Bought HIG June 14 puts at 125. 11:52 am. (RT)
It is mildly amusing that when the precious metals markets are in confirmed up trends that the perennial debate of whether it is best to own gold or silver always comes to the fore. Both gold and silver, historically, have been money (merely utility in exchange). Gold in nature is approximately 15 times as scarce as silver. All the gold mined since the dawn of man, if molded into a cube, is said to fit inside a baseball diamond. Silver would nearly fill the stadium.
China, now the world’s largest gold producer, had silver standard as gold was more plentiful in China than silver. A bias that the West took full advantage of up through the 1870′s. Silver imports by the Spanish Empire from their New World holdings were so large that it collapsed the European silver market. England, then on a bi-metalic standard, quickly switched to a pure gold standard. The Spanish Empire never recovered from the experience.
In the United States, the debate raged incessantly as to how the ratio would be “fixed” after the discovery of the Comstock Lode with western mining interests best known champion, Senator Williams Jennings Bryant, being the foremost proponent of a lower ratio. Seems it is an old debate. The good news is, you can own both. If/When the world returns to honest, stable money, you will need both. Gold for the larger acquisitions and silver to make change.
While we await such an event, ratio trade the two metals to increase your holdings of precious metals.The ratio fluctuates wildly over time. In the 1970′s and 1980′s I used 28:1 and 40:1 as points that I would switch. At 40:1 I would be in silver. When the ratio dropped down to 28:1 I would exchange silver holdings for gold. Each time I switched, my stack of precious metals would increase in size even after dealing with the spread. Find a precious metals dealer who will work with you on that. You maybe able to locate one that will only charge the spread on one of the metals and not both when you switch.
Since then, the ratio has moved up. At one point it was even at 100:1. I now use 45:1 and 70:1 as switch points. See your tax accountant as to the benefits of such a program. Think 1031 Tax Deferred Exchange. For those who do not want to break the rear axle of your automobile moving your silver when it comes time to switch, think about using ETF’s that solely reflect the price of the two metals. There are a variety of ways to accomplish this. From being in just one or the other to being long one and short the other.
IF your objective is to accumulate the actual physical metals, do not use ETF’s as a substitute for physical ownership. Rather, take profits from your switching trades and purchase the actual metals themselves. Gold vs. Silver? No debate, accumulate both. Disclosure: long physical gold and silver
My outlook remains bearish. We have a holiday shortened week but a quick review of last week’s market is revealing. Last Monday (5/18/2009) we had a large gain. During the week, this gain was retraced in its entirety. That, in and of itself, is not all that unusual. However, the manner in which it happened does not bode well for the general market averages.
With the exception of Thursday (5/21/2009), the popular averages started each day out higher. As each trading session progressed, sellers took control and prices dropped. Looking below the surface, what this means is the upside momentum has been arrested.
Markets that start out strongly and then decline are bearish. Market participants are selling the rallies, not buying the dips as we have seen since the March 9, 2009 “intermediate” bottom. These are all signs that the rally we have witnessed smacks of massive distribution. Market makers and specialists selling out stock accumulated at or near the March lows and almost record corporate insider selling. How else can this be done except into rising prices? That was accomplished by Goldman Sacks, Morgan Stanley and JP Morgan by aggressively hitting offers on ever decreasing size (thus the lower than normal volume).
One can also speculate that this rally was engineered for the purpose of creating a climate for the successful equity offerings of the impaired finacial institutions we have just witnessed. An analysis of the various sectors show that only commodity based sectors (most especially the precious metals) fared well last week. It is also of note that we had a small change reading Friday (5/22/2009) on the McClelland Occilator which alerts us to the high probability of a major move in the popular market averages within two trading sessions.
DOW numbers to watch are 8,574 (its recent high) and 8,002 (50 day moving average). My perception remains that this has been/is a major rally within the confines of an on-going bear market. Got puts? But stay alert and stay nimble.
I will log in trades as soon as humanly possible after execution. These will be actual trades that I have done. I will limit these posting to options for the most part with a few equity trades as well. These will be, for the most part, trades held overnite at a minimum.
I day trade predominately and those, for obvious reasons, will not be posted. Word of warning: as these option trades will be naked buys, IF you take these trades, risk parameters should ALWAYS be observed! I personally, typically, limit losses to 30-40% of the option buy price. IF you cannot monitor option pricing during trading hours, your results may differ radically from those posted here. I base stop losses on the actual price of the option itself, NOT the underlying security.
The purpose of these trades is to grow trading capital as quickly as possible. DO NOT commit more to any position or the entire trading plan than you can afford to lose. This is speculation. NOBODY knows what happens next. Even though we will attempt to limit our loses, the size of each position as well as the total trading capital committed should be carefully considered by each individual. I will post the time of the trade and the execution price but not the size of the trade.
A Possible Solution
May 10
I would like to propose a solution to the multiple systemic problems now facing the United States. A solution so far, not discussed. Since this country de-pegged from gold in August of 1971, we have been on a long road to bankruptcy.The “dollar”, as the world’s reserve currency has been progressively abused by imprudent fiscal and monetary policy. The debt burden imposed by this on government from the national to the local level is intolerable and will never be repaid. The debt burden that the citizenry toils under is even more intolerable.
Solution: Declare ALL debt both public and private null and void. Complete the bankruptcy proceedings started nearly 38 long years ago.
What would this mean? It means that what ever real estate you now own and owe on is free and clear of debt. It means that your credit card balance drops to zero and your credit card is canceled. It means that your car loan is also canceled. It means that there is no longer any sovereign US debt.
Why not? The Chinese did that in 1949. The Russians have done it twice and Argentina does that every few years whether they need to or not. Means that no state government, county government or city government any longer has any debt. The downside: raises the question of moral hazard. Prudent individuals who did not take on debt would get no direct benefit. Also, lenders, both institutional and individual would be wiped out. But think of the upside, even for those prudent individuals who did not directly benefit from debt relief. Onerous tax burdens would be lifted.
As a bankrupt, we would be back to cash and carry. Only see upside from that. This country in a very short period of time, became the industrial engine of the world. A feat unsurpassed in history as this country became the envy of the planet. ALL done without ONE credit card or one HELOC.
Of course, there would be no money left as all “dollars” in existence (other than in coin collections!) are created out of debt. No real problem there, either. The US Mint holds in excess of 250,000,000 ounces of gold. That gold belongs to the people of this country, confiscated from them in 1933. This does NOT count any gold that may or may not belong to the people located in Ft. Knox (no audit there since President Eisenhower) or the gold “lent” to the Federal Reserve.
M Zero (currency and coin in circulation) and M1 (demand accounts) would be backed by said gold belonging to the people. To ensure on going monetary and fiscal discipline, said gold currency, issued by the US Treasury, would be freely redeemable in gold specie at the conversion rate established based on the amount of gold vs. M zero and M1. Then this country could get back to work creating REAL wealth which is the production of goods and services that people want and need.
Just an idea. What do you think?
Wrong as far as last week’s projection. The market continued to advance albeit at a slower pace and continues to widen the bearish flag. As a day trader, I trade what I see and not what I think. Fairly balanced number of day trades to the downside as well as the upside and profitable..
Stress test results release has been postponed from May 4th to May 7th after the close. Disputes with various banks seem to have arisen. The worst case scenario for stress test have already been met by actual conditions as reported by both the Fed and the US government. We have/are witnessing a rally of historical proportions, of that there can be no doubt.
The market has yet to make its case that this is the beginning of a new bull market. We have lows beneath lows currently which is the definition of trend from the intermediate to long term. This remains a bear market rally. February highs have not been surpassed. After that (should it happen) there are the January and election highs to be overcome. Abby Cohen of Gollum Sucks (GS) has posted a projected high for this rally of S&P 1050.
If the quant studies and Zero Hedge are to be believed, a preponderance of this rally has been fund activity, mainly GS and MS. Add to that massive short covering and it is apparent that sideline money is not largely involved in this rally. Add to that the April 15th effect of money flows into IRA, Keogh accounts (never committed to the short side) and this week could well see the start of a tradable move to the downside. Downside projection is between 5-8% which would put the S&P between 805 and 835.