One word...
A couple of weeks ago, I had the opportunity and the pleasure of meeting one of the largest gold traders in Europe.
We spent a couple hours talking about the Fed, about inflation, about the US deficits, the Dollar, the Yen carry-trade, geopolitical risk, Iran, China, oil, central bank selling, central bank buying… you name it – if it was related to gold…we talked about it.
But, it wasn’t our direct conversation about gold that led me to my thoughts about that “one word.” Instead it was a conversation about Football.
American Football and the upcoming NFL draft to be specific. It seems more than a few Londoners are avid NFL fans and our conversation eventually turned from gold – to the NFL.
Now if you’re a football fan, then you’ve seen all of the speculation over who will be the number one pick in the upcoming NFL draft. Will it be Notre Dame’s Brady Quinn, or LSU’s JaMarcus Russell? Which one has the best chance on being the next Peyton Manning… the next “franchise” maker?
I know, I know… you’re wondering what that has to do with “one word” and gold stocks? Well actually, it has a lot to do with it… so bear with me and I promise you we’ll get to that “one word” in a few moments…
The L.A. Raiders (they’ll always be the OAKLAND Raiders to me) have the first pick in this years NFL draft. And as it turns out, our friend from London is a HUGE Raiders and Al Davis fan. A fanatic. You’ve seen how insane they get at soccer matches in England… well this guy is that insane about the NFL and the Raiders. And the guy literally worships the ground that Al Davis walks on.
Our conversation about the Raiders and Al Davis went back to the glory years of Super Bowls past. Our friend brought up a famous quote by Al Davis.
Davis prior to a Super Bowl appearance by the Raiders was asked by a reporter about his “gameplan”. Davis gave the reporter an evasive non-answer and the reporter followed up with this comment:
“Well I suppose you’re going to have to take what the defense gives you - right Al?”
Davis snapped back: “No, we don’t take what the defense gives us – we take what we want.”
I had never heard that quote before and commented – “that I wished the markets worked that way… that you could just go out and take what you wanted.”
Our friend commented: “that only works temporarily – just ask Brian Hunter of Amaranth, or LTCM’s John Merriwether.”
And then he added this: “sometimes it pays to be a contrarian and to go against the grain, sometimes it pays to run with the herd… and at other times – it pays and pays very, very well… to simply take what the market gives you.”
…which takes us to that “one word.”
That “one word” is something I thought I would have heard posters talking about by now. Something that at least one of the LTBH (long term buy & hold) ‘bugs would have proffered up by now…but, haven’t?
To me it has been rather obvious….as it has also been to our friend from London.
It goes right to the concept of – “taking what the market gives you” …especially when it keeps giving, and giving, and giving…
Tonight I am going to piss most of you off once again. Because what I am going to do is take you right back to somewhere I’ve taken you before. And the reason I’m going to take you back – is because sometimes things really are that simple. Sometimes things really are that easy. And sometimes markets keep giving and giving and giving.
And this is what the gold stock market has given you on a silver platter…not once, not twice… not even three times – but, TEN TIMES!
……Beats the hell out of a -11% buy & hold return.
I said I was going to give you “one word” tonight. One word that stood between success and failure over the last year for the buy & hold crowd.
A word that applies to both your mindset and your trading strategy.
One word that could of...and should of...made you rich – because over the last year it just offered you over 500 index points on a silver platter… more than the entire move from the HUI 35 bottom in late 2000 to the exact top last May at 401…. all in 10 moves over 11 months.
You didn’t have to get every point on every move and no one did, or could. But, if you saw what the market was giving you (again, and again, and again) and you took it. Then you did a lot better over the last year than the -11% return where the HUI now stands from it’s May 2006 top.
The “one word” that should have jumped out from that chart for both bull and bear alike, was – accumulate.
What the market just gave you was a historic opportunity to accumulate gold – if you were a bull and to accumulate profits – if you were a bear.
And the reason why the word “accumulate” is so important for bulls… has to do with what our Londoner friend said was the single most important strategy for every move in gold since Nixon closed the gold window…
It’s the only way gold bulls have ever made and more importantly – have ever kept any money during any prior gold cycle.
And that is to ACCUMULATE “zero-cost” gold.
And the way you do that - is to take your profits from distribution & corrective/trading range phases and to set aside and build a “zero cost” position built only from trading profits.
A position that you can hold long term as a broad wealth, or portfolio hedge, or hold into the potential parabolic final phase of the cycle without the stress and worry of violent corrections, or stop outs – because you’re only playing with a “zero cost” position.
The market has just given you an incredible opportunity to ACCUMULATE a massive hoard of “zero-cost” gold during the last 11 months of what has been a classic, textbook-perfect, trading range.
If you bought and held…then you’re down -11% from last May. If you traded, but fought the market, if you chased rallies – then you continually got whipsawed and stopped out…and you didn’t accumulate much, other than a lot of pain and frustration.
If you read this market and understood not only WHAT was going on – but WHY…then the last 11 months could have been as profitable as the last 6 years.
That beauty of charts is that they don’t lie about the past. They may not be able to predict the future… but, they are incapable of lying about the past.
WHAT we have had is an incredible gift from the market. A gift that gave and kept on giving – 10 times so far.
But, “WHAT” is only half of the equation…. WHY is the other half.
And the “WHY” behind this trading range…was the real meat of my conversation with our Londoner friend.
Next Sunday… the reason “WHY” gold stocks have been locked within this trading range.
Here’s a hint:
The reason I keep including Goldman Sachs/GS in the comparison charts with gold and the broad market is not because of GS the “stock”…it’s because of Hank Paulson the Puppeteer…
And that’s where my conversation with the Londoner will continue…
Puppeteers and the reason WHY gold has been locked within this trading range...and WHY this trade was both so easy and should have been so obvious.
Next Sunday – the reason WHY...
SOTB |
