Dow Gold Ratio

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Wed, Jun 15, 2011 - 7:50pm xaritas
Eric Original
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Excellent stuff

102

Great Stuff Xaritas.

That's basically the kind of thing I was asking near the top of the thread. Whether UGL and DXD were even the proper vehicles to use.

It seems that the main difference you are getting is in the performance of short SPY vs long DXD. Keep in mind however, that those of us trading within an IRA (like me) can't short anything. Therefore, short ETF's are the only option.

When I was first musing about this back on the old blog, I hadn't decided whether to use the 2X approach with UGL+DXD, or whether to stick with DGL+DOG instead. I'd appreciate your thoughts on this, Xaritas.

Oh, and also you are comparing long DXD vs short SPY. You may have introduced some variability there. Why not long DXD vs short DIA? Apples to apples.

Actually, FSG is looking better and better to me.

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Wed, Jun 15, 2011 - 8:18pm Eric Original
xaritas
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Various pairs

I consider long GLD/short SPY the "control case", so to speak, for that investment thesis. I hadn't thought about the IRA issue, so bad on me. Although if you went long GLD in your IRA and short SPY in your regular account it might work out to a tax advantage, since you are likely to lose money on the short over time...? Just speculatin'.

I also wanted to look at non-leveraged ETFs for comparison because leveraged ones have some of their own problems with failing to track the magnitude of change or even its direction... if you're not familiar with this I can start another topic in the ETF forum.

I'll try to test some other variations on that theme later. Anyway, I agree that for an IRA, FSG may be more appropriate. The only thing that concerns me is how new the fund is, so I would watch its performance closely and keep it on a leash. As with all things.

The company offering that ETF, by the way, offers several unusual leveraged pairs. I expect somebody to offer a long gold/short silver ETF, and vice versa, soon.

Wed, Jun 15, 2011 - 8:28pm xaritas
Eric Original
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ETF tracking problems

xaritas wrote:

I also wanted to look at non-leveraged ETFs for comparison because leveraged ones have some of their own problems with failing to track the magnitude of change or even its direction... if you're not familiar with this I can start another topic in the ETF forum.

Excellent idea for a new topic. Would be of interest to many, not just those working a pair trade. Go For It!

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Wed, Jun 15, 2011 - 8:31pm
Eric Original
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about FSG

101

Xaritas

One possible advantage to the more liquid ETF's is that I can sell covered calls against them (carefully!) to add a little return. Probably not available with FSG.

BUT, that's a whole different subject that belongs on a different thread.

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Wed, Jun 15, 2011 - 10:37pm
The man who stole a leopard
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Options?

Eric - this is a nice setup, have you considered buying calls on these ETFs?

I'm still getting my feet wet with options. I like the limited downside risk of buying a call (i.e. the money you put up is all that you can lose, but upside is unlimited). Challenge is determining the proper timing and strike price.

Wed, Jun 15, 2011 - 10:56pm The man who stole a leopard
Eric Original
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re: Options?

101

Sure, why not? There are a myriad ways to play this thing. Whatever floats your boat. All the normal challenges of buying options apply. Time decay, etc.

As for me, "I'm still getting my feet wet with options" as well. I'm working within my Roth IRA. I only recently requested permission to sell covered calls and cash covered puts. I'll probably request further permission to buy calls and puts sometime in the future. But I'm wary. I know from my own temperament and trading history that a lot of leverage is not always a good thing for me. "Know Thyself".

I do know that UGL and DXD are actively traded enough that they do have some options activity. Some other ETF's, not so much.

Good Luck!

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Wed, Jun 15, 2011 - 10:56pm
Eric Original
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@Sockeye

102

I may not have been entirely clear on my answer to Sockeye. I'm talking about buying roughly equal $$ amounts each of DXD and UGL.

FWIW, in my case I own 900 shares of DXD and 200 shares of UGL. That's about $16,000 in each one, for a total investment of $32,000. Since May 25, I'm up about $1,100, or 3.44%. The UGL is up a little. The DXD is up a lot. It's doing better, sooner, than I thought it would. I'm happy.

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Thu, Jun 16, 2011 - 2:06am
Insight
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This is a great discussion. I'm so inexperienced that I've

never had a clue about how to approach this, although I've been aware of the concept in general.

Thanks to all for sharing your expertise!!!!

"Optimist look at donut; pessimist look at hole."--Charlie Chan (That's my dog SLICKER, not Nipper)
Thu, Jun 16, 2011 - 9:00am
Eric Original
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Let's start the day with a couple of links

103

Here's a youtube that someone made with a basic intro to the DGR. Looks like it's about a year old.

Video unavailable

And here's a live chart.

https://destructionofmoney.blogspot.com/2008/10/live-interactive-dow-to-...

Enjoy!

That's my 100th post! OMG, Eric, get a life...

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Thu, Jun 16, 2011 - 9:15am
madtig6
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Gold Dow ratio

Eric,

Nice chart. Looks familiar---

Thu, Jun 16, 2011 - 9:31am Eric Original
atlee
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dxd / ugl spread

Interesting idea. Timing critical. Maybe leg into it. But how about DGP in place of UGL? Higher volume and less capital?

Thu, Jun 16, 2011 - 9:54am atlee
Eric Original
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@atlee--UGL or DGP??

It looks like about six of one, half a dozen of the other to me. DGP has higher market cap and share trading volume, but $$ volume is about the same. Performance seems to track right together.

I guess the only reason I picked UGL is that it has some active option activity with it, which I like to tinker with a little bit. Gives folks another way to play. I'm not seeing any option chain with DGP in my Ameritrade.

Timing always critical with everything, right? One can watch the charts and play it long term or scalp the daily moves just like with anything else. Or try to anyway, lol. Either way, it's good to find something with a definite trend one way or the other, and I think we might have that here for a while. Though on the longer term charts we really don't have new lows until we get under 7.0 ish (from March '09) We only recently got under 8.0 again so I suppose nothing really confirmed yet. My TA skillz are crap though. :D

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Thu, Jun 16, 2011 - 12:46pm
Robert LeRoy Parker
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80 Year Chart

This one is taken from https://www.greshams-law.com

As you all know, gresham's law is simply interpreted as bad money will drive out good money.

Thu, Jun 16, 2011 - 3:30pm
Eric Original
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FSG

Was just noticing FSG a little bit. Performs really well, but is EXTREMELY thinly traded. Something to watch out for. It's a pretty new fund so maybe things will improve over time.

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Thu, Jun 16, 2011 - 4:43pm Eric Original
atlee
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Eric the original   I like

Eric the original

I like what you have done. And the option chain is a valid point. Wondering what happens when we get the new stimulus package (stealth QE) to the relationship. Right now we have gold steady to slightly higher and stk mkt in the tank. Today's rally is option expiration related and we are overdo for some bounce. After the sell off we have had you expect some kind of bounce.

It is interesting spread that I would like to track if you do not mind publishing the ratio from time to time.

Thanks man!

Oh yea, about not visiting other forums much: it is a time issue for me. Everything is so spread out that need time to explore and find what I like and where I do not want to go. It is nice to just pop in here go right to the spot you are looking for and then get back to biz. Some lazy Sunday I may go exploring.

Thu, Jun 16, 2011 - 5:00pm atlee
Eric Original
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atlee-Dow Gold Ratio

atlee wrote:

It is interesting spread that I would like to track if you do not mind publishing the ratio from time to time.

Thanks man!

No problemo. I'll do my best to keep interested parties up to date on it. Either here if this topic stays active, or elsewhere.

The big question on future stimulus is, what could they possibly come up with that would jump start stocks MORE than it would jump start gold? If they could do that, then this trade would lose. But seems like everything they've done lately gooses both, at least, and sometimes more to the gold.

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Thu, Jun 16, 2011 - 5:50pm Eric Original
pailin
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Jump start stocks?

Eric Original wrote:

The big question on future stimulus is, what could they possibly come up with that would jump start stocks MORE than it would jump start gold?

Repatriation of overseas cash, no tax consequences and maybe even an incentive? Something like 110% tax credit if 15% goes to "invest in USA" T-s? Or Govt picks up % of healthcare tab for new hires bought with overseas cash? Something to give impression of lowering unemployment and reinvestment in the Fatherland?

I like this thread, not ready to trade it yet, but I'll be following Eric#1.

To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything. -Edward Abbey
Thu, Jun 16, 2011 - 6:17pm
Eric Original
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Robert LeRoy

How do you get those charts to post right into the comment like that, rather than as a link?

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Thu, Jun 16, 2011 - 6:22pm
Robert LeRoy Parker
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Use the Image icon next to the smiley icon

Just put the url in the first line.

But you can't be using the plain text editor so I don't think you can do it from mobile devices.

Thu, Jun 16, 2011 - 6:39pm
Robert LeRoy Parker
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Long Nikkei, Long Gold, Short Dow, Intermittently Short $/Euro

Given the phase shift on the nikkei:gold & dow:gold chart that I posted earlier in this thread. And given the fact that the nikkei has been going down for over twenty years, is widely unloved, and in fact has made a lower bottom than its 1980 nikkei:gold ratio (at least according to Gold versus Paper). Perhaps being long gold, long japan, short USA will be a good strategy.

I'm not a big fan of the EWJ etf because it's composition is quite different than a general nikkei tracker. But luckily, there is a new Nikkei 225 ETF coming out shortly which ought to behave more along the lines of SPY, DIA, etc. It will be under the ticker NKY.

Here is the story: https://www.indexuniverse.com/sections/news/9377-us-listed-nikkei-225-et...

For more on why Japanese equities might be a buy right now, Mish did a piece not so long ago here: https://globaleconomicanalysis.blogspot.com/2011/05/meeting-with-saxo-ba...

Here is a snipbit:

"I do like Japanese equities and also gold, but the latter can correct significantly at any time.
Steen also likes Japanese equities for the same reasons that I see: After 20+ years of deflation, many Japanese corporations are trading at book value with little or no debt on their balance sheets. That is in distinct contrast to the equity valuations elsewhere.
One difference of opinion I had with Steen is that I am bearish on the Yen, but he is bullish, at least for a while.
There were about 60 people in the room and I asked how many had investments in Japan. Only a few hands went up. I asked the same question at a recent gold conference show I attended and only one hand out of 120 went up.
The best time to buy something is when everyone ignores the sector. The same was true of gold in 2000.
"

Additionally, one could intermittently short the dollar or the euro to maintain gold exposure in a rising price environment. Darien Wealth went for a strategy like this not to long ago. Here is a link to that piece: https://darienwealth.com/post/5262325754/positioning-for-the-inevitable-...

Any thoughts?

randomness