Tuesday, April 6, 2010

Since the Panic of 2008 - Comparing Gold, the Dollar, Stocks, Bonds, and the Euro

It's August 2008, and the financial world is in chaos.
Talk of bailouts, Lehman Brothers, Bernanke, and Paulson is everywhere.
The stock market market is well off it's 2007 highs.
Oil and gold have recently reached all time price highs.
There is talk of a dollar crisis.
The panic is palpable.
Welcome to a Grand Supercycle Elliott Wave correction in social mood.
You question yourself, and your investment advisor almost on a daily basis, "Is my money safe"?
Noone seems to have any certainty for the road ahead. You make a decision to change your investment strategy...
Depending on your trusted information sources, beliefs, and bias', your decision might have lead you into one or more of the following asset classes:

Cash (dollars in my case since I live in the USA)

Now, almost two years later, and I thought I would take time to measure the results and ask myself a few questions.

Below are the results of each of these asset classes (including the EUR/USD currency pair) from the view of % return on an investment made in August 2008.

In my investing and trading life, the best lessons are learned through honest self evaluation and a strong strategy that forms as a result.

Are these results what you expected them to be? If yes, what guided you to success? If no, what were the critical mistakes you made?
Results for Gold the Euro and the dollar were pretty much as I expected them.The Euro bounced a little higher and for longer than I thought, and Gold has held up better than I thought in spite of the recent dollar rally. The long bond (represented by TFT on the graph above) and stocks (represented by SPY on the graph above) held up much better than I expected. I truly underestimated the power of the last bull market/asset mania to carry through this correction. I invested in stocks starting last April, but only for a few months.

Which asset classes will be the winners among these over the next two years? Why do you think so?

The dollar will continue to mount it's mid term comeback (and its inverse, the EUR/USD will continue to decline), albeit not in a straight line... we may be heading for a correction soon (my longer term view here). Stocks and Bonds will be heading to first test, and then break through to new lows likely during this time period. Gold will likely test it's long-standing lower trendline which has support below 700. Whether it does so after another new high or before I will leave to the daily gold bugs.

Three primary reasons for my viewpoints:

  1. Social mood has shifted the human herd significantly, the impact of which cannot be stopped... only delayed (see what really moves markets here).

  2. Round two of deflation in risky assets has begun (Elliott Wave International has a free 13 page report that you might want to read on the subject here). More debt is denominated in US dollars than any other currency in the world. Round two of a run from riskier assets has started with the Euro this time around. Banks and financial institutions had risky asset holders in the world scared during the first round. Stocks, Gold, and Euro all sold in exchange for dollar safety, and to use dollars to pay off dollar denominated debt. We are already starting to see sovereign nations at the center of the start of the next round (see 3 Dire Options for Greece). Longer term, I see severe issues with the dollar...

  3. Long term elliott wave counts on each of these asset classes (binve has a solid long term view of stocks, gold, and the US dollar here). 
What views do you hold for the next two years?
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