry about work. So, another New Year’s resolution is to focus upon that anger and deal with it. Managers in their 50’s die from heart attacks every day it seems because of how their commitment to capitalism and consumerism affects their intimate stress and capacity for greater things. I don’t want that to be me.

Jennifer and I are on the path to where we want to be financially at retirement, but late in our working lives the world is changing and conspiring against our plans. The next year or two looks promising but beyond that Jennifer’s whole field, group health insurance, is completely uncertain. For a long time in 2010 this affected her emotionally. Her successful world is being undermined by the very man we both voted for as president. I guess you can’t say we voted with our pocketbooks.

In my situation, my boss is budgeting for a 200% increase in sales in 2011. I think this is absurd, but I haven’t told him that. I have merely pointed out a few things I think we can do. But, at some point in the coming weeks, I know his frustration will rise, and he will become more frantic, spontaneous, and difficult. This will force me to adapt quickly as I have in the past and try to make his changing plans happen, at least in terms of leads and prospects. The actual closing of the deals, thankfully, is not my responsibility. But, that doesn’t mean the overall tension does not affect me. It does.

I find myself on this rainy New Year’s Day considering the value of all that. My family gets health coverage because of my job. I get a nice salary. Which we live off of, essentially saving the bulk of Jennifer’s income. Looking at it from a practical standpoint we are exactly where we want to be in our early 50’s with a daughter, a country house with fields and forest, and all the multitude of consumer stuff that particularly my daughter enjoys.

Does practicality come into conflict with living a more contemplative life? Obviously. There is a balance, hopefully, in there somewhere. I’m looking for it. It stumble on it in momentary Nows and I cherish those Nows. But, the deeper, wider collection of Nows spread out in Time over the course of the passing of the hours and days brings the dictatorial aspects of practicality into question.

Clint spent New Year’s Eve with us. My daughter, myself, Clint and Jennifer watched Dick Clark’s (an incredible stroke recovery story in spite of the fact the man is not his former self) New Year’s Rockin' Eve. We did the countdown along with Dick. My daughter was on the phone with her boyfriend. At zero I kissed her, she giggled into the phone, for a moment she was my sweet little girl again instead of the attitudinal teenager. Then I kissed Jennifer and even Clint.

At Times Square, where Jennifer and my daughter had been on a visit just about three weeks ago, it was a madhouse of joy and celebration. I sipped the last of our second bottle of champagne from my flute. I went out on my porch in the dark. There were the cracks and pops of fireworks in the distance. A faint shout or two from neighbors over a half mile away. I took a deep breath. I was not angry. Maybe I can build on that.

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