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TMFAleph1 (94.05)

The Bull 'n Bear on Silver Decline

Recs

15

May 04, 2011 – Comments (11) | RELATED TICKERS: SLV , GLD

Last Friday, I published two articles defending the idea that both gold and silver are in bubble territory and that their prices could suffer substantial declines (on the order of two-thirds, according to my calculations).

Between Monday and Friday, silver fell 12%.

What does this mean? Absolutely nothing. I am not a seer and I was careful to point out that I have no ability whatsoever to time a deflating bubble. Furthermore, given the surge in activity in the silver market, incresed volatility -- upward and downward -- is to be expected. There is every reason to believe that gold and silver could go on to new highs from here

It's interesting to note that silver's fall made the front page of the Wall Street Journal; this is evidence of nothing, but I think it is symptomatic of a bubble. The article went on to point out that some very savvy hedge funds have been selling their gold positions. Soros Fund Mangement and Passport Capital are reportedly acting on the basis that deflation has been avoided and the Fed will need to raise rates relatively soon (i.e. 2012). As Heard on the Street points out, rising real rates will act like a pin to these precious metal bubbles. I share this view.

It is notable, however, that John Paulson, he of the Greatest Trade Ever, believes that gold could go to $4,000 within the next 2-3 years.

I've been doing some more work on silver and gold. Results to follow.

Enjoy your day!

Alex Dumortier

Word count: 247

 

11 Comments – Post Your Own

#1) On May 04, 2011 at 1:47 PM, ryanalexanderson (< 20) wrote:

Looking forward to your upcoming results. 

Ryan

Word count: 9

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#2) On May 04, 2011 at 2:13 PM, awallejr (80.13) wrote:

I don't see Bernanke raising rates in 2012 since the Housing crisis still has a long way to go and unemployment is not dropping quick enough.  He might, however, change the language by then away from "an extended period of time."

Interestingly who do you want  to bet on John Paulson or Soros?  Unless Soro's move could be short term profit taking in which case both could be right.

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#3) On May 04, 2011 at 2:40 PM, buffalonate (96.91) wrote:

Last week I called the pullback and bought 3x bear funds tza and sqqq.  TMF BullnBear said I was stupid and guaranteed to lose money.  I made my 10% in less than a week on both of the bear funds.  With oil as high as it is the market is not going much higher and there will probably be a lot of volatility over the next few months.  Every time the market goes up for a week or so I am going to short and take advantage of the inevitable volatility. 

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#4) On May 04, 2011 at 3:50 PM, blake303 (29.89) wrote:

buffalonate - Do not equate luck with intelligence. Leveraged ETFs are a stupid "investment", even if they temporarily work in your favor. 

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#5) On May 04, 2011 at 4:19 PM, buffalonate (96.91) wrote:

When the market goes up more than 4% in a month, oil prices are above $100, and gdp growth has slowed to 1.8%, the probability of the market going higher in the short-term is very small in my opinion.  I bought 2 different leveraged financial etfs at technical lows a couple of weeks ago and they were both highly profitable too(fas and kru).  I got out of those with a 6% and 12% gain 2 days ago.  If the technicals and fundamentals line up leveraged etfs are easy money. 

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#6) On May 04, 2011 at 8:58 PM, TMFAleph1 (94.05) wrote:

@buffalonate

I didn't say you were stupid, nor did I say you were guaranteed to lose money on one specific trade.

I did say your hubris was breathtaking and that you will, with near certainty, end up losing money on the part of your portfolio you dedicated to trading 3x inverse ETFs.

If the technicals and fundamentals line up leveraged etfs are easy money.

This kind of statment is the height of absurdity. There is nothing easy about speculating with leveraged ETFs.

Alex Dumortier

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#7) On May 04, 2011 at 9:22 PM, checklist34 (99.79) wrote:

i covered my silver short today, made the better part of 1% on my portfolio, so it was a small trade.

i don't think, regardless of fundamentals (and I don't disagree with your position that eventually both silver and gold will go down a long way from here, adjusted for inflation) that run in silver is over.

a huge mistake of mine has been to underestimate the resolve and zealousness of the PM lovers.  They are devoted, they are legion, and I don't think they are done right now, right here.

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#8) On May 05, 2011 at 8:52 AM, whereaminow (58.64) wrote:

WE ARE LEGION!!!

rofl, what rank am i? can i be a colonel?

David in Qatar

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#9) On May 05, 2011 at 9:12 AM, buffalonate (96.91) wrote:

I only make leveraged etf bets when there is an obvious opportunity.  For example if the market has a major pullback I will buy a 3x smallcap bull etf because the market will bounce back over the following week.  If the market goes up 4% in one month and the economics news is mediocre the odds are in my favor there will at least be a temporary pullback.  In the last  month I am up 43% on my leveraged etf bets and I hit on all 5.  I will inevitably lose money but on average I will be highly profitable because I am highly selective with my bets.     

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#10) On May 05, 2011 at 12:16 PM, TMFAleph1 (94.05) wrote:

Strongly recommend you read Fooled by Randomness.

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#11) On May 05, 2011 at 12:28 PM, Momentum21 (98.13) wrote:

...or the Psychology of Judgment and Decision Making (Plous)

Perceptions of Randomness

Does your Mom know you are making these bets with her money Nate? She is going to revoke your internet privileges. : )

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