Learn From Buffett

So I see that silver hit $50 an ounce recently.

A lot of sages have been vindicated on that one - notably Jim Rogers who's long been saying that silver (and palladium) had better ROI prospects than gold.

Check out that chart. Do you see that low in the mid-late 90s?

Around $5 an ounce is where Warren Buffet dumped a ginormous silver investment. That was when breakthroughs in digital photography destroyed the old camera technology which had constituted huge industrial demand for silver. Recall Eastman Kodak's stock (a Dow Jones Industrial component) got absolutely crushed.

So what else is that *sage* doing now that we can learn from?

I say take a good look at Wells Fargo. Buffett, while a long-time investor, arrogantly added to this investment in the high 20s.

To be clear for a few Morons....I'm saying to short the stock just as I am via long-term puts. It's probably time for me to buy some more now that I think of it. (I just did today actually.)

FDR's Ghost, Taxing Gold Again

I believe the story here is not precisely one of a *new tax* but rather one that simply closes an existing loophole. Allow me to explain.

I know someone who recently sold some precious metals they had been hoarding since the apocalyptic 70s. I believe they received a check for the proceeds AND assurance that the there would be no reporting of the transaction to the IRS. Imagine the ordeal of having to dig up your cost basis on gold or silver bought 30-40 years ago!  And then the ordeal of paying capital gains!

With gold the arch-enemy of a fiat-printing, self-enthroned Big Government....how long did you expect this info-loophole to last?

I'd say to still buy the precious metals. After all, you're probably never going to want to convert it back to dollars. It'll be toted to and for exchange in another less-bankrupt country. Or it'll be used to buy food and ammo!

BTW, this is hardly the first attack by slimy pols on a competitive currency.

Back in the Depression, FDR demanded that IRS agents be present at the opening of any safety deposit boxes or something:

"I, as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people."

"Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possession of gold and silver be tendered within fourteen (14) days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe-deposit boxes in banks or financial institutions have been sealed pending action in the due course of law." 

Furthermore, since FDR fathered Big Government, we can still sort of blame him the rank thuggery of slipping gold regulation into *healthcare legislation* today.

See also - Book Rec - The Forgotten Man by Amity Shlaes.

Almost...

As my regular, perceptive blog readers are well aware, I've gotten my clock cleaned shorting this bear market rally. They also know that I have been *not looking* at the markets hardly at all.

So yesterday, I took a deep breath and surveyed the damage for the first time in several days. I punched up CDE, that silver mining POS that I've owned for quite some time. The last time I saw it, it had *run* up to 1.50 or so per share,

Last night I saw the above screen and my heart skipped for a millisecond. I knew that the metals had been running, and that all sorts of crazy stocks were *squeezing*. Could it be? Could CDE really be at 14 bucks?

If so, between the stock I re-bought at .77 and my full inventory of erstwhile wortheless Jan 5 calls I'd have reaped a few hundred thousand bucks.

I said a *millisecond* above because I knew it couldn't be real.

Just then I scanned the news on the margin and saw:

Coeur Announces Completion of 1-for-10 Reverse Stock Split on NYSE.

In other words, the CDE was still effectively $1.42 a share.

Why can't I catch a break? It does happen. Once in a while random traders do get incredibly lucky.

It's probably because, had the stock skyrocketed like that, I would have totally reneged on my deal.

More Golden Analysis

From Briefing.com and Daily Telegraph,

Demand for gold soars as price tumbles - Daily Telegraph (71.71 )

Daily Telegraph reports the onset of a global recession and falling stock markets have triggered a stampede for gold -- the traditional safe haven during times of uncertainty. According to the World Gold Council, exchange traded funds are the main beneficiary of the flight to safety. ETFs experienced their strongest quarterly inflow during the third quarter since the ETFs were launched in November 2004. But the Council added that bullion dealers around the world reported an unprecedented surge in demand for coins and small bars. It said that there had been reports outright shortages of gold and high premiums over the gold spot price. The US Mint temporarily suspended sales of American Buffalo gold 1 ounce coins after its stocks were depleted, while UK, German and Austrian coin dealers have also reported an enormous increase in demand during the third quarter, it added.





The reports of a physical gold (and silver) shortage have been well-documented. In the face of this physical shortage, precious metal futures have actually been dropping precipitously. Gold is down over 30% from its high and silver is less than half it $20+ high spot price from earlier this year.

This only makes sense to the most wacko of gold-nuts who've maintained all along that one should ONLY buy physical metal. For these past few months, they've been absolutely right. Though the physical price has been dropping, too.

So, where do we go from here? A genuine physical shortage just has to be long-term bullish for both metals, does it not?

Though a bear would argue, "Look, even with hoarders loading up on the metals, the prices still are getting hammered. This price action bodes negatively."

I, have no stinkin' clue where the metals are headed long term. Plenty of worrywarts from the previous generation hoarded precious metals; my brother-in-law fondly remembers being instructed by his father to bury a bag of some coins in a hole under their backyard shed. These *prudent bears* and end-of-the-worlders were stuck with these coins and bars and lost money on them for a couple of decades straight.



Now I did nibble on the XAU yesterday at around 77. It's already down to 71. Let's hope I wasn't *waaay too early* - yet again.

Sure their revenues will be lower; and sure, gold miners are terrible investments over the long term; but also keep in mind that *high energy* prices were killing their margins recently. With oil more than halved from its July peak, they should expect some relief in that department.

April Trading Update

I had to ring the register today on my Wachovia short. Read this morning's catastrophic news. It was a very small trade but making 6 pts on a $30 number so quickly compelled me to cover and move on. I also covered my Capital One Financial short today and my latest Fannie Mae whack. I made 6.25 and 8.25 points respectively!

Here's my updated list of positions:

Bank of America - short from $38, this time. Trading at $35.50 as I type this.

HSBC - short from $71 - a twelve point loser so far. I have added puts in April, May, and January on the way up. It's a foreign bank with lots of exposure to booming (read: "bubbly") China and Europe. If it didn't crater, it'd be the only large bank not to.

H&R Block - another short, trading at 20.44. I'm down about 1.5 points. They have a large, unrecognized exposure to mortgage junk - so the rumors allege. As I was typing this I decided to short some more.

Simon Property Group - short from $86, currently trading $96. It's been pretty darn annoying. I did buy some puts and I added a long position in SRS which is an "UltraShort Real Estate ETF" that has SPG as its largest component. I really need this sucker to start tanking. They lease commercial malls and whatnot. In this real estate meltdown, it's not a question of "if", but of "when".

Wells Fargo - still short Warren Buffet's chief bank holding. Trading at $27.25, right now I am up 3pts and doing even better on my October 30 puts.

But my best short has been First Federal Corp. I bought some pricey puts a month ago and since then the stock has dropped from $28 to $18. I am holding out for zero on this distressed, California mortgage lender.



Now for my longs which....suck.

I added to my Google position essentially twice on its 350 point descent. I got out of my last buy for a small profit but still have some $508 stock. Presently that purchase is 50pts in the red.

Coeur d'Alene is still killing me, it's been hemorrhaging my cash for almost two years now. I am so glad I dumped my Newmont Mining ten points higher. What a POS these mining concerns are! They simply can't get the metals out of the ground.

Also, I unsuccessfully tried to bottom pick First Marblehead, the student lender. I bought at an average of around $7 and ended up dumping it at $4. I figured that I needed to be long at least one of these distressed financials as a hedge against my Armageddon-predicting portfolio of shorts. Luckily, it was a tiny, tiny trade.

Lastly, I did recently initiate a put position on Jones, Lang, LaSalle - a commercial real estate name. That's one of the next bubbles to pop painfully.



Remember I got my butt handed to me these past several months shorting long term Treasuries. Otherwise, I've been batting a high percentage with my recent trades. So piggyback away if you dare.

Dumped That Silver

The other day I broadcasted a small trade that I made - a buy of March Silver at $14.66.

I just let it out, a mere three days later, for $15.49.

If one piggybacked me with the smallest trade possible, which would be one e-mini contract, he'd have bought 1,000 ounces and turned a $830 profit (less $4-$5 in roundtrip commissions). Perhaps I'll buy it back today if it comes in 35-50 cents and oil stays strong (currently up $1.95 to 95.925 - essentially at its all-time high).

This is about as clean and quick as a winning trade can be. I was never down in the position and only had to hold it for 2-3 days. Therefore, IT REALLY ISN'T AN INDICATIVE ILLUSTRATION OF MY BUSINESS.

Nonetheless I wanted to follow up my prior post.

Obviously I should have bought a LOT of silver last week.

The small trades are almost always winners - it's the big bets that cause problems.

Bought A Little Silver

People are always asking me how I trade - how do I decide what to buy and sell.

Here's my answer:

How do you know how which football teams to bet on?

Obviously, you watch all the games, have been doing so for years, and may have even had some firsthand experience playing the sport yourself.

I have been watching the markets all day, everyday, for 12 years. I pretty much trade by feel, by the seat of my pants. Nevertheless, people are constantly asking me for coherent trade advice (though no one EVER takes it). Today I am just going to walk y'all through one little trade that I just made to provide a little window into my thinking.

This afternoon, I bought some silver - March delivery at a price of 14.66. As I type this it's up a bit from there, 20 cents higher.

I bought it primarily because gold is running past the $800 per ounce hurdle.

That's it. Nothing more complicated than that. If gold can set a multi-year high, it's not inconceivable that silver jumps 50 cents to make it's own "record-high" headline. These commodities generally move together. I bought a small amount in part because I already own a chunk of CDE, a silver mining concern and some NEM which is an unhedged gold and silver miner.

The long term chart of silver is pretty crazy. What it means...I have no idea.



The last couple of years silver has been a much better trading vehicle than gold - which seemingly just drifts up. A couple of weeks ago I dumped my long-held gold position around $765. I dumped it for no good reason. Alright, I guess a "margin call" is as good a reason as any to liquidate.

So this silver trade allows me to somewhat ride this strong gold market without actually repurchasing the yellow metal.

This is one of the nuances that most people don't understand. There are usually numerous ways to place a particular bet. For example, one might be buying solar panel stocks as a proxy bet on higher oil. You could also short the Euro if you think gold is going to drop but are reluctant to sell your bullion. Also, these days bonds and stocks are moving oppositely intraday. I have been playing them off each other almost everyday - shorting bonds as a proxy for buying stocks and vice versa. The possibilities and examples are endless (and evolving).

One just has to watch the game to get a feel for these relationships. This is why I encourage all unsatisfied sports gamblers to open a futures account (Interactive Brokers) and watch oil and gold, stocks and bonds, wheat and coffee through all their upticks and downticks. It won't be more than a few months before they start to feel comfortable and literate with commodities and futures - stuff that probably sounds highly esoteric at the moment.

Now what would make me bail on this little silver trade?

As yet, I don't really know. I am not one of these chartists who draws astrologically-inspired lines on a graph and comes up with a price trigger to dump the trade.

If gold makes a sharp intraday move down and silver hangs tough, perhaps I will get out quickly, count my blessings, and look for a lower re-entry point.

If gold keeps climbing and silver just sits here, perhaps I will buy some more.

If my account takes a beating elsewhere, I may have to adjudge my silver and gold exposure sufficient (via NEM and CDE) and unwind this last marginal purchase. Likewise if I make some dough on other trades I'll probably increase my risk appetite for this one.

My overriding trading philosophy, for better or worse, is always to trade small when I am losing, and really ramp it up when I have the wind at my back. And I doubt that is any different than how y'all bet on football and card games.

I'll update y'all on this trade when something changes.