All ye need to know

Sell the tech stocks. Buy the gold miners.

This simple formula is our money-making advice for this year.

Not that we have any new insight into technology, nor any way of knowing what is ahead for gold or the companies that dig it out of the ground. Not at all. Our advice is based on ignorance, not knowledge. Not knowing what is ahead, we revert to an old rule: Buy low. Sell high.

What’s high? Open any newspaper to its financial pages and you will have your answer. Amazon. LinkedIn. Twitter. Zillow. Nest. Facebook. Google. Choose almost any internet-related company and you will find a good short sale candidate.

Amazon traded at a price/earnings (p/e) over 1,000 the last time we looked. LinkedIn was around 800. As for most of the internet companies, there is no need to look. You will find plenty of ‘p’ but no ‘e’ to divide into it. Most of these companies do not make money; they lose it. Will they survive the year without crashing?

We don’t know, but beware a bear market. When the market turns south, the companies that led it up will lead it down. Those that rose the highest will sink the lowest. Take a look at a chart of the S&P. You will see what appears to be a ‘double top’. Does this mean the entire market – with the techs leading the way – is ready to take a dive? Maybe.


Bill Bonner on markets, economics & the madness of crowds

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Last year, companies that mined the world wide web soared, but those that got their hands dirty slumped badly. Gold went down about 30%, some gold stocks were cut in half.

As might have been expected, this produced an anticipation of further losses. Almost every account published at the end of the year told us that gold was destined to go down further.

“Little hope of glitter for gold in 2014,” said the Financial Times on 28 December. “Rebound unlikely…” continued the report.

“Gold bulls lose faith in metal’s reputation as a store of value,” opined Gregory Meyer on 4 January.

“Very, very few analysts are bullish gold…” said Michael McGlone, US director of at ETF holdings.

“The deck is pretty much stacked against gold next year,” added Michael Klapwijk, from Precious Metals Insights in Hong Kong. He predicted an average price of $1,170 for 2014. Then, the metal traded at $1,200. Now, it trades around the $1,240 mark.

So far this year, gold has defied the pundits. So have the mining stocks. After putting in ‘double bottoms’ last year, both gold and gold miners seem to be moving up.

If anyone knows what 2014 will bring, he does not work here at the The Daily Reckoning. Instead, we – poor, ignorant humans – must stick to the basic principles of sound investing. When something is very expensive, we sell it. When it is very cheap, we buy it — that is all ye know on earth, and all ye need to know.

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One Response

  1. 22/01/2014, Wotan wrote

    I did not know that Amazon was trading at a P/E of a 1000 and LinkedIn at one of ca. 800. P/Es of this magnitude, obviously, are not only absurd, but also indicative of the insanity that pervades politics, markets and economies. Nothing is as it should be, every principle of prudent government, proper economic management and sound investment has been turned upside down. Flimflam and mendacity are the order of the day. Bill Bonner is right: the inevitable outcome will not be pretty.

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