The Chicken Little investment approach is to have a macroeconomic opinion and to invest consistent with that macro view and momentum (click for a longer explanation of Chicken Little's investment approach). Momentum is the idea that assets prices that are in motion, tend to stay in motion.
|Newton's First Law Applies to Markets|
With a view of deflationary depression looming, I look to short asset markets. However, I only short markets that are already going down. Way back in 2011, gold began a substantial decline, and I have been short gold for years.
Last week I covered my short position in gold. Why? I still believe in a deflationary depression, but, at least for now, gold prices look to have stopped going down.
|Gold Prices (GLD ETF)|
What is Chicken Little's next move in gold investing? If I become optimistic that the depression will be inflationary, then I will consider buying gold. Conversely, if the current up trend in gold prices ends, I will consider shorting gold again.
Psychology is at least as important as economics to investing success. Accordingly, I plan to have no position in gold for a least a few months. For years, I have cheered every drop in gold prices as my short positions went up in value. It will take a while to untrain my brain from loving gold price declines.