-- Published: Tuesday, 7 January 2014 | Print | Disqus
By Michael J. Kosares
This is the time of year investors assess their IRAs and other retirement plans and strategize for the future. The upcoming year, in my view, looks to shape up as one of much danger as well as opportunity.
I do not write often about specific trading strategies simply because I believe that gold is essentially a safe-haven asset – a buy and hold item and one of the premier armchair investments given the times. Those who choose to make gold a “trade”, do so at their own risk. At the moment, however, we have an important confluence of trends that I believe can be exploited within tax-advantaged retirement plans.
The following chart summarizes that opportunity:
As you can see the S&P Stock Index and gold price have crossed at roughly the 1575 level. The chart suggests an arbitrage opportunity likely to whet the appetite of those who believe gold’s downside was a pause in its secular bull market and stocks’ upside the result of a bubble created by the Fed money printing process.
Financial Times closed 2013 with a warning that “half of all UK money managers believe that stock prices are in a bubble territory.” In that same survey, two-thirds of money managers considered corporate bonds “richly priced.” Simultaneously, gold is coming off its worst year in the past thirteen – down nearly 30% from the beginning of 2013 and over 35% from its all time high.
Taking a closer look at recent stock market activity, the Wall Street Journal ran a largely overlooked article at the end of December describing how many private equity firms “are set to return a record amount of cash to their investors for 2013, after taking advantage of buoyant markets to sell hundreds of billions of dollars of investments.” One private equity manager summarized the attitude of many insiders by saying “There’s a time to reap and there’s a time to sow. We are selling everything that isn’t nailed down.”
Though private equity firms operate in the securities of companies not publicly held, the sentiment can be applied readily to publicly traded stocks and bonds. Too often, the small private investor is late to arrive for the party and late to leave while their more seasoned professional brethren tend to do just the opposite. If there is significant selling going on among the professionals, it might be time to take note.
As for gold, one recalls the ultimate contrarian advice of Nathan Mayer Rothschild, who made more than one fortune in the financial markets in his lifetime. The time to buy, he counseled “is when there is blood in the streets – even if the blood is your own.”
If the contrarian in you agrees with the assessment that there is a time to reap and a time to sow, as stated above, the time might be right to reap some stocks and sow some gold as we begin the New Year. After all, isn’t the principle advantage of owning a tax-deferred retirement plan the opportunity to roll profits from one sector of the financial markets to others?
Of course there is always the presence of danger in such undertakings, the stock market could very well continue trekking higher while gold continues to downtrend. In such matters, it always the duty of each investor to make his or her own assessment, but perhaps some judicious rebalancing within IRAs and other retirement plans makes sense at this juncture.