Feeling Betrayed?
I had quite a different post planned for last night. But
after finally catching up with PM's and email that I've
received here at SI, and at my blog over the last few
weeks, I've decided to put that post on hold, and talk
about something completely different.
Any time I mention going "short" gold (or, nat gas),
or even buying puts as insurance, I get the usual reams
of hate mail for daring to rain on the permabull parade.
I learned long ago that Gold Bugs like pom poms,
but they hate umbrellas.
But of late, an even more powerful emotion has pre-
dominated the emails I've received.
And that emotion was betrayal.
Quite a few people felt that they were betrayed by
the gold bug punditry here of late.
Instead of just the usual slings and arrows, I actually got
a few thank you's, and comments like -- "I wished I would
have listened."
It was only a little over a month ago that gold had
rallied to $989, and oil stood at a new all time high
of $147.90.
Goldman had called for $200 Oil, and Jim Sinclair wagered
a cool million dollars that Gold was going to $1,650.
-- spirits soared.
-- hope was renewed.
-- and happy days were here again.
Gold had finally woken up and joined oil in it's race
to new highs.
Bugs weren't just bullish, they were downright giddy.
And why not? Wasn’t this just the beginning of the
“Commodity Super Cycle?”
The age of Chindia and BRIC?
The end of the Dollar?
There was nary a peep of bad news on the horizon.
All was good…
The prognosticators, the pundits, and even the poseurs
at Gold-Eagle, Kitco, and 321Gold.com had all joined
Sinclair in pointing their bats toward the left field
bleachers, in calling their imminent home runs.
Here's just a few of the permabull headlines…
"Why Gold Will Jump $200 in One Day
Global Financial Meltdown Ahead
Inflation & Gold-Silver Breakout
Markets are at a Key Turning Point
New Commodities Leg Up By Month's End
Three-Digit Silver Ahead
Only Days Away from the BIG ONE
The Indian Gold Train is Leaving the Station...
Silver Emergency
Silver - Euphoria
$200 Oil, $2,000 Gold
Gold: $2011 by 2011
Gold and Silver - The Fuse is Lit!
Gold Is Not Going To Crash
Buy, Buy, Buy
Gold Stocks to Make a Key Bottom
Gold Stocks Appear to Be Putting in a Bottom
HUI - Correction over!
Correction in Gold Near End
The Investment Case For Junior Mining Companies
But sadly, oil turned and rolled over. Natural Gas
followed, as did Copper and Coal. As did Wheat and Corn.
As did virtually the entire commodity complex. And
the US Dollar didn’t collapse – it rallied!
Because Bernanke wasn't dropping dollars from helicopters,
because the U.S. Dollar didn't collapse, and because money
supply wasn't exploding.
Quite the opposite actually...
The inflation trade -- turned into the deflation trade,
and many commodities were halved.
Many gold bulls felt they were betrayed… that they were
loaded into the boat at high tide…
And they were right -- because they were.
I’ve long talked about what I refer to as the one true hidden
secret to success in trading. And that secret is that you will
always make more money by trading human nature (read:
the herd), than you will markets.
And the reason for that, is because while market actions are
nearly impossible to predict, human reaction to those actions
are not.
Markets always change – but people never do.
The herd will always be doomed by their own DNA.
Always have been… are… and always will be.
Until you accept that reality, you will continue to be a
follower vs. a leader. You will continue to react, instead of
anticipate. And you will continue to be caught swimming naked
whenever the tide rolls out.
Sadly, people already had a road map. And they had plenty of
warning signs and signals – that they failed to heed.
Bugs had been sold a bill of goods.
And why worry?
Gold was the answer for both inflation and deflation.
Money supply was exploding, inflation numbers were at all time
highs, and even if the credit crisis turned deflationary – gold was till the answer.
…or, was it?
The last major deflationary credit collapse of modern times
occurred in Japan. It, was the road map. I posted these
thoughts about the incorrect assumptions on gold and deflation
back on July 17th, while Gold was $965 and bugs had visions of
$2,000 sugarplums dancing in their heads…
Message 24767806
I included charts that refuted the two major “Doomed by their
own DNA” assumptions that have been long accepted by gold bugs
as being equal to the Ten Commandments.
#1) being that Gold would always go up during inflation.
#2) being that Gold would also be the answer during deflation.
Neither are true.
Heresy?
Blasphemy?
Talking my own book?
No, just fact.
Concerning #1 – the belief that Gold would always go up during
inflationary economic times. Not true… inflation of the money
supply continued unabated for twenty years, yet here’s what
happened to the gold price:
From 1980 to 2001, the Fed continued to inflate. They did so
non-stop. Money Supply ramped un-abated…. yet gold collapsed
by -58%, while the DOW soared over +1,000%.
Think M3 is the be-all, end –all?
Think again…
Money supply went parabolic for over twenty years, while
during that same time frame, gold collapsed from over $800 –
to $255.
And how about deflation?
I already commented on the myth concerning Gold, and the
performance of Homestake during the Great Depression. And
while studying the Great Depression is certainly relevant
from a historic perspective, why go back that far? The entire
fabric of the global economy and central banking has
dramatically changed since pre-WWII.
Why not look at the most recent (and relevant) deflationary
credit collapse – Japan’s?
So how did gold do during Japan’s great deflation?
Here’s how it did…
Gold collapsed -30%. It fell against both the domestic
currency – the Japanese Yen, and against the U.S. Dollar,
which rose +39% during the same time frame.
And who said: “None are so blind – as those who will not
see?”
And concerning a refusal to “see.”
How about this chart?
Remember that debate?
I posted that M2 chart back on July 17th, while Gold was
at $965.
Message 24766567
I talked about how Bernanke had actually put the brakes on
money supply. And in addition to Bernanke’s “brake job”….
that the collapse of the “Shadow Banking System” was equally,
if not more important… as bank credit creation was in free-
fall.
And now that early warning sign of Bernanke stomping on the
brakes, has finally been acknowledged by the masses…
----------------------------------------------------------
telegraph.co.uk
Data compiled by Lombard Street Research shows that the
M3 'broad money" aggregates fell by almost $50bn (£26.8bn)
in July, the biggest one-month fall since modern records
began in 1959.
"Monthly data for July show that the broad money growth has
almost collapsed," said Gabriel Stein, the group's leading
monetary economist.
On a three-month basis, the M3 growth rate has fallen from
almost 19pc earlier this year to just 2.1pc (annualised) for
the period from May to July. This is below the rate of
inflation, implying a shrinkage in real terms.
The growth in bank loans has turned negative, to a halt since
March.
"It's obviously worrying. People either can't borrow, or
don't want to borrow even if they can," said Mr Stein.
Monetarists say it is the sharpness of the drop that is most
disturbing, rather than the absolute level. Moves of this
speed are extremely rare.
----------------------------------------------------------
--whodathunkit?!?!
I tried.
I said that bugs were at a crossroads. That they would soon –
“give it all back.”
But, did bugs listen?
Did they see the signs?
Did they listen to the warning signals?
No.
DNA ruled the day.
Greed wasn’t only good, it was everything.
Gold was going to $2,000, the US Dollar was going to collapse,
and Ben Bernanke was finally going to deliver on his promise
to drop money form helicopters.
And every permabull pundit, prognosticator, and poseur – told
you so.
…and you believed.
Because you so wanted to be vindicated. You so wanted to see
the Dollar collapse, the global financial system in meltdown,
and gold soaring. You so wanted to be able to stride up to the
water cooler at work… cool, calm, and collected as your gold
stocks soared, while everyone else in the office was in panic
as their 401K’s and mutual funds collapsed in free fall.
Because you knew… you knew something that no one else knew.
You knew that gold was the answer… and damnit – this was
your ticket. Your lotto winner. YOU were going to
be vindicated, and YOU were going to get RICH.
And you deserved it. You believed. You waited. And your time
was now!
Your juniors were going to be 10-baggers, and gold was going
to $1,650, then $2,000, and then $5,000. And every force known
to man, including some not known – (like magnets, and angels,
were going to take gold, and you to places you only
dared dream about.
Sound about right?
Of course it does.
Unless you were one of about 3% of the gold bug population
that isn’t doomed by your own DNA.
Unless you were one of that very small minority who took the
time to look at those charts from Japans deflation, who looked
at the M-2 chart, and who asked WHY would I want to load the
boat on gold, and gold stocks after the Fed has cut
interest rates 17 times, and after the US Dollar
bottomed at 72, just as the global economy was falling into
recession, just as the entire market had piled into commodities,
and just as the deflationary credit collapse was beginning to
accelerate.
I’ve often talked about – “discrepancies between price and risk.”
About the key to trading being - to load the boat ahead of the
crowd, not after. To always be early to the party… but, to
never, ever, ever, be caught hanging around at “last call.”
Last year I talked about having price targets. Mine were
HUI 520, $1000 gold, and the US Dollar bottoming at 72. And
I’ll spare you the cut and paste of scores of posts saying
just that.
Equally as important as having price targets and an exit,
profit taking strategy, is knowing when markets are in
transition. Knowing when the story, and the fundamentals are
changing. And knowing when the sector was going to settle into
a “trading range” and then, how to make money on it.
And lastly, knowing when the risk:reward environment had
changed, even if the markets DNA driven enthusiasm for it –
had not. And accepting the fact that gold makes dramatic
moves in both directions, and asking – why shouldn’t I make
money in both directions? And then doing it.
So where does all of that take us now?
The HUI is down nearly 200 points and Gold down nearly
$200 bucks.
To put this correction in perspective - that 42% correction
from HUI 518 down to HUI 300, is the equivalent of the DOW
correcting from today's 11,386 - down to DOW 6604!
It's the equivalent of the US Dollar instead of bottoming
at 72, collapsing all the way down to USD 42.
Imagine someone telling you to buy and hold - that,
or, waving pom-poms and justifying that correction
to you.
That's what DNA does.
It short circuits logic, and lets emotion rule.
Back on July 24th, Gold was still at $916, and the HUI was
still holding 400... I posted the following thoughts about
my “trading range” chart:
------------------------------------------------------------------------------------------------------
Message 24786816
To: Finallythere who wrote (10934)
7/24/2008 7:31:13 AM
From: SliderOnTheBlack
3 Recommendations Read Replies (3) of 11292
re: Finallythere["That chart is screaming BUY the HUI Gold Index or related equities."]
Maybe, maybe not.
First, it can only be a "screaming buy" - if you
took profits at considerably higher levels.
Second, I wouldn't be looking at gold in a vacuum. I'd be
monitoring the entire commodity complex, oil & gas,
copper, coal, platinum, the CRB et al.
Two other thoughts...
I would not try to make a single move re-entry, I'd divide
my re-entry into 2-3 buy ins.
I would also buy "time" via LEAPS, or long dated options
with my initial re-entries, and then shorten duration with
my 2nd, and 3rd buy ins at lower levels if seen.
HUI 380 has been support on the lower end of this trading
range, but beneath that, we have a lot of "air" all the way
back down to the August 2007 washout lows of the HUI 280's.
------------------------------------------------------------
If you read (and believed) all those permabull headlines on
Gold-Eagle, Kitco, and 321Gold.com… you probably did think the
charts said “buy” at $916 gold, and at HUI 400.
I said that the trading range chart bottom of 380, would be
dependent upon monitoring the entire commodity complex (not to
mention watching our Yen/Dollar indicators), and that a lot of
air existed all the way down to HUI 280 – the August, 2007
washout lows.
And most importantly… those lows, and any further declines
could only be a “buy” if you sold at exceedingly higher
levels. And that sub HUI 380, that you should “gap your buys –
in thirds” and “buy time via LEAPS.”
You know, it’s been ten years since I began writing here on
SI. Doesn’t seem possible that it could be that long. Seems
like only yesterday that we were talking about the
sub prime collapse of Cityscape. Today, it’s Bear Stearns,
Fannie, Freddie, and Lehman Bros.
Seems like only yesterday the broo-ha-ha was about the
“June Swoon” in the OSX, and today it’s about Peak Oil.
Seems like only yesterday, that “some of us” made the leap
from black to yellow gold at HUI 35… and today were sitting
at HUI 350 – AFTER a brutal correction.
It’s been a good ride. A fun ride. We’re all a little bit
older, and hopefully a little bit wiser.
I’ve always said that I write for only about 10% of the SI
population. I’m sure I receive more hate mail, and flames than
most… and I realize that’s all part of the game.
Hopefully I’ve added something of value. Hopefully I’ve made
you think. And hopefully I haven’t put you to sleep with the
same ole-same ole pom-pom waving blather.
But, we’ve reached a crossroads. One I’ve spoken about a few
times. I believe that we’ve truly reached a crossroads in the
markets. One where the vast majority will not just
“give back” what they’ve made over the last few years…
but, considerably more.
This is where line divides. This is where Darwin, not I,
makes the cut.
This is where 90% will continue to be “the herd”
and/or follow it.
And this is where the 10% who are not doomed by their own DNA,
who want more “scouting reports” and less cheerleadering,
will need to make a decision.
And if you think DNA has been brutal so far…
you ain’t seen nothin’ yet.
Mo later,
S.O.T.B. |
