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The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.
The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don't trade.
Trading for the short gain is a thing unto itself. This is why I say that one does not ask traders what to do when shaping their long term public policy, or draw serious economic conclusions from short term market movements. I have to admit that economists themselves, joining the ranks of most politicians and regulators, have a fairly poor track record of late on influencing public policy, but that is a matter for disgraced professions to mull over while they try to talk their way around another financial mess which many of their members actively helped to create.
If you wish, take well thought out long term investments and hold them in a reasonably constructed portfolio appropriate for your objectives. The markets are particularly dangerous now because they are awash with easy money and wilder than the statistics show due to complacent regulation. Everything in this life involves risk. These days things are often not as they appear, and even cash is not without risk. Life is a school of probability.
It is particularly hard to describe currency risk to Americans because most of them have never been outside their country except perhaps for an insulated holiday on the Pax Americana. A surprisingly large number of the Yanks do not own passports, except lately perhaps for purposes of domestic identification. Quite an innovation, to need a passport to go about your business in your own country.
I am not saying that this insularity is a bad thing necessarily, but a phenomenon that subtly but profoundly influences group thinking, the cultural weltanschauung.
And it can be the strength of a nation when it mobilizes to action, but also the weakness, the downside of a relatively isolated and homogenous society, as in the case of an island, ethnic group, or otherwise relatively inward looking society, easier prey for demagogues, and psy ops, and the flattery of frauds. Care for another helping of freedom fries?
But this self-containment is understandable. After all, it is a big and very diverse country, full of natural beauty, much given to the rewards of exploration and travel, a study in itself. And the people are on the whole hospitable, remarkably unpretentious, easy going, and friendly. The country has the gift of virtual self-sufficiency if it were to once again seek it. And it would be the world's loss.
This idea of education and experience is not to say that people need to be geniuses to be people. One of our girls is not quite the sharpest tool in the shed, but she is undoubtedly wise beyond her years, in an almost wonderful way, because she has been gifted with an enormous power of empathy and common sense. Each one can be beautiful in their own ways if you have an eye to see them as they have been created. Every flower has its own enchantments, varieties, and value in God's economy.
But as for a knowledge of money, unless one's profession has exposed them to practical currency exchange situations, they often have only a cartoon like concept of currency fluctuations and relative values as digits on a screen, an intellectual abstraction.
As one of my old professors used to remark, it smells of the lamp, ie hasty and academic without practical understanding. And give them a little power or good luck, and they can quickly become almost unbearable. One of the greatest benefit of an education is that it will teach you what you do not yet know, it will show you the distant horizons.
"And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy." Hamlet Act 1, sc. 5, 159–167
When a reasonably intelligent person remarks that gold cannot be money because its value fluctuates, while their own currency is doing loop de loops to the downside, and their bonds provide negative returns, you have to wonder, until you realize that they are captive to their self-imposed limitations, their limited personal experience, and education and wisdom have not been allowed to lift them out of their deep wells of subjectivity.
educare, Latin from ex ducare, 'to lead out of, to bring forth'
And this I think is the interpretation I prefer for Dürer's Melencolia I. The exhaustion of knowledge, mechanical prowess without humanity or wisdom, which becomes frustrated by its inability to understand life, and to achieve contentment.
Granted, volatility is unusually high in the markets. But we are in a global currency war. Governments are in the markets, which themselves are awash with cheap liquidity and leverage. What else would you expect?
These are big events, and they will not be resolved in a day, a week, or even months.. Try to maintain your equilibrium, and you may wish to stay out of the way of the giants as they contend with one another. That is easier said than done, because the next financial crisis will be of a much greater magnitude, and everyone will be a participant, one way or the other.
US Ten Year Note does not include interest payments.
With five margin increases in ten days, one could suggest that the CME and their do-nothing friends in the CFTC are machine-gunning the lifeboats, and the refugees from the currency wars.
There is no problem with the exchanges and regulators increasing margin requirements per se, and of course restraining leverage is a good thing. I would just like to see it done more transparently and in a 'rule-based' manner, as opposed to the ad hoc, cronyistic way in which it is done today, most often for the benefit of insiders who control the exchanges, and call for help and rule changes when they get in trouble. And they get into trouble through lax regulation and excessive leverage.
There are 'crash' silver calls down to below 30 to 22 abounding. Keep in mind I sold my short term silver trading positions last week, and was short term bearish. I have just started buying back in to gold and silver yesterday and a little before with hedges. Also bear in mind that this decline is accompanied by a sell off in equities as we had suggested it would. Hence our hedging strategy has worked.
People ask, why do not the sovereign silver and gold bulls, the BRICS, fight this? The answer is that they are long term bullion buyers, and this short term paper strategy benefits them greatly.
I think the comparisons to the Hunt Brothers silver bubble might be a bit difficult to sustain, very big picture to the point of meaninglessness. The circumstances between then and now are very different, with the only thing in coincidence being the technical price action. But a concentrated effort by the government and the banks could write history and draw the graphs to suit themselves.
I think there is more to this than meets the eye. It really centers around a major struggle with regard to international currency, and the methods by which countries denominate their trade, and store the liquid reserves portion of their wealth. This is a currency war.
Certainly there are almost no bull calls for the precious metals here, and only a few neutrals. I am changing from short term bearish to neutral, and holding new light positions, most of them revolving around a few 'special situations.' I am neutral, which implies uncertainty. When in doubt, stay out.
I have touched none of my long term positions.
Let's see how the Non-Farm Payrolls number looks, and how it is received. If there is a liquidation panic in the weeks ahead, then all bets are off of course.
This is going to pivot on the stock market and the Fed's short term liquidity actions. The market swings are being triggered by the opaque and irregular management of the markets and the money supply, and the fraud which still taints much of the financial system. Even the staid Economist magazine is questioning US government economic statistics.
The American oligarchs may be having their own Mubarak moment in the not too distant future.
What has been hidden will be revealed, and what has been whispered will be shouted from the rooftops.
But one day at a time, so let's see what happens tomorrow.
Another down day for US equities, although it is very telling that the VIX is still a very modest 18.20. In other words, although there is a fairly good decline in place, it is not accompanied by real fear, or at least, not yet.
Non-farm Payrolls tomorrow. Unemployment claims shocked the markets a bit this morning.
I think this is a cynical traders' market, dominated by bank liquidity and insiders. That does not make it any less dangerous to the ordinary person or the real economy.
Republicans Shelby and McConnell are refusing to confirm anyone for the Consumer Protection Agency created by Dodd-Frank, unless it is gutted first in a redo of the law. Although the Democrats are hardly real reformers, the Republicans are the fawning servants of the corporate oligarchy.
This adds more incentive for Obama to do a recess appointment of Elizabeth Warren.
Here is an interesting theory on the recent silver run up and correction which someone pointed out to me this evening from a chatboard.
I do not know if his theory is valid of course, and the author allows as much, as more data is required. I doubt even the COT report this Friday will be of use. I like to follow Harvey Organ and Dan Norcini on these matters and will look forward to their weekend commentary.
But what this person is saying is essentially the 'gut read' I had while watching the tape, off and on in recent days.
If the market was correcting because longs were selling out and walking away, why did the CME have to do a 4th and 5th margin increase to make it more difficult to hold long positions? If something is burning of its own accord, why keep pouring gasoline on it, over and over?
Well one explanation is that they want people to cut their losses and not be overwhelmed if the prices continue lower. That is legitimate and I would be very grateful if they were to begin doing that. Too bad that US regulators never seem to do this when it really counts, like with equities and home mortgages and banking leverage for example.
But there was no denying that the parabolic increase was just dodgy. As you may recall I expressed wonder at it, and took my trading profits off the table, to much private criticism in the emails I might add.
And then we saw the repeated late night hits that started in conjunction with the CME's actions to increase margins, market actions that were too obvious to be accidental or coincidental.
I really believe that the core of the problem involves the deliverable ounces at CME, a big looming problem. I think the CFTC knows quite a bit more about the dynamics of this market and its associated and opaque derivatives than they admit. And I believe they are desperately concerned.
I did post a link from Ben Davies this evening in which he speculates that the high prices brought a load of scrap into the market, which is what prices do. But that scrap has not been measured, and it would have happened rather quickly, in a matter of weeks. I do not think the refiners can produce new eligible bars quickly enough even from scrap.
But regardless, it has not really shown up where we would like to see it. And as Ben points out, once this initial influx of scrap, low hanging fruit they like to call it, is exhausted, prices will begin to climb again because miners cannot even begin to adjust supply higher quickly enough. And the market action in the miners continues to be heavy handed and manipulative from my vantage point.
I suspect a lot more of what has entered the market is forward hedging by some of the bigger miners and the bullion banks, who were locking in profits, but ON PAPER.
So a lot of paper silver may have entered the market, but that is not really what is needed. So the exchange and the regulators and the big dealer who are incredibly short feel the need to dampen demand for near term bullion. And by driving down the price they worsen a bad situation IF systemic shortages exist due to years of market underpricing and undersupply. And if that is the case, the short term fix is a longer term poke in the eye with a sharp stick. But few can accuse American management style of a bias to the long term solutions when a lucrative short term fix that becomes someone else's problem is available.
I am just fascinated by this, and cannot wait to see how it resolves and it develops. I am viewing this as one act in a much larger drama, the reforming of the global governance system that has been in place since the end of World War II.
Let's see what happens, and what comes floating in on the tides of change.
And please try to keep in mind what has happened over the past ten years. I am utterly amazed that the US has just passed through one of the greatest financial scandals and frauds in history, and within two or three years is willing to act as though nothing had happened, that it was just some random act of God, and that everything is back to a 'new normal' again. Few prosecutions and shallow reforms. Remarkable.
Well, things are not normal. There is an abscess in the body politic. And the next collapse and crisis which is coming is going to be monumental. And some surely view it as an opportunity to feed their will to power. And perhaps Ron Paul will prove to have been prescient.
"Believe me, the next step is a currency crisis because there will be a rejection of the dollar, the rejection of the dollar is a big, big event, and then your personal liberties are going to be severely threatened." Ron Paul
Let's see what happens, and wait for some stronger indications of what the situation may be. As noted here many times, these are particularly dangerous markets, and only professionals and highly experienced traders should be actively in them.
But there is no charge for watching...
WSB
CME Margin Hike won't matter, The CRIMEX Clowns got stuffed yesterday
wrs - Wed, May 4, 2011 - 08:48 PM
I think I know what happened. I kept thinking that if OI increased on the kind of price drop we saw yesterday, then longs didn't capitulate because if they did, OI would have shrunk.
Here is what I think happened, the Commercials have been decreasing their net short in this latest run up, in other words, they helped it go up by covering short and going long. I believe they were doing that to accentuate the rise and to be able to liquidate their profits and accentuate the drop and cover short when the spec longs gave up. They wanted silver to look parabolic and then fail in order to scare everyone off.
Well it looks like the large specs have held tight, the COT report on Friday should show that the large long specs increased longs and are more net long while the commercials are more net short. Yesterday it was the commercials selling at a discount to the spec longs who just soaked up all the selling the commercials could do.
So today they raised margins again because I bet that the OI didn't drop much today if they had to raise margins again.
This is setting up for a huge snap back rally if my conjecture is close to correct.
The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.
