This fund invests in large precious metals mining companies. Its volatility is similar to the companies that it invests in which is high, compared to many other investments. Also, the number of larger PM miners is somewhat limited, so their choices are limited to provide what they profess to be. Remember the fund is investing in large companies that are profitable and have big cash resources. They aren't speculating in NUGT or DUST or like leveraged funds.
Of course gold miners are in the throes of their greatest bear market in history, especially in relation to gold the metal. The ratio of gold to BGEIX is higher now than it has ever been, exceeding 200 recently. The management is doing what the propectus says. If you can't stand the heat, get out. From these levels, though it is very difficult to see how things are going to get markedly worse for BGEIX as these companies are still generally very profitable and are selling for prices that are lower than 1990s levels when gold was far lower. Nobody knows the future, of course.
The move in the GOLD:BGEIX ratio has mimicked the 2008 experience. That ratio soared from around 50 to +130 in late 2008. This time the ratio has moved from 120 to +200 with BGEIX price slightly below the dividend adjusted 2008 low (5.51), with gold much higher in 2015 than it was at the ratio high point in 2008.
Think about it this way--what good is a fund that is supposed to be invested in precious metals miners, if the "management" decides to NOT invest there and the miners go UP? Ultimately, you as an investor make the decision about what to invest in. BGEIX offers a relatively low cost vehicle for investing in PM producers. It isn't the fault of management that these miners have been in the worst bear market in history. It also will not be the intelligence of the managers that causes that to change. It will be the perception of other investors. In the meantime, you have the opportunity to buy a diverse group of investments in the industry that it professes to invest in--that's it--if you are worried about volatility, the group is NOT the place to invest. The turnover in this fund has only been 17% recently.
Individuals can hedge market risk. The broader marketplace, however, cannot effectively hedge market risk. There is simply no one with the wherewithal to shoulder the market attempting to offload risk. Yet central bankers have convinced the marketplace that so "whatever it takes" includes a promise of market liquidity. And this perception of boundless liquidity has ensured a booming derivatives "insurance" marketplace.
There's a crisis scenario that's not far-fetched at this point. Fear that global policymakers are losing control spurs risk aversion. The sophisticated leveraged players panic as markets turn illiquid. The Trillion-dollar trend-following and performance-chasing Crowd sees things turning south. Worse still, illiquidity hits confidence in the ability of derivative markets to operate orderly. In short order securities liquidations and derivative-related selling completely overwhelm the market.
It's back to a momentous flaw in contemporary finance: Markets do not have the capacity to hedge market risk. Indeed, the perception that risks can easily be offloaded through derivative "insurance" has been instrumental in promoting risk-taking. Never have markets carried so much risk. And never have markets been as vulnerable to an abrupt change in perceptions with regard to central banker competence, effectiveness and capabilities.---Noland
Both $GOLD:$XAU and $GOLD:BGEIX fell well below their 50 day moving averages on Friday. One day doesn't guarantee anything, but it could signal an end to the Groundhog Day like beatings that the miners have suffered since May of this year.
Then last night, none other than BofA's Michael Hartnett who is one of the very few strategists out there who "gets it", issued a report warning investors to "anticipate a massive policy shift in 2016" which would be a DM/EM mirror image: in the US/EU/Japan from QE to fiscal stimulus and in China from fiscal stimulus to QE & FX depreciation. In other words, the last big reflation push is almost upon us.
His key thoughts:
Neither deflation nor inequality has hindered the bull market on Wall Street in recent years. On the contrary, QE policies to end deflation & spark employment have been very beneficial to asset prices. But now:
The perception of unfair globalization, gilded elites & inauthentic politicians is leading to a rise in both populist politicians (Trump, Sanders, Corbyn) and parties (SNP, Syriza, Podemos, National Front) and…
…calls for the Fed to raise rates to boost the elderly’s return from saving are becoming louder…
…and the fragile improvement on Main Street is threatened by a stalled global economy in 2015.
If the secular reality of deflation & inequality is intensified by recession & rising unemployment, investors should expect a massive policy shift in 2016. Seven years after the west went “all-in” on QE & ZIRP, the US/Japan/Europe would shift toward fiscal stimulus via government spending on infrastructure or more aggressive income redistribution. And seven years after China went “all-in” on fiscal stimulus, a shift toward QE/rates/FX to support activity would be likely in the east.
And finally, getting to the point of this post, this is how Hartnett says investors should trade this "massive policy shift":
…buy TIPs, gold, commodities, Main Street not Wall Street, China small cap
This new policy mix (which would be in response to recession & Quantitative Failure) would be most positive for TIPS/gold/commodities, for Main Street rather than Wall Street plays (e.g. mass retailers versus luxury), and for Chinese small cap. These are the assets bears should accumulate if markets head to new lows.
A trough in inflation expectations (Chart 7)...positive for Gold, TIPS & real estate
Income redistribution…buy Main Street, sell Wall Street, long KRX, short XBD
Bof A's Mike Hartnett via ZH
You used to hear this #$%$ all the time in 09, "a nation with the reserve currency cannot go bankrupt" No technically they can't but they will definitely lose that status in short order with that frame of mind. Modern banking is a confidence game and guess what bub, nobody but you believes you can print your stupid can out of a ditch.
Jonathan Rick, a New York-based derivatives analyst at Credit Agricole CIB, warns that investors are being too complacent, which may leave them unprepared for sudden, sharp swings when U.S. interest rates do rise. Options traders still aren’t bracing for any sustained uptick in near-term Treasury volatility and are instead exposing themselves to even more risk.
The spikes in volatility have tended to “die away very quickly,” said Rick. But, “you are having thousand-year events more often.”
"Over the past year the San Francisco-based bank (Wells Fargo) has run down its cash and short-term investments to buy longer-term assets, on the basis that rates will stay “lower for longer”, according to John Shrewsberry, chief financial officer."
Read the documentation for the fund--its a long miner's fund. There are just so many miners shares available in the world. "Fore."
"The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable."
H. L. Mencken
I think the US dollar standard will end some day as it is based on fear of a nuclear superpower and complacency of a ESPN/food stamp/welfare fed public. No charts will tell you when. Miners produce traditional money as opposed to faith based money. Good luck.
Could there be an active Natgas, Wheat, and Crude oil suppression campaign going on too?
No. There is one last critical part: the aggregated total change column. If you sum the price changes for all events: chg down + chg up, you get to see the net price impact of all the events. So for silver, the total change over the period is $53 up - $71 down = -$18. Compare this with crude oil, which had $43 up - $41 down = +$2.
What does this mean? Even though silver had $53 in support from the 402 up events it received, it was also hit for $71 from the 467 down events it got: net effect -$18. That's significant for something with a current price of $15. In fact, when viewed as a percentage of silver's current price (the % change column), silver was far and away the hardest hit of all 9 contracts I investigated. Gold's price impact was #2, at $379. Crude actually had a positive effect, while Natgas was dead flat. Even though Natgas had a large number of volatility events, the net effect on price was a wash. The same is largely true for wheat, treasury bonds, and the e-mini futures. Some experienced a mild positive effect, others a mild negative effect, but the effects were quite small relative to the current price of the underlying item.
So goldbugs, take a victory lap! Even though the scoffers were right – there are a large number of up events – the down events dominate for PM contracts and especially for silver. You have been singled out for beatings! Of course you already knew that, didn't you? :-) --Fairtex
Ben Bernanke, then a Federal Reserve governor, likely spoke for many on the Federal Open Market Committee, when, in a landmark speech to the National Economists Club in Washington in 2002, he raised the possibility of governments raining money from helicopters on the economy.
While "helicopter money," was justifiably mocked, when Bernanke succeeded Greenspan as Fed chairman, he initiated the latest, and most innovative stage in the Krugman Con. To make up for the fact that people increasingly would not lend to governments, at the derisive interest rates they were paying, Bernanke suggested that governments finance their extra spending, by printing the extra money.
He didn't say it that way of course. Like all of the major steps in the Krugman Con, Bernanke's money printing is known by a technical sounding term that the public doesn't understand, in this case: "debt monetization."--By: Peter Diekmeyer
The FED's "best customers" happen to be the very banks which own the Fed, and their subsidiaries, incl. hedge funds.
No one else is getting "free" money.
The only Cabinet officer to do jail time did so for accepting a million dollar interest free loan*- so what would you call a series of multi-trillion-virtually-interest-free-loans? They should change the national motto to " E pluribus pecunium."
*Albert Fall, Interior Secretary in re the Teapot Dome Scandal
This ratio has been down to .04 from .38 in May 1996 (currently at .0469). That is almost 90% (.34/.38=..895)--no matter what happens we ain't going below 0 and this 20 year bear in gold stocks is equal to the depression era decline.
"By the time the crash was completed in 1932, following an unprecedentedly large economic depression, stocks had lost nearly 90 percent of their value."--EH.net
Who cares about the games the bankstas play?--still buying a little of this each day.
"But if traders come to realize the Fed has painted itself so deep into a corner that any meaningful normalization of rates is impossible without bankrupting the US government, investors are going to flock back to gold. It thrives in low-real-rate environments, the natural consequence of central-bank interest-rate manipulation. And as gold enjoys an investment renaissance, the dirt-cheap gold stocks are going to soar...
The bottom line is the Fed's radically-unprecedented easy-money policies since the stock panic have created a dangerous US government debt bomb. ZIRP and QE artificially forced interest rates down to record lows, enabling epic overspending by the Democratic government under Obama. The resulting debt load has grown so massive that merely normal interest rates will literally bankrupt the US government.
This Democratic-led Fed isn't going to embark on a meaningful rate-hike cycle if it forces its government master into serious jeopardy. The dire realty of this situation likely means lower rates for longer. While the Fed may make isolated token rate hikes here and there, a full normalization isn't going to happen with the US government in mortal peril. The asset most likely to thrive in a lower-rates-forever scenario is gold."
From The Gartman Letter
Friday, October 30, 2015
As for the precious metals, the selling late Wednesday and all day yesterday was indeed severe, and even our positions in gold/euro and gold/yen have seen severe damage wrought upon them.
We find it hard to believe that the mere suggestion by the Federal Open Market Committee in its post-meeting communique on Friday that "liftoff" on the overnight Fed funds rate may take place at its December meeting can be responsible for this sort of egregious, serious, and now relentless selling, and we are almost of the mindset associated with the likes of the gold bugs and GATA that some malevolent "force" was behind the selling.
However, we are not going to travel down that road at the moment and sit tight with our positions, believing that the continued "experiments" with QE undertaken by the Bank of Japan and the European Central Bank shall work to the detriment of their currencies and to the support of gold. Nonetheless, the last 36 hours have been terribly dismaying. ...
...government “money” and the willingness to print unlimited quantities to buttress global securities markets now underpin securities markets on a global basis (“Moneyness of Risk Assets”). And unprecedented securities market wealth underpins the structurally impaired global economy...
Underpinned by faith that China’s policymakers will backstop system liabilities (i.e. deposits, intra-bank lending, etc.), Chinese banking assets (loans and such) have inflated to double the size of the U.S. banking system. China’s corporate debt market has ballooned to an incredible 160% of GDP (double the U.S.!), again on the view of central government backstops. Then there’s the multi-Trillion (and still growing) “shadow banking” sector, possible only because investors in so-called “wealth management” products and other high-yielding instruments believe the government will safeguard against loss.--Doug Noland
Stymied by populations that were taxed to the limit, governments, like any interest group, searched in vain for ways to continue to fatten their paychecks and raise funds to distribute to their backers. The answer came almost by accident during the early 1980s when the Reagan administration, in a failed bid to reduce the size of government, led a massive series of tax cuts, without cutting spending, in fact it ended up increasing it. Governments the world over quickly figured out that they could sell or maintain almost any spending program to the public - as long as they did not raise taxes, but rather borrowed the money instead.
During the 1990s, the Clinton administration, under the guidance of his Deputy Treasury Secretary (and later Treasury Secretary) Larry Summers, and goaded on by Krugman and other Keynesians, brought a new twist to "borrow and spend" policies, by, for the lack of a better term "fudging the books."
The Clinton administration, which began running into limits as to how much the US government could borrow, began simply not recording its liabilities, particularly with respect to public pensions, and healthcare benefits promised to future generations.