Thoughts of a banker

Soon GOLD AT 1000?

2008-01-27T20:08:00.000+01:00

A recession in the US or a mere slowdown? That is the question of the most recent days. For a while now I, and many of my colleagues, have been bear believers. The bears have woken from their hibernation and are back with a vengeance!

The truth of the matter is that the optimists are saying that we need not worry as companies are still reporting profitability. While this is a good and valid argument, it does not take into account the fact that there is a time lag until various companies start showing the true picture of the economy. I believe that the results from Q2 onwards will start to become gradually worse.

The other aspect is that we have not had a large enough decline to have a sufficient bottom for a bear market. I would guess that we are about half way down or perhaps just before half way.

When Gold hit 900 for the first time, I was of the opinion that it was overbought and that a small correction would take place. Then later, I went into work when the price had fallen to about 850 and said to my colleagues, today is a good day to long gold… and sure enough, it was the day it went to almost 900 again. I think that the gold price will almost certainly break through the 1000 barrier soon. I also believe that the long-term investor should understand that the price will return to the 500 to 600 mark in the next 5 to 7 years. If you look at the charts, this is what they show. I would say that silver is a bit different but it would be safe to assume that it will reach near 20 over the next few months. Oil will most probably return to the 100 mark and trade in this range going forward.

Lastly, this seems like the opportune moment to short the market. Whether you choose to short the DAX, the S&P500 or the MSCI, it does not really matter that much.
Until next time!

CHANGE YOUR PORTFOLIO FOR THE NEW YEAR!

2007-12-13T06:35:00.000+01:00

If a client were to come to me now to invest his cash for him and to come up with an investment proposal, I would have a completely different outlook than what I had about 6 months ago.

My current selection would be as follows:
10% to 20% in equities
30% to 40% in bonds
10% to 15% in precious metals
This means that with as little as 50% invested to a maximum of 75%. The remaining would be in either cash or a money market instrument.

The rationale for this increased cash position is that it is becoming clearer that the Bull Run in equities is nearing its end. As you can never time it perfectly, I think that missing a little performance on the up side, for some added safety is prudent at this stage. The equity portion would be focusing in emerging markets, as you do not want to miss out completely in some economic growth that should continue.
I would hold or even increase a bond position at this stage as the rate cuts seem to be a given in the mid to near future so the value of the bonds should increase as these cuts come through. This would be more of a trading play (including an attractive yield) with a maturity period of approximately 2 years.
In terms of precious metals, at this stage you have to soberly look at the outlook. I for one, believe that gold will increase more and could go as high as 1000 or even 1200 but in a couple of years or in five years, the price could (and perhaps should) return to 500 or 600. This effectively means that on a trading basis I would hold some metals in the portfolio but would not be a gold bug just buying and holding. The clear strategy, in my eyes, is to sell when you have a profit of about 10% to 15% and to buy back in when there is a correction of about 10%. With the current movements being quite rapid, you should be able to do this about 3 times in a year.
With my cash position, I would use small investment opportunities to trade in options as and when they arise. In terms of currencies, I would expect that the USD would get even weaker but the weakness will start to slow and a new level should be found sometime next year (2008). This had 2 factors, the fact that this is an election year in the US and the markets should slow down in anticipation of this. The other factor is that at a certain stage, the remaining markets will also start to slow down (e.g. Britain) and it will not be USD strength but weakness of the other currencies. Lastly, the weakness should continue in the short term as the interest rate differential is closing while the FED is cutting rates and would take some time to stabilise.
In conclusion, the time has passed when you could have a 60% equity, 30% bond and 10% metals portfolio.

SILVER – Opportunity to buy or still too high?

2007-06-18T08:14:00.000+02:00

Silver has been hovering around USD 13.3 and 13 for the last few weeks. It was higher a few months ago and could return there (and higher) but before that, it was much lower and could return there as well. When it comes to Silver many people have started regarding Silver as a safe-haven investment (much like Gold). This is partly true in that the profile of Silver has risen in terms of investors but the truth of the matter is that this a temporary phenomenon because it is widely used in industry. When Silver increases in price, you have to consider why this is happening… is China demanding so much Silver that we can justify the considerably higher prices? Perhaps, but how high are we going to allow Silver to go under this consideration when Silver can be replaced (in industrial use) by other metals or reclaimed Silver when it becomes too expensive?

At this stage, I think that if I were holding Silver I would think of selling when it goes higher that 16 or 17 (depending on how low I bought). I would not but a new position at anything above 13.5. In terms of short-term speculation, I like to use leveraged certificates to make the investment more attractive and to make profit in falling prices possible. When we are talking about buying at 13.5 and selling at 16, we have to consider that this is about 18.5% appreciation and when you consider the spread involved on both purchase and sale and the fees on top of that, the profit we can hope to gain is about 15%. This is a very good return for trading short term but when you think that you know the risk that the price could fall considerably and accept this risk, why not choose to purchase a two times (X2) leveraged product that would make your profit margin 30%? One of the companies that offers products like this is ABN Amro. I had used one of their short certificates on Silver just before the correction in February and made about 42% in 2 weeks. My rationale was simple, based on technical analysis (on its most basic level) I saw that the price was reached the high 16s twice before and failed to make it far past that level and was lucky enough to pick almost the top and sold when it went to 13.8 (you can’t always pick the tops and bottoms). You have to set yourself realistic targets of stop loss and profit taking and stick to them as much as possible, there are exceptions to the rule in that if you are good enough to reach you target easily and wish to take a bit more of a profit. Although, in such an event, it is advisable to take a part of your profits at your original target, that way if it turns against you, you have played it safe.

The above is a relatively risky strategy and would not suggest it if you are unsure of what you are doing. You have to understand the risk and accept it on your terms.

You might find this site helpful: www.kitcosilver.com

Gold and Silver - Market Overview

2007-03-05T19:57:00.000+01:00

Thoughts where taking a back seat recently, as I was pre-occupied with day-to-day life and have not posted an entry to the blog for a while now.

Times are changing though and no matter how busy you are the markets have moved so dramatically that they have made people take notice again. The movements have been covered widely on various media sources so I will not even try to touch them right now.

The issue is this right now… we were always saying that having precious metals in your portfolio would protect you (to a small extent) against falling markets because the correlation between the two is negative. This has not been true of late as both equities and metals were rallying the past few months and now are also both correcting at the same time. Many analysts are putting their views across as to why the equities are falling for this that and the other reason but why are metals doing the same?

Some analysts have offered the explanation that some portfolio managers have elected to take profits from precious metals to cover the losses from equities (which is valid to an extent). Some have gone even as far as to clarify that this is largely true because of the carry trade situation (where you borrow money in a low interest rate currency and invest in a high interest rate currency) unravelling where they are selling their metals to cover the FX losses. The closing of the carry trade position, means that the currencies like the JPY and the CHF are getting stronger and the ISK, TRY, AUD, NZD, etc. are getting weaker.

Where to from here… it seems as though the times have changed where all the things we were fearing in the passed about the future are starting to materialise. “The perfect storm” as a colleague of mine termed it.

An investor can only have two vies at this point in time: 1) that this is a correction which may last another couple of weeks and then we would continue with the rally or 2) that this is in fact a bear market!

In my opinion, the market is definitely overreacting and we will some ground being gained in the near future but we really need to make good choices in terms of asset allocation… more so than in the rosy past. The fact that Precious Metals have corrected is a blessing because this provides an excellent opportunity for those that did not have it to buy it at a fair value (if not cheaply).

In all honesty, I was starting to feel dizzy from the height of the prices of Gold and Silver a few days before the correction/disaster started and technically saw an opportunity to short silver with a leveraged certificate, this at a time when my colleagues were buying more for themselves (and clients). I got it perfectly right and made an easy 20% in a week (I bought before the peak). I sold the position when Silver was around $13 as I feel that at these levels, it may start going up again.

At the moment, it seems to be the right time to get back into the Metals scene with both feet and in these uncertain times, hold as much as you can in Precious metals. I think that Silver below $12.5 or $12 is a very good buy and Gold below $625 or $610 also.

Be carefull in what you choose and how you choose to do it. I am!

Until the next thought… whenever that may be.

Where is the USD going?

2006-12-02T17:50:00.000+01:00

For a long time now, many analysts have been talking about the currencies and how they affect us. Some people have been saying that the US Dollar (USD) will devalue greatly and that folks in the America should take their money out of the USD and try to hold more foreign currencies and precious metals in their portfolio. They have been pointing out that the US Government has been running insanely high levels of debt and that this could not, and would not, last long. They have been advocating that it is in no one’s interest to see the USD strong against other major currencies like the EUR (Euro), CHF (Swiss Frank), JPY (Japanese Yen), GBP (Great British Pound), etc. and that a weaker USD would suite everyone just fine. I am a firm believer in this theory myself and have been advising my clients to steer clear of the USD where possible. As it turns out, we were all right and the few that were saying that the US economy was in better shape than we thought were wrong. The USD has been hit really hard across the board and almost all other currencies have strengthened in relation to the USD in the last two weeks. Record exchange rates are being see and I believe that this might correct in the short term but will only get worse in the mid to long term.

From the above main theory, there is only one point with which I do not totally agree with. That is that the fall of the USD is beneficial for all involved… The truth of the matter is that it is NOT!!! This is an extremely serious point that cannot be taken lightly.

What will this mean?
When the USD is weaker, it does not mean that US products become cheaper for US consumers, it does mean that the US products will become cheaper for other consumers like Europeans. As a European myself, soon it will be cheaper for me to buy a book from the US (via the internet) than to go out and buy it myself.. my EUR will be so strong that the mailing fees, and taxes if any, will be less than the price difference. This is the main logic for the analysts to say that the fall will generally be beneficial. I believe that the fall in the USD will not just do that, it will also stop the US consumer from spending. Why? The answer is simple, the US is a consumer society, with little income being saved and most spent every month. Analysts would like the US consumers to save more so they see this as a good thing (which it generally is). There is a problem with that theory though… US goods will stay the same price originally but will gradually get more expensive because of the higher cost of production (due to outsourcing) and due to the higher cost of raw materials. This is because more USD will have to be spent to produce the same products. The foreign goods that were preferred until now will also be more expensive due to the exchange rate difference. This all leads us to INFLATION… The analysts get their way and because of inflation, the US consumers consume less. The (still) largest market in the world will start spending less and will also stop buying houses in the frenzy that they have been. That will in turn lower home prices and will mean that the mortgages and second mortgages currently out will be greater than the underlying value of the home! I do not want to turn this post into a novel so I will leave why this important for another post J. In a very short summary, this will affect the world market due to globalisation and hard times are around the corner… for all of us. With only one clarification at this point… holding gold coins in a bank or under your bed is not the answer either, all you have to do is find a jurisdiction where you will be protected and store you money there. Declare it in your taxes naturally, if you do not it may be illegal… I do not want to be the one that’s leads you down the wrong path.

Investment options with this outlook…
If you do not want to risk too much, I would suggest a basket of currencies held mostly in cash and a healthy percentage in a basket of commodities.
If you want to try and profit from other’s loss… and the definition of investing is actually that… the idea of buying at the bottom and selling at the top involves two parties… you cannot buy and sell if there is no other person at the other end… This leads you to the idea of shorting the equities markets and the USD. You could also invest in a Long/Short Hedge Fund taking advantage of the upcoming fall/crash/cataclysm (you pick a word) of the equity markets. For extreme risk, you could even sell your home at these juicy high prices and rent until the prices have fallen so such that you can buy it back at a hefty profit. The possibilities and risks are endless!

Food for thought… please leave a message with any comments you may have.

Purchase VT Group limit @ 485

2006-11-12T19:34:00.000+01:00

In November, it rains a lot and the rain made me think of water and water of the sea and the sea of ships and ships of shipbuilding.
Please be warned that this is not the right approach to investing but some times, you have to look into sectors that you normally don’t look at. My view on Gold is to hold the position you have now at these levels (profit taking at 650 and re-buying at 580). Silver looks good and is trading at a similar level to Gold.
I have done some research and as it turns out, the higher oil prices as well as the increasing world trade with emerging markets growing rapidly, have increased demand for shipping. The thing about shipping is that it has a slow turnaround which means that it takes years for orders of new ships to be filled. The profits of shipbuilding companies are increasing rapidly over the last few years and it is not expected to slow down.
Now that we have identified the sector, we look at performance, to see which companies have underperformed so far or maybe are trading in-line with the sector. VT Group trading in the London Stock Exchange (LSE) seems to be underperforming and is also trading in a major market unlike most of its peers, this is important because the traded volume is higher. Volume is important because the price fluctuates less and there is enough trading to be sure that you will be able to get out of the market when you choose instead of having to split the trades over various trades (increasing costs).
Once you have made a performance-based selection, you need to see the fundamentals, which we will discuss in greater depth another time but basically you are looking for strong profit increase and dividend payouts. In the case of VT Group, it makes sense that it has underperformed, because it is not only a shipbuilding company as it also manufactures various products for the defence industry (also a strong growth sector).
Given the above I would suggest a purchase of VT group on the LSE at a price of 485 or lower is a very good purchase with a target price of 590. This would also be a good buy-and-hold position for the long term.

This is their website: http://www.vosperthornycroft.co.uk/

Please let me know if you have any questions by leaving comments, I will answer as many as I can.

Until the next thought, see you next time.

INVEST IN GOLD NOW!

2006-09-20T16:37:00.000+02:00

Thought of getting bank into Gold…

With the Gold price back down to about $580 an ounce, it seems too good an opportunity to pass up. If we were to consider that the long-term likelihood that the USD will continue to depreciate in value against the other major currencies. If I were a USD denominated investor, I would definitely try to diversify out of the USD so that if it continues to loose value, my funds would maintain their purchasing power. An ideal way for this to be achieved it to buy precious metals and/or other currencies. A traditional hedge against a depreciating currency, is Gold, especially when it is relating to the USD because Gold is priced in USD.

Another option open for investors is to invest in Mining stocks, these are plainly stocks in the companies that mine precious metals. The idea is that you are not only purchasing the current inventory and trading power of the company but are also purchasing the future production, so the stock price should theoretically appreciate more (in percentage terms) than the gold itself. This is because the higher gold price would mean a higher turnover in the future. There is a risk with this strategy though that people tend to underestimate… What would happen if there was a strike or an accident at a specific mine and production was stopped for months? Profits for the company would tumble and the share price would go through the floor with just the news breaking. In the long run, it should not be too bad but if you want to sell in the meantime, then you are positioned in a bad place. The other major risk is that you are not only investing in a metals related stock but are also investing in the specific market. If you were to buy a South African or Australian mining stock, you are also affected by their local market conditions as well as their currency fluctuations!!!

If I were to put myself out there and make a prediction, I would choose to buy gold at any price below $580 and have a target price of about $670. I would also buy a fund that focuses on mining stocks so that the risk of investing in individual stocks is minimized. I would also make sure to that my exposure to the USD is limited to this investment and have all my other investments diversified into other currencies.

That’s all the time we have for at the moment… until the next thought, goodbye.

A thought on summer productivity

2006-08-27T20:08:00.000+02:00

It has been a while since the last entry, I am afraid the summer got the better of me. I have been using this time productively in restructuring my strategy (business wise) for the next year. This time in summer when we are all a bit more relaxed because we (as well as my/our clients) are on vacation, we can use to harvest a strategy with which to attack the next financial year. The better prepared you go into the autumn period the better the results will be into the new calendar year!

Now I am back on my usual time schedule and will soon write my next thoughts regarding the market…

A Thought about a stock - Resources - SASOL

2006-06-17T15:21:00.000+02:00

In the world we live in and all the market experts we hear, it is sometimes difficult to decifer between the good and the bad analyst opinion(s). It is important to keep in mind that when someone says that you should buy a stock, that you really understand what they are saying. For example, if an analyst is saying that he suggest that we buy a specific pharmaseutical company because their new drug will hit the market soon and the price is expected to skyrocket. This may be true (don"t get me wrong) and in a few cases...is. You have to do some additional research first, for example: is this the only drug that the company has in its arsenal? If something were to go wrong with the specific drug, will the company still be a good and viable investment or will it go belly-up? etc.

Now to the stock in question and why I think that we should pay very close attention to it. SASOL is a South African compny and is a leader in its field. It focuses on many variaties of markets and products and as this is not advertisement I will not dwell for too long on every aspect (for more information visit: www.sasol.co.za). One of its main focus is on the production of fuel from alternative resources. As we know... this is a very talked about issue at the moment due to the high oil prices. What I like about SASOL though is that they actually already produce such fuels and chemicals and are already making a profit. This is very important to not that you would not be investing in a story but in a company that made profit and also employs more than 170000 people!

Statistically, I also think that it is the right time to invest in the company now. The company is listed on both the JSE (Johannesberg Stock Exchange) and the NYSE (New York Stock Exchange) which makes it easily accessible. On the NYSE the current price is around USD 36 and this is approximately EUR 28.50 with today's exchange rate. The price has rebounded a little after the losses it sustained in following the world market fluctuations over the last month or so.

I believe that this is a solid company and happens to be in the right sector at the right time and I would suggest that it makes a good addition to an energy-focused portfolio. Personally, I do not see much risk on the downside for this stock but the gains should also not be too spectacular. I would focus on a buy-and-hold strategy with this one... much like many people do with Gold with has correct dramatically over the last month and closed near the USD 550 mark on Friday but that's another story for another thought.

Enjoy the soccer...

A Thought About a Stock - OPAP

2006-06-04T10:06:00.000+02:00

I would rate OPAP as buy at the moment as I expect that the correction is at its end and an upward trend should begin soon. As you can see from the picture below:

source: http://www.naftemporiki.gr/

The stock has been steadily going up and on a regular basis, it retracts to the levels it had reached in its previous highs. I believe that this has happend in this case with the price around the Euro 26 level and the probablility of the stock going all the way to Euro 34 is very high while downside risk is much smaller.

On the fundamental side, the company is quite solid and with the World Cup taking place this year, all betting companies should do very well! In Greece especially though, where OPAP still retains its monopoly, this should be even more evident.

Naturally when investing in the stock market you have to take into consideration that there are considerable risks of substantial losses possible, especially when investing in a single stock... but in this case the positive (in my opinion) outweigh the negative by far and make this a good opportunity to add a good 20% profit into your portfolio.

You can get more information at the official site of the Athens Stock Exchange at:

http://www.ase.gr/content/en/Companies/ListedCo/Profiles/Profile.asp?CID=354

Good Luck to all and Happy investing!

This could be the right time to invest in Greece!

2006-05-30T21:54:00.000+02:00

A significant correction has taken place in the Athens Stock Exchange (ASE). This is becoming a good opportunity to get into the market! One of the best pieces of advice I got when I was in school was “Talk about what you know”. This is truly good advice and actually being of Greek background I feel that I am well qualified to comment.

The background of the market is as follows… For years the market was lost in obscurity until about 1994/5 when it started rising… then it rose to the point where almost every person on the street had a hot tip about the stock market in 1998/9… then in 2000/1 the market took a steep nosedive and fell more than 60%! Since then the market stabilised considerably and a lot of the interest was lost until about 2 years ago when the market started to recover very VERY slowly and started to pick up some steam last year. With the ‘mini-crisis’ in the world markets that took place this month (as is still unravelling itself) the Greek market lost more than 10%.

This correction makes me feel positive about the future outcome of the Greek market, as this was a welcome break from the high profits. These corrections were missing in the first rally that I mentioned before. People used to tell me “Today… I made enough profit to buy a cheap car” and it happened that they told me this every day of the week and sometimes even longer. At the time the regulators tried to calm the market down artificially by placing limits on the allowed volatility that was allowed on a given stock on a given day. This meant that the nearly the entire market would be locked at the limit-up of 8% with little trading taking place at this level as there were no sellers! The market was not allowed to self-regulate itself with supply and demand rules. This correction prevents us from making the same mistakes again and can only be good.

I would not like to indulge in specifics at this point but I would like to add another theory. The rule that you need to follow when you want to be in the equity market at all time is that you should invest more into the larger companies when you are sceptical about the market (as these are usually depreciating less) and invest more in smaller companies when you believe the market will rise (as these usually appreciate more in bull markets). I feel that the market will do well over the next few months and thus am saying that we should start buying into the medium and small companies.

Selected Links:

PLEASE NOTE: this blog is only meant for information purposes and is not meant to be expert advice. Any decision made by the reader will be after he has considered and accepted all risks associated with his/her decision!

The world cup is around the corner!

2006-05-27T22:38:00.000+02:00

The summer is almost upon us and most bankers are starting to plan their after-work activities around the World Cup that is starting in Germany in under a fortnight.

You may ask yourself, why is this important? The answers to this question are limitless but a few of the main ones that spring to mind are: 1) The financial markets are highly influenced but physiological factors and the happier and more relaxed the participants, the better it is for the markets 2) Recreational activities, such as spending time with them mates/guys, helps maintain a well-rounded life 3) It helps team-building, when you watch a game with colleagues, a bond is strengthened and working with that person becomes easier 4) it’s good to talk about something other than work for a change… to name but a few.

This post deviates slightly from the rest as it focuses on the social aspect more rather than the financial. As stated in the first post on this blog, this will happen every now and then.

By the way… since we are on the topic. My predictions are as follows:
Brazil will not retail its title.
Germany (hosts) will not win it either.
That leaves us with France, Spain, Italy, Holland, Argentina and England as the remaining favourites and the winner should come from one of these. I would predict that Argentina, France and Spain would have better chances than the others.
The dark horses would have to be: Sweden (as always), Portugal, Czech Rep., Ghana and Croatia and I would say that the order I have placed them in is not coincidental.

Until next time… enjoy the weekend!

Investing - Hedge Funds

2006-05-25T12:29:00.000+02:00

Today is a holiday here in Austria and the markets are closed. With this opportunity lets step back from the markets for a while. Let us ponder the issue of "Hedge Funds" as they are coming out of the shadows again.

We have a funny way of blaming Hedge Funds when markets are volatile and to totally ignore them as if they didn't exist when markets are going relatively smoothly. I saw a report on CNN today saying that a lot of the volatility over the recent period was caused because of the trading activity of Hedge Funds and then they went on to show a few statistics like one fifth of the world's currency conversions is due to Hedge Funds and a half of the world's trades on commodities is due to Hedge Funds, etc. Naturally the report was not totally one-sided so that they did not seem to take sides but after having seen the report, the viewer was left with a feeling that Hedge Funds are somehow 'bad'.

When I talk about asset allocation with clients, one of the issues I bring up is the issue of Hedge Funds because in the US (and Canada) there is an impression in people's minds that Hedge Funds are really risky and that in most cases you would have either badly managed and/or regulated funds or that the people behind them in most cases will just run-off to the Caribbean... with you cash! This is in fact partly true (one cannot deny that) but only so to a small extent. I am one of the people that believe that the world of Hedge Funds is a great place. Every portfolio that is beyond low risk should include a percentage of Alternative Investments (i.e. Hedge Funds). Hedge Funds are not magical, far from it; losses can be very high just as easily as they can be greatly profitable. The point I like about Hedge Funds is that they have the ability to return you a profit when the markets are volatile (even with no apparent direction) and when the markets are falling. Over the past 8 months or so, the returns of Hedge Funds were not that great, this is because the markets were going steadily up. With a lack of volatility Equities (in rising markets) are by far the best option as this ability to profit from both rising and falling markets comes at a cost (i.e. lower returns). This I believe will change over this quarter though as the recent volatility will spark a new round of profitability in this asset class.

In my opinion, the medium sized investor needs to have the following in his portfolio in order for it to be well diversified and properly balanced: Precious Metals, some Equities in major markets, some Equities in emerging markets, Hedge Funds and a portion of Bonds (depending on market conditions). These should ideally be spread over 3 or more currencies as well. For the larger investor, I would also add in a portion of Property investment (currently focusing on emerging markets) and also have a greater diversification in terms of currencies.

Closing thought: There are those who believe that a well balanced and well managed Hedge Fund only portfolio is actually more stable and yields better results (over time) than the traditional portfolios restricted to Equities and Bonds. It does merit some thought but for the time being, Hedge Funds need to work on their PR skills and we need to monitor and regulate them a bit more... but we are getting there!

Where is the GOLD price going?

2006-05-22T21:28:00.000+02:00

This is a question on many people's minds over the past few days. We have seen a massive rally in the gold price over the past few months and this has been taken quite lightly as of late. It was regarded as a huge milestone when the price went over USD 600 an ounce but since then people have been expecting it to continue onwards and upwards without paying much attention to how high it actually went! This is very dangerous and I do not want to take a side. Neither do I believe that it is out of pure coincidence that the price reached where it is currently, nor do I believe that the price will hit the USD 1000 mark by the end of the year.

It is my personal belief that the rally needed a good solid correction before it could gain momentum once more. To keep it simple, I was close to suggesting to a friend of mine that we should perhaps sell when it gets near the USD 700 mark (I got it a bit wrong but not by much) but I would find it very difficult not to buy if the price falls below the 580 mark once again.

A brief thought about SILVER as well:
A friend of mine had suggested to me that the price of Silver would reach USD 15 per ounce sooner that you would think. That was about 2 years ago and as it turns out, he was right! It did, but it tumbled down again in a very abrupt fall to about USD 12 where it is currently trading. It had also fallen below the USD 12 mark in morning (European) trading. When the price had hit the USD 15 mark, I congratulated my friend on being so right and reminded him that the price was just below USD 7 at the time (in mid 2004)! He said that he would not consider selling for anything below USD 50 a point which I found to be a bit extreme myself. I had said at the time that USD 15 would be a good price at which to sell (not expecting a falling market at the time) so that you can materialise some of your profits (as we all know, precious metals don't pay out a dividend or interest).

To summarise:
I would be a buyer of Gold at USD 580 and a buyer of Silver at a price of about USD 10.5. If we were to reach these prices, I would set a target price of USD 700 for Gold and USD 14 for Silver in the short to medium term.

Side-note:
As the US Dollar strengthened a little today I thought I should mention that if this continues for a few days more and the USD/EUR rate were to go back to 1.25, I would use this opportunity to get out of the USD for good. In my opinion these rates will be difficult to find in the months to come! The US budget deficit was already priced into the rate but so was the high interest rate differential and with EUR rates set to start increasing soon, it seems inevitable that we will reach the 1.33 mark pretty soon (before the year is finished).

Lastly:
The heading for this post is also a link to Kitco.com. I find that their site is highly regarded and provides some good information as well as almost real time prices!

With this thought I leave you for today...

First Thoughts

2006-05-21T04:32:00.000+02:00

Hello all.

A brief overview of where we stand at the moment:
We have seen that the stock market has rallied greatly over the past months and the consensus up until about a week ago was that we would go "onwards and upwards" as phrased by a colleague in the profession. Then the inflation numbers came out in the US and triggered a large sell-off on a world scale! This is easily understood as the US is still the pillar upon most other economies lean heavily on. Now is where things are getting interesting because sentiment is not unanimous on this issue. Some analysts believe that this is a correction and that in the mid-term the securities stock markets should continue to rally. On the other side of the fence though, are the other analysts that say that the US is about to hit a major economic crisis, especially with the property bubble that has grown to enormous dimensions about to burst and take everyone with it.

A brief theoretical background as to the mechanics behind it is discussed below, if you are not a novice, you can skip the paragraph below:
We should also consider that the sentiment is that interest rates about to go for a little hike and that by this time next year we should expect to have higher rates that would actually influence our finances. This is a very important aspect of the economy as the higher the interest rates, the more growth is kept back. This is because, higher rates make people save more (or pay off their loans) as they feel a bigger pinch in their pocket due to higher interest payments. This means that they spend less on luxury goods. Companies that wish to expand also spend less because it does not make sense for them to pay an overly high interest rate to the banks in order to expand their business. A decrease i corporate spending means that less jobs are created and unemployment rises. As unemployment rises, people spend even less as their job becomes more insecure.

What I would do with my money:
At the moment, I would invest a small portion in stock market(s) and a small portion in precious metals. If you want to add in some really risky stuff, you could also add property funds that invest in developing markets. I would keep the rest in cash that would be in a certificate of deposit (time deposits) for not more than 3-month period maturity. When I see that the interest rates have gone high enough (sometime around the summer of next year), I would think of buying some bonds at that time. I would also invest a small portion of my funds in long/short hedge funds (this means that they can make profits in both bull and bear markets) as this would keep me safe from the imminent downturn in equity markets. When it comes to precious metals I would like to say that I have an educated opinion but I don't, in this case it is more of a gut feeling. I think that I would buy some more metals when the price has corrected by another 10% or so. Finally, I would definitely lean my portfolio away from the USD as I believe that we are in for quite a devaluation in the short to mid term.

Last thought:
sometimes we forget that a decrease of 20% from a guide price of 100 takes us to 80 and a subsequent increase of the same amount only takes us back to 96! Timing is not everything but it is Pretty Important!!!

I hope this help any of you trying to find your way out there... let me know if you have questions.

Until next time...

Beginning

2006-05-21T03:45:00.000+02:00

This is the beginning of the “Thoughts of a banker”. He will share his thoughts regarding the markets, day-to-day life and society as a whole. You share no obligation to read what he has to say but note that even when he is wrong (and he is sometimes) he still raises a few good points along the way.

His background is in banking and he is in the market on his own and through his clients. He lives in Europe and this sometimes affects his views accordingly. Sometimes his spelling can be a bit bad but he does his best to faze this out :)

There will be no set frequency with which he will report on his thoughts but will do so as time permits and as the markets dictate.

And so it begins…