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1.
What is the definition of leverage? Seek the definition
that makes you richer in the market, while chopping risk. How is that
possible?
2.
The sentence, "He's leveraged his position with
this new information" is a description of leverage that is not
borrowed money. If you invest 70% of your net worth in a few junior gold
stocks at a single point in time, you may be correctly labelled
as somebody trying to leverage your net worth position with a junior gold
stock tool, even though you used no borrowed money to do it.
3.
There is a horrific misconception in the gold community
that because the dollar is intrinsically worthless, therefore the amateur
investor should make some sort of "charge of the light brigade"
move into gold and related investments, with enormous blocks of their net
worth, often at single points of price and time. Some borrowed against their
homes in 2006, and bought junior gold stocks with the proceeds. Many have
become bitter or severely depressed, emotionally.
4.
Unlike the actions of the general public in the 1990s
general stock market, these gold community investor actions in 2005-2006 were
not really greed-based. The bottom line in most cases was fear-based action;
fear that the dollar and even the financial system were going "off
the board" or at least "into the tank".
5.
That fear is the root cause of the "great gold
community blowout" that followed the highs of 2006, as gold soared
from about $700 in 2006 to over $1900 in 2011, while junior gold stocks
wallowed. While errors were made by investors, I don't believe the analysis
of the investors was incorrect, and what happened was an error of
applying incorrect tactics to correct analysis.
6.
There have been moments in time where gold stocks have
appeared set to vastly outperform gold bullion, on a long term basis. One of
those moments happened into the highs of May 2006, another into the highs
2008, and yet another into the recent spring highs that saw GDX flirt with
"going parabolic", before being dashed on the Europe crisis rocks.
7.
These moments in time carry much more significance than
most investors realize, and it is critical to work to understand what was
really happening at the time. Try to balance the fundamentals of these
situations with what happened technically, rather than boarding just one ship
or the other. Your analysis was far more correct than you are giving yourself
credit for, but you simply applied the wrong tactics to "engage the
dollar bug enemy", in action on the gold stock battlefield.
8.
In 2008, investment banks and other OTC
derivatives-laden entities were being taken over by the major commercial
banks and government. Gold stocks were on the verge of going parabolic as
gold traded just above $1000. That "near-parabola" was real, and no
gold market investor can be faulted for believing the parabola was at hand,
because it was. One after another, insurance companies, mortgage companies,
and investment banks were taken over by either major commercial banks or by
government.
9.
Lehman brothers was the single exception to that
takeover rule, and that one situation shed light on just how massive the
entire OTC derivatives garbage dump really is. If Lehman was bought out,
instead of being left to implode, gold would have reached the $1920s area
highs far sooner, and far more violently than the manner in which it
ultimately did climb to $1920.
10.
While Lehman imploded your parabolic plans, the fact is
that the OTC derivatives contracts that were marked to model in 2009 have not
gone away or "matured like bonds". Blown OTCDs remain the rocket
fuel that should eventually propel the price of gold many thousands of
dollars an ounce higher.
11.
Ask yourself whether you think you got it "all
wrong" in 2008, or whether the Lehman event simply showed you how big
the OTC derivatives horror really is. Lehman was not a lone OTC derivatives
wolf. There are far bigger OTC derivatives players
who now would be in far more marked to market trouble than Lehman was, but
because the contracts are marked to model, there is no transparency of the
seriousness of the situation.
12.
There may be no transparency, but that doesn't change
the fact that the OTC derivatives are there. Nor does the lack of transparency
change the fact that no amount of medium term economic growth can fix this
situation. There is no fix.
13.
As an investor, it is important that you stay focused
on price points of buy action in the gold market, rather than basing your buying and selling on analysis. There are much bigger
landmines than Lehman that could implode, and you can't predict these
implosions in advance.
14.
It's very hard for the average gold community investor
to analyse the fundamental factors that could send
gold "parabolic", and separately compartmentalize your tactical
actions. Focus as hard as you can on the mindset of the Asian investor,
who seeks to buy gold at the lowest paper currency price possible, and has
very little interest in selling large amounts of gold, regardless of any
possible "Lehman Two" type of event that is projected by anyone.
That's a big emotional step, but it must be taken.
15.
Wealth is built in buying the highest quality assets at
the lowest possible prices, not in projecting parabolas or tops in the ultimate
asset. Gold doesn't need a higher price to prove itself as the ultimate
asset. Still, the OTC derivatives crisis is not over, and is accelerating.
Picture silver rising to say, $500 an ounce, and then crashing to $100, and
then soaring to $700. Are you really prepared to analyse
your way through this crisis with huge gobs of your net worth on the line, as
gold stocks and silver go into a "free fall of free falls"?
16.
Expose yourself to the upside of gold and related items
in this crisis, but understand that "surprise" is the single most
important theme of this crisis. Focus on that word more than any other, if
you are serious about getting richer. Make surprise, not prediction, your
greatest market ally, because it is your greatest market reality.
17.
You were told that the Egyptian revolution was all
about democracy. Now, just months later, you see a million members of the
"Bin Laden fan club" marching in the streets chanting, "no democracy", and waving pictures of Binny boy. It feels like the banksters
and Gmen have tied Israel and the Mid-East to
strings and are swinging them into each other, in a high stakes (for the
citizens of both areas) game of war-mongering. Surprise is the theme of this
crisis. Embrace surprise, and plan all your market actions around this theme,
or you won't be coming out the other side financially intact, if at all.
18.
Probably 5% of the gold community is capable of being
100% invested in gold and silver, and laughing their way through all
surprises, from now until the end of their time on this planet. For the other
95% of you, separate your tactics from your crisis analysis, and focus on the
theme of surprise. The analysis of the 5% can't work to make the other 95%
richer. It's about who you are, not about where gold is going, but few understand,
so few will get richer.
19.
Surprises are going to get bigger and
"meaner", as the crisis accelerates. Do not replace your
preparation for surprise with attempts to analyse
your way through a financial (and budding geo-political) hurricane. 95% of you
are not the 5% who can endure any and all drawdowns and laugh, so
therefore 95% of you need to have risk capital allocated to buy deep areas of
the surprise zone, at all times, not just when your favourite
analysts say it will or will not happen.
20.
Click this oil chart now.
Look at the price soar! Whether you predicted oil would soar or thought it
would tank really doesn't matter, when it comes to tactics. Click this oil tactics chart
now. The red HSR (horizontal support and resistance) lines are your
"Surprise, it's time to sell!" points, if you bought into the
downside surprise zone. Price could reverse and blow out the lows at $75. Are
you prepared to buy that surprise, if it happens? Or are you going to be
wallowing in analysis? The only way to prepare yourself
is to have risk capital available now, to manage these surprises when they
occur.
21.
Never forget the power of marking OTC derivatives to
market. The price of any asset can be plunged deep into the surprise zone at
any time in this crisis, and likely will be, over and over again, for years,
and perhaps decades, to come.
22.
Let me be very clear about what "space helmets
on" means, in the market. There is an erroneous linking of the term,
"space helmets on" with the term, "back up the truck". I
don't back up trucks, ever, in the market. Backing up the truck refers to
investing enormous amounts of risk capital at single points of price or time.
"Space helmets on" refers to holding your existing positions for
what could be a potentially parabolic type of move, rather than trading them
out for small gains.
23.
None of you in the gold community made an analytical
error putting your space helmet on in 2006, 2008, the fall of 2010, or the
spring of 2011. Gold stock parabolas were very possible at those points of
time, as were price corrections. The error was made in plopping huge blocks of
net worth into gold stock positions at those points of time, not in holding
your ground. Have some pride in your analysis, but add the necessary
tactical action to match it.
24.
Some of you just burned a good chunk of risk capital in
your 10,000th attempt to top call the Dow in a dollar crisis. That capital
could have been allocated to buy gold bullion, in the latest surprise zone.
Click this gold bullion chart
now. I've talked about how the head & shoulders pattern that appeared on
gold between $680-$1033 looked like it was sculpted
by Michelangelo. Just as you walk up and down a staircase on stairs,
not predictions, so you must operate in the gold market with a staircase of
buy and sell action, rather than predictions. If Michelangelo is rumoured to have created the gold bullion h&s pattern, I have to surmise that perhaps it was
Leonardo da Vinci who created the even greater staircase horizontal support
and resistance lines you see on this chart! Look at support and resistance as
art, because it is, if you really understand what the gold asset is.
When the choice is between predicting what's next for gold in the OTC
derivatives zone, and looking at gold bullion art lines, and taking action
there, the only question is, are you onside?
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and I'll rush you my free "Van Gogh Silver" report! Say good-bye to
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Thanks!
Cheers
St
Stewart Thomson
Graceland Updates
Email: stewart@gracelandupdates.com
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