chart of the day

[jk]

source:
http://bigpicture.typepad.com/.share...dow_8707_3.png

[Finster]

Re: chart of the day

And for anyone who thought PM mining stocks would save them:

[jk]

Re: chart of the day

on the other hand, this is what the metal did that year. notice the equity crash in oct?

[Tet]

Re: chart of the day

source:
http://bigpicture.typepad.com/.share...dow_8707_3.png

I thought it matched up better April 4, 2004.



I think this is the third comparison I've seen to the '87 crash since then. Meanwhile DOW is pushing 13,000 since 2004 and I think I lost my DOW 10K party hat, seemed I was breaking that hat out every other month for over a year.

[Finster]

Re: chart of the day

on the other hand, this is what the metal did that year. notice the equity crash in oct?

<...>

Yep. On Friday, October 16, 1987, the London PM fix was 465.25. On Black Monday, October 19, 1987, it was 481.00. All while gold mining stocks crashed even harder than the rest of the stock market. Gold bullion settled back to its prior range the following day, but the event clearly illustrates that gold stocks are first and foremost stocks, not gold, and that their essential nature comes through most clearly when you need the benefit of gold the most.

Not a one-off exception, either. The below shows what happened when the stock market crashed in 2002:

[Sapiens]

Re: chart of the day

From the Dallas Fed:

http://dallasfed.org/data/data/us-charts.pdf

http://dallasfed.org/data/data/Housing-charts.pdf

[grapejelly]

Re: chart of the day

Yep. On Friday, October 16, 1987, the London PM fix was 465.25. On Black Monday, October 19, 1987, it was 481.00. All while gold mining stocks crashed even harder than the rest of the stock market. Gold bullion settled back to its prior range the following day, but the event clearly illustrates that gold stocks are first and foremost stocks, not gold, and that their essential nature comes through most clearly when you need the benefit of gold the most.

Not a one-off exception, either. The below shows what happened when the stock market crashed in 2002:

Yes, but follow the HUI or XAU after the crash and see how they did

I believe that in a bear market, mining stocks run counter to other stocks. However, at the start of the bear, they are still behaving with the mainstream. This passes after a period of time and they begin to appreciate vs. the rest of the market.

[Tet]

Re: chart of the day

Thanks for the links, not a bad party considering the Fed took the punchbowl away a long time ago. I'm more inclined to believe the Fed would like happy cows instead of discontented and madcows. Do you think the Fed is going to bring the punchbowl back to the party or does the party continue on without it, or does the party break-up and go home here? I think a couple glasses of punch and everyone feels a whole lot better.

[Finster]

Re: chart of the day

Yes, but follow the HUI or XAU after the crash and see how they did

They did very nicely indeed ... after the crash. The point is not a general statement about the investment merits of mining stocks, merely a bright-red warning flag for folks who are buying them under the mistaken impression they offer a refuge or a profit opportunity when stocks are the most dangerous.

I don't know if or how many there are in this forum, but I have encountered numerous such naive investors elsewhere. Moreover, there are many who buy the stocks under the perilously mistaken impression that they are investing in gold or silver.

No. If you want to invest in gold or silver, buy gold or silver. If you want to invest in the stock of companies who mine gold or silver, buy the stock of companies who mine gold or silver. They are very different things. Moreover, they are also not mutually exclusive entities in a portfolio; you can have some of both, but never confuse either with the other.

Moreover, we can make a similar statement about stocks in general. If you can buy then after a crash is over, you can do very well. But that is of no use to someone who is fully invested going into a crash.

I believe that in a bear market, mining stocks run counter to other stocks. However, at the start of the bear, they are still behaving with the mainstream. This passes after a period of time and they begin to appreciate vs. the rest of the market.

Mining stocks are first and foremost stocks. As such, they participate in the trend of the stock market. Since the companies they represent are in the business of selling gold and silver, they also participate in the trends of those commodities. The crucial thing to keep in mind is what your investment thesis is. Are you buying stocks just because you are bullish on gold or silver? If so, then you are doing the wrong thing. You must also have reasons for wanting to own shares in the companies you buy. And that includes being familiar with their operations, managements, financial statements, and various other drivers of their investment potential.

You may be familiar with Harry Browne, financial whiz, economist, and two-time Libertarian nominee for President of the United States. He came to prominence in 1970 with his first book, How You Can Profit From The Coming Devaluation, which correctly predicted the devaluation of the dollar and subsequent inflation. Browne's second book was 1973's How I Found Freedom In An Unfree World, which focused on maximizing personal liberty. This book became an instant classic in libertarian circles. You Can Profit from a Monetary Crisis was Browne's third book and reached #1 on the New York Times bestseller list. He continued to author books and articles on investing through the late 1990s. In all, Browne wrote 13 books and sold 2 million copies of his books. (http://en.wikipedia.org/wiki/Harry_Browne).

In his 1973 book, You Can Profit from a Monetary Crisis, he advised investors to avoid dollars, stocks, and bonds, and buy gold and silver, and put their cash in Swiss francs and other strong currencies. Following his advice helped many people preserve their assets and even make enormous returns over the following years. Every serious investor should read this book and take its message to heart. And in it, he also set forth seven principles of investment success.

One of them was Don’t add nonessentials to your expectations.. The following is a direct quote from pages 154-155:

Direction

The fifth principle is: Don’t add nonessentials to your expectations.

Define what it is you expect to happen. Then invest in a way that doesn’t rely for success upon anything outside of those expectations.

As an illustration, suppose you had decided in 1971 that the price of silver would go up because of supply and demand pressures. Let’s say you made the decision when the price was about $1.60, and you expected silver to be worth $2.50 by 1973.

To bet on your expectations, you called your broker and he recommended the stock of Sunshine Mining Company, a leading U.S. silver producer. You bought the stock at $30 per share.

As it turned out, your expectations were right - the price of silver fluctuated between $2.50 and $3.00 during 1973. But you didn’t profit from the investment. For Sunshine Mining Company suffered a terrible fire that rendered it inoperative for seven months. When the price of silver was at $2.75, Sunshine Mining stock was at $15 - $15 less than when you bought it.

You were right about silver but you still lost money. You lost because you bet on something else - that nothing would go wrong at Sunshine Mining.

Company profits are dependent upon much more than just the demands for its product. There are other variables: government intervention in the form of taxes and regulations, good or bad management, labor relations (a strike often occurs when it would harm the company most), and the possibilities of natural disasters - fires, floods, earthquakes.

The fire at Sunshine Mining actually helped move the price of silver upward by reducing the supply. But I know of no way the reverse could happen. If something affects the price of silver adversely, it will also affect the producers of silver.

Stocks are not inherently bad investments. But the silver example illustrates a case where a stock is a misdirected application of your expectations. Never buy a stock if there’s a more direct way to profit from your expectations.

Define, as precisely as you can, what you expect to happen. Then find a way to bet on it that includes as few nonessentials as possible.

Finally, let's test the investment premise by examining the available data pertaining to an entire secular bull market in gold, when stocks were in a secular bear market. The last precedent we have is the 1970s. During that secular market phase, gold rose in USD by 25 times. Gold stocks, however, rose by less than half that. The below is the Barron's Gold Mining Index back to 1970.