Gold

First …

An unusual short squeeze is occurring on the German stock market. Porsche wants to acquire Volkswagen and the smart beefers thought they had an easy profit on shorting Volkswagen shares. Wrong!

From FT:
"Volkswagen's shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.

"VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts. … Porsche revealed on Sunday that it held 31.5 per cent in derivatives in VW. Bafin, Germany’s financial regulator, recently ruled that companies were not obliged to disclose such positions where the derivatives were settled into cash rather than shares.

"But the sudden disclosure meant there was a free float of only 5.8 per cent – the state of Lower Saxony owns 20.1 per cent – sparking panic among hedge funds."

Volkswagen stock price is up 100% this morning. And the beefers ... a house of pain. Shucks. I suppose those paragons of “free markets” will want government intervention now.

Gold

As we watch the herd of beefers slowly disappear in this storm, let’s consider some value analysis for that ultimate store of value – gold. I still subscribe to some commodity research sites, as I might someday want to play in that sandbox again. So I'll look at the long term monthly chart for gold. First, my thinking.

Acquaintances know I loaded up on physical gold coins - American Eagles, please - and silver bars in the period around 2002-3. [The EFTs for gold & silver did not exist then.] I'm a long-term bull on gold and silver as over the decades, the growth of demand in India and China will slowly overwhelm European central bank sales; plus emerging market central banks will buy some gold; plus mine production in South Africa is declining. Those are primal among other reasons to be bullish on gold long term. But long term is ... a long time. What now ?

The recent pop to $1000 for gold and $20 for silver were screaming sells, being due to beefer momentum moves well beyond the long term trends.

What about those trends ?

The trend from the bottom in 2000 until 2005 was more determined by real, physical trends. After 2005 the beefers took over with their antics and the price got ahead of fundamentals. So where does the old monthly trend line project ? The $550-600 area in 2009. So that's good value for long term holding periods. The current drop might not get there, but at that area, I will again overweight gold in Krypto Fund via ETFs and mutual funds and might even buy more physical gold.

Actions

None.

Politics

I favor a rescue plan for the auto industry provided "real" changes in management occurs. My memories of B-school discussion sessions about 30 years ago wondering about how the auto industry cold cope keep coming back to me. Decades of opportunities were squandered by unimaginative managements.

Word of the Day

"Pharisaic - adjective [$10] used in upper case "P" for definition 1. and lower case "p" for 2.
Pharisaic means 1. a member of an ancient Jewish sect, distinguished by strict observance of the traditional and written law, and commonly held to have pretensions of superior sanctity; 2. a self-righteous person; a hypocrite.
Sentence: Events of the past few months might consign Pharisaic libertarianism to its condign place in the dustbin of history along with Marxism. The colossal error of permitting the financial vikings [aka beefers] to grow to gigantic size and to raid and pillage and generally wreck market economies surely is now obvious to all.