Posts Tagged ‘Waiting’

Nothing To Do… But Wait.

I sit here in my abode listening to smooth melodies of Jazz enjoying life as I live it, primarily focusing on microeconomics and security analysis. Occasionally I’ll check up on the general economy but what’s the use. I think man has lost himself to madness and if not yet his intellectual demise is near. In hours at a time many will become many times wealthier and others will learn what the word “deflation” really means.

But what do I care. I missed that train but I will not chase it but patiently wait for the next. Wealth is being happy with what you have and awaiting opportunity so when it arrives you’re ready, and likewise when it starts moving you’ve already got yourself a fine seat.

Gold and silver is what Kings and Empires fought wars over and I’ve got my own stash right in my possession. They say Henry Ford was nuts for offering his workers $5 a day. That’s five ounces of silver. Today many people make that much in an hour.

So I wait. Anxiously but patiently. What will give? Higher Federal Funds Rates or Lower? The Sub-prime disaster that Buffett has downplayed or higher income? Corporate Earnings or Inflation? The Derivative-laden Hedge Fund industry or complacency for risk?

I’m not quite sure I’d like to know but when it does chances are it will favor things of substantial value and wipe away the excess liquidity of credit creation. Until then let the Dow Jones (I refer to both the company and the index) sell to the highest bidders, let credit and good fortune rule and let the manipulators over good will and true assets continue their schemes.

But do not forget that we are in a deflationary stage. This means that the economy as well as credit is in a stage of contraction regardless of how many dollars they print. The Fed is in a rut and watching what they do later this week will only enhance the entertainment.

Over the years I’ve learned one thing about the market… When the economy expands invest in valuable business. When it contracts invest in gold. Got Gold?

Still Waiting

It is often said “If you have not, boast not”. So while the media tries to figure out what no one knows anything about, we continue to do what we’ve been taught to do best… Wait.

For months now we have warranted caution. We mentioned that the markets are currently consolidating their new levels and nothing major should be expected until September. However where the predicament lies today it seems we have far less time than imagined.

With a conflict of some sort brewing in the Middle East, what was previously a mode of caution now has evolved into speculation. Even many technical analysts are at a loss as to what the general direction for returns should be. Even on a fundamental level few are knowledgeable as to what amounts of the fears have already been built into the price.

We have modified our outlook on three basic scenarios. When and if either of them hit the trend will be enormous as well as volatile. Either you’ll profit on the winning side or falter on the losing side.

Precious Metals have already been consolidating for quite some time now. If we were to see any breakout above the strong $15 resistance for silver, probably due to general fear (Iran, the Dollar) then $25 silver is just a few trading days away. On the other hand, if we see a breakdown below its trend line – about $13 then there will most probably be a continued sharp decline all the way back to $10-11.

The same goes for stocks. Although the general trend looks down, a strong buying by overseas investors may send the Dow up beyond expectations.

So what to do?
Stay tuned and stay alert. Keep a lot of cash on the sidelines. Better to be right on half your wealth than to be wrong on all of it. If silver breaks below $13, hold with ample cash aside or sell strong and wait for a buy signal – once again around the $10.50 level. I’ve been expecting this decline for sometime being that the overall trend for the past five years has been nothing but straight up. But also bear in mind that these may be the last time that silver will come anywhere close to the single-digits.

Likewise with stocks. If sharp sell-off days ensue then shorting the Dow may be your best option especially that this would show the beginning of a general deflation of equities and profits.

On the contrary if they break their resistance to the upside, expect booming returns for those diligent investors.

But until then, we wait.

A few more thoughts on Doing Nothing…

Warren Buffett, CEO of Berkshire Hathaway, is sitting and waiting patiently for his next buying opportunity. He wants to buy big, like $30 Billion big, but it has to be worth it. He claims that stocks and company prices are overvalued. With 40 Billion in cash, albeit in in various currencies, the greatest investor of our time does nothing.

Ben Bernanke, the Federal Reserve Chairman, who after hiking short-term interest rates 18 consecutive times in an attempt to ward off both inflation and a housing blow off after bringing rates down and expanding credit immensely, awaits further word from the economy. Interest rates generally lag in effect about six months. Although we have an strong economy with the markets doing ever so well, any move towards tightening could wreak havoc and disaster for the current housing market that is hanging by a string.

George Bush, the President over the United States, a nation caught between the threats of terrorism and a huge deficit in spending on the war in Iraq, seems to be holding firm in his tactics. Although an attack on neighboring Iran is becoming a rather probable action, world pressure and the unknown effects such a scenario could have on oil supply and the world at large the fighting goes on but what’s new.

Even Bill Gates has waited (for whatever reasons) for the debut of Microsoft Vista, a revision of Windows five years in the making. Sony waits with the PS3 while car companies ready themselves to show off their new energy-efficient models.

Many experts in all fields from stocks to commodities, see a correction in the cards over the next few months, followed of course by better buying opportunities.

Tis’ the season of waiting. They say “Many men predict correctly but have not the patience to envision the fruits of their labor”.

So the bulls, bears, pigs and bugs await. For a stock market decline, a commodities rally, a statement from Iran, some unexpected data, a take on housing, something that will get the bells ringing again and the charging of the bulls and bears to continue. Until then…we hold the safest asset known only for its security in times of economic and geopolitical uncertainty.


“It’s a Bull Market!”

Jesse Livermore was only a boy when he began his trading career but one thing always stood out. In one trading club there was an older man named Mr. Partridge. A trader for years he nonetheless didn’t say much.

Once, the man was given a trading tip by his young friend Elmer. He was told that while the markets have been in a confirmed rally a correction was nonetheless in the cards and if he sold out and waited, he was told, he would be able to buy back his shares at much cheaper prices. After thanking Elmer for his advice he replied that he wasn’t going to be making any trading adjustments. “You know we’re in a bull market” Mr. Partridge answered, “I may lose my position”. Jesse, confused by the reply asked what he meant. Mr. Partridge explained that in all his trading years he’s learned that one cannot truly predict the markets. One buys low and sells high, weathering through all the spikes and corrections, since he never knows when the next leg of the rally will continue on strong.

A story was recently posted in the Daily Wealth by Tom Dyson that I think every single investor should understand, learn from and live with throughout every investment for the rest of his life.

It’s an incredible story from the Great Soybean Bull market. It involves a young trader named Michael Marcus.

During the 1970s, soybean prices rose from $3.25 and eventually hit $12. Marcus was long, and making money. But at one point during the run, Marcus impulsively took profits and sold everything. “I was trying to be fancy instead of staying with the trend,” he says.

As soon as he’d taken his position off, soybean prices jumped sharply, hit their daily limit for price movements, and shut the market down for 12 days in a row!

The experience was so agonizing for Marcus – trapped on the sidelines while all his buddies made millions – he resorted to tranquilizers and eventually quit his job. “That was the low point in my trading career,” he says.

What happened? Two lessons were learned. One, as smart and successful as you will ever become in the markets there will always be a point at which you believe you can outsmart it. If you want to speculate with some extra cash when you feel that the market is strongly oversold, that’s fine. But lesson number one is “Never liquidate everything in a bull market”.

Of course number two is simple. Patience and Time is everything. Markets start and finish in extremes. “Wait for the extreme cheap – buy big – and then wait again for the extreme dear – then sell”. That’s how the big boys become wealthy.

“It was not my thinking…”


Quote of the Day
Wonderful lines to ponder.

The trouble with waiting and seeing is that you can’t only wait and see.
You also have to do something. You can’t stop breathing. You can’t stop
eating. And you can’t stop investing. There is no such thing as suspended
animation when it comes to your money; no such place as nowhere in the
financial world. Every minute of every day…for every asset class…you
are either long or you are short. Either you own it, or you don’t own it.
Of course, you can be leveraged or unleveraged too…but that is merely a
measure of how bad the damage will be if you are wrong. If you don’t own
Google, for example, you will lose potential earnings if it goes up. And
if it goes down, relative to the rest of the world – which includes Google
holders – you will be ahead of the game.”

– The Daily Reckoning

My case for the Commodities Bull:

The Wave Effect. Many bull markets start by a rare group of investors seeking appreciation in a fairly undervalued market or equity. It then catches the attention of institutional investors throwing in their share of the “next hot thing”. This creates a wave of speculation by which mere mortals and momentum investors ride the wave dry. All the while projecting and correcting.

In this effect we see how commodities have begun their run-up. We have seen the value investors such as Warren Buffett make their purchases. Now we are seeing institutional investors getting in on a piece of the action. But its still a drop in the ocean. How many people do you know with over $10,000 in stocks? Now how many in corn stocks, oil futures or gold Krugerrands in their jewelry stash? This party has just begun, and the fearfulness should just be making us more greedy.

The Vacuum Effect. What goes up, must come down. Once the Wave has taken its full strength, by laws governing science and physics it will begin to stabilize, deflate or break through its limited barriers – in other words “pop”. Just like the wave needs all aspects of its force to continue, so to in any market the run must be fueled by speculation.

Warren Buffett always jokes how when the first cars hit the market there must have been around 300 “promising” automobile producers on the map. Ford and General Motors were mere names on the list. Who would have known? Shorting horses however would have probably been your fairest bet.

With all the geopolitical speculation regrading Iran, the War in Iraq, the new government and so on, we can’t know what will happen to the world economy, housing bubble/bust , the stock markets or the in the enormous derivatives market. What we do know is that it can’t last forever. So instead of betting on the next “sure thing” you may have a greater chance of heading to the source. Commodities.

What China will transfer their currency reserves into, the Yen or Euro, only time will tell. What cars will be riding on a hundred years from now I don’t know. What houses will be worth then, I wouldn’t even try to guess. But whatever it is, if history is our guide, you will most probably be able to pay for it in gold.

If gold is your hedge for risk, then Wave or Vacuum I’m betting that risk is seriously undervalued.