|
Riding The Silver Wave
 The
theme of today's issue is about getting rich doing nothing discernibly
productive other than chasing pips and other symbols across our trading screens.
Today we will consider the subject of undulations. No, we are not envisioning a
trip to Hawaii. What we have in mind is markets and what to do when they are
moving.
Gold has dipped to an attractive buying level, as have both silver and oil. The
drop from the May peak is more like a free fall correction in natural resources
and metals than an undulation, but nevertheless offers a great entry price if
you have not yet joined the parade of those who put increasingly less faith in
paper promises to pay.
The Fed has paused hiking rates which the stock market will likely soon
interpret as strongly bullish. This should create a nice upside undulation with
the market likely testing new highs before the reality of recession sets in
later in 2007. That secondary undulation could take us to new lows which we will
faithfully trade as well.
Meanwhile the dollar, which was cut loose from its financial moorings in 1971
when Tricky Dick Nixon abandoned all pretext of monetary integrity and closed
the gold window, appears ready to resume its heroic march to the basement.
Profiting from this could be as easy as buying a CD at
Everbank.com held in a
basket of foreign currencies which will likely rise at least as far as the
dollar will likely continue to fall.
These are all very exciting developments for us here at the Institute where we
can only trade things that are moving.
Remember that scene in Jurassic Park where the professor tells the terrified
children to hold perfectly still so that the binocularly impaired T. Rex can't
see them? We know just how the poor beast felt. How can we take a bite out of a
market that is holding perfectly still? But let that market begin twitching one
way or another and dinner is on the table.
Take oil for example. The price of a barrel of crude just dipped below $60.
Tomorrow's release of consumer confidence data will probably indicate a nice pop
to the upside as holiday season fast approaches and consumers who are twitching
to spend welcome a drop in gas prices at the pump.
But have China and India -- which combined are building the equivalent of one
new city the size of Boston every 30 days -- stopped gobbling up oil faster than
it can be produced?
Yes, alternative energy is on the rise, but it will be years until commercial
applications are widely accepted. In the meanwhile, more and more black gold
will be pumped and burned, the inevitably rising price of which will continue to
be dictated by the basic laws of supply and demand.
Adam Smith move over and make room for T. Boone Pickens.
And what about gold? Asian wedding season has arrived as millions of condemned
oriental grooms prepare to take that long walk off the matrimonial gangplank
(blindfold optional). But not without first buying their girlfriend a very
expensive gold wedding ring! It is estimated that if every person in China were
to purchase a single ounce of gold that there would not be enough global
production to meet the demand for years to come.
For gold to be priced at its 1981 high in inflation adjusted dollars it would
have to be trading at over $1,200 an ounce right now, nearly twice its current
level. And silver? Silver has historically traded at about 1/15th the price of
gold.
Just as gold was spiking in the early 80's, the public rushed in to buy the
barbarous relic with both fists in response to precious metals offers on TV from
the same advertising houses that brought you OxyClean and the Chia Pet.
Here at the Institute where we take a real shine to precious metals (and not
just to remove tarnish), we like silver best for many reasons. First, it's more
volatile than gold and moves faster when the metals are moving overall. Second,
it has never been confiscated by Uncle Sam. And third, it takes up more space
than the same dollar amount of gold so your pile looks bigger and makes you feel
wealthier overall.
On a more practical note, if gold does hit $2,000 an ounce and the U.S. economy
experiences the type of monetary crisis that periodically makes doom-and-gloom
book publishers wealthy, what will you do with a $2,000 gold coin? Trade it for
a tank of gas? A bag of groceries? A case of Winchester Silver Tips?
A silver coin at $100 an ounce (don't laugh, we'll get there some day) can buy
you the everyday things you need, plus it's recognizable to local merchants
because it looks like more like the 'money' they've been conditioned to accept,
which is basically anything round and silverish in color with a picture of a
buffalo or a former president on it, although we'll skip discussion of the
obvious similarities.
A currently circulating example of faux 'money' are those clad bimetallic slugs
called 'commemorative quarters' which contain virtually no silver except a
little bit that has been airbrushed on the outside for show, and have no more
intrinsic value than a subway token. But at least they *look* like money, and
that's true of a bullion silver coin as well.
Making money in the markets is all a matter of rhythm. When things undulate, you
trade their undulations. When things stop undulating, you trade them within a
sideways channel, using support and resistance as your boundaries of fear and
greed. When they begin to undulate again, you trade their breakouts.
Oil, gold, silver, houses, pips, markets moved by the actions of politicians,
natural gas (but we repeat ourselves) -- to a trader they're all basically just
something to trade as an alternative to being bored, doing real work or getting
into trouble.
So don't just sit there, find something to trade! Got some old junk lying around
the house? Sell it on Ebay. Use the proceeds to buy oil stocks.
Kids left for college? Who needs an empty bedroom? Sell all their furniture and
buy some silver. When they come back home (and they will) they can sleep on the
floor on an inflatable air mattress.
Got a garage full of junk? Hold a garage sale and buy some more silver. When
oil, gold and silver finally exit the solar system, don't just thank us.
Remember the Institute in your will. ;-)
|
