See the last minute of the trade recap video for my brief rant about the ratio of the DJIA to gold.
+ BOT 1,000 SNTS false Stock 5.620 USD ISLAND 09:32:11 5.00
+ SLD 1,000 SNTS false Stock 5.600 USD DRCTEDGE 09:33:52 5.00
+ BOT 3,800 EGHT false Stock 1.413 USD SMART 09:39:01 19.00
+ SLD 2,600 EGHT false Stock 1.380 USD SMART 09:44:07 13.00
+ SLD 1,200 EGHT false Stock 1.388 USD ISLAND 09:44:27 6.00
+ BOT 400 GTI false Stock 15.890 USD SMART 09:58:34 2.00
SLD 400 GTI false Stock 16.12 USD BATS 10:38:27 2.00
+ SLD 5,000 GSIT false Stock 4.282 USD SMART 13:08:08 25.00
+ BOT 5,000 GSIT false Stock 4.430 USD SMART 13:40:33 25.00
SLD 1,000 CLWT false Stock 3.51 USD ARCA 14:23:53 5.00
+ SLD 5,000 CLWT false Stock 3.510 USD SMART 14:24:00 25.00
+ SLD 5,000 CLWT false Stock 3.513 USD ISLAND 14:24:05 25.00
+ SLD 5,000 CLWT false Stock 3.481 USD DRCTEDGE 14:24:12 25.00
+ BOT 7,700 CLWT false Stock 3.388 USD ISLAND 14:24:51 38.50
+ BOT 4,801 CLWT false Stock 3.480 USD DRCTEDGE 14:26:07 24.01
+ BOT 3,499 CLWT false Stock 3.440 USD ARCA 14:27:51 17.50
+ BOT 5,000 CLWT false Stock 3.084 USD ARCA 15:19:29 25.00
+ SLD 5,000 CLWT false Stock 3.039 USD ISLAND 15:20:20 25.00
Daily profit: ($126.06)
GRH on watch for short or long.
Disclosure: No positions in anything mentioned in this post. I have a disclosure policy and you can find all my disclaimers there as well; those disclosure & disclaimers are incorporated by reference into this post.
#1 by john c on December 2nd, 2009 4:48:05 PM
Quote
you only have one stock on watch??? what about GRH, OPXA, NLST,
#2 by Reaper on December 2nd, 2009 5:43:45 PM
Quote
my watch list is always longer than what I post. I am no longer looking to trade NLST because it has been choppy for too long. OPXA is potentially interesting.
#3 by john c on December 2nd, 2009 4:48:56 PM
Quote
even SEED falling back to $10 seems reasonable
#4 by john c on December 2nd, 2009 4:49:24 PM
Quote
NLST bounce off $4, maybe a breakthrough
#5 by TheHawk on December 2nd, 2009 4:50:43 PM
Quote
Reaper,
I take no offense to your recap. But, to say that there’s no economic meaning whatsoever to the Dow/Gold ratio is inaccurate at best. I think it’s more relevant to say that it has no relationship with your investment strategies. That’s fine and good for you.
We live on a planet whose reserve currency, the dollar, is legitimately in question at the moment. Furthermore, this currency is no longer tied to anything tangible, namely gold. I believe this happened under Nixon. All the currencies on earth, therefore, exist in a float, in paper.
The advantage of a gold standard is that it’s scarce and valuable. It has physical properties that make it valuable. It’s tangible, it’s real. It’s not a piece of paper that can be printed up and down by a government.
I’m not advocating a gold standard per se, but simply presenting what I find to be interesting and relevant information.
I understand you find no value for this sort of info. But, it doesn’t change the fact that many people have made an absolute killing on gold because they A, paid attention to the ratio, and B, knew that as the American economy was being shaken at it’s core, gold was going up.
I don’t see this as being so different from studying pennystocking Fat Fingers, Supernova’s, etc. I was trying to be helpful for Preston, who was looking to short Gold. I don’t see that as a wise idea in the short term. If you feel that’s bad advice, so be it.
Furthermore, as I mentioned in the last thread, China’s amassing loads of gold these days. There’s a reason for it and it has nothing to do with their waistlines.
#6 by Reaper on December 2nd, 2009 7:26:20 PM
Quote
That is fine that you take no offense. I take offense. Your argument lacks any actual logic relating to the DJIA/gold ratio and exhibits an annoying post-modernity. You obviously have no clue what I’m talking about (or, worse, have no clue what you are talking about). Talking about the gold/Dow ratio is meaningless and is done only by idiots. I don’t disagree with the thesis for owning gold as insurance against inflation. I do disagree with people who use flawed logic or non-logic to make investment decisions.
My reasoning (and the refutation of everything that stupid Sucking Alpha article you linked argued):
1. As the economy grows over the long run (we’re talking periods of 40+ years here), the DJIA must increase in real terms. This is because the earning power of the companies in the DJIA will increase. One share of the DJIA will buy you many more bananas or men’s suits than it would 100 years ago.
2. Gold is a store of value but is not an investment. It produces no return on investment. Its value should not increase in real terms unless the amount of gold produced goes into decline. An ounce of gold would have bought a nice men’s suit in 1910 and it will buy you much the same today. It buys more bananas, but only because bananas are now produced and shipped more efficiently.
3. Therefore, the ratio of the DJIA to gold must increase over time as the economy grows (although it will fluctuate over short time periods due to changes in stock valuations).
4. As a result of (3), the ratio of the DJIA to gold should not be any particular number and should not mean-revert.
5. There is no reason why the ratio of the DJIA to gold, which is controlled by stock valuations (P/E ratios) and by economic activity, should affect one’s decision to own gold.
6. If you are looking for reasons to own gold, all you need to care about is inflation. If there will be significant inflation, buy gold. If not, don’t.
#7 by mark on December 2nd, 2009 5:23:01 PM
Quote
Reaper,
Just out of curiosity, why do you use a line chart and not a bar chart?
#8 by Reaper on December 2nd, 2009 5:38:59 PM
Quote
I hate bar charts and IB does not have candlesticks.
#9 by qbantek on December 2nd, 2009 6:17:25 PM
Quote
STEM, OPXA & ASTM surged on steam cell research news from the National Institutes of Health
#10 by qbantek on December 2nd, 2009 6:18:16 PM
Quote
meant stem where I wrote steam
#11 by tlento on December 2nd, 2009 7:03:54 PM
Quote
Reaper, I use candlesticks in IB. It’s under “Bar type” in “Chart Parameters” of the “New Chart Window”.
“How to show” must be set to “# min Bar”.
“What to show” must not be set to “Bid/Ask”.
#12 by Reaper on December 2nd, 2009 7:28:00 PM
Quote
thx!
#13 by TheHawk on December 2nd, 2009 7:09:01 PM
Quote
Reaper,
Of course, inflation. Why do you think the dollar is tanking? The Dow, gold, and dollar are all related to inflation.
You do realize that when the dow/gold ratio has fallen to around 1:1 it’s been following periods of huge inflation, right?
You do also realize that in the past year, the US Gov’t. and the Fed have decided to print tons of new paper dollars which is a strong form of inflation, right?
Taking your suit/banana type analogy:
If there are a total of $1 trillion dollars on the planet and you and I agree that a certain TV costs $1K. Now, if the gov’t were to print $1 trillion more dollars all the sudden, we’d probably agree that the TV now runs more than $1K. I know you’re familiar with floats from stocks.
What do you think has brought the DOW from 6,500 up to 10,300 (or whatever it is now), pure speculation? Inflation, printed money. Saving the banks. And it’s going to have effect. Do you realize what the Fed’s balance sheet looks like?
I don’t even understand the logic in your point #2. A drop of oil, a kernel of corn, and a freakin’ pork belly don’t ‘produce a return on investment’. A piece of gold will look this same in 100 years as it does today, even if you stored it in water. You day trade for god’s sake. Are you going to tell me that GLWT ‘produces a return on investment’? Your entire philosophy is practically that not a single pennystock will produce return, but only that the speculation around it can be taken advantage of.
And for the record, I didn’t even read that article. The Dow/gold thing is something I’ve known of from various sources.
#14 by Reaper on December 2nd, 2009 8:25:36 PM
Quote
You continue to defend the idea that gold is the correct thing to buy if there is inflation and you argue that there is inflation. I do not disagree with those ideas. But I have yet to see a decent argument from you as to why the Gold/DJIA ratio is meaningful or useful; what information does that give us that M1, M2, fed purchases, and deficits do not give?
I will however add another reason why looking at the Gold/DJIA is dumb: regression to the mean. Like I said before, gold is good in an inflationary environment. If you want to look at inflation, look at inflation. Don’t look at things that are somewhat related to inflation.
Furthermore, bringing up my job as a speculator is pointless and it distracts from the article. Of course the penny stocks I trade have no real investment value. IBM does. MSFT does. If you want to understand why I define an investment as I do, please read “The Theory of Investment Value”.
What I have seen is that the one who wins the argument on the internet is often not the one who is correct but the one who is most persistent. The reason I left Motley Fool CAPS is because I found the persistence of those who disagreed with me and who failed to argue logically to be quite vexatious. This is my blog and I have no intention of leaving it. However, I will feel free to ban you from my blog if you continue to argue around the issue. So I ask you: tell me why the DJIA/gold ratio is useful and use good logic to defend your position. Do not argue anything tangentially related to the question, such as why inflation is bad or why gold is good during inflation. Failure to respond or to put forth a coherent argument will result in me banning you from this blog.
(As an aside to other readers, I try to bring empiricism to a field that is too often dominated by hunches and feelings. I like people to disagree with me. I do not like it when people state opinion as fact or when they fail to use available data or when I feel that their logic is lacking.)
#15 by Reaper on December 2nd, 2009 9:56:34 PM
Quote
BIOF up for same reason as GRH: Obama’s announcement that the feds may be interested in increasing the ethanol requirement in gas. Both moves are overdone and I will look to short both.
All the stem cell companies were up big on similar news: GERN, STEM, and one other I cannot remember offhand.
#16 by EntrepreneurStock on December 3rd, 2009 8:57:22 AM
Quote
ANX, ASTM
#17 by Preston on December 2nd, 2009 10:15:51 PM
Quote
“empiricism” is a harsh word used in some ways, but it is the one thing on this blog that has helped me learn to trade. I never really thought about it until now but staying focused in one direction is very important in anything you do in life.
#18 by Preston on December 3rd, 2009 7:28:03 AM
Quote
SEAC showing some strength this morning, horrible chart for a long.
STEM trading higher.
#19 by Preston on December 3rd, 2009 8:18:00 AM
Quote
DLM is trading higher and close to resistance, this could be a good long above 11.70ish.
#20 by Preston on December 3rd, 2009 8:55:52 AM
Quote
LIWA could be a good short but it might gap down, maybe hard to play.
#21 by Preston on December 3rd, 2009 8:58:35 AM
Quote
TPI going to open above resistance on news.
#22 by Reaper on December 3rd, 2009 9:19:43 AM
Quote
TheHawk is now banned.
#23 by tbohen on December 3rd, 2009 10:32:19 AM
Quote
Is the argument worth reading? I saw the long posts and gold and market speculation so I skimmed over them, if it was a cool pissing match I’ll take the time to read them!
#24 by Preston on December 3rd, 2009 9:26:58 AM
Quote
I kinda feel bad because I brought up the subject. I read the comments several times and will agree that it went off topic.
I canceled my membership to the Fool yesterday for that same reason, it’s pointless to go into that sort of stuff. I was getting way better at discussing politics and worse with trading.
#25 by Reaper on December 3rd, 2009 9:40:30 AM
Quote
I would feel bad but this is my blog and I reserve the right to go batshit crazy on anyone here at even minor provocation.
#26 by Preston on December 3rd, 2009 10:01:45 AM
Quote
Well that was a f’n disaster, -280 on TPI trying to go long. Traded to big and f’n freaked out, unbelievable.
#27 by trivto57 on December 3rd, 2009 10:25:27 AM
Quote
Reaper, I read your other blog from time to time and I couldn’t help but notice your political ideology.
You are one of the few free market-libertarians who make sense when it comes to the topic of gold. The ‘Peter Schiff ilk’ who talk about gold/dow ratios and hyperinflation scenarios really bug me – they pollute a great platform with fear and nonsense and by doing so, ensure that it will never go mainstream.
#28 by Reaper on December 3rd, 2009 11:33:00 AM
Quote
I think we should avoid discussing politics here.
#29 by Jamal Chahboune on December 3rd, 2009 11:24:01 AM
Quote
Holy Moly Reaper, you got a sick side to you, I love it!
I agree with you though. Not just about Gold/DJIA but also about ratios in general. Ratios may help certain participants to better understand the value of something within their theoretical framework but I really do not see any evidence to suggest that a ratio can be linked to return on investment. There are just too many other variables that hold greater weight.
GSIT was darn annoying yesterday, got 10 cents out of it but really wanted it to breakdown a la CLWT.
#30 by Reaper on December 3rd, 2009 11:37:27 AM
Quote
LZB … nice consolidation here just below $10, nice long-term chart. I’d buy on the 10 break.
#31 by Murray (Myrrh on TimAlerts) on December 3rd, 2009 11:48:30 AM
Quote
Question for Tim or Reaper or whomever:
When you see a big order flash onto the Level II screen, then immediately it goes away (NLST had tons of this) is this a function of high speed quant trading? (I read yesterday that more than half of the orders going into the exchanges never get executed). Or, is this part of more manual pump and dump scheme?
(i’m reposting this question from my post on TimAlerts)
#32 by Reaper on December 3rd, 2009 12:12:35 PM
Quote
probably high frequency trading, or a human trader doing the same sort of thing, flashing a large order to see what is out there, possibly to try and influence the price.
#33 by Luis023 on December 3rd, 2009 12:01:40 PM
Quote
Hahahahahahaha
I just read this post, and I request to be banned too.
Seriously, i didnt read anything missrespectful in the comment from Hawk, its ur blog sure, but he was trying to add new info about a previous comment, and ur respond to him was absolutely outrageous.
I dont know him at all, I have just posted here a few comments that with some good luck were good plays, nothing else but I just cannot stand people been unpolite because “its my blog and I can”. Sure you can, but dont expect people to participate if u treat any disagreement like thar.
Although I agree there is not any direct relationship from the graph. Your reasoning sorry to say it, is not as empiric as it may sound, your definition for investment, even if wide and well-respected was made 70 years ago and exclude half of the investments that we actually do.
Ur first point as Hawk pointed…why prices of the DJIA will go up (even if there is not any agregate value generated by its companies) is inflation. Funny though that u use ur position to say what points of ur reasoning can be discussed and which not…doesnt seem too fair to try to argue in those conditions.
Similarly when u discribe the returns of the DJIA in terms of Return on Investment, lets call it return in Equity to have an accounting measure to do the regressions…mummm you will find lots of empiric evidences on SSRN suggesting that in the short-middle term there are significatives desviations that may suggest that that is not the case. In long term is difficult to asses due to the survival bias over the main indexs, which until now is difficult to stablish. Not saying DJIA is random, but just pointing that ur definition of what is investment and what is not is way too narrow.
Anyway agree that that kind of graph doesnt have any direct practical implication whatsoever and u could do thousand of random graphs without any meaning to plot whatever u wanna say, as they did with this one.
Well, I wont add any more comment in here, you ban me or not. I appreciate the work u do here, very educational, and u look like u r making lots of money meanwhile. I trully wish u best of lucks. But in my opinions…U shouldnt treat people like that just because u can, altough I recognize the effort u r doing to teach others, really… choose what comments are published or whatever but treat people like stupid assholes just because is ur blog doesnt look like the best way to behave with people that u dont even know, if its how u usually behave…well thats not my problem, and as i have a choice I wont post again here until u readmit Hawk and my guess is that u wont (hahaha it may sound random as I am from London, and i dont know any of u, and i dont even agree with him, but just cannot stand random abuses “just because u can”).
Anyway, best of lucks.
#34 by Reaper on December 3rd, 2009 12:06:16 PM
Quote
I banned him because he wasted my time and the time of everyone else here by not putting forth a coherent argument. I spend too much time thinking about things and researching them before I write them to waste my time by tolerating people who just type the first half-formed thought that comes into their head.
If you want to be banned, be my guest. I hope you realize that you are not just being banned from posting but also from reading my blog via an IP ban.
#35 by Reaper on December 3rd, 2009 12:13:11 PM
Quote
Next!
#36 by Jamal Chahboune on December 3rd, 2009 12:23:21 PM
Quote
dont ban the haters, convert them and sell them dvds, you should know that Michael!
#37 by Reaper on December 3rd, 2009 12:25:32 PM
Quote
I only gave luis what he wanted … I didn’t want to do that to him. I liked him (and TheHawk for that matter).
I really could not care less about the incremental profit of selling y’all DVDs and shit. I care more about my sanity.
#38 by Preston on December 3rd, 2009 12:42:17 PM
Quote
Unbelievable
#39 by Big T on December 3rd, 2009 12:55:48 PM
Quote
Reap:
Big admirer of you and also Tim Sykes. You do a wonderful job on your sites, and I have found your posts over penny plays to be useful, especially the scan method for locating supernova possible candidates, using stockfetcher, IIRC.
I am not arguing Reaper is wrong regards DJIA/gold ratio, etc.
…but one incredibly simple point (but often put in blinders even to very well informed folks) is that the stock market for some time can and does operate not on the reality of economics or conditions, but the PERCEPTION of those by the herd, aided and abetted by a monkey see monkey do and safety in numbers dynamic.
For example, many are aware that the “Elliot Wavers” who follow Prechter argued from the beginning of the rally in stocks since March that it was not supported by fundies, and that doom was imminent.
Well, if you took that approach and listened to his repeated warnings over the latest good short the market entry, you’d be broke on margin by now, even if you were eventually proven right. The same was seen in the tech bubble and bust. Being right and making money in stocks are often very different things.
If the government props up the economy artificially, printing money, stimulus, etc. you can argue til blue in the face that it is fake, but the herd assumes it is workable if for no other reason that that others are risking it by piling in and that the seemingly improving numbers, artificial or not, are meaningful. The long term reality does not matter for at least some time.
In short, self fulfilling prophesies abound in the stock market, based on psychology, not sound economics.
I am *not* arguing this is the case with the gold/dow relationship argument being discussed, but that it should always be kept in mind whenever any such theory gets disseminated into the public sphere, in analyzing the practical effects vs the correct logical position, to gauge honestly the effect on one’s conclusions, if any, fairly.
Heck, tons of folks are going to come to your site and argue with you based on what they “read” and think they “know” over this dow/gold connection, etc.
You know what a good propagandist says, if you repeat a lie/or b.s. long enough, it becomes the (in effect) truth!
#40 by qbantek on December 3rd, 2009 12:56:02 PM
Quote
Side note: I am pretty sure you know that IP ban is not really very effective (for reading)
#41 by Reaper on December 3rd, 2009 12:56:42 PM
Quote
It is when you ban all of London.
And yes, I’m aware of proxies. But they can be annoying to use.
#42 by Big T on December 3rd, 2009 1:26:31 PM
Quote
As an aside:
Consider the often repeated argument on playing (even in very short term circumstances) penny stocks vs more liquid, larger priced real company shares. Now if you ask tons of folks who think they know how to trade, most will tell you they are too risky, and repeat a myriad of common assertions about penny stocks that are “common knowledge” and considered to be sage advice.
Sykes has made the brilliant observation that those playing FAZ are more likely to be gambling on outcome than a well prepared penny play is, because the VARIABLES are easier to isolate and *limit*, whereas on the 3X ETF liquid beast you are competing in an arena where you, at least as a little guy, have no edge. You cannot isolate the parameters to predict outcome with a greater than 50% accuracy short term, since most of those moves are indeed random.
Ironic that a well timed pump and dump offers Joe Schmoe a better shot (save for short locates and barriers, like big boys having pre-borrows, etc.) for the little guy than does the same little guy trading FAZ, but it is usually true-if it is done correctly.
But if you ask the average advice giver on which is the better odds, they will shoot down the penny play and go with FAZ. Why? Because they have it brained into them, like most of us did, that they are sucker plays. Conventional wisdom kills.
The herd is influenced by what the peanut gallery says about it. Reality does not get in the way. I keep this in mind whenever someone says something like on CNBC they heard when gold rises the market falls, the dollar falls the market rises, etc. It is possible to give people too much credit for logically analyzing relationships, and that can be a very expensive lesson when the herd of bozos believes hooey that drains your account against all logic!
#43 by Preston on December 3rd, 2009 3:26:53 PM
Quote
GPRE trying to breakout.
#44 by johnc on December 3rd, 2009 9:46:48 PM
Quote
if u ban them, won’t they just come back with another name?