Some Cool Talk In Anxious Times
Today’s commentary features the unhedged opinions of Karim Ghaidan, a subscriber whose serene trading style, disciplined approach and expansive point of view have gained him a devoted following in the Rick’s Picks chat room. An institutional trader with nearly two decades of experience in the major leagues, Karim has been consistently ahead of the curve with his predictions. In recent months, he correctly foresaw the collapse in energy prices, the lackluster performance of gold, relative weakness in silver, cuts in interest rates, and a strong dollar. Now, disdaining doomsday talk, he’s extremely bullish on stocks, eager to accumulate gold down to as low as $780, but skeptical toward silver. We’ll let him explain, since his comments on silver in particular stirred up a firestorm among readers. Karim’s letter reached us on October 10, a week after he’d covered a short position in the S&P:
Thanks for your mail, Rick. What absolutely astounds me time and again when discussing/debating gold/silver with anyone remotely interested in either is the baseless, subjectivity involved. It seems to me that all common sense, objectivity and simple economic analysis are totally thrown out of the window. Their manic obsession with conspiracies and what would seem to me a real desire to see the ultimate economic demise of America is naive, stupid and dangerous. It would seem to me that McCarthyism is alive and flourishing in the gold bug community.
It stands to reason that as the western world (and therefore the rest of the world) enters recession/acute slowdown that demand for silver as an industrial material will be affected. Correct or not? This does not however mean that it will not ride on the coattails of gold's long-term move higher. That is a possibility. However, even in that case I believe gold will outperform. Gold will decouple from the $ reasonably soon. Whether it will be trading around the 800's or low 700's is anyone's guess.
Gold vs. Yields
There is a misconception that gold only does well in periods of high inflation. However high inflation results in high interest rates. This we know is not good for gold as a non-yielding asset. Gold benefits (as do all asset classes) when competition for its values are reduced. Therefore the lower rates are, the better, as its closest competitor, money, becomes less attractive. This works best in an environment of lower rates.
I envisage at least one Fed cut, and possibly two, prior to the end of October and the next Fed meeting. This is why I closed my extremely large S&P short position on Friday [October 5]. There may be more downside, but we are definitely closer to the lows than to the top. Remember every bear market witnesses the most aggressive spikes. We will have more 300-point days on the DOW going forward than we ever had during the bull run.
The lower US rates will not however have as great a detrimental affect on the dollar as the goldbug community hopes, wishes, prays for. This is because the euro's problems are far greater at this stage, and the European Central Bank is so much further behind the curve than the Fed as well as not having the political muscle to pull the big triggers required. However that is immaterial when it comes to gold. It will rise for sound economic reasons and not for the rubbish espoused by the goldbug community.
Long 27000 GDX
Please tell your subscribers that I am long GDX (presently approximately 27,000 shares) and will continue buying with every spike below 30. I envisage it at 75 by mid-2009 [!] when the most vicious down leg in equities resumes. I will then close my long GDX position and again heavily short the S&P.
I am also waiting to re-enter gold shortly.
Also please tell your subscribers that I am not a genius. I do not mind being compared to a car salesman; anyone doing that job at this time deserves a great deal of respect. Do also tell them that I try to remain impartial, objective and impassive when planning my trades. Nothing is done in an ad hoc fashion. I wonder how many of your subscribers have a view spanning their trades into mid-2009? After 18 years of being a trader, hedge fund manager and pension fund manager, I restarted trading 21/2 years ago with £30,000 in my brokerage account. On Friday this stood at just under £700,000.The reason for this is very simple: the commodity market is full of conspiratorial amateurs. I love them.
Dealer Silver Gone
And now for some counterpoint – first from our friend Peter Spina, founder of GoldSeek.com and SilverSeek.com:
FYI – 70% of silver production is a bi-product of base metals, zinc, copper, lead, etc. If those commodity prices plunge and production is cutback during a global meltdown, slowdown, whatever, silver supplies will become very tight and plus, the sheer size of the silver market is so relatively small that it will surge on very little interest. The shortages of silver products is so bad nearly all dealers are out of silver bullion.
And here’s Michael Burkhart, paid-up subscriber and silver bull, stridently taking issue with some specific comments Karim had made earlier in the chat room:
MB: I take issue with the following quote from Karim: “Forget silver. It will continue to be tainted with the industrial metal tag. Unlike ill-informed and populist thoughts prevalent silver is not in short supply and in fact reduced future demand will add to its underperformance going forward.” Forget silver. It will continue to be tainted with the industrial metal tag. Unlike ill-informed and populist thoughts prevalent silver is not in short supply and in fact reduced future demand will add to its underperformance going forward.”
eBay Is the Real Market
Has this genius tried to buy physical silver, like 100 oz. bars at spot? Good luck with that. Show him the real market -- eBay, find a JM bar for $1600. Paper traders...its what got us in this mess...like this genius.
I also disagree with this statement by Karim: "Do not fall into the trap of calling all doom and gloom. That is what novices and unfortunate goldbugs do. Fat lot of good it has done them.) Doom will be all pervasive then as all call for a continued fall and amateur participants capitulate and even begin to short. I will cover and begin buying.”
Yes he bought at $300 per oz didn't he? Institutional investors are one step below reprobate, mortgage broker or used car-salesman. They will say buy while selling or shorting the market all the way down...then when they have had their fill will cry doom and gloom while buying with both fists. You should spare the dilution of your commentary by placing such miscreant quotes next to your ideas.
And by the way…Overseas ...inflation has been apparently ingrained upon the collective psyche (due to our exporting it over the years at higher rates than what has been seen in the U.S.) and have anecdotal evidence that gold is selling for as high as $1500/oz.in exchange related dollars. Once inflation is ingrained that perception will probably feed on itself, hence the unprecedented demand for precious metals. It is when people starting hoarding that collectible crap in mass then I think that play will be done. We are not there yet.
Should be short term bottom in the market here...or the bottom could fall out...do not really care...your trading seems accurate though...should I trade paper again...I will keep you in mind. Keep up the good work.
Tomorrow: Readers weigh in on the matter of how to prepare for a total financial collapse. If you want to tune in on the discussion – and receive Rick’s Picks’ daily commentary free each day by e-mail -- click here.
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