Thursday, December 27, 2012

Garth Turner on Precious Metals

When it comes to the subject of precious metals, Garth Turner, like most mainstream financial "advisers" thinks , or at least says, "Gold is a bubble". One would think that with his lifelong experience with multiple bubble participation, he would understand what does, and what does not constitute a bubble by now, but maybe not. **We'll come back to this. 

While Turner appears to especially enjoy taunting precious metals enthusiasts, the cynical might wonder if this is just a dual edged marketing technique, as nothing raises the blog comment count like an attack on Gold (and occasionally silver) and he is of course potentially in direct competition with the precious metals for any of his undecided readers' spare investment funds. So, this is quite interesting: 
Wed 29th September 2010 
"Which brings us to Garth Turner. 
For those who follow Turner, they know he is adamant that Gold is a relic and not a place to put your money.
But Turner can see what is happening too. In this interview with Stirling Faux on he begrudging admits that gold will still climb further...
Towards the end of the interview, at the 10:23 mark, Turner dismisses Gold rising up in price but stumbles and concedes that "yeah... it may go to $3,000. But not $5,000 or $10,000".
Hands up out there how many thought they would ever hear Turner predict Gold at $3,000 an ounce?  Such is the import of what is happening right now." 
Unfortunately the audio interview has since been taken down, but it is not important for the purposes of this post, what was said is not in contention, and we want to examine performance figures since, and motives. 

On the day that article was written gold had been rallying hard, Turner was once again showing his losing retail trading aptitude by being a) outside of the charging bull market looking in, and b) trying to convince others, if not himself, 
" its a bubble.. must be right?  #FoolMeSoManyTimez!  - Wont get fooled again!.." 
  • Sept 29 - 2010 - Gold closed the trading day at   $1308.50.
  • Sept 28 - 2012 - Gold closed the trading week at $1773.00
Over 2 years of the simplest  "buy and hold" strategy this is +35%, or approx 17.5% annually. In fact, 17% is the average annual gold appreciation since the beginning of the bull market. Turner (cl)aims to make 7-8% a year but when asked refuses to show examples, purportedly because he has only been a registered financial advisor since 2010.

He is on one hand showing standard signs of (retail trader) capitulation as gold runs off without him:
"yea it might go up [+another 229% => $1308] to $3000" 
And on the other hand advising people to stay out,  "don't buy any, as I have identified this as a bubble". The more cynical reader might think that Turner himself is a very accurate contrarian indicator, what with his gift for picking the exact tops and bottoms, (but pointing 180 degrees the wrong way) just do the exact opposite of what he does, when he does it.

If we just look at the steady appreciation over the years, its difficult to imagine Mr Turner outperforming a simple buy and hold in either metal over any medium timescale

So lets come back to the subject of bubbles, because as we have shown, Turner has been on the wrong side of quite a few, notably including the Dotcom and real estate bubbles, and so should really understand what their primary characteristics are, because it is more complicated than just a steadily rising price over time.  

Eric Sprott, also Canadian, has asked, and investigated this question in depth, we would highly recommend inward digestion of the empirical facts about Gold and bubbles here: (you too Turner) 

To be clear, a speculative bubble forms when prices for an asset class rise above a level justified by its fundamentals. For this to happen, increasing amounts of capital must flow into the asset class, bidding it up to irrational levels. Gold may be trading at all-time nominal highs, but a look at investment flows proves that it isn't anywhere close to being overbought.
This fundamental lack of comprehension of the nature of bubbles has found Turner the wrong side of this bubble debate, exactly like all the previous in his murky but forgotten past

In 2010, around the same time Mr Turner was warning people off a potential 17% per annum gain for the next 2 years, the Sprott Capital L.P. Fund was awarded “Hedge Fund of the Year” at the Absolute Return Awards in New York and In 2011, Sprott was named “Top Financial Visionary in Canada” by 

Bearing in mind these two started their different paths around the same time in the late 90's early 2000s, the difference in performance (results) the two paths produced 10 years later is simply staggering. Having absolutely nailed the last decade's best investment (Gold) right from the beginning, Sprott is still bullish on gold, as all the elements are still there, nothing is fixed or changed, however he is super-bullish on Silver, expecting it to outperform, and possibly go up 30x over the next decade.

In his presentation referenced above:
Sprott will take a hard look at the world economic crisis, exploring risk and the need for a financial system reset. 
The world economy is still so uncertain; we’ve got tremendous pessimism, people earning less while the cost of living is going up, and we’ve got an aging demographic which affects our ability, as a society, to cover the costs of our pensions, our health care and education systems,” said Sprott. “The same old ways of thinking about these challenges won’t address the financial crisis we’re faced with. We need to rethink our approach and the financial system needs a reset.”
Turner is advising people to ditch their "volatile" silver  (as-if.. +500-700% over last 10 years) and get into his products, and that everything is OK, and financial assets are where the future lies.  hmm. 

As we said in the first post, we would advise assigning credibility to investment advice based on a verifiable long-term success record, preferably with their own money on the hook, and unfortunately that pretty much discounts Turner altogether when it comes to Gold or anything much else come to that.

1 comment:

  1. You certainly look like an idiot now, eh?