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Monday, July 7, 2014

MARK HULBERT IS A TWIT: here's what you need to know


Hulbert via Marketcrotch - gold is only worth $800. Huh? Wait, what? Who would be left to mine it at $800? And how is it "worth" anything in such a case? Let's try to parse the stoopid:

Yet according to Duke University finance professor Campbell Harvey, one of academia’s leading experts on gold prices,

What? He's one of "academia's leading experts on gold prices"? Says who? I guess he's going to have some theory based on Asian gold demand, then, eh?

the odds are poor that the metal will return any time soon to its all-time high in August 2011. That month, the spot Comex gold contract reached an intraday high of $1,929.20, more than $600 above Thursday’s settle price of $1,320.40.

He puts gold’s fair value today at a little higher than $800.

Huh? Wait, what? Why?

A valuation model Harvey proposed in a National Bureau of Economic Research study 18 months ago, when gold was nearly $1,700 an ounce, correctly foresaw that the metal was overvalued.

That model is based on the tendency for gold to decline whenever the ratio of its price to the consumer-price index rises well above its average level of about 3.4, and to rise when it is significantly below that average. With the CPI now at 237.1, this ratio stands at 5.6.

Wait, whose CPI? American CPI? How exactly would the price of gold have anything to do with American CPI, when Americans don't buy gold?

I'd really like to know if he explained an actual market mechanism by which gold prices are driven by American CPI. Because my default assumption is that he has presented no such mechanism. He has literally pulled this out of his ass.

To be sure, Harvey acknowledges, gold is perfectly capable of taking a long time to return to its fair value — and by no means will the path it takes be a straight line. So a near-term rally isn’t out of the question.

So in other words there is no relation. I mean, it could be going in that direction right now because he's right, or it could be because the US sold all its ETF gold holdings and that caused a price shock that turned the market participants strongly bearish for the past couple years, or it could be because Jennifer Love Hewitt is using her mind-control powers in service to the ancient gods of Urartu, or it could be all dependent on how my cat feels on any given day.

Over the past decade, Harvey points out, gold’s price has been quick to respond to changes in Treasury yields — rising as yields fall, and vice versa. If you believe that yields will on average be higher in coming months than where they are today, as he does, then “gold will most likely decline” over the shorter term.

Whose treasury yields? American treasury yields? How exactly would they affect the price of gold? Especially considering there have really been only two long-term trends in UST yields since the price of gold was decoupled from the US dollar, and over that time Indian and Chinese wealth have exploded?

What I'm saying is: if you believe in the magical UST mojo then you're basing your belief on a very limited dataset (of two long-term trends only), and over that time one real and comprehensible input to gold prices (Asian demand) has radically changed. Gold isn't owned by rich Whitey anymore. Plus there are other explanations based on actual supply and demand that explain the gold price over that period.

If you nevertheless want to bet on gold, or simply want to follow the advice of many financial advisers to allocate a small amount of your portfolio — perhaps 5% — to gold for diversification purposes, shares of gold-mining companies are probably the cheapest way in, as the shares of such companies have significantly lagged behind bullion over the past 18 months.

Ah ha ha ha ha ha ha! Yes! Buy gold miner stocks! Especially when they've grossly underperformed gold for the past six years, due to massive equity dilution and costs spiralling out of control! Plus you get to own country risk! Oh, and also, their assets are depleting precisely during the time the price of gold has been weak.

Seriously? If you really truly think gold is going to $800, short all the miners and walk away. They go to zero.

If you think gold is going to $1500, maybe you want to own one of the half-dozen miners that has a bright future.

This Hulbert guy is either willingly filling column inches with bullshit to make a quota, or he's an idiot.


3 comments:

  1. I didn't follow it closely at the time, but wasn't Mark Hulbert the dude that originally pushed the bullshit comparative chart about the Dow crashing just like in 1929? The one that you ripped to pieces on a few occasions?

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    Replies
    1. Nope, the Dow 1929 bullshit chart originally comes from Tom McLellan.

      Though Hulbert did write a thoroughly credulous and uncritical article about it:

      http://www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11

      So I guess it's all up to whether or not you respect people who uncritically republish the writings of Tom McLellan.

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  2. Nigerian scammers send out emails with typos and ridiculous nonsense that make any intelligent person think, "how could anyone fall for this stupid shit?" It's a simple screening mechanism. Anyone dumb enough to actually try to contact a semi-literate stranger from Africa promising them a fortune is a good, no, great candidate to fleece. Sending out well-written con letters would only widen the net and get a lot of smarter people sniffing around, and increase the amount of time wasted on prospective marks who don't pan out.

    I mention this because Mark Hulbert's columns must be utilizing the same approach. Whomever he writes for must be gathering click data on the people who read his articles and planning to mass-mail them with some sort of investment scam. Probably one that would be pedaled to them on board a Casey Cruise.

    ReplyDelete