|
December 12, 2005
Wrong on Gold
I have recommended shorting Gold twice
since mid-September and have been wrong on both attempts.
Several months ago, with seemingly everybody all over Gold on
the buy side, and with all the press there was about $500 Gold being
almost a certainty, I just couldn't imagine the masses being proven
right....But they were....and I was dead wrong. I am now
on the sidelines in Gold....
I would add this is an excellent example of why I
constantly make recommendations using the Both Sides Strategy. The
following quotes are from the "Philosophy" section of our website:
"Our experience is, when most
people (ourselves included) are wrong, they are very wrong.
Not only does the market not move in the direction they anticipated,
many times it goes exactly opposite their opinion in a big way. We
find, if we are wrong, using this strategy, even a moderate move the
wrong way may get you most, or all, of your money back."
"If you are truly right in the
market, you will lose the money you spent on insurance, but you will
probably not miss it. If you are right, as a function
of the leverage you work with, you have an excellent chance to make
enough on the trade to see the insurance as only a small relatively
small cost of doing smart business."
With Gold having rocketed almost $60.00 since October 7th
when we re-entered on the short side, using the strategy with just
about any reasonable combination of puts with calls (as the defense)
would have easily gotten you 100% of your money back, and most
likely would have done so before even half of this $60.00 move had
taken place.
If you are interested in a more extensive discussion of the Both
Sides Strategy, click here to go to our
main page and scroll down to the "Philosophy" section of the
website.
Buy Cotton
I have been sitting on Cotton since
Sept. 6th and have watched it do nothing but consolidate sideways.
While frustrating, my experience has been this only increases the
odds that a large move is more imminent and absolutely believe it
could begin any day or week now. On the plus side, this
has decreased option volatility, meaning much cheaper option prices
and considerably more leverage than was the case several months ago.
During the past 30 years, Cotton has
averaged a 20 cent range between now and July, meaning
it MOVES, making this about as good a "2 and 1" as you will ever get
in this business. Cotton is typically a BIG mover and with China
currently gobbling up one out of every three bales the world
produces, my guess is somewhere in the next 12 to 18 months we'll be
talking about $1.00 Cotton as opposed to the "we'll never use it
all" mentality I currently see written about everywhere.
Using the Both Sides Strategy, I will stay long this market, no
matter what it does. I continue to think a MAJOR bull move is
coming.
Sell/Short Copper
I have been back on this one since December 1st
and not much has happened. There's not really much new to say here
except to again point out Copper prices are at stratospheric levels
and this market has had a historical tendency to just
collapse when the downturn finally does come. I continue to
recommend shorting this market using either futures or the outright
purchase of put options in the March 2006 contract. I think Copper
could break 50 or 60 cents VERY quickly.
For more comment on Copper, click
here to see our December 1st newsletter, or access it and other
Copper related newsletters under "Newsletter Archives".
Buy Treasury Bonds
I continue to see Treasury Bonds
going higher (as long term rates go lower). With seemingly
the whole world expecting exactly the opposite (higher long term
rates) this idea may sound insane, but, as I've pointed out many
times before, I consider Bonds to be THE CONTRARY OPINION
MARKET....This is important as when opinion in any market
becomes as one sided as it currently is in Treasuries, it can
dramatically change the fundamental supply-demand equation out
in the future. As one example, when everyone is "certain" rates
are going higher, many institutions, corporations or individuals
who expect to borrow in the future go ahead and get it done now
(as opposed to waiting when they "know" it will cost them more
in the future). This leads to borrowing pressure down the
road being less than expected, the result being, lenders end up
reducing rates as they compete to attract new borrowers...This
is just one small example, and an over-simplification, but it is
one of the very real factors in moving Bond prices up and down.
For more extensive comment on why I am
bullish on Treasury Bonds, I have combined excerpts from our
Oct.7, Oct. 14, and Nov. 8 newsletters
which can be accessed by clicking here or under "Newsletter
Archives" on the website.
I am still buying March 2006
Treasury Bonds and believe the low made roughly 5 weeks ago was
THE low. I see the trade noted below as
another "perfect 2 and 1", as, if I am wrong, I would expect to
see Bonds fall sharply enough through that recent low that
getting 100% of your investment back should almost be a given.
Conversely, if I am right, and Bonds have turned
higher, I would expect the rally to initially carry, at least,
to the 118-120 area.
Thanks...Give me a call if you want to know more about any of
this...
Bill Rhyne
800-578-1001
770-514-1993
|
|