New Years eve has never been one of my favorite holidays. However, New Years is a great excuse to ruminate about the year ahead.
So, for next year I plan to keep on reporting in a three to four minute format almost every business day that what to me is most important. I do appreciate your supportive comments and I am glad that what we are doing here appears to be useful to you.
What is most important to know as we hit year end, is that while the S&P 500, SDPR S&P 500 (SPY), ended the year unchanged, gold and SPDR Gold Shares (GLD), prices are still up 10% for all of 2011 even after the recent 20% decline.
Gold vs the euro is up about 12% 13% for the year. In other words, while the U.S. stock market hung in there in U.S. dollar terms, compared with gold, the U.S. market is down 10%.
As 1982 ended, which was right before the Dow Jones Industrial Average first broke through 1,000, there were no more than 100 hedge funds and all of several hundred mutual funds. The market cap of all stocks was just above $1 trillion. Today, four years after the Dow topped out at 14,279 and at a $22+ trillion market cap, there are more than 4,000 equity mutual funds and at least 10,000 hedge funds and large size private investors. Even though the overall market cap is down to $17 trillion, or about a 25% drop from the top, the creation of what is still a $15 trillion increase in the value of all U.S. stocks has generated thousands of portfolio managers hoping that equity prices will resume rising so that they can keep making the huge incomes they firmly believe they fully deserve.
Repeating what I said on Thursday my best investment advice for 2012 is to go long gold and go short an equivalent amount of euros on a dollar cost average basis.
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The U.S. keeps printing close to $100 billion of new money every month to pay our bills. Wouldn�t you like to be able to create money out of thin air to pay your bills? I would.
Many emerging market central bankers, seeing that the worlds reserve currency is being depreciating via the printing press, have been buying gold bullion steadily. If it is good enough for the emerging market central bankers, gold is good enough for me.
But instead of buying gold in U.S. dollars, I recommend, as many others already have, buying gold in euros. Europe is engaged in a slow motion train wreck. There is no sign that there is even a slight chance of economic growth anywhere in Europe other than Germany and maybe one or two of the fringe countries. Therefore the euro undoubtedly will weaken given not only a slumping economy but also that the European Central Bank has recently begun engaging in a stealth quantitative ease and has been expanding its balance sheet by trillions of Euros. There are two ways of buying gold in euros. The first is using futures, go long and short the same dollar amount of gold and euros. The second is by using exchange-traded funds; go long 100% GLD and short 50% the leveraged short ProShares UltraShort Euro (EUO).
Charles Biderman is president & CEO of TrimTabs Investment Research.
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