More Notes from Vacation: Gold and the Dow

Gold is now at a 4 month low
At the same time, the Dow is almost at a 4 month high

Coincidence? Not at all. Understanding why is a key part of why I remain short

Gold as inflation hedge
Really? Inflation is much, much higher than it was several months ago

Gold as dollar hedge
Really? The dolar is even cheaper. In 2007 dollars, gold has fallen in value very hard

Gold as speculative bubble
BINGO!!
Just as the Dow started tanking, gold started roaring.

Money is a river - it has to flow somewhere. With billions flowing into 401Ks every week, money flows. When the stock markets languishes, it flows somewhere else. It went to gold. Now it is in agriculture. I pointed out to folks 1 month ago that gold sell signals were everywhere. My reasoning was that every tout and magazine was talking gold. It´s an olod and true saying that when the shoeshine boys and taxi cab drivers are talking about the asset, you better leave.

Because smart money is heading for the exits when the dumb money starts coming in.

This is why I look at the stock market today and see a bubble. There is no reason for it to rise except for speculation and the Fed pumping the engines. And that has never, ever worked out. It just makes the collapse more painful.

Watch the dumb money flow back into the market - after all, it seems to be rising and that brings back investors. Suddenly we should feel confident because stocks are rising. It´s just another bubble. Like gold and before that housing. The Fed can do its best to keep the body alive for another quarter or two, but it woin´t last.

Feeling certain about the situation also alleviates anxiety. I don´t mind being wrong, but I do mind being uncertain. I may be wrong about timing, but I am certain about the outcome