July 11, 2013 Update

DJIA:15,292 S&P 500:1,653 NASDAQ:3,521 Gold:$1,284 Oil:$106.03 EURO:$1.31 YEN:99.19

Searching for the Pot of Gold

I often find myself emphasizing how psychologically difficult it is to cut your losses and walk away. Yet, knowing the endowment effect and understanding that mankind experiences a loss twice as harshly as a gain has not stopped me from making poor choices. I do not believe that I have trouble following my own advice due to hypocritical tendencies or because I find myself emotionally attached to the paths I decide to take. Rather, I think because I never really know exactly which  direction a road will take me, I find it hard to realize in the moment when I have made a wrong turn. For example, the cost of mining gold has increased at the same rate as spot gold prices over the past five years. As of 3/31/13, the cost of producing one troy ounce for Barrick’s Gold (ABX) and Kinross Gold Corp (TSE:K) was $1,000-$1,100. I know that gold is used as an inflation hedge, trades inversely with interest rates, and has the strongest performance when rates stay below 2%. So when the Federal Reserve whispers about winding down QE and hints about raising interest rates, it is safe to assume that the gold market will selloff. I also know that gold miners are fully exposed to spot gold prices, so the rapid decline of gold  will cause miners to tumble (since their weak balance sheets will eventually force them to cut costs and shutdown expensive mines). Despite knowing these things, I failed to liquidate the position I had in a miner. I only sold 80% of my holdings when gold prices were high, which is a mistake I can easily recognize now as I have lost money as gold tumbles and miners become strapped for cash. But because of the return the stock gave me, I had foolishly placed a blind faith the miner would continue to rise. I became a victim of classic bubble mentality. It is easy to look back and recognize the mistakes you’ve made, but hard to realize when you’re making them. And I think this is true because as investors, we place so much blind faith that the risks we take will lead to the rewards we’re searching for that recognizing and identifying a dead-end on a road we chose to follow is an emotionally and mentally inconceivable thought when we first decide to take it. I think it is important to remember that even though a road may glisten, it does not mean it will lead to a pot of gold but it's impossible to know for sure unless you wonder down it

Domestic News

• Market Update Futures ripping as Bernanke’s comments smooth fears of tapering. 
• The number of weekly jobless claims will be released at 8:30, and it expected to have edged up to 349,00 for the week ending July 6 vs. last week’s 343,000.
• The government will release data on the prices of goods imported to the US, which is expected to be stagnant and remain around 0.6%  for June, which is exactly what it was in May. 
• At 2:00, the federal government is expected to announce a record $115B budget surplus in June, which is a drastic improvement from last year’s $60B budget deficit.

International Updates

Asia

• Market Update Most markets rallied, with the Shanghai Composite surging 3.2%. Japanese markets were the exception, which fell as a result of the BoJ commentary. 

Europe

• Market Update An increase in commodity prices caused mining stocks and oil producers to push the FTSE 100 to a one-month high.  
• France’s CPI rose 0.2% in June, which is up 0.9% YoY. 

Corporate

• Citi cut Sprint Nextel to neutral from buy. 

Commodities & Forex 

• USD fell sharply across the board, but particularly weak when compared to the Yen.