THE CAR SALES BUBBLE: “JUST TELL ME WHAT YOU WANT AND THEN SIGN THAT LINE AND I’LL HAVE IT BROUGHT DOWN TO YOU IN A HOUR’S TIME”

5/23/13

I’ve said it before (CAR LOANS:   TAKE MY MONEY…PLEASE!,  5/6/13 and  IMPORTED FROM DETROIT:   MARCHIONNE BETTER BE AS FAST AS A CHRYSLER 300 SRT8, 4/25/13), this car market scares me, even as we approach a 15 mm unit year for U.S. light vehicle sales.

What I have long referred to as Ben Bernanke’s War on the Elderly, but what most people call QE III or “unconventional” monetary loosening, has created plenty of bubbles, and not all of those bubbles are in financial assets like treasuries, corporate bonds, and dividend paying stocks.   One of the most dangerous, though not quite as salient, bubbles is car sales; nothing moves cars like cheap financing.   With the economy still just dragging along, and the prices of cars continuing to go up, especially as incentives are being reduced, affordability is only being sustained, and enhanced, through cheap credit.  It is this artificial affordability that is driving car sales.  All this talk of pent-up demand has some justification; the fleet is indeed old.   But, as I said in my aforementioned 4/25/13 post, just about all of that pent-up demand would stay pent-up if money weren’t so cheap; cars last, and run like new, a long, long time nowadays; yours truly knows this from personal experience.  And while all the latest geegaws are nifty, impressive, and nearly awe-inspiring (See my already seminal 5/20/13 piece, I TEST DROVE A KIA TODAY…), people can, and would, do without them if cheap money didn’t make them even more tantalizing.

With the “domestic” car companies ramping up production by canceling the longstanding Detroit tradition of summer shut-downs, it’s hard to be sanguine about the car business.  At some point, credit has to get more expensive and/or less available.  Even without Fed action, long rates are up; the ten year treasury is up 35 basis points (“bps”) since the end of last month and the five year, a more relevant benchmark for car loans, is up 22 bps.  Without all this cheap credit floating around, what look like tight inventories might suddenly become fulsome as people decide that what was a necessity at one monthly payment is a luxury at an even slightly higher payment.

This post concerns the state of an industry more than the relative cheapness or richness of the “domestic” car company stocks; I don’t follow the car company stocks like I used to, though I am considering starting to do so again quickly.   That having been said, most of the experts are telling us that Ford (F) and General Motors (GM), despite their rather stunning increases of the last few months, are still very cheap with forward price/earnings ratios (“P/E”s) of about 10 times while prospects in the black hole of Europe improve, Chinese sales remain strong, and there is so much upside in the United States.   While 10 times forward earnings certainly look attractive, especially relative to an S&P 500 P/E roughly 50% higher, I might want to challenge at least two, and probably all, of the assumptions behind the earnings projections that form the denominator of that P/E.  

As long as Ben Bernanke’s punch bowl, composed largely of the sweat and the blood of those (especially the elderly) who’ve been prudent, or, in the Bernanke bizarro world, foolish, enough to save, remains full, car sales in the United States should remain strong, or at least respectable.   But as soon as Obsequious Ben takes away the punch bowl, or the markets get wise to him, car sales have nowhere to go but down.

While I’ll leave, for now, ruminations on the attractiveness of GM and F to the self-proclaimed experts, I’m not enthusiastic about investing in an industry that is flying high on the economic and financial equivalent of crack cocaine.  You can see how this argument could easily be extended to the entire stock market, but, again, calling markets is, as I have said so many times in the past, nearly impossible.  

GM                  $32.84

F                      $14.86

S&P 500:         1,652

Dow:                15,308

YOURS TRULY COULD USE SOME MONEY MAKING IDEAS

5/23/13

Like many, if not most people, I have to find a way to increase my income.   My balance sheet is in great shape, but my income statement could use some help.

While my lifestyle is, to use far too weak a word, modest, I do have one daughter in college, another on her way, and a son just a few years behind his sisters.  I also have a wife who normally shares my frugality, except in one very expensive area…travel.  While I do not share her enthusiasm for travel  (It’s a heck of a lot more trouble and expense than it’s worth, and talk about a rapidly depreciating asset! I have to admit, though, it does have its moments; see the instantly, and still, seminal ODYSSEUS, AENEAS, AND ME, Insightful Pontificator, 7/11/11, widely regarded as one of my best works ever.), my enthusiasm for her continues and grows, so we will travel as long as it makes her happy.  And then there are the recurring expenses of life and home ownership…property taxes, upkeep, and the things that need replacing in a house as it approaches twenty years of age. 

Meanwhile, teaching is fun and rewarding and, if my student evaluations are any guide, I am quite good at it.   However, even during those semesters in which I teach a lot of classes (In the upcoming Fall semester, I will be teaching five at three different institutions.), “part time” faculty positions don’t pay much.  Full time faculty work would improve things only marginally and, without a PhD, my prospects in academia are limited. 

Four years after publication, my books now sell only sporadically.   There are more books inside me, both a continuation of the Chairman series and works on completely different topics, but those books haven’t worked their way out yet.   Further, given the time writing a book requires, I would have to do better financially on any future books than I did on the first two to justify the effort.  “Effort” probably is not the right word; I love writing the books.  But there are only so many hours in the day and, with the financial and personal demands of family life, it isn’t practical to devote the time a book requires with such an uncertain payoff.

This blog has been taking up a lot of time and is clearly, and almost exclusively, a labor of love.   There’s so little money in this it isn’t worth mentioning.  If I could make a living writing commentary, I would do it in less than a heart beat.  But blogging per se doesn’t provide such an avenue.

I haven’t traded actively to any great extent in several years.   Further, while I am a great investor and financial manager (hence our strong balance sheet), I am, like most people, not much of a trader.  Except for two really good years, I never did better trading than I did by following the balanced, patient approach to investing I espouse in this blog.   Most of the time, I did worse trading than I would have done simply investing the money in a balanced, and religiously rebalanced, portfolio.  I still put on a few trading positions, but more for intellectual challenge, entertainment, and intensifying focus on things that might help my investing or writing than for the money I could make, or lose, on my small trading positions.  Just as I would advise my readers, and those whom I help with their money, I never have devoted considerable money to trading.  I wouldn’t trust substantial money to my, or to anyone’s, trading prowess.  The “real” money is invested carefully, conservatively, and successfully…and it will stay that way.

The paying consulting business I once had has dried up.

While it sure sounds like it, I’m not complaining.   Everybody should have my financial problems.  But I am looking for ways to bring in more income.

So….what’s next?

Having been out of the conventional job market for 17 years, more or less, and no longer being of the age at which employers want to hire people, a “real” job in the lucrative sector of the economy (money management) in which I once worked, or in any sector, seems out of the question.  If I’m wrong on that, I’d sure like to hear about it, but I’m being realistic here.  

Clearly, I know quite a bit (certainly more than most of the “experts” who appear on CNBC or other financial media) about money, how it works, and how to make it and avoid losing it.   So financial consulting and advising is an avenue in which I could make a huge contribution to people’s or companies’ well beings.

As my readers know, I’m also a talented writer.   So writing and editing would seem to be a fruitful avenue to pursue.  I could write speeches for corporate types and politicians or ghost write for anyone.   Probably a more realistic aspiration is editing, especially editing of work of a financial, public policy, or spiritual nature.   (Those of you who read only my Mighty Quinn on Politics and Money (“MQPM”) might be surprised by the last on that list; take a look at my other blog, The Insightful Pontificator, in its post MQPM application.)  Indeed, I just helped a friend of mine with a business/public policy/non-profit proposal; when the deal for which the piece was written comes to fruition and he can speak more openly about it, I am sure that he, and the people who read the document, would be happy to provide me with references.   In fact, given the positions of the people who read and used the document, and my friend’s freely acknowledging my role in its preparation, editing/writing jobs may arise from that endeavor.

At any rate, it seems wise to use the forum this blog provides me to get the word out that I am looking for ways to make some more money and to ask my readers for ideas.   I am willing to at least listen to anything you might propose.  And, again, don’t get the wrong impression; no one is going to have any tag days for the Quinns.   But it would be nice, and I’d breathe a little easier, if the inflow were to pick up a bit.

WHAT IF BASHAR ASSAD WINS IN SYRIA?

5/21/13

News of Syrian government forces’ making major strides in the civil war in that troubled “nation” afforded Senator John McCain the opportunity to (what else?) call for deeper military involvement in the latest quagmire that has drawn his attention.

“This is a significant and dramatic indicator of the Obama administration’s passivity.  For this administration to sit idly by and watch these events unfold, (sic) is writing a shameful chapter in American history.”

After further ripping the Obama Administration for not racing headlong over this cliff without taking a nanosecond to consider the consequences “optimistic to the point of fantasy,” Mr. McCain then fell back on his standard Cold War rhetoric, pointing out that Russia sees and raises us each time we increase our assistance to the rebels.   What Mr. McCain’s point is in this instance is difficult to fathom, perhaps as much for him as for his listeners, but I digress.

We know what Mr. McCain’s motivation is in urging that American blood and treasure be fulsomely expended in this latest Middle Eastern rabbit hole; he has to look for every opportunity he can to pay back, with your money, the “defense” contractors who have so generously bankrolled the lifelong ego trip he calls a career.   We, as citizens, however, have no debt to repay to the contractors.  Unlike Mr. McCain and his colleagues whose “jobs” consist of having their hindquarters smooched by obsequiants who want a piece of your wallet, we work for our livings, and a good portion of what we make goes to support the likes of Mr. McCain and his fellow barnacles on the ship of state. Before we follow Mr. McCain’s advice to repeat what he considers the stunning successes of Iraq and Afghanistan, we are duty bound to examine the three major assumptions behind the argument that we should get more involved in Syria.

The first assumption is that we can influence the outcome in Syria.  Take a look at Iraq, Afghanistan, and Vietnam before you accept the idea that we can guide outcomes of civil wars born of centuries of antagonism halfway around the world.  (See my 5/17/13 piece AMERICAN ASSURANCES IN SYRIA:  A RUSSIAN GUANTANAMO IN AL QAEDA’S COURT?)  At least in the case of Vietnam, the civil war was brewing before we got there.   We rekindled a largely dormant civil war in Afghanistan and started the now rampaging civil war in Iraq.  In none of those cases was the outcome good for America.  Well, ultimately things may have worked out for us in Vietnam, but only because our side lost.

The second assumption behind Mr. McCain’s and his bipartisan War Party’s enthusiasm for intervention in Syria is that it would be a good thing if the Assad dynasty was overthrown. 

There is not doubt that Bashar Assad is a thug, as was his father before him.  Neither shows, or showed, any compunction about slaughtering his own people to keep himself in power.   But what is the alternative?  Thugs were overthrown in Libya and, to a lesser extent, in Egypt.  They were replaced with a brutal stew of chaos and dueling thugs striving for power, only the new thugs like us even less, or hate us even more, than the old thugs. 

Furthermore, in Libya and Egypt, Mr. McCain (and Mr. Obama and the entire Western media and foreign policy establishments) seemed to have been surprised that the revolutionaries they backed did not turn out to be the Jeffersonian democrats they had supposed them to be.   In Syria, the War Party can’t even pretend that it is on the side of the angels; there is no doubt (except perhaps in Mr. McCain’s febrile brain) that the Syrian opposition is dominated by Al Qaeda and others who us ill.  As I said in my 4/28/13 piece OBAMA AND SYRIA:  “…AND A MAN IN MY POSITION CANNOT AFFORD TO LOOK RIDICULOUS!”

We have little to no influence on the parties fighting in Syria and, despite elements of our foreign policy apparatus again having fallen for the usual song and dance about “moderate, pro-Western elements,” we have no friends on either side of the Syrian conflict.   We have plenty of people who will flit around Washington professing friendship with America in order to line their own pockets, but we have no genuine friends in Syria.

The third assumption behind Mr. McCain’s war whoop-whoop is that Al Qaeda and its allies in Syria will win, that Mr. Assad will give up and leave the country.   But given the advances Mr. Assad and his Hezbollah allies have made of late, his defeat is far from a foregone conclusion.  As I said to a friend of mine in the Fall of 2011 (in a White Castle on Cicero Avenue in Alsip), when this conflict was just getting started, Assad could very well win this thing because he is at least as brutal as his father, who killed 30,000, many with chemical weapons, of his own people to maintain power.  

So suppose that Mr. Assad does wipe out the rebellion and emerges victorious, a very realistic possibility.  Not only will that expose us to the charges of flaccidity that Mr. McCain, Lindsey Graham, and other bi-partisan War Party members are always hyper-ventilating about, but we would then have to deal with a Syria that owes us nothing but owes the Russians, the Iranians, and, most dangerous of all, Hezbollah big time.   How receptive will a newly entrenched Mr. Assad feel about peace overtures then?  How will he regard Israel, one of our greatest allies whom he regards as little more than a surrogate for Western domination of an area he feels is rightly his?   Yes, Mr. Assad and his father have always despised Israel, but the Assads have kept an uneasy peace, albeit largely out of necessity, with their far more powerful neighbor for the last forty years.   Would that change if Mr. Assad were to defeat the rebels, and their Western backers, with help from Hezbollah and Iran?   Would you like to take the chance that it wouldn’t?

Of course, Mr. McCain and his fellow messenger boys for the “defense” industry will use the growing chance that Assad can win to argue for further U.S. military involvement in Syria; they will use anything to argue for more U.S. military involvement in Syria.  But wouldn’t a saner, and more enlightened, self-interested policy be to stay completely out of this latest Middle Eastern civil war and try to maintain the uneasy peace with the winner?

But who gets rich, or gets his campaign fund generously stocked, with a policy of enlightened non-intervention?

I TEST DROVE A KIA TODAY…

5/20/13

And why, one might ask, would I test drove a Kia Rio today?  It’s Kia’s smallest and least expensive car, what is called a B-body car, two sized down from my trusty 2007 Accord.  Why would I even consider what some might call such a drastic downsizing?

First, I don’t know if I’m considering buying a new car; in fact, I’m probably not.   But I am never completely out of the car market (back in the old days, when I was making lots of money and had far fewer financial responsibilities, I owned, consecutively, 4 cars in the space of 16 months.  I guess we all do dumb things, and if that were the dumbest thing I’ve ever done (It’s not.), I would be in good shape.   Dumber than owning 4 cars in the space of 16 months was that one of them was a Saab (“Sure ain’t a Buick,” as a guy who sold both Buicks and Saabs once told me), but I digress.

Second, I love to test drive cars.  It’s fun, it keeps me up to date on what’s going on in the car market, and, in the past when I traded car stocks with some frequency, helped me make some considerable money on those positions. 

Third, Kia offered me a small inducement to test drive one of its cars and I had the time on this beautiful afternoon to stop by my local Kia dealer (Gerald in Naperville) and take one for a spin.  Further, I did so during the week during the day, so the salespeople were not busy with customers, as they would be on a Saturday or in the evening; I don’t want someone indulging my habit of test drives for fun when they have actual, want to buy that day, customers, and the potential to make some dough, waiting for them.

Fourth, I am, as regular readers know, frugal beyond the point of fault.  And though the Rio is, by and large, an inexpensive car, the Kia Rio, in its most expensive guise, the SX, has most of the features I look for in a car…a manual transmission and some decent equipment; more on that later.

Fifth, as I wrote in my 4/3/13 post, “R-E-S-P-E-C-T, FIND OUT WHAT IT MEANS TO (KIM JONG EUN)”, I am a great admirer of the South Korean people and might want to indulge that admiration by buying a Korean car, to wit…

The South Koreans and, yes, their formerly authoritarian regimes under Syngman Rhee and, to a greater extent, Park Chung Hee, took the types of risks, and engaged in the type of hard work, that the North Koreans are too timid to undertake.   They are to be congratulated.   The North Koreans, and their pudgy ruler, are to be ridiculed.   Only they don’t appear to know it.

With that having been written, I think I’ll go out and buy a Kia or a Hyundai.

Roughly equivalent sentiments point me in the direction of a Volkswagen (BISMARCK’S DREAM, MERKEL’S VICTORY, 5/1/13), but that is another issue.

So what’s the point of this screed?

I was amazed at the car.  I wasn’t amazed so much at the car itself, but at what is available in new cars, even at lower price points, nowadays.   Yes, I keep up on the industry, and I know intellectually that x, y, or z is available in certain cars, but until you get in the car and drive it and experience all the gizmos (and, more importantly, the ride, handling, and driving experience), you don’t realize how far cars have come.

Here I was, driving a car for stickering for just under $20,000 (Rios can be had for a lot less money; I drove the fully loaded SX, as I said above.) that handles like a sports car of not too many years ago with a six speed manual and plenty of power.  The car has satellite radio, Bluetooth (I have only a vague notion of what “Bluetooth” is, not being a regular celphone user.), all kinds of gizmos for streaming music in the car, backup camera, navigation, power folding mirrors, one of those keys that enables you to not only start the car but also open the doors with the key only being in your pocket, eight air bags, stability control, hatchback utility, a 5 year, 60,000 mile bumper to bumper warranty, 10 year, 100,000 powertrain warranty, 28/36 city/highway fuel economy…again, for under $20 grand.   It is amazing how far cars have come in the six model years since I bought the venerable and trusty Accord.

Since I am sure some of readers will point this out, I, too, can remember when you could buy two fully loaded Cadillacs for less than $20 grand.  But by latter day standards, this Kia Rio is just an amazing achievement, testimony to how great and dynamic the world auto industry, and, more importantly, the competitive, free market system, is.

Not that I would want to trade-in the greatest, and, in at least one sense, most unusual car I have ever owned, my 2007 Accord EX-L manual.   Nor would I necessarily trade it in on the Rio; the Rio lacks a few things I would like in a car and could be quieter and have tighter steering.  But the drive I took today really opened my eyes.

WEST TEXAS TWO STEP—GOLD REMAINS THE WALLFLOWER

5/20/13

Today’s (i.e., Monday, 5/20/13’s, page C1) Wall Street Journal made much of the disparity of the performance of gold and West Texas Intermediate (“WTI”) crude oil.  By my calculations, as I write this, WTI is up 5.5% year to date while gold is down 17.5% and silver is down 12.2%.   As the Journal points out,

Skeptics say this mismatch may be a sign of trouble.

As one reads the article, one gleans that the experts must mean trouble for crude oil, as opposed to wider trouble for the markets, the economy, or Western civilization, which yours truly is always anticipating, but I digress.   People who follow these things point out that there is a mismatch between physical demand and investment demand for oil.  The former is still reflective of a sluggish economy, along with abundant supplies, while the former is being fueled by a thirst for, as the Journal puts it

higher returns than those shackled to rock-bottom interest rates.

The Journal may be right; who knows what goes on with various trading programs that react to what used to be considered miniscule moves of seemingly largely unrelated markets against each other?  

However…

The “out of bonds into crude oil futures” explanation doesn’t make much sense to old guys, like yours truly, who still embrace economic and financial fundamentals and have been trading long enough to know how perilous trading normally is. 

Two days ago (GOLD AND BONDS:   STRANGE BEDFELLOWS IN A YIELDLESS WORLD?, 5/18/13), I expostulated on my theory that the key to gold’s recent demise is not return but yield; i.e., gold may be getting hammered as part of wholesale desertion of low and no yield assets in favor of big dividend paying stocks, the risks of which are being downplayed or ignored.  If that theory is true, either gold has to trade up or crude oil has to trade down.   (Note that gold is up a little over 2% today and silver is up slightly more, but one day means nothing, at least to investors.) Investors can’t be fleeing no yield gold or low yield bonds in order to invest in no yield crude oil.  And it seems that if investors, or traders, more properly, are abandoning gold because it has no yield, they would also be abandoning crude oil.  Instead, they are bidding up crude oil, though 5.5% YTD only looks like a whopper return relative to the dismal performance of precious metals.

Again, I’ll leave the trading like a scalded dog to my younger and presumably wiser colleagues.  But it’s fun, and sometimes informative, to speculate on why commodities or markets are doing what they’re doing.   However, the only thing we can say for sure about crude oil is that there are big buyers, or a lot of little buyers, who like it for reasons we don’t know and can’t know.   We might also say, with only slightly less assurance, that any speculation as to their reasons is just that…speculation…and there is probably more going on than we know.

A BIT OF FINANCIAL APOSTASY: USE LOWER RATES TO SAVE MONEY RATHER THAN BUY MORE HOUSE

5/19/13

While working out this morning, I heard an ad for a mortgage broker on WBBM AM, Chicago’s news radio station, that went something like this. (Since I don’t have a photographic memory and can’t write as quickly as a person can talk, I can’t quote the ad precisely.  Its words and numbers may be slightly different from the below, but only slightly, and the point is the same.):

If you have $1,350 to spend on your mortgage, at today’s 3.5% 30 year rate, you can support a mortgage of about $301,000.  But if you wait until rates go back to a more normal 6%, that $1,350 will support a mortgage of only about $225,000.  That’s $76,000 more home that you would be giving up.

While there will (would?) be more market adjustments to deal with when (if?) mortgage rates get to a more “normal” 6%, this is an interesting argument based on the application of some simple present value concepts and appears to be an effective way of selling one’s mortgage services, or at least of persuading people to borrow money.   After all, who, especially in America, where people seem to always want to spend more, even if they don’t have more, would want to leave $76,000 of house on the table?

But here’s another thought….

If you have $1,350 to spend on a mortgage, why not pass on the $301,000 loan you think you can afford and instead borrow $225,000 at 3.5% and buy a home selling for $76,000 less?  Your payment on such a loan would be about $1,010.   You could then take the $340 per month you save and invest it.   The result would be…

• You would still have a nice, more than adequate home.
• You will be building, or adding to, your nest egg.
• You will have more money for emergencies or just the all too frequent but expensive non-emergencies that come with home ownership; you therefore sleep better at night and are therefore probably more pleasant, sharper, and hence more effective at work and in your interpersonal relationships.
• If things don’t go according to plan, as is common in this economy, you will have both a lower mortgage payment to make and some savings on which to fall back.
• If everything goes according to plan but you don’t stay in the house thirty years, you will have built up a substantial sum of money to go toward the down payment, or outright purchase, of your next home.
• If everything does go according to plan, you stay in the home for 30 years, you religiously put the extra $1,010 away and don’t spend it, and can earn, say 5% on your money (a not at all unrealistic, perhaps even conservative, proposition; since this would be a 30 year effort and would involve the dollar cost averaging that inevitably accompanies monthly level payments, most of the money could be put into stocks), you would have about $840,000 set aside by the time the 30 year term is over.  If you could earn 7%, you’d have about $1,230,000 by the end of the 30 year period.   Taxes would reduce these numbers, unless you were able to invest in a tax deferred vehicle, but the numbers would still be considerable.

You win.   The country wins because you are saving money.   The only thing you give up is the ability to say that you live in a house that you can barely afford.

I realize such a suggestion amounts to apostasy in a country obsessed with spending and displaying (usually false) wealth.   But it would have made such perfect sense, and be such standard practice, only a generation or two ago that I wouldn’t have had to make the suggestion. 

GOLD AND BONDS: STRANGE BEDFELLOWS IN A YIELDLESS WORLD?

5/18/13

Gold has taken a pounding of late, falling over $100 during the last seven trading; the June futures contract closed yesterday at $1364.70, a few bucks over its yearly intra-day low of $1360.90, touched on April 15.   Year to date, gold is down nearly 19%.  It’s been brutal for those of us disproportionately, a relative term in more ways than one, long gold.

As I have said numerous times and written numerous times in this and other forums, determining why an asset or a market has done what it has done is nearly as perilous as predicting what it will do.  But trying to glean meaning from market’s moves is instructive, entertaining, and (only) potentially profitable, so, against perhaps my better judgment, I have come up with a theory for gold’s problems.

One of the explanations for gold’s demise, i.e., no reported inflation (except in asset prices, grist for another mill or for later in this mill), would seem to make sense but is nothing new.  Why, then, should such explanation account for gold’s performance over the last few days?

Another theory, that traders anticipate that the Fed will begin to wind down its bond buying program (See my 5/11/13 post, THE FED’S EVOLVING APPROACH:  REDUCING UNCERTAINTY BY INCREASING UNCERTAINTY) might hold some water.   However, if you believe Mr. Bernanke and his cohorts when they argue that their objective in keeping us drenched in liquidity, and beating the living daylights out of elderly savers, is to support the economy, it doesn’t look like the Fed will take the turbochargers off the printing presses any time soon.  The economy still is only slowly recovering.  

On the other hand, believing anybody one has not known personally, and far more than casually, for at least twenty years is always a perilous proposition.   Believing a politician (And, believe me, these Fed guys are first and foremost politicians or they wouldn’t be where they are.) is perhaps the silliest, most irresponsible activity in which one can engage.  So if, as many of us have long suspected, the real object of the Fed’s money flood is to support the stock market, maybe they are going to start turning off the fire hoses. 

On the third hand (Where’s Harry Truman when we need him?), perhaps the Fed doesn’t dare slow down because the repercussions for the stock market might be disastrous as newbie risk takers decide they don’t have to own stocks to avoid a steady diet of dog food in their old age.

Despite all these hands, it really doesn’t matter.  As long as traders believe that the Fed will be winding down, there will be downward pressure on gold.   Whether those traders are right or not is of little or no consequence.  So the “Fed might unwind” argument for gold’s defenestration has some credibility.

Yours truly, however, likes another explanation for gold’s sudden unpopularity, to wit, gold has no yield in an almost suddenly yield obsessed world.   Gold has, of course, had no yield for the last 7,000 years or so that it has been trusted as a store of value, so what has changed?   The thirst for yield in the Bernanke created yield-parched desert has reached the point at which people are seeing mirages, like “safety” in overvalued high dividend yielding stocks.  (See my 4/29/13 post, YEAH, THE BIG DIVIDEND PAYERS ARE GETTING RICH, BUT…)  In such an environment, people tend to do irrational things…like suddenly feeling the near insatiable urge to toss the old standards over the side in favor of the hottest new item to come down the pike, in this case big dividend payers.  (See my 5/13/13 post, A “THIRST FOR RISK”?:  SOME BASICS ON RETURN, RISK, AND INVESTING .)

One can take this “no yield so no gold for me, thank you” argument a step further.   This disdain for assets with no, or close to no, yield transcends gold and other precious metals.  Notice how a virtually (certainly on a real basis) yieldless bond market has done of late.  The ten year treasury yield has gone from 1.67% at the end of last month to 1.95%.   The ten year reached a low yield of 1.38% last July, when gold was trading with a $1600 handle.   Could it be that gold, a yieldless asset, is trading with treasuries, which Mr. Bernanke have rendered virtually yieldless?

One might argue that of course gold will move in the opposite direction of yields, and therefore in the direction of bonds, because gold purchases are financed either by borrowing money or by foregoing yield.   But I am arguing causation here; perhaps both gold and bonds are getting pounded not for traditional reasons but because traders, and some investors, are abandoning low and no yield assets en masse in favor of big dividend paying stocks.

All this could be so much navel gazing, however, for two reasons.

First, gold is obviously getting pounded because big holders, or big shorters, are selling.   We don’t have to know why and we can’t, in most cases, know why.   So what difference does it make?   Big money people, or a lot of little people money, no longer like gold and have acted appropriately.

Second, the response of yours truly, and those I advise and would advise, will be to do…nothing.  The underlying reason for owning gold, i.e., an utter lack of confidence in the world’s, and perhaps especially, our, central bankers remains intact.   So I am staying in gold.  (See my 4/15/13 post, GOLD:  YES, I’M SCARED…BUT I’M STAYING, perhaps ironically (certainly not presciently) written on the date gold reached its (then) low.)  And when it comes time to rebalance, unless things change, I will be buying more gold and silver, just to maintain my long term allocation to that ancient object of kingly desire (gold and silver, not Zsa Zsa Gabor), not because I have any idea where gold will be going in the short to intermediate run.