This Summer of 2007

Today, I am writing in the train, going back to Paris, and I take the time to reflect on this summer. At the beginning of July I expected and also hoped for a kind of crisis. In a way, I was afraid that nothing would happen. Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far. In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006. I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006. This is when I started to read everything about Gold and got really interested. Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing. Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering. Two or three months later, it went up spectacularly, and I was vindicated. I had recovered a big part of my maximum gains for 2006. But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall. But I still believe in this stock and especially since its value depends on the Gold price. My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology. It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer. This is probably why I decided to stay longer with this gold stock this time, in spite of the risks. Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company. But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well. To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally. It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.

This Summer of 2007

Today, I am writing in the train, going back to Paris, and I take the time to reflect on this summer.

At the beginning of July I expected and also hoped for a kind of crisis.
In a way, I was afraid that nothing would happen.
Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far.

In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006.
I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006.

This is when I started to read everything about Gold and got really interested.
Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing.

Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering.
Two or three months later, it went up spectacularly, and I was vindicated.
I had recovered a big part of my maximum gains for 2006.
But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall.

But I still believe in this stock and especially since its value depends on the Gold price.
My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology.
It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer.
This is probably why I decided to stay longer with this gold stock this time, in spite of the risks.

Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company.
But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well.

To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally.
It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.

L'Or et L'inflation

La valeur de l’or, en termes de biens et services réels qu'il peut acheter, est demeurée en grande partie stable pendant de nombreuses années. En 1900, le prix de l'or était de 20,67 US$/oz, ce qui équivaut environ à 503 US$/oz au prix d'aujourd'hui. Sur deux années se terminant fin décembre 2006, le prix réel de l'or avoisinait 524 $. Ainsi le prix réel de l'or n’a que très peu changé sur un siècle caractérisé par des changements brusques et des chocs géopolitiques à répétition. En revanche, le pouvoir d'achat de nombreuses devises a en général diminué.

En grand >>

Les investisseurs dans l’or peuvent compter sur une recherche en plein développement qui soutient la réputation de l’or comme protecteur de fortune contre les ravages de l'inflation. Les cycles du marché vont et viennent, mais la recherche étendue d'un panel d’économistes a démontré que, sur le long terme, à travers des périodes inflationnistes et déflationnistes, l'or a uniformément maintenu son pouvoir d'achat.

À court terme, l'expérience a montré que l'or peut dévier de sa tendance de long terme comme couverture de l’inflation, et quand jouissant d’une période faste soutenue, comme c’est le cas actuellement, il offre des opportunités pour un retour impressionnant.

Gordon Gekko's famous quotes

Je viens de revoir "Wall Street" (Oliver Stone, 1987) récemment, et décidément, tout y est, cela n'a pas pris une ride. Toute la crise actuelle peut se comprendre à l'aune de ce film.
Première leçon aux boursicoteurs : ne soyez pas naifs : ce sont ces gens là contre qui vous combattez...


Voici quelques unes des citations les plus savoureuses (en version originale) :


* "It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another."

* "This painting here, I bought it 10 years ago for $60,000, I can sell it today for 600 [$600,000]; the illusion, has become real, and the more real it becomes, the more desperate they want it—capitalism at its finest."

* "Lunch is for wimps."

* "Money never sleeps, pal."

* "Read Sun-tzu, The Art of War. Every battle is won before it is ever fought."

* "It's all about the bucks, kid. The rest is conversation."

* "And if you need a friend, get a dog."

* "And I'm not talking about some $400,000 dollar a year, working Wall Street stiff, flying first-class, being comfortable, I'm talking about liquid. Rich enough to have your own jet, rich enough not to waste time. Fifty, 100 million dollars, buddy. A player...or nothing."

* "That's the thing about WASPs: they love animals, can't stand people."

* "Just got on the board at the Bronx Zoo, cost me a mil."

* "The richest one percent of this country owns half our country's wealth, $5 trillion. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got 90 percent of the American public out there with little or no net worth. I create nothing. I own."

* "We make the rules, pal. The news, war, peace, famine, upheaval, the price of a paper clip. We pick that rabbit out of a hat while everybody sits around wondering how the hell we did it. Now you’re not naïve enough to think that we’re living in a democracy, are you, buddy? It’s the free market, and you’re part of it."

* "Ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered"

* "The public's out there throwing darts at a board, kid, I don't throw darts at a board; I bet on sure things."

* "You and I are the same, Darian. We are smart enough not to buy into the oldest myth running: love. A fiction created by people to keep them from jumping out of windows."

* "Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind."

* "First lesson in business: Don't get emotional about a stock."

Crise Financière pas de panique !

Charles Wyplosz analyse ainsi la crise actuelle dans l'article ci-dessous.

Il va sans dire que je ne suis pas tout à fait d'accord avec lui... (j'expliquerai pourquoi à la suite de l'article).

Jeudi et Vendredi, les grandes banques centrales (Europe, Etats-Unis, Japon) ont injecté des milliards d’euro de liquidité dans le marché monétaire. Qu’est-ce que cela veut-dire? Sommes-nous au bord d’une crise financière de première grandeur, qui risque de plonger le monde dans la tourmente? Très probablement pas.

Depuis quelques mois, la grande correction du marché de l’immobilier américain est en cours. Dans l’euphorie d’une croissance qui aura duré 10 ans, les établissements financiers américains ont consenti des prêts immobiliers à des clients qui, d’habitude, sont considérés comme des "mauvais risques". Le prix des maisons s’est envolé au-delà du raisonnable alors que des milliers de ménage, ravis de pouvoir emprunter, s’engouffraient dans des achats qui, espéraient-ils, allaient les rendre riches.

Oui, mais voilà: quand les prix montent trop haut, ils doivent redescendre un jour. Et quand ils redescendent, ou même cessent de grimper, les ménages trop endettés et déçus de voir la bonne affaire s’évaporer, cessent de rembourser. Les établissements prêteurs saisissent les biens immobiliers pour les vendre aux enchères, ce qui pousse les prix à la baisse et enclenche une nouvelle vague de défauts de paiements. Et la roue tourne.
A chaque tour, les établissements prêteurs ne récupèrent qu’une partie de ce qu’ils ont prêté.

La normalisation tant attendue du marché de l’immobilier se devait de faire quelques dégâts. Quelques établissements spécialisés dans les prêts hypothécaires ont fait faillite, d’autres suivront. C’est normal et ce n’est pas vraiment grave. Même si les sommes en jeu sont considérables, ce n’est qu’une goutte d’eau dans l’océan des marchés d’aujourd’hui. Le problème est ailleurs.

Du marché de l' immobilier au marché monétaire

Les établissements prêteurs savaient bien qu’ils prenaient des risques. Ils ont donc cédé leurs portefeuilles de prêts risqués à d’autres établissements financiers, qui les ont repassés à des collègues, qui ont fait de même encore et encore. Quand John Smith ne rembourse plus son prêt hypothécaire, c’est une banque française, japonaise ou australienne qui engrange une perte. Du coup, on ne sait plus qui aujourd’hui détient les créances sur les emprunteurs américains déçus. Des centaines d’établissements ont absorbé ces dettes, qui paraissaient bien juteuses mais sont aujourd’hui impayées.

Du coup, la scène se déplace sur le marché monétaire. C’est un gros marché qui rassemble les très gros professionnels de la finance, grandes banques et sociétés d’assurance. Ces pros se prêtent chaque jour les uns les autres de très grosses sommes. Ils le font d’ordinaire sans se poser de questions: ils se connaissent bien et se font une confiance absolue. Tout a changé ces jours-ci. Certains d’entre eux ont sans doute acquis un peu trop de ces dettes aujourd’hui en souffrance, mais personne ne sait qui est dans cette situation. Alors la confiance disparaît et, par prudence, plus personne de prête à personne.

Depuis le début de la semaine, le marché monétaire s’est gelé, par méfiance réciproque. Or c’est sur ce marché que comptent les grands établissements pour financer chaque jour leurs opérations. On risque donc de se retrouver dans une situation où il n’y aura plus de crédit bancaire, ni pour les entreprises, ni pour les particuliers, ni même pour les gouvernements. Et sans crédit, la mécanique économique se bloque, et ça peut être très grave.

Tout dépend des nerfs des banquiers centraux

Ce n’est pas parce que les financiers s'affolent un peu vite que nous devons, nous aussi, paniquer. Les pertes dues à la crise de l’immobilier aux Etats-Unis et ailleurs (là aussi, la contagion peut s’étendre) peuvent parfaitement être absorbées, d’autant qu’on vu venir la crise. Les établissements qui détiennent ces prêts hypothécaires risqués –les fameux "subprimes"– le savent et, pour la plupart d’entre eux, ont mis de l’argent de côté, en se gardant bien de le claironner. Le problème, c’est la méfiance qui s’est installée. Alors, très sagement, les grandes banques centrales interviennent. Elles prêtent aux établissements financiers l’argent qu’ils ne trouvent plus sur le marché monétaire, pour leur permettre de continuer à faire leur travail de distributeurs de prêts.

Combien de temps cette situation peut-elle durer ? Il va falloir des mois pour que le marché immobilier se stabilise et que les pertes des établissements exposés sortent du bois. On peut s’attendre à des faillites, dont certaines retentissantes, qui vont périodiquement secouer les marchés. Tant que ces accès de fièvre restent circonscrits aux marchés financiers, la croissance que nous connaissons devrait se poursuivre. Mais il y a des risques. D’abord, les banques centrales auront-elles les nerfs assez solides pour continuer à injecter de la liquidité comme elles viennent de le faire? En principe, elles ne devraient pas fléchir, mais certains analystes vont bientôt crier au loup et dénoncer ces interventions comme inflationnistes.

Ils se tromperont, ce qui ne signifie pas qu’ils ne seront pas entendus. Et puis, surtout, il y a les ménages et les entreprises. Si ces nouvelles un peu ésotériques les troublent, ils pourraient bien se mettre à épargner plus, ce qui casserait la croissance et ferait repartir le chômage à la hausse. Ce serait vraiment triste.

Le gros problème dans cette analyse c'est que notre ami ne mentionne pas du tout les risques inflationniste des mesures attendues des banques centrales.
Pour l'instant on n'en parle pas, mais inévitablement ces liquidités se retrouveront en circulation et vont finir par faire monter les prix des biens de consommations courantes.
Ce n'est pas vraiment ce qui va faire remonter la confiance des ménages.

Cela dit, il n'y a pas à s'inquiéter sur le "sang froid" des banquiers centraux, ils n'hésiteront jamais à faire ce qu'ils savent si bien faire, c'est à dire gonfler la masse monétaire. Aux Etats-Unis, mais également en Europe, les voix qui s'élèvent en faveur d'un durcissement monétaires sont extrêmement minoritaires.

Par contre les epargnants et les consommateurs vont payer les pots cassés, pour sauver les pauvres banques et les fonds surendettés. Eh oui, c'est aussi ça l'injection de liquidités Mr Wyplosz.

BNP Paribas comes in

Gold ended down 2% today. It fell along with the rest of the stock market. The Dow was especially hit, finishing at the lowest point of the day and continuing the trend seen in Europe earlier. BNP Paribas made the news by announcing that it would suspend two funds made up of obligations affected by the US subprime mortgage market.

This is funny for me because I used to work for BNP Paribas in Paris, and it was not a very happy experience.

Meanwhile, it was announced that the ECB was injecting a record amount of liquidity in the money market. The highest since septembre 11.
This mortage crisis is turning into the beginning of a panic. But we will have to wait to see how it all turns out.

But I am convinced that in the medium term it will be good for Gold.
The Central banks will do anything to avoid a depression because this one would be a disaster.
They will have to relax their monetary policy further, until inflation becomes a real problem and at this point in a few years, Gold price will be much higher.
Right now , the FED, in particular onlly talks about fighting inflation, but won't be able to follow suit.
It talks the talk, but doesn't walk the walk.

In the short run, Gold suffers, but we've seen this before in May 2006 ane February 2007, and it doesn't contradict the long term bullish trend for gold.

Right now with the panic that we see in the Stock Market, many forecasts emanating from the Gold bugs camp are realized and it can only reassure us of this investment in Gold.

Pas de panique les goldbugs.

Pas de panique les goldbugs !
Les Banques Centrales shortent le gold tout en injectant des liquidités.
ça ne fera pas illusion très longtemps.

Rappel historique : les banques centrales n'ont jamais gagné contre le marché (vous vous souvenez de Soros contre la banque d'Angleterre en 1992 ?)

Au bout d'un moment les marchés actions vont se calmer et remonter en flèche, jusqu'à la prochaine panique.

Et tout cela au prix d'un gonflement encore accru des liquidités, bien entendu. La BCE a en effet fait marcher la planche à billet à un rythme record ces deux derniers jours
D'ici 6 mois le CAC aura évolué en dents de scie et le Gold sera peut-être à 800$/l'once.

Ne vous laissez pas tromper par les mouvements à court terme.

Le Pétage de plomb en direct de Jim Cramer

If you don't know yet the CNBC presenter Jim Cramer, that should be a good introduction.

It sould be titled :
"Financial crisis are so much fun !"

What The F. ? What's going on with Jim Cramer ?

If you don't know yet the CNBC presenter Jim Cramer, that should be a good introduction.

It sould be titled :
"Financial crisis are so much fun !"

Rien de nouveau sous le soleil

Avec la volatilité actuelle sur les marchés financiers, Gold et Silver sont une fois encore victimes collatérales des fortes corrections sur les marchés obligataires et marchés actions.
Cela a été déjà le cas en Mai 2006 (très fortement car l'once était alors au plus haut) et plus récemment en Février 2007 (un peu moins fortement).

Aujourd'hui, je constate que cette correction est relativement limitée, mais frustrante pour les investisseurs dans le métal jaune qui espèrent (à juste raison) une réaction inverse au marché action.

Or, dans ces observations il faut distinguer les évolutions à court terme des tendances historiques lourdes.

L'Or a toujours été inversement corrélé avec les marchés action, et 2 ans de données ne vont probablement pas changer cet état de fait statistique.

L'Or subit toujours une consolidation horizontale depuis le printemps 2006 après un excès haussier qui a culminé en Mai.

Par ailleurs l'Or subit les ventes des banques centrales et le scepticisme de beaucoup d'investisseurs.
Dans ces conditions les positions Shorts des grosses banques d'affaires ont été capables d'endiguer la hausse plusieurs fois et d'effrayer les investisseurs dans l'or à court terme (souvent au travers de futures, certificats et autres ETF de plus en plus accessibles au grand public).

Dans le même temps la baisse à chaque fois été relativement limitée parce qu'elle a été stoppée par la demande d'or physique qui est une tendance lourde et en pleine croissance, surtout en provenance des géants en devenir que sont l'Inde et la Chine.

Il y a donc bien deux types d'investisseurs dans l'or, les investisseurs dans l'or "Papier" et plutôt court terme, qui sont aisément manipulables par des gros investisseurs parce que leur horizon est court et leurs émotions sont vives, et d'autre part des investisseurs qui misent avant tout sur l'or par sécurité ou tradition, qui investissent dans l'or physique (que ce soient des lingots, des pièces ou bien de magnifiques bijoux donnés en cadeaux de mariage aux jeunes indiennes).
Cette dernière catégorie est une marée lente mais inexorable qui finira par déborder les ventes des banques centrales.

Historiquement, les banques centrales ont les pires résultats de trading. Exemple : la banque d'Angleterre a vendu en 2000-2001 une grande quantité d'or au plus bas historique qu'on a qualifié de "relique barbare" (en reprenant une citation de Keynes, qui n'a pas toujours raison)

Lorsque les vannes auront lâché elles suivront et amplifieront la hausse de l'or pour renflouer leur réserve et rassurer le public quant à la crédibilité de la monnaie papier.

Cette longue période de consolidation est donc logique et nécessaire.
Elle se débarrassera de beaucoup de spéculateurs, et seuls les plus patients en récolteront les fruits.

Trench Warfare

The current trend on the Gold market is still up, but my Gold stocks have behaved in a very frustrating manner, or worse, lately.
In particular, my Harmony Gold stocks have suffered a true crash (-30% in 2 days) and it caught me off guard. Some other gold stocks have also been hit perhaps because of contagion.

But Harmony apart, the Gold stocks' trend is not bearish yet. It has just suffered a correction on an overall flat trendline.
In the meantime, the stockmarket has suffered a mini crash before recovering.

So the trench warfare continues.

Just like in May 2006 and February 2007, this type of correction is very frightening but it isn't a clue for what's coming. Moreover, the fact that this latest mini crash has been so publicized in the media leads me to believe that this is not yet the beginning of a new trend.
(Apparently, I am not the only one with this opionion. Click on this post from "The Big Picture" )


A bull market has to climb a wall of worries.)

But I don't really care how the stock market evolves as long as Gold goes up.

In the long run, Gold stocks are correlated with the Gold price, and not with the rest of Stocks.
But we have to remember that in the short run, appearances can be deceiving. (See this article from Zeal )

To summarize, with the crash of Harmony Gold and the absence of a sustained rally in the rest of my gold position, it is a tough period right now. But I have to remember the basis for my invstments. I should know that in the longer term, and maybe sooner than later, it is going to be a good investment.

And these are the fundamentals

Cautious optimism for Gold

From now on, I will try to write more regularly in this blog.
And I will start with an analysis of the Gold market.

My last analysis was a month ago, at an important juncture, because it was just after the rebound that I had (correctly for once) predicted.

At the time I was still cautious, but reasonably optimistic. I wrote that it would depend on the currencies market (which is much larger and more important).
Well the EUR/USD has reached new highs (and is now at a new juncture), but more importantly, the USD/JPY fell dramatically during the month of July. It broke some important support levels and these two factors (EUR/USD and USD/JPY) severely crippled the Dollar Index, which is also threatening important support levels.

At the same time, the stock market has suffered, and for the first time in two years, the Gold market has not followed.
It might be a sign that these two markets are finally going to diverge (which is their normal historic behavior).


Finally the price of Oil has hit new highs and has not suffered from US statistics showing a slowdown.

All in all, we are on track for a stagflation scenario which would be very bullish for Gold.

But I remain cautious, because Gold does have a tendency to disappoint.
This disappointment is only the consequence of the unique excitement that Gold creates.

In any case, the month of august should be interesting.

About this Blog

It is the time for some perspective on this blog project.
Let me explain what is the evolution of its focus and meaning.

At the beginning, I had no precise idea of what it would contain, but gradually it has become a blog focused on Finance, Economics and some Politics.

In particular I have specialized myself in the area of investments and how to interpret the evolution of markets.

I started to learn about investing and speculating in the mid nineties, while I was still a student. Before that, I was interested by it, but it was a somehow remote subject because my family background did not predispose me for such an activity. My parents were middleclass leftist and/or catholic and did not encourage this interest(at the same time, they were interested in getting some returns on their hard earned cash).

But then i studied in a business school, and i grew more and more interested in economics and how this "science" however "dismal" could influence people's lives to a great extent. For me it was very important to manage it carefully for

Later after flirting with "ultra-liberal" ideas and their intellectual attraction, I nuanced them by discovering that ultimately, everything was political. There could not be a "pure" market economy, if only because the "big" players would always abuse their power. Economics was also a question of the balance of power. It was also about political institutions and geopolitics.

This was confirmed by reading Fernand Braudel's work "Civilisation Matérielle, Economie et Capitalisme, XVe-XVIIIe ".

But what really convinced me was the US decision to invade Iraq in 2003.
I was living in the US in 2002-2003, and everything became clear. It was a period when the stockmarket was crashing in the wake of scandals such as Enron, Tyco, Worldcom, and so on. At the same time, I could observe this massive manipulation of the opinion for the preparation of the War in Iraq.
The Bush administration was ostensibly pro-market, and at the same time was favoring manipulators and the crazy interventionists.

That is why I think that there cannot be a pure market-based economy. Anybody with power is bound to abuse it. This is how the world works, and this is why economics is not a science like any other one.
Also all the economic miracles in the developing countries only happenened through state intervention and protectionism, and thanks to their size (example : China, India, Thailand or South Korea)

In the rest of the developing countries , the "opening" of the economy has only led to a new style of colonialism (example : Argentina, Brazil, and all the african countries).

This is why economics is so fascinating to me. It explains a lot of things, but ultimately, it is only a tool in the hands of people.