Short Gold

Last week, I got an interesting call from the UK. A learned, finance lady called me up, and was trying to sell me the idea of investing in her gold-backed financial instruments. I didn't buy her idea, and, consequently, she failed to sell her products to me. We had some interesting discussion on the phone -- she was betting on the gold price going north, and I was making her understand that the gold price will go south, hereon! We both failed to convince each other. 

Her position on gold: it will go up as it has come down a lot. In other words, gold has seen a large correction, and looking at the historical trend in the gold price, it will go only north, hereon! Indeed, pretty optimistic lady! :-)

My position: The past is not a good indicator for predicting the future. Markets, by and large, don't work like that. Moreover, the world has, of late, changed a lot, as it doesn't work the way it used to. All key players -- traders, speculators, investors and governments -- manipulate markets like anything. The recent hike in the gold price (between 2009 and 2012) was not only because of the speculators/investors who were hoarding on to gold, but also because of the governments worldwide which were busy hoarding on to gold. However, their purposes were, by and large, the same: to hedge against the foreseeable inflation and to hedge against the greenback going south -- both of which have not yet happened even after three years of their prediction -- or, to but it in a better way, they never understood how the world worked and how economies were integrated! That's the precise reason, why some less-dumb players have started offloading their gold hoardings, leading to some neat correction in the price of gold. My back-of-the-envelope analysis says that gold will be trading between $950 and $1050 by the end of this year! 

Of course, she didn't buy my analysis, but, instead, assured me of her calling me again, if I get right in my prediction -- by the end of this year. Lady, I will be waiting for your call! :-)

The Never-ending Drama of the Euro Zone

I have, for long, been reading about the never-ending drama of the Euro-Zone and have quite been bemused with it too. Trust me; it really is amusing, for many non-obvious reasons. The drama has been unfolding itself since the onset of the Great Recession of 2008. Technically, the Euro Zone is out of the recession now, but the hangover of the recession is still there! It seems the Euro-Zone has fallen in love with the hangover itself :-)

The core factors at play for the ongoing drama are:

1) The Euro itself. The workings and the interests of the Euro are at loggerheads with the interests and purposes of the Euro-Zone economies! In a plain vanilla term, the widely differing Euro-Zone economies never needed a common currency in the very first place. It was the fear of the hegemony of the Greenback that rushed the creation of the Euro. The 17 Euro-Zone economies are very different from each other, as some (peripheral Euro-Zone economies) are import-driven economies -- that need a strong Euro to pay less for its bills -- and some are export driven economies (such as Germany) -- that need a weak Euro, for pumping its export up and for making its export much more competitive on the global markets. Hence, the straight-jacket-solution, the Euro, has, since its inception, been at conflict with the interests of the economies that use it as their local currency. The obvious consequence of this conflict is the prosperity of the German export during the Great Recession, riding the tide of the undervalued Euro. Whereas, the peripheral Euro-Zone economies have been struggling to pay their debts off, and have literally been "begging" around for bailouts -- these economies primarily are import-driven and a weak Euro is detrimental to their economic health. Undoubtedly, there are other strong factors at play for the sufferings of these peripheral economies as well. I will discuss those equally important factors later.

2) Germany is not playing its supposed leadership role. It's the strongest economy amongst the 17 members of the Euro-Zone. The reasons for Germany taking a back seat are many. For example, it's benefitting from a weak Euro as its export is growing by leaps and bounds; it is skeptical of its leadership role, thinking that the economically weaker Euro-Zone members will ask it for money, if it gets desperate to save the Euro by extending a helping hand to the struggling member economies; it still is feeling guilty of having dragged Europe into two world wars, and, now, it doesn't want itself to be the reason for the third disaster to Europe.

3) There is going to be a tightly contested election in Germany this year. So, all political parties and leaders in Germany are playing safe by not committing any national resources to the bailout of the struggling European economies. There is a widespread ill-feeling in Germany of the luxurious social benefits in the struggling Euro-Zone economies, and most Germans believe that their tax monies should not be used for paying for the lavish social benefits to the peoples of those struggling economies.

I believe that the Euro-Zone drama will not end until the upcoming election is concluded in Germany, and that Germany has to come to the forefront to bail its fellow members out, consequently saving the Euro, and ending the long drama. I guess that's the cost Germany has to bear with, after having enjoyed the weak Euro for long. After all, the struggling member economies will indirectly have paid Germany for bailing them out by giving the global financial markets enough reasons for shorting the Euro! Haven't they? :-)

Being Positive

Many times, we all hear people talking about being positive. Do we all really get what it means being positive? I have a doubt!

Let me share with you all the mantra for being positive, and equally important is the skill to identify positiveness -- a quality that is even harder to gauge and vouch for. 

In layman terms, being positive requires no prejudice and no pre-judgment. It demands for being neutral, at least at the beginning, if not overtly positive right off the bat. Then, as events/times progress by, start taking things/events/people at their face value, without jumping to conclusions on your own -- now, this is the hardest part. Why is it the hardest part? It is simply because you need to understand things and try to gauge the progress as well. The trap here is being judgmental before the right time and without having enough information. Try to gauge the prevalent intents, means and goals, and generate as many perspectives as possible, before making any sort of conclusion. Keep reminding yourself of the fact that clear communications are the way to go. When you have, at least, three parties' perspectives -- third parties', second parties' and first parties' -- you are good to go for your conclusions. A caveat here is not to conclude things completely in isolation. You must get your perspectives cross-checked and reiterated with the parties involved either covertly or overtly, as far as possible. Then is right the time to conclude by all means. After all, we ought be decisive in life, right? Concluding, per se, is not an evil thing. In fact, it is a mandatory thing to achieve and seal substantial progress. Good luck!

And, when you are evaluating others of their positiveness, make sure you have enough perspectives, backed by good enough qualitative and quantitative information, before arriving at your conclusions. Help yourself run through the above exercise. It really is a no-brainer, but, usually, is not highly practiced.

To be candid enough, I too am in the process of learning what I have just preached. :-) So, please feel free to remind me of my own exercise, whenever you observe that I am forgetting my own lesson. Thanks. See ya back, soon. :-)