Saturday, September 3, 2011

Next up…the precious metal and energy commodity blow up...

Nobody can believe that an ever decreasing availability of a resource can do anything but drive prices to stratosphere. Even sophisticated investors like Jim Rogers are falling into this trap. The fact is that there is a lot in common here, not with the behavioral dynamics of supply and demand, but much more with music.

This process is a dance and no symphonic dance can crescendo into the infinity of ever perpetuating grandeur - there will always have to be a cadence of some kind - a resolution, if you will. The fact is that when you cross over the threshold at the top of the exponential curve, the trip stops and the dance begins. That dance is the dance that finds all the appropriate reasons, moves and momentum to both drop demand and prices, all while supply continues to perpetuate its illusion of unavailability. We are in the Coda (a musical term and structure) of this dance now. Gold, Silver and various Oil products are nearing the point at which they will not simply drop in price - but collapse. This is totally contrary to every fundamental that you could possibly use to underpin a decision to own them…but as I have said fundamentals are relatively useless for making "people" decisions - which is essentially what investing is…people are NOT rational remember.

The condition in these markets is not different, in many respects, to the total misunderstanding that Marc Faber, Bill Gross, the Gold and Silver promoters at Zerohedge and Jim Rogers have had regarding the behavior of US Debt. While I respect them, especially Marc and Jim…I have to say that money dynamics and the nature of credit psychology tends to totally distort expected behavior of people en-masse. At this time, precious metals and energy are build of the framework of a credit driven dynamics. It does not matter that Eric Sprott, a total charlatan in my opinion, thinks that he is paying for his gold in cash and taking its delivery physically…the foundations for the prices he is paying and the psychology of the people deciding those prices are build on the flimsy framework of a very sloppy matte of credit. As I have said many times…technically credit is money…however there is a big difference as to how people spend credit and how people spend money…these markets are prime examples.

You can rest assured that I will have equally rewarding shorts in these markets as my systems call them in the near future. We are up big (well into the double digits on average) so far this month…and I expect these markets to offer a dramatic opportunity in the very near-term.

Again, this is not a time to rest on laurels, hopes or impressions - it is a time to be very careful.
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