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Wednesday, May 26, 2010

HOW DO YOU ANSWER THE QUESTION?

Let me start off by pointing out that we did indeed break below the yearly cycle low yesterday.


I've been saying for a couple of weeks now that a break of 1044 would change the pattern of higher lows. That would be the first warning shot across the bow that the cyclical bull might be in the process of expiring.

Does that mean I want to short stocks? Are you crazy? No way I want to fight with a bear market and the Fed’s printing press. For one Ben has already aborted a left translated 4 year cycle.


Never in a million years would I have believed that was possible, but happen it did. Print enough money and the Fed could just as easily negate a broken yearly cycle low. And if you think he won’t do it I have some ocean front property here in Las Vegas I’d like to sell ya? Sell short? No way no how. Not even with your money.

Let’s face it the mathematics on the short side are just not conducive to getting rich. It took a year and a half for the market to drop 58% in the second worst bear market in history. Sure one can leverage up but if you happen to get hit with a vicious bear market rally or the rules are changed (ban on short selling) you run the risk of losing everything. Need I remind everyone that leverage is what is bringing down the global financial system. Leverage is like walking through a dynamite factory with an open flame. Sure you might survive but you’re still an idiot.

Trading bear markets is tough to do even if the bear is allowed to run its course undisturbed. But I guarantee the powers that be will throw everything they can at the bear. I just don’t need those kind of odds stacked against me, especially when there is easy money to be had.

Now that I’ve made my position clear (just so there won’t be any misunderstanding later. There will be none of this “hey you said the bear is back and we should short stocks. How come the market went up and I lost all my money”).

I’m emphatically telling you that by selling short you are taking your life into your own hands. If you are bound and determined to fight the Fed, Wall Street, Washington and an angry and tricky bear, you are going to do it all on your own. Leave me out of it. I’m going to be over in the corner picking up gold coins, you can join me if you want to.

Whenever the market doesn’t do what it’s supposed to do it’s probably a good idea to pay attention. Yesterday markets all over the world were down and down hard. Some by over 3%. The futures were signaling a big gap down. By all rights the S&P should have followed the rest of the globe lower today. It didn’t. We ended the day positive.

I’ve been warning for over a week now that sentiment has reached severe bearish extremes. Quite a few sentiment indicators are now at levels lower than the `09 bear market bottom. When these kind of extremes are reached the market runs the risk of running out of sellers. Yesterdays reversal may be a signal of selling exhaustion. When that happens, even in bear markets, we can look for a violent 1 to 3 month short covering rally. (In bull markets we can expect a 3 to 5 month new leg up.)

Lately we are hearing the D word (deflation) thrown around quite a bit. Let’s face it we are going to hear this every time assets start to drop. However let me remind everyone that Ben halted the worst deflationary spiral in 80 years in just a little over 7 months. Ben has clearly proven that a determined government, in a purely fiat monetary system, can reverse deflation. The question isn’t whether or not we are going to experience deflation. The question is simply how long will the powers that be allow it to last before they crank up the presses and flood the world with paper again.
 
The cold hard reality is that the USA has now gone down the path of no return. We are piling on trillions upon trillions of debt in a futile attempt to spend & stimulate our way out of bankruptcy. I don’t know about you but generally speaking isn’t it counterproductive to go deeper in debt if one is already broke?
 
This debt can’t possibly be serviced … ever. So we have two choices. One we can eventually just default on our massive mountain of debt. At some point we just throw up our hands and cry uncle. Folks if the United States of America chooses to default on its debt then yes we are going to see a deflationary storm cover the world in ruin and despair.
 
The second choice is to inflate away the debt by printing trillions and trillions of federal reserve notes out of thin air. This course will buy us some time. It may even briefly appear that we’ve cured our problems (it has seemed that way until recently hasn’t it?). If we choose this path, then unless someone like Volker comes along and forces us to take our medicine, the inflationary spiral will continue until a final hyperinflationary storm destroys the country.
 
Now each of you has to ask themselves which you think is more likely. Will the US all of a sudden come to its senses, default on its obligations to halt the exponential growth of debt, thus unleashing a deflationary holocaust upon the world…or will we just continue to kick the can down the road like we’ve been doing for the past 10 years, thus making the debt burden bigger and bigger and rendering it serviceable only by hyperinflating the money supply?
 
How you answer that question will dictate how you want to invest for the next 5-10 years.

If you think like I do that we will continue to kick the can down the road then the easy investment is to just get on board the secular gold bull and hold on.

94 comments:

  1. Me again, Gary_UK.

    Well, I'd happily take 58% return (more with a bit of leverage) over 18 months. In fact I did.

    Where were the Fed during that 58% tumble?

    I don't dispute they will print again, maybe $4 to $5 trillion, and there'll be a temporary bear market rally no doubt.

    But, until they do, the only way this market will go is south, just like 2008/09, anf all you have to do if trading it is sell the rallies. Use stop losses and you won't lose much if it does go against you.

    Fundamentally we agree Gary, but you must accept that Ben didn't stop Bear08/09, and until he prints, he won't stop Bear2010.

    Printing starts again end of 2010 early 2011 in my opinion, but I don't know.

    Sell the rallies until he does is my simple advice!

    ReplyDelete
  2. So here are ones choices. Try to make 50% give or take in a bear market over a year and a half (if you use those stops like Gary is suggesting, you aren't going to be even close as the bear market rallies and false starts are going to whittle away at your gains)or make over 200% in less than a year by riding the gold bull and just buying and holding miners with no leverage.

    Heck some juniors can do 50% unleveraged in less than a month.

    I've got to say I'm going to go with the bull :)

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  3. I'm surprised you hang around with TK, does he know you think traders like him are 'idiots'for trading the bear?

    Honestly, there is room in the world for gold bugs and equity bears, whatever works, no need to call us 'idiots' though.

    No more comments from me, just trying to help folks make a bit of coin. Like Slope.

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  4. You need to reread my comment. I didn't say bears were idiots. I said using leverage to improve returns on the short side (or long for that matter) is reckless. Extremely so as a matter of fact. I can't tell you how many times I've seen people destroy their account using leverage and often they were even on the right side of the trade but just couldn't hold on through the normal daily swings.

    BTW Tim is a good friend of mine.

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  5. Dawler Guy,

    (re last night's comments) I think a lot us here do appreciate your insight, and hope that you continue to share it here. Please ignore the flamers, that seems to happen on all forums for some reason.

    I like your TBT idea. Not short the yeller (yet) but have been paring long position since 1205.

    Yooro Guy out

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  6. How are those gold shorts going for ya there dawler guy?

    Looks like you're getting a lesson on shorting a bull market. LOL

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  7. Pay attention here gang. Notice none of the bears have called a bottom so if we continue higher and then they try to come on later and tell us they covered at the bottom it's pure BS.

    They are now in the process of giving back all their gains.

    The bull is still alive!

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  8. Is the bear a bunch of bullMay 26, 2010 at 7:35 AM

    Okay..confused by this market. We are up? Still have that horrible feeling in my stomach about a short-term crash before Ben comes out to support prices again, but am I off here?

    We are due for a bounce, but I for one think it is too risky unless we get some confirmation of the continued direction upwards. If we fail to make higher highs, I won't even stick my foot back into the market. Short-term minded here. Stocks over the long-run in my view should fall if we adjust for inflation, and gold should rise.

    Any non-dumbass comments? Basically do you guys see clear skys ahead or a cloudly storm? And the only reason I ask, is if the market falls enough, I believe it will take gold down too.(short-term again)

    ReplyDelete
  9. I don't know why anyone would want to fight with the market long or short. But if you believe gold is going up then why don't you just get in.

    Accept the fact that only rarely will one make the perfect entry with no drawdown. As long as you believe in the fundamental big picture just take your best shot and then hold on. The bull will correct any timing mistakes anyway.

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  10. Gary,

    Thanks for the reply. I hold both long-term and short-term. Most of it is long-term, which I don't touch....that is why my question was based on short-term. I would love for gold to get crushed at this point, but only if I had dry powder. But by having some powder to work with, I obviously don't have that money making anything.

    Crashing gold caused by a market demise-I am not seeing this as a bad thing for us gold guys, actually the opposite. If the market tanks, and it takes gold down too...I want the powder to buy as much as I can. On the otherhand, if gold soars and makes this a true parabolic C-Wave(as you mentioned), I will partly miss out.

    I am frustrated because I can see Gold go both ways. Gartman saying sell(short-term) is also sticky in my mind and stating gold has already gone parabolic in Euro terms is confusing my thoughts. Again this is for 20% of my portfolio which I OCD about ironically, while 80% collects dust.

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  11. FWIW Gartman has already reversed his gold call and is now long again.

    I would point out that we just saw the market put in one of the most violent correction (or start of a new bear leg) in a long while and gold barely budged. What makes you think it's going to all of a sudden respond differently.

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  12. Hey fellers...
    Lets get one thing straight here today...I am short ole yeller...that is one position...there are many positions i have...spreading the risk around so not to be exposed to one single position...If you foller my infrequent statements you can see most of what i am trying to do...you can figure out why...
    The short yeller was against short oil which i cuvered and am long oil from last week...pay attention...most all trades are very close to reel time...
    gettin short stox again...spy 109.25...looking to short banks also...

    Dawler Guy out...

    ReplyDelete
  13. Gary,

    You are right...might as well buy in here a bit. And if it falls, buy more, and if it rises buy some more. Either way the mountain is still pointing up.

    Time for a beer! Anybody else?

    ReplyDelete
  14. Fellers
    Increased negative pos on ole yeller here 1212 area...

    DG out...

    ReplyDelete
  15. Shorting stocks has a certain emotional appeal for some people. I include myself in that group, because I have shorted in size many, many times.

    There's a certain sense of satisfaction that you feel when you're making money and everyone else is losing money. You feel superior. Some people, such as Tim Knight, get addicted to that feeling. They would prefer to make a little money trading against the herd rather than make a lot of money trading with it. Again, I include myself in this group. But it's a weakness, not a strength. The object of the game is to make money, not to be smart. If I can make a lot of money from a bull market, that's better than whatever satisfaction I get from being a contrarian.

    Being a dedicated short-seller is ultimately a bad risk/reward scenario for all the mathematical reasons Gary outlined above (unless it's a hedging strategy). But some people are really in this for emotional and psychological reasons, not to make money.

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  16. I think I'll join the fella a few comments back, and have a beer about now.

    ReplyDelete
  17. When you win on the short side your gains are effectively doubled as others around you fall to bits. Your purchasing power goes up much more than when you make money alongside everyone else in a bull market.

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  18. Sorry to burst your bubble but when a short position gains 10% your portfolio still only goes up 10%.

    I really have no idea what you mean by gains doubling because bulls are losing. I'm sorry but the has to be the craziest statement I've ever heard. This isn't a competition, it is a business.

    ReplyDelete
  19. Hey 'Dawler guy' hows your long EUR position holding up then?Oh that's right, your stratergy is short 10 dawlers worth of gold here, long 5 dawlers worth of equities there and long 1 dawler worth of dawlers and then come on and boast about your long dawler trade! You the man!

    ReplyDelete
  20. Since we all seem to be defending/promoting shorting let me throw in my 2 cents as a regular shorter. I look at shorting as a surgical operation. That's how precise your timing needs to be and I think Gary would agree with me. Get in, get out. In other words, if you're a passive investor, shorting is definitely not for you. If you like to strike when the moment looks right, do it. But manage your risk! Shorting is most definitely not "investing" it's trading.

    ReplyDelete
  21. "I really have no idea what you mean by gains doubling because bulls are losing. I'm sorry but the has to be the craziest statement I've ever heard. This isn't a competition..."

    Are you freaking kidding me? Not a competition? What planet do you live on?

    Are you going to tell me that increasing your account at a time of general distress doesn't magnify your standing relative to your neighbors, against whom you're bidding for assets in the real economy?

    This is perfectly clear. I guess you weren't bidding cash for real estate last summer.

    ReplyDelete
  22. Yes I can tell you that I have no desire for my neighbor to lose his house and I certainly wouldn't flaunt my good luck in someone else face who is having a hard time.

    If I was that kind of person I wouldn't be spending all this time writing a daily newsletter and trying to help people make money.

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  23. "Are you going to tell me that increasing your account at a time of general distress doesn't magnify your standing relative to your neighbors, against whom you're bidding for assets in the real economy?"

    This is exactly what I was talking about. (anon 11:12) The fantasy of short-selliers is that they are going to get richer while everyone else is getting poorer, thus enhancing their relative status.

    All of this is contingent on the fantasy that you will get short at precisely the right moment, cover your shorts at precisely the right moment, then go long again.

    Very few traders have this kind of talent, or luck. Most short-sellers who made money in 2008 gave it all back in 2009.

    The fact that you are hearing so many people crowing about short-selling right now -- when the VIX has recently spiked to 45 -- tells you that they're the dumb money, the exact same amateurs who got caught short at the 2009 bottom, and the same people who have been shorting every reversal ever since, getting burned and stopped out every time.

    The time to short was at Dow 11,000. But guess how much you would have made if you'd done that? A whopping 10 percent.

    As the saying goes, "There are no short-sellers in the Forbes 400."

    ReplyDelete
  24. Look, it's not a question of flaunting. That's obviously bad form. All I'm saying is that purchasing power, which is what all investing is ultimately about, is unavoidably relative. And it is most certainly a competition.

    I have no horse in this race. I'm not a short seller, so I don't need to defend their practices. But to say that winning when others are losing doesn't increase your purchasing power more than winning when everyone else is also winning is ignoring reality.

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  25. What planet do YOU live on? I've never heard such BS in my life. If you're wealthy and your neighbor is wealthy, you're still wealthy. It's not relative.

    ReplyDelete
  26. "As the saying goes, 'There are no short-sellers in the Forbes 400.'"

    Maybe, but I wouldn't mind being as rich as Jim Chanos. :)

    ReplyDelete
  27. But you would massively improve your odds by adopting the same tactics as a Rogers, Buffett, Soros or Greenblat.

    ReplyDelete
  28. I'm sorry for the "what planet," that was rude and set the wrong tone.

    I am surprised by the pushback on this point. Maybe I'm misunderstanding your position.

    Do you not think that a millionaire in a world of paupers has greater economic advantage than a millionaire in a world of millionaires? That doesn't make sense. When everyone's rich we have inflation, so everyone's not rich anymore because prices get competitively bid up. What's controversial about that?

    If you don't think wealth is relative, then you don't mind the TARP and the outsize banker bonuses. You don't worry about inflation or asset stripping as an end game because there's no zero-sum element to the economy. So when Lloyd and Jamie outbid you on that beachfront place you'd been saving up for it's not going to bother you because their success isn't relative to yours.

    How is it possible that in an economy with finite resources that are allocated at auction that wealth is not relative? You can bid any absolute amount you want, but the guy in the next seat only has to bid one dollar more to take home the prize.

    ReplyDelete
  29. Gary,

    for all of us following you - thank you.

    could you provide some insight into what on earth would contribute to a 'covering rally' - spanning months?

    I could imigagine weeks.....but wow - how big and stupid could any institutions be...to be that late/wrong and have that much to cover????

    please help us understand - months covering???

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  30. Understand that I'm not saying that we are in a bear market, but if we are, these counter trend rallies start as a short covering rally when sentiment reaches bearish extremes.

    Then because these things tend to be sharp and powerful it's not long before everyone starts to believe we've seen the bottom.

    That leads to a period of momentum buying. So ultimately a strong counter trend rally in a bear market can last 1-3 months before excessive bullish sentiment and fundamentals finally pull it back down.

    From the March 08 bottom the counter trend rally lasted 2 months and gained a little over 15%.

    The rally out of the the July 08 bottom lasted a little over a month and gained almost 9%.

    The rally out of the Nov. 08 bottom lasted a little over a month and gained over 25%.

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  31. With the present conditions I don't see how the Fed could justify further quantitative easing - interest rates are already pretty low.

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  32. http://www.financialsense.com/fsu/editorials/connor/2010/0526.html

    Did you just copy and paste someone else's post?

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  33. Gary,

    If this is a C wave, shouldn't it wind up around the July timeframe, and would that make it less likely we get another weekly low to enter gold?

    Thanks.

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  34. Anybody know what happened to PHYS etf yesterday? Down big, while gold was up. I thought they hold physical?

    I noticed it's still trading at a premium to NAV. hmmm....

    ReplyDelete
  35. Ouch how are those shorts working out for you this morning?

    G-man you are right, shorting is for fools.

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  36. Gary --

    New now have a daily swing high in the dollar, this should be supportive for the market, correct? Gold should also find its way back to a weak dollar correlation slowly but surely. thoughts?

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  37. I would agree with both statements.

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  38. Gary,

    Timing is everything.

    If China declared on Monday that they were not reviewing their holdings of euro-denominated assets, we would not have violoated the yearly cycle low.

    So we break past the Feb lows, get extreme bearish sentitment and now the China announcement = the markets off to the races.


    I guess that's what the bulls have been waiting for.

    It will be interesting to see if we ge any selling on strength numbers today.

    ReplyDelete
  39. True. In bear markets timing is tough because things are going to come out of the blue as governments and central banks start throwing any and everything at the markets in the attempt to halt the bear.

    That's why I have no desire to trade these things. Huge risk for small profit just isn't my thing as long as there is a bull market somewhere.

    ReplyDelete
  40. Does anyone else find it funny how all the fleas disappear when gold heads back up?

    This has to be the third or fourth foot you guys have had to eat now. You've got to be running out. LOL

    I have to wonder will the have the guts to come on and dis the G-man a fifth time. Hahahaha

    ReplyDelete
  41. Huge manipulation around options expiration. Jesse's has a bunch of stuff about it...There's no denying that this game is blatantly rigged. Never jump in heavy again before options expiration, especially if there are 18000 contracts sitting on a number like 1200 and the price needs to be smacked down for a week to let those suckers walk away with nada.

    http://jessescrossroadscafe.blogspot.com/

    Grab your physical and leave this insane casino...Maybe throw a little coin at the miners and trade on something like RSI oversold/overbought, but to put your life savings into a corrupt system is no longer going to be my strategy.

    ReplyDelete
  42. In my very humble opinion, I think this market is done with the upside.

    Not that I look at trendlines that much, because just like Gary says, we broke about 4 of them in 2002-2007. But if look at trendlines correctly and wait for it to be broken, then wait for the reaction back in the opposite direction to see if it fails, and takes out either the low that just formed, or it takes out the previous high, then, the fact that we went under 1065 which was the 'flash crash' low - was the fist sign that things are not 'alright'.

    OK, fair, the 'flash crash' was an anomaly. Fine, I will give you that. But then, we came all the way down and took out the Feb low at 1044, even if it was by 4 points. Now people start talking about bearish sentiment, flushing people out, etc.

    Maybe a year from now, we can look at this action and say it was a double bottom with a poke below to scare some weak longs out. Maybe...

    But when you look at 2002-2007 action, you will never see such structure, were we took out the previous high and then pulled back all the way in the previous structural low and poked below. If this market wanted to go up 1250, 1300, 1350, etc - it had no business retracing the entire move from April highs to February lows 1219-1044.

    I think that a lot of longs have been caught with their pants down and are going to use any rally to either lighten up or sell off their long holdings while the shorts are waiting for a retracement into the 50-60% box to either add to the shorts or initiate new shorts or hedges. This combination might just break the market if it is even able to reach this level at about 1130-1150. I think whatever move up we can sustain now, will be countertrend until/unless we take out either the 1219 high or the low at 1040. I believe we'll take out the low.

    But who knows. We'll see.

    --cristian

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  43. "Anybody know what happened to PHYS etf yesterday? Down big, while gold was up. I thought they hold physical?"

    Google it. They made secondary offering and the price now reflects this. It still trades above NAV.

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  44. Last chance to get in to PMs and miners before the pop...

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  45. You shouldn't be dogmatic about being short or long. I was short banks and homebuilders from 2007 through October 2008 and did very well, especially from March to July of 2008.

    I then switched to a gold focus. I always dabbled in gold but the end of 2008 was an incredible opportunity to become a strong hand, but it was rather gut wrenching at times.

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  46. interesting article re gold fundamentals in today's WSJ:

    http://finance.yahoo.com/banking-budgeting/article/109666/why-i-dont-trust-gold?sec=topStories&pos=5&asset=&ccode=

    Gary, I believe you invest based on fundamentals. Do you have any comments re this article, especially the part about supply?

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  47. Selling on Strength building. We had $ 150+ million or so the last hour of yesterday before the indexes turned green. So it seems like some larger players are unloading at these levels?

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  48. Gary,

    Do you have any thoughts on the Dow and SPX making new lows, under the yearly cycle low and the NDX or small caps not even coming close?

    Thanks

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  49. Seems like another key test for gold. If the rally in both equities and the euro follow through, to what degree will the closing of XAU/EUR and flight-to-quality trades push down prices?

    Seemed like it held up pretty well today, silver even better. $PLAT/$PALL regaining their breakouts would be a plus.

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  50. I'm skeptical that PMs will rocket higher from here. They hardly drew down at all in the correction. This was nothing like February. Not enough to reset sentiment and scare out the wimps. I look for things to roll over from here as the debt crisis unfolds.

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  51. PM and miners are still recovering from the move down in Feb. Sentiment got so bleak on miners at the time it was just ridiculous.

    Despite the recent move back above 500 on the HUI sentiment is still barely half what it was at the Dec top.

    Folks this is how people manage to talk themselves out of riding a secular bull. They worry way too much about insignificant drawdowns and end up missing the major legs up.

    At some point you just have to take your best shot and then let the bull work.

    BTW it's called relative strength. The mining sector showed it in spades during the recent selloff.

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  52. Anon,
    My thoughts on the market are right there in the post. We have a warning sign.

    Do I care to do anything with it? Nope!

    I'm busy investing in the secular gold bull.

    ReplyDelete
  53. Gary,

    Couple honest questions, if you wouldn't mind.

    1) How do you know when the bull for gold is over...I mean the entire thing, not just a big D-Wave.
    2) Looking at past predictions, what should happen to gold after that...50% drop, 70% drop, nothing?

    Thanks,
    Bill

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  54. When you start to see your neighbors buying gold and when you hear some guy at the gas station bragging about how much money he made on gold you know it's nearing the end. Generally speaking when we start to see the public getting into gold we have about a year to a year and a half before it's over.

    We will also see the Dow:gold ratio at or near 1:1.

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  55. Hello fellers

    Sold my oirl position overnight...still shart ole yeller...still shart stox (ouch)...long hold on tbt...cuvered shart dawler overnight...flat now...

    Have a wunderful weakend fellers...

    D G out...

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  56. Condidering that yesterday was a 97% up volume day coming off a 2 month closing low there has only been one time in history where the market then reversed and made a new low within two weeks.

    Actually there were very few occasions where the market went on to make new lows within 3 months.

    Holding on to shorts at this point is a very low probability trade.

    The average gain coming out of an intermediate cycle bottom (which this has very high odds of being) is 6-10% in the first 8-13 days.

    Considering the market is already up 5.5% in the first 3 days any shorts are rapidly giving back all their gains. Now you see why I have no desire to short the stock market.

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  57. "I really have no idea what you mean by gains doubling because bulls are losing."

    Didn't really think about it before, but it seems correct to me - gains made while shorting are worth more - how much depends on the % loss/gain.

    You've valued out the stock market in gold before, what it you valued it in S&P units, and your goal at the end was to have the max units...which you turn into currency, RE...whatever at the end.

    If the S&P is 100 and we are all long at that level, then one of us shorts, and the market falls 50%, then the short covers and goes long - the longs now have 50 units and the short has 150. Being right on a short in this simple (extreme) example has made this trader 3X as wealthy.

    ...and it IS a competition in that wealth is relative. If we are all millionaires - we are all middle class.

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  58. I'm not sure what the appeal is to try and rationalize the short side.

    The bottom line is profit potential on the short side is severely limited. If one can't resist the urge to short in bull markets they will end up losing money.

    The reality is that there are very very few successful dedicated short sellers. And the ones that are successful don't reach that success by trying to read the tea leaves in charts.

    They read financial statements, they dig into companies, they find the ones that are sick. I can guarantee that less than 1% of 1% of retail investors are willing to put that kind of due diligence into their trades.

    If you aren't willing to do that then you are going to ultimately lose money trying to short a bull market. And yes the 200 DMA is still rising. This is still a bull market.

    So one can dream up all the nutty rationalizations you want the cold hard truth is that selling short is a tough way to make money even in a bear market. To do it in a bull market is just needlessly stacking the odds against yourself.

    There are two positions in bull markets. Long or cash. If one can follw that one simple rule you will do just fine and more importantly you will retain your gains.

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  59. Gary, we're not trying to rationalize short selling. As I said before, I don't sell short and I have no horse in this race. What we are trying to point out, and you are too stubborn to concede or apparently even consider, is that wealth is in fact relative because assets are allocated at auction in an economy with finite resources. Your assertion that investing is not a competition is incorrect. We are competing with each other for marginal buying power. If this weren't so, we would not be concerned about inflation and we would not bother investing.

    The goal of investing is to be in an asset class that is inflating, ideally while competitive asset classes are deflating. That is what successful shorts experienced during the crash. Don't take my word for it, ask David Tepper.

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  60. Past performance does not predict the future or guarantee results...

    rinse wash repeat...

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  61. ...And I'm trying to tell you that is the most ridiculous load of crap I've ever heard :)

    Whether one is long or short doesn't matter. We are all just trying to increase our net worth. In bear markets that is done by selling short. In bull markets you go long.

    Heck I shorted oil drillers during the bear market and made a lot of money. But to come on and say one makes more money because they went short while everyone else was long defies logic.

    What makes you think everyone is long? Does the competition end there? What happens if the short seller doesn't cover at the right time. Asset markets do go up over the long haul. If he contiues to hold and he gets wiped out is he still a winner because he temporarily made money while others were taking a draw down?

    Let's face reality here, a long that has a buy and hold strategy isn't losing money, they are weathering a drawdown. At some point the market will put in a final bottom and the next secular bull will begin.

    Some one in their twenties could buy right here and be assured of making millions by the time they retire.

    Your argument is in reality a rationaliztion for trading and if we were in a bear market I would agree, but gold is not in a bear market, and there are no shorts that will even be in the same ballpark when it comes to the final gains made by a simple buy and hold strategy in precious metals when this is all over. Heck they aren't even going to be in the same city.

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  62. Curious to hear your thoughts on the likelihood of a C-Wave continuation at this point, Gary.

    GDX:SPY shows the miners outperforming the broad market since the end of March, so I remain moderately bullish on the PMs. But the sort of things I would expect to see on the cusp of a major move higher seem lacking.

    For one, the miners remain well underneath the highs and still trade underneath an island top. More important, to my mind, volume on GDX out of the May 21 swing low has been falling noticeably. Dying participation seems inconsistent with building surge to new highs.

    For the short term (and I realize the short term is not where you prefer to focus), PMs are looking pretty ordinary, their relatively fine showing during the market swoon notwithstanding.

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  63. We're talking past each other. You're refuting an argument I'm not making. I agree that there are no odds in shorting a bull.

    You don't seem to like the idea that increasing one's net worth at a time of widespread losses confers a greater advantage than increasing one's net worth during a time of widespread gains.

    If you really disagree with the preceding paragraph I'd love to hear your argument. I haven't heard you address it yet.

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  64. I still solidly stick with the deflationary scenario, however there's something that makes me uneasy.
    Inflation in the UK
    http://www.statistics.gov.uk/cci/nugget.asp?id=19
    or as you prefer, a representation of monetary inflation if you want me to stick with the definition.

    It's not about being right, it's about remaining vigilant and to realize early enough whether you're wrong. Not yet though!

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  65. The Yen currency crosses and the antipodeans, NZD and AUD, are way above their recent lows.
    I think they're confirming we've seen the lows for now.

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  66. the lows in equities, I meant.

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  67. You both have a point. There is a reason for the saying "cash is king" during bear markets. That's because by simply not losing money, you are able to pick up assets on the cheap.

    However, what matters is your total purchasing power in the real world of goods and services, not your status relative to your imagined peers.

    Either way, your hypothetical rarely proves out in the real world. Most of those who trade aggressively, both long and short, tend to underperform those who simply identify bull markets and ride them over the long term. While there are certain rare exceptions, such as Stevie Cohen, most traders lose money in bull and bear markets.

    It usually takes retail investors a long time to realize this, however. Some never learn it at all. After short-term gains taxes, transaction fees, etc., it is statistically very unlikely that you will outperform the measly S&P 500 over your investing career. But you will certainly try.

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  68. If you are just trying to make the point that to the victor go the spoils then yes those who trade or invest better than their peers will accumulate more buying power.

    Whether they choose to exercise their buying power is entirely up to them.

    Warren Buffett despite being one of the richest men in the world still lives in the same house in Omaha, NE that he lived in 30+ years ago.

    So if you assume that investing is a competition with the end result of purchasing more "stuff" than your competition then yes you are correct.

    However I would say your assumptions are seriously flawed.

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  69. Anon,
    I do think gold is building momentum for another final leg up in this C-wave. If this were a D or A-wave we would not have made new highs.

    Just be patient. These things don't develop overnight. It takes time to drive investor confidence to the level that leads to a massive panic buying event.

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  70. Thanks to both for your responses.

    @Anon
    I agree that most active traders are long term losers. I disagree in that I'd say that one's total purchasing power in real world of goods and services IS THE SAME THING as one's status relative to one's peers. In strictly economic terms.

    @Gary
    You assume that I'm into consumption. Nope. I'm into freedom. For me it's all about being free to spend my time how I prefer. That is wealth to me, and that is why I invest.

    I have to disagree that a long term buy and hold investor doesn't lose money during a drawdown. That's a psychological suspension of FASB 157. However, if thinking that way enables an investor to hold on, then why not.

    Thanks for the conversation, friends! Best of luck to you.

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  71. Much lower next week in stox...big truble...yeller will foller...tbt sold at close...will look to get long oirl by sellin otm puts...
    this is a great time to be scalping trades...

    D G out...

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  72. History would suggest you are going to be wrong on stocks. The kind of thrust we saw yesterday very rarely leads to new lows.

    Of course that doesn't mean it can't happen, I'm just not willing to bet on something that has a 1 in 10 chance of happening.

    At least in the casino when one takes a very low percentage bet they raise the potential reward to compensate the added risk.

    In the stock market one just gets kicked in the teeth 9 times out of ten. But when they are lucky enough to score that 1 rare victory you don't get any of your teeth back :(

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  73. Any particular concern with regard to the negative MACD and RSI divergences on the $GOLD weekly?

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  74. There was a negative divergence in Sept of 07 also. Quite a few rallies start with a negative divergence that eventually gets negated as the rally progresses.

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  75. Gary,
    Where do you get your statistics to back up your theses? Is there a repository of market stats or did you create your own database based on studying charts, indicators, etc? If its the later it must have been a years-long project.
    Also, is it true that 74% of statistics are made up on the spot? Thanks.
    Al

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  76. Sentimentrader.com is a great source for sentiment stats.

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  77. "Also, is it true that 74% of statistics are made up on the spot?"

    It depends if it's coming from one of the hotties on CNBC or some ugly old guest dude.

    Cheers!

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  78. I would say that most of what comes from EW is completely manufactured to suit their shock and awe marketing techniques.

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  79. Obviously all statistics is open to a varied level of interpretation...
    wash rinse repeat...

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  80. Well not really. If something has happened 90% of the time then betting against it has only a 1 in 10 chance of happening.

    Certainly one could get lucky and happen to hit that 1 but if you try to take that trade 10 times you will go broke.

    There are plenty of opportunities in the market. One really doesn't have to take a 1 in 10 setup.

    Just let it pass and wait for something with better odds.

    Unfortunately many retail traders are more interested in winning than making money. If they can beat their chest about catching a very low percentage trade that is more important to them than making money.

    Let's face it if they were serious about making long term money they would never in a million years take a trade with those kind of odds. They would just sit in cash and wait for something better to come along.

    The serious money makers rarely post. They have no need. They aren't trying to impress anyone. They are just watching their account grow.

    Just a case in point and I hope he doesn't mind me using him as an example.

    As long as Jayhawk was trying to trade miners he was constantly freaking out about minor drawdowns. He was posting almost daily, sometimes many times a day.

    As soon as he decided to change tactics and go to a mostly physical portfolio his stress level dropped right off the scale. Now he rarely needs to post. He's just calmly riding the bull with a strategy that allows him to stay on board will little to no angst.

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  81. yo dawler guy, you seem to be an aggressive day trader scalping a bit here, a bit there. Do you really make money that way?

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  82. Looks like folks are starting to cash out to me. Although I personally profit by short selling, cash looks good at this point at the minimum. Watching closely for other assets to be liquidated especially the big run ups - Platinum, Palladium, CRB. If everyone heads for door at the same time, watch out. We have all seen what happens when there are no bids.


    "Lipper FMI reports that investors pulled $5.3 billion from equity mutual fund during the past week, the largest outflow since March 2009. Including ETFs, the outflow was a massive $16.7 billion, the largest since 2002."

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  83. Historically when that kind of exodus happens we are at a bottom.

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  84. Anonymous said...
    Any particular concern with regard to the negative MACD and RSI divergences on the $GOLD weekly?

    MAY 28, 2010 4:44 PM



    Yep, it's pretty obvious on the HUI as well. Would fit perfectly in a liquidation scenario summer to fall time frame. I see the HUI hitting 300-325's and gold testing 1K

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  85. Darn I never see anything. My crystal ball is still broken :)

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  86. Here's a request. Could the posters to this blog please take time to get an ID instead of posting as anonymous?

    Gary - I assume that at some point, Gold and stocks will decouple. Will miners follow Gold or stocks? They seem to do both at different times. How do you expect that to unfold?

    Thanks,
    Bede

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  87. Miners will decouple form stocks. We are already starting to see this happen. Despite one of the nastiest corrections in quite some time the miners resisted better than any other asset class.

    That has never happened before. Usually miners take a beating during an intermediate bottom in the stock market.

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  88. Anon 1:43

    I have core positions (long term) in several areas...most are eventually hedged w/ other products or options...
    I only scalp/add to core positions when things get stretched...
    It is very tough to make money in any of these markets...I have been doing this beter than 30 years now...some days are good and some are bad...
    I give very very little advice...one thing yall should do is look at the big picture and not trade so much...pick you points very carefully and keep your risk in check all the time...
    Its been a very tough 30+ years...Its not easy...

    D G out...

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  89. Hey Gary,

    If energy prices spike upwards, do you think this will have much negative effect on the miners (since energy is one of their big costs)?

    Cheers,
    Marc

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  90. Gary,

    Isn't it possible that the takeover of the market by algorithmic-based trading may lessen the predictive power of the "human emotions" sentiment indicators? I understand that on some days, 70% of the NYSE volume is just computerized high frequency trading.

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  91. Gary,

    I'd be curious to hear how you think the inflationist case bears up in the face of the action in the bond market.

    Deflationary forces don't seem to have hurt gold prices, and I'm familiar with the deflationist case for gold. Just curious to hear why, if inflation is on our doorstep, the fixed-income market seems to be saying otherwise.

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  92. Marc,
    Oil is still half what it was in 08 so I think the miners are still in good shape.

    Anon,
    The markets are still responding releatively well to the normal cycles so I have to think automated trading isn't really affecting the big picture all that much.

    Other anon,
    The bond market always benefits during a stock market correction. So there isn't anything unusual in that regard. However despite the nasty sell off the 3 month T-bill barely budged.

    I'm of the opinion we have seen the top of the 30 year bull market in bonds.

    At the moment I'm guessing the stock market is forming a megaphone pattern and I expect to see one more powerful leg up before the cyclical bull rolls over and dies. That should correspond with the dollar's move down into the next 3 year cycle low.

    That's just a guess though. We'll just have to see if I turn out to be right.

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  93. I hope these etfs don't get whacked like PHYS did last week when it issued more shares.

    http://www.bloomberg.com/apps/news?pid=20602013&sid=aY1Yr54uitQM

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