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Transitory Trading Puckering Prices
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Today, the address of gold and silver prices is Transition City.
“Time is nature’s way of keeping everything from happening at once.” – Unknown
Gold and silver prices do not turn around on a dime or, a dollar. First they must correct and sell. Then, price seeks a new base. Sometimes this base travels sideways for many days or weeks. The longer we go sideways after a major correction, the higher and more violent the follow-on rally becomes. Today, we sit in sideways Transition City. Tomorrow we’re on a precious metals rally to the moon. Have patience.
“You can’t measure time in days the way you can money in dollars because everyday is different.” –Jorges Luis Borges 1899-1986
Our gold and silver markets are quietly moving from one theme to another. If we agonize over daily moves we suspect this could be a one way trip to extreme mental disability; as in crazy. Through all of our market mayhem during the last 90 days I was surprised at my calm composure, especially after watching a +220% gain in my trading account evaporate in a flash. The bad news is I didn’t take all the profits last June. The good news is I still hold solid spread positions for March and April, 2009 gold and silver contracts. Patience will win, eventually.
We know of traders holding 200-300 companies in their portfolios that have been decimated as much as -90%. Many of those juniors (we call ‘em our babies) cannot recover as they are running out of cash and can’t borrow more or sell more shares. They will finally merge, sell on the cheap or, just disappear into the mist and fog of junior stock land.
Those who have been around this business for some years understand that is just the way things are. The winnowing process is on-going as some of these salmon fingerlings are eaten by Mr. Market, while some grow larger and stronger to merge and be acquired profitably. Still others become full grown, get mature and are scooped up by the senior grizzly bears crying out for more reserves. Our job is find out which is which. What a shame it would be to have purchased a nice position in a good company, watched it sell-off to a fraction and in desperation we dump it. Then we later discover it was a gorgeous rose in sea of thorns after all and rallied to unimaginable heights-but we don’t own it any more. This is the dilemma.
Manage Risk
We were taught by top-notch traders to learn to manage risk. This part isn’t nearly as much fun as finding new trades, figuring how to install them, and pick plums from good markets. The real overall problem is to avoid losing big money. Those that learn this first and can determine how to do it consistently are the winners. The rest of the work is easy.
Recent market selling has been brutal to say the least. In evaluating the outcome we see more trading as opposed to pure buy and hold investing. Nimble traders would have saved the day over this last cycle.
During the years of 2005-2007 for the most part, investors could have selected quality junior miners and held for the longer pull. Now that the credit crisis is upon us, buy and hold has turned into buy and destroyed if you cannot evade these massive and quick draw-downs. This theme applies to futures traders, too.
Contrary to darker forecasting opinions, we think a total, global, system disintegration is not in cards, at least not for a few months. After watching the Federal Reserve and other nations’ central banks and treasuries intervene, you begin to believe these dudes can pull-off this high wire act indefinitely.
The real answer is no, they can’t. Eventually, the chickens, mud-hens, vultures, crows and whatever else comes flying from derivative bird land and will not only roost but do something naughty on your new trading suit as they sit on your shoulder.
Obviously, the larger question is when? Nobody knows for sure but history tells us over and over again the ending is the same and it all ends in tears. We do not see a recession; that was last year. Something much worse is on the way now as too many lines in the sand have been crossed and violated with impunity. The Greenman, Chopper Ben, Ol’ Hank Paulson and all of those derivative blessed King’s Men in New York cannot cure this ‘rough patch’ with TARP, free gimme-gimme’s, or, infinite guarantees for one and all.
Our view has long been we get a long journey through recession first, a worse recession-inflation (that’s today) followed by hyperinflation, then depression, and finally a big war. That was the scenario from 1930 to 1945. We think 1930 to 1945 will be matched by 2000 to 2015. These events are structurally shaped by the herd psychology and the herd does the same thing over and over again. When one of these 70-year K-Waves arrives anew, all the folks enduring the last one have died. The newest crop of Sheeple make those identical mistakes going through the same giant mess just like the last time. And, the results always end in drama and tears.
How Can It Get That Bad?
True economy repairs take years not months. Aberrations of this cycle have been building for a very long time. Downsides are much faster but it still takes years to clean-out the bad debts, failures, wrong-headed investments and reckless trading and investing originated with too much loose capital.
We read that when national debt versus GDP exceeds 6% there is never historically, a recovery. The USA is now at 7%+ and getting worse. The only thing left is to print money and inflate away problems. While deflation is the larger, on-going structural theme, China and the USA along with Japan are running like chickens with massive propping and credit system repairs. This should induce a dead cat bounce in the first one or two quarters of 2009. However, after that, we are out of international buyers for American treasury debt. This is the end of the road.
How would you like to wake-up one day and suddenly discover your two year bonds along with three’s, fives, and ten’s have all been arbitrarily converted to 30-year instruments? This means you cannot sell them (no buyers) and are relegated to earning interest so small it’s not anywhere near to covering inflation. You are merely bamboozled again. Think it can’t happen? We do.
It is the role by design of politicians to spend money not in the till to buy votes. When desperation is so pervasive and wide-spread and millions of constituents are screaming for help, our congress just gives ‘em what they want. After all, Big Momma gumment has all the scratch you need. Just scream loud enough and often enough and you’ll get a handout.
Financial repairs by those in authority have less and less affects with each round of running-to-the-rescue-help. We’ve noticed the PPT is in a losing struggle to keep the S&P’s propped along with the Dow. With each occurrence, pro-traders simply use this artificial rally to sell into strength and exit with smaller losses.
We read carefully this week about our new president’s economic plan displayed on his website. It contained something the NRA found quite negative and the plan was taken down within days. However, in summary, it was the usual throw money at every problem to calm the herd. If the opposition party were in power, they would do the same. This is just the usual knee-jerk response all politicians have when they are pressed to “do something.”
Inflationary printing of currencies and taxpayer zillions used for quite temporary solutions merely increases dramatically a chance for hyperinflation. This is the road we see ahead and it appears it could arrive after several spring 2009 disasters we expect will smash markets.
Those huge messes would be the next tidal wave of real estate loan failures and foreclosures, credit card breakdowns, and failing auto loans by the millions. This triple-header creates “more do somethings” accompanied with additional currency printing, bond manufacturing and ultimately, hyperinflation ala Germany 1921-1922 along with several other examples we’ve seen in South America.
Bonds, the dollar and other fiat currencies are peaking and will break-down. The recent dollar rally was induced as Yen-Carry traders unwound and exited loans and debts world-wide. Most of this stuff was paid back in dollars and our dollar was temporarily, strengthened as a result. The true dollar trend is down based upon reckless manufacture of dollars with nothing behind them except a wing and a prayer originating in Washington, D.C.
Commodities were sold from long only funds earning big trading bucks. They needed that cash to cover other trading tragedies. Further, commodities were due for a cycle sell on the technicals. These two reasons created an oversold position in this sector. Consequently, extreme lows arrived.
During the next trading cycle, those futures and commodities applied to basic industry and commerce (not grain, currencies and precious metals) will be structurally weaker with some positive dead cat bounce buying in the first and second quarters of 2009.
China is propping and supporting markets with strength. They are spending cash on infrastructure to build roads, bridges, hydro-dams, and an expanded grid with more power plants. They are also investing in food and energy related infrastructure not only in China but in other countries where they hope to be miners for a variety of commodities. This will create a 2009 bounce effect for a few months. Then reality hits as their customers’ lack of buying (China exports) knocks down the Chinese economy just like the rest of the world.
There are limits to everything. Big US banks and others have been given billions to remain solvent and not crash. However, they aren’t lending it out in any large amount to create a positive affect; and they won’t either. All are in survival mode and its every man, woman and child for themselves personally, and within business and government. This is ugly but this is reality.
Those in high finance clearly understand how vulnerable this mess has become. Further, these dudes know what can happen when banks get the runs, and credit is totally frozen. Most business and commerce is then dead in the water. The world has changed permanently and there is no going back. The tooth paste and shaving crème are not returning back into their respective containers. The cat is out of the bag and he’s turned into a lion and a bear all rolled into one.
In our last essay we told our readers “You better be afraid.” We see no changes except change for the worst. Take cover and protect yourself or, you’re going to be a victim. Those who have prepared will lead a simpler and quieter life albeit without a lot of glitz and glamour. Maybe this is not so bad as families and friends can spend more time together learning to appreciate non-material aspects of our existence.
When those bonds and currencies sink to the cellar, gold and silver will boom beyond imagination. Most forget that in the last major gold and silver rally, almost 80% of the entire cycle upside occurred within just a few months. If you are not in position ahead of the largest move, entry will be difficult and you might miss some or, most of it entirely.
Our point in this discussion is please learn to have patience. We talk with several anxious traders each day hanging their respective hats on every daily price move. Put down this idea and focus on weekly charts and our fundamentals. When you logically review all salient points we come to one conclusion-gold and silver are real money. The other stuff is just paper.
We think with fall market dangers mostly over and the election settled, the PPT will continue to prop shares not permitting the Dow and S&P 500 to get out of control.
Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of favorite shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan.
Recent news says you cannot find any coins or, others. We see delays and back-orders but some dealers have goods in hand right now. Go shopping. Should you have difficulty buying physical metals, we suggest placing an order and being patient. Big traders are always ready to buy the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy.
In our conversations at conferences, several readers and others have shown interest in attending a futures and commodities trading-training seminar. Please contact our offices with this request as we plan a private conference for our traders to help them in the first quarter of 2009.
Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com
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Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information
Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a free 30-day trial subscription 718-457-1426 Monday through Friday, 9:00am to 5pm or, e-mail Claudio at cbassi@miningstocks.com
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