Title Here
By Gordon Philips, Director of Trading and Research
Institute of Higher Earning
The theme of today's issue is about getting rich doing nothing discernibly
productive other than chasing pips and other symbols across our trading
screens.
Today we will consider the subject of undulations. No, we are not
envisioning a trip to Hawaii. What we have in mind is markets and what to do
when they are moving.
Gold has dipped to an attractive buying level, as have both silver and oil.
The drop from the May peak is more like a free fall correction in natural
resources and metals than an undulation, but nevertheless offers a great
entry price if you have not yet joined the parade of those who put
increasingly less faith in paper promises to pay.
The Fed has paused hiking rates which the stock market will likely soon
interpret as strongly bullish. This should create a nice upside undulation
with the market likely testing new highs before the reality of recession
sets in later in 2007. That secondary undulation could take us to new lows
which we will faithfully trade as well.
Meanwhile the dollar, which was cut loose from its financial moorings in
1971 when Tricky Dick Nixon abandoned all pretext of monetary integrity and
closed the gold window, appears ready to resume its heroic march to the
basement.
Profiting from this could be as easy as buying a CD at Everbank.com held in
a basket of foreign currencies which will likely rise at least as far as the
dollar will likely continue to fall.
These are all very exciting developments for us here at the Institute where
we can only trade things that are moving.
Remember that scene in Jurassic Park where the professor tells the terrified
children to hold perfectly still so that the binocularly impaired T. Rex
can't see them? We know just how the poor beast felt. How can we take a bite
out of a market that is holding perfectly still? But let that market begin
twitching one way or another and dinner is on the table.
Take oil for example. The price of a barrel of crude just dipped below $60.
Tomorrow's release of consumer confidence data will probably indicate a nice
pop to the upside as holiday season fast approaches and consumers who are
twitching to spend welcome a drop in gas prices at the pump.
But have China and India -- which combined are building the equivalent of
one new city the size of Boston every 30 days -- stopped gobbling up oil
faster than it can be produced?
Yes, alternative energy is on the rise, but it will be years until
commercial applications are widely accepted. In the meanwhile, more and more
black gold will be pumped and burned, the inevitably rising price of which
will continue to be dictated by the basic laws of supply and demand.
Adam Smith move over and make room for T. Boone Pickens.
And what about gold? Asian wedding season has arrived as millions of
condemned oriental grooms prepare to take that long walk off the matrimonial
gangplank (blindfold optional). But not without first buying their
girlfriend a very expensive gold wedding ring! It is estimated that if every
person in China were to purchase a single ounce of gold that there would not
be enough global production to meet the demand for years to come.
For gold to be priced at its 1981 high in inflation adjusted dollars it
would have to be trading at over $1,200 an ounce right now, nearly twice its
current level. And silver? Silver has historically traded at about 1/15th
the price of gold.
Just as gold was spiking in the early 80's, the public rushed in to buy the
barbarous relic with both fists in response to precious metals offers on TV
from the same advertising houses that brought you OxyClean and the Chia Pet.
Here at the Institute where we take a real shine to precious metals (and not
just to remove tarnish), we like silver best for many reasons. First, it's
more volatile than gold and moves faster when the metals are moving overall.
Second, it has never been confiscated by Uncle Sam. And third, it takes up
more space than the same dollar amount of gold so your pile looks bigger and
makes you feel wealthier overall.
On a more practical note, if gold does hit $2,000 an ounce and the U.S.
economy experiences the type of monetary crisis that periodically makes
doom-and-gloom book publishers wealthy, what will you do with a $2,000 gold
coin? Trade it for a tank of gas? A bag of groceries? A case of Winchester
Silver Tips?
A silver coin at $100 an ounce (don't laugh, we'll get there some day) can
buy you the everyday things you need, plus it's recognizable to local
merchants because it looks like more like the 'money' they've been
conditioned to accept, which is basically anything round and silverish in
color with a picture of a buffalo or a former president on it, although
we'll skip discussion of the obvious similarities.
A currently circulating example of faux 'money' are those clad bimetallic
slugs called 'commemorative quarters' which contain virtually no silver
except a little bit that has been airbrushed on the outside for show, and
have no more intrinsic value than a subway token. But at least they *look*
like money, and that's true of a bullion silver coin as well.
Making money in the markets is all a matter of rhythm. When things undulate,
you trade their undulations. When things stop undulating, you trade them
within a sideways channel, using support and resistance as your boundaries
of fear and greed. When they begin to undulate again, you trade their
breakouts.
Oil, gold, silver, houses, pips, markets moved by the actions of
politicians, natural gas (but we repeat ourselves) -- to a trader they're
all basically just something to trade as an alternative to being bored,
doing real work or getting into trouble.
So don't just sit there, find something to trade! Got some old junk lying
around the house? Sell it on Ebay. Use the proceeds to buy oil stocks.
Kids left for college? Who needs an empty bedroom? Sell all their furniture
and buy some silver. When they come back home (and they will) they can sleep
on the floor on an inflatable air mattress.
Got a garage full of junk? Hold a garage sale and buy some more silver. When
oil, gold and silver finally exit the solar system, don't just thank us.
Remember the Institute in your will.
