Keeping you on the right side of the market

Mind unemployed is mind un-enjoyed.
Christian Nevell Bovee,1820-1904, American Author, Lawyer

MZM stands for money of Zero maturity. It is a measurement of the total amount of money that is easily accessible for one to use immediately. MZM measures all the money held in hard currency, checking accounts, savings accounts and money market accounts.

Generally speaking MZM is becoming the more preferred measure of money supply because it provides a better representation of the money readily available for spending and consumption. The first chart illustrates the absolute liquid amount of money in the system.

This chart illustrates just how much money the Federal Reserve has been pumping into the system to stimulate the economy. In contrast, the Feds did not pump much money into the system during the recession of 80’s and perhaps this was a smart move for it enabled the system to heal. They pumped money in the 2001 recession and have gone ballistic during the current great recession.

The above chart shows the year over year rate of change, and interestingly it is declining. Thus even though the Feds left interest rates unchanged it appears, they are stealthily sucking cash out of the system. After growing at an annual rate of roughly 4.5% in 2009, it is now contracting and falling at a rate of 2%.

The era of easy money appears to be coming to an end and perhaps the markets are sensing this: the increased volatility maybe a result of traders reacting to the withdrawal of cash from the system. The chart suggests there is less money for traders (hedge funds, etc) to borrow and if there is less money to borrow it suggests that brokers will soon start charging higher rates.

The market now has to deal with the fact that money could be becoming more expensive to borrow, the economy is stating to sputter, the housing sector is falling apart again, unemployment remains at lofty levels, states are facing huge budget deficits, the potential fall out from the BP oil spill (the derivative part of this could be even worse then Lehman Brothers), etc. Markets hate uncertainty and they certainly have a lot to be uncertain about right now.

Conclusion

No one indicator or tool can predict what the markets will or will not do, however, a confluence of indicators usually provides a very accurate picture in terms of market direction. When we couple MZM with the fact that the Dow has put in 37 new highs on unusually low volume, that in general the Dow sells off on higher volume, housing sector is in still in trouble, unemployment is high, consumer sentiment is dropping, that the majority of the states are experiencing huge budget deficits, etc., the outlook going forward does not look too bright.

We have stated several times over the past few months that the second part of this rally appeared to be suspect and advised traders to use very strong rallies to short the markets. It now appears for all intents and purposes that the Dow might have peaked in April 2010 and that all subsequent rallies will most likely lead to lower highs.

We have stated several times over the past few months that the second part of this rally appeared to be suspect and advised traders to use very strong rallies to short the markets. It now appears for all intents and purposes that the Dow might have peaked in April 2010 and that all subsequent rallies will most likely lead to lower highs.

Traders willing to take on a bit of risk can use strong rallies to open up short positions via put options on some of the big name stocks (JPM, CAT, BAC, WFT, etc.) and or short via ETF’s such as DOG, SSG, SKF, QID, etc. Traders seeking higher leverage can use ETF’s such as FAZ; super leveraged ETF’s should not be held for long periods of time as one can actually lose money on them, even if the market’s trend lower. In order to make money on these funds the markets need to move down rapidly in a short period of time. We will be writing a follow up article on the potential dangers of using super leveraged ETF’s. If used wisely and for short term moves one can still lock in rather large gains using these ETF’s.

Uncertainty and mystery are energies of life. Don’t let them scare you unduly, for they keep boredom at bay and spark creativity.
R. I. Fitzhenry

Disclosure; we have positions in SSG and SKF

Things turn out best for those who make the best of the way things turn out.
Jack Buck

We have been stating this for a long time and its good to see someone from the banking sector finally echo our sentiments. When an important banker makes a statement one should pay attention especially if it makes sense, as usually they are full of dribble.

For those who speak German, Deutsche Bank CEO Josef Ackermann made the following statement

"Ob Griechenland über die Zeit wirklich in der Lage ist, diese Leistungskraft aufzubringen, das wage ich zu bezweifeln"

For those who do not speak German the excerpt below provides a clear translation of the above statement.

Ackermann, one of Europe’s top bankers who has helped to put together a private-sector bailout package for Greece, questioned the country’s ability to turn itself around, according to excerpts of a transcript for the Maybrit Illner talkshow set to be broadcast on German television ZDF on Thursday evening. Greece has been forced to implement tough austerity measures as a precondition for an international bailout, a move that has sparked widespread protests in the southern European country.

"Whether Greece over this time period is really in a position, to bring up the strength to make this effort, I have my doubts," Ackermann said in the transcript, adding that this requires "unbelievable efforts".

If Greece were to "fall down" this could spread to other countries and lead to "a sort of meltdown," Ackermann told ZDF. Full Story

The EU could pay bond holders part of their debt as  (they are already throwing good money into a deep black hole); bailing out the bond holders is what all this whole story is about. They like and make false claims that they are trying to save Greece, etc.   The next step would be to push Greece out of the EU. Yes it would be painful in the short term, but it would also send out a strong message, that the EU is willing to do what is necessary to defend the Euro. . Over 51% of the  Greek public is completely against the new Austerity measures the government has implemented. This is a clear sign that these measures will not hold. So what sense does it make to give them money when everyone knows that they will come begging for more soon. At this rate, the can is being kicked further down the filed, instead being kicked completely of the field.

The wise man can pick up a grain of sand and envision a whole universe. But the stupid man will just lay down on some seaweed and roll around in it until he’s completely draped in it. Then he’ll stand up and go hey, I’m Vine Man.
Jack Handey

Related Articles

More Euro woes; Wage cuts May 13, 2010

World’s 1st gold ATM; a sign of a top? May 13, 2010

Euro; the Worst is yet to come,  May 12, 2010

Euro shock and awe bailout, more like shock and shake May 10, 2010

Ulterior motive behind Greek Bailout, May 3, 2010

Roast the PIIGs; End the Euro crisis April 30, 2010 

  If the thunder is not loud, the peasant forgets to cross himself.
Russian proverb

I think it is a given that Greece will have to default, everyone knows this, but they are just playing cat and mouse for now. Most Greeks are dead set against the new Austerity measures and they will likely throw this government out of power for the new changes they have instilled. The next government will cater to the people’s needs for fear of receiving the same treatment. Change is not wanted in Greece. The only way to fix this problem is if the nation as a whole understands that they have to go through a painful period of cuts, but as evidenced from the past riots this is not the case. The story below further substantiates our claims.

Greek unions announced on Wednesday that they would stage a 24-hour nationwide strike on May 20, the second major protest against tough austerity measures pledged in exchange for billions of euros in aid. The main public and private sector led a 50,000-strong march a week ago in which hundreds of angry Greeks fought pitched battles with police in the streets of central Athens and three people were killed in a petrol bomb attack on a local bank.

They are due to march in the capital on Wednesday from 6 p.m. (1500 GMT), in a rally which will give indications about the public mood before the big walkout next week. Investors are closely watching public reaction to government wage and pension cuts amid concerns broader unrest could hit Prime Minister George Papandreou’s resolve in pushing them through. New figures published on Wednesday showed Greece’s economy contracted 0.8 percent in the first quarter compared to the last three months of 2009.

The austerity measures, pledged in return for 110 billion euros ($139.7 billion) in emergency aid from the European Union and International Monetary Fund, are expected to keep the economy in recession through 2011."The IMF will not stop thirsting for workers’ blood," said Yannis Panagopoulos, chairman of Greece’s main private sector labor union GSEE. "Its recipes are a disaster and the government must turn them down."

The country’s socialist government on Monday unveiled a draft law to raise the average retirement age and cuts benefits, which further angered unions already opposed to previous steps including public wage cuts and tax hikes. Full story

Adding to the host of problems is the fact that Greece is now officially in a recession. Painful cuts have to be implemented and maintained or Greece will default. Sometimes markets should be allowed to settle matters, intervention only delays the inevitable. Our stance has been that the Euro is going to trade down to the 115 ranges and could possibly trade down to the 110 ranges. The massive 1 trillion Package had no lasting impact on the Euro, after mounting a brief rally, the Euro crumbled and is now on its way to putting in another series of new lows.

Spain’s new austerity measures, too little too late

Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5 percent this year, freeze it in 2011, cut investment spending and pensions and axe 13,000 public sector jobs in a drive to meet EU deficit targets. "We have to make a singular, exceptional and extraordinary effort to reduce our public deficit and we have to do it when the economy is starting to recover," he told parliament. The announcement came two days after euro zone governments, the European Central Bank and the IMF agreed on a $1 trillion (674 billion pound) rescue package to stabilise the euro in exchange for pledges by highly indebted countries to pare down their deficits. Full story

We think this is action is a little late as Spain had ample time to address these difficult changes, but instead decided to sit on its fat rear and do nothing. The current recommendations are just too little to produce any meaningful change. Unofficially the employment rate is well past 20%, the housing sector has crashed, fiscal debt is roughly 112% of GDP and Rising and estimates put private debt between 160-180% of GDP. Thus unless they put forth some bone crushing changes, the odds are that Spain will be joining the Greeks sooner than later. Furthermore, this 1 trillion euro aid package is more of a band aid than a fix because the nations that are spending beyond their means are still doing so. Nothing has changed other than the day of reckoning.

The enemy of my enemy is my friend.
Arabian Proverb

Imagine for a second that from the day you started to play the markets you never lost; you simply won each and every time no matter what stock you bought or sold; sooner than later winning would become boring, because you would not have anything to compare your wins to. The reason a win feels so good is because you compare it to a point in time when you lost something. Not only do you bask in the new felt emotion (because you remember the pain of losing), but you also feel incredibly great because of the financial windfall from that win. What we are trying to state here is that losing or failing is an important and integral part of winning and success and that without the other life would be drab and dry.

However, what happens over time is that most individuals seem to think that they can do nothing but fail or lose, especially when it comes to the markets (this occurs on a subconscious level, that’s why more individuals lose than win when it comes to the financial markets).

The way to stop this evil process is to immediately understand the purpose of losing and failing. When you lose or fail it means you have done something wrong, you are being given a second chance to evaluate where you might have strayed or erred. Most of us instead just keep doing the same thing that made us experience our first loss, and we hope that sooner or later we will hit the mother load by luck. If we examine the reason we lost or failed, we see exactly what it was that caused us to fall off the tracks, and, even if we don’t succeed on the next attempt, we will at least make sure that we never ever repeat the same mistake again. Through constant analysis of our mistakes, we can finally develop a system or systems that can with patience and persistence help us win in the markets. More importantly it could help us with the most important battle in our lives: the quest to find happiness, which is really nothing other than the quest to find inner peace. Remember this, nothing good ever comes easy; if it did it was not worth it in the first place.

Imagination was given man to compensate for what he is not, and a sense of humor to console him for what he is.
                    ~ Francis Bacon 1561-1626, British Philosopher, Essayist, Statesman

Slavery in the true sense never disappeared, it has just changed. The chains have been replaced with cubicles and the only difference is that you now hold the keys to your own prison and you gladly, and willing incarcerate yourself.

The masters controlled the land in the old days and the people that worked the land, today they control skyscrapers and the people that work in them. What has changed? They have just sugar coated the deal. They provided individuals with the illusion that they were free, i.e. no longer tied to the masters who owned the land. Notice how many individuals gladly and proudly speak of working for a company for 20 plus years. The average person starts to work (we won’t count odd jobs that one might do while one is a teenager or while one is attending college) roughly at say 21-23 years of age, and they work until roughly 65 years. Thus roughly the average person works for 42 years, in this time the average vacation is roughly 1 ½ month, so in 42 years you get 63 months of vacation, which works out to roughly 5.25 years of time to do sit down and relax. Is this really freedom? One has just given the most valuable years of one’s life to have enough so that one can live a so called comfortable life in the worst years of one’s life. They called retirement the golden age, but it should be called the Bronze Age, for one has just given up gold in exchange for bronze. So is there any solution; yes there is, all one has to do is look for one.

In order to break free from the physical and mental prison one needs to see one’s predicament and only in seeing can one formulate a plan. It’s for this reason why most will never break free, why the mass mindset will always dominate, and why the same old tricks and scams work again and again. Ask yourself this question. Do you really think the top individuals are that stupid? Why is it, they never seem to learn from history, why is it that governments for some strange reason keep making the same mistake again and again? The truth is that they are not stupid; in a nefarious manner of speaking, they are in fact brilliant. They know that the masses forget, they learn nothing and that through the use of greed and fear they can achieve anything. It’s for this reason we will always have booms and super busts. Every cycle is engineered in advance.

This is a very long and deep topic, so we are only just scratching the surface but to bring about change all it takes is a desire to want the change. Thus if this topic has stirred enough interest, it has served its purpose for finding a solution is the easy part.

As for what one can do personally. As we stated before, if one can identify the problem one is more than half way at finding a solution. If you see the game for what it is then you are no longer a slave for you can formulate a way to break free. That is why one should never retire; retirement should be viewed as getting away from what you had to do, to now doing what you love to do. A retired mind is a dead mind.

It’s an old phenomenon but one that has only been brought to light recently. It is something that is encoded in all beings, we tend to feel comfortable doing things together. One can even see this in other animals, a flock of birds a herd of beasts, a shoal of fish, etc they all seem to follow a leader.

Mass Psychology is the study of group behaviour; the mass mindset draws comfort from the fact that everything is okay because the majority support this view point. In other words, an investor feels comfortable enough to buy technology stocks because it appears that everyone thinks that high tech is the way to go.

The way to profit from this phenomenon is to do something that is contrary to our upbringing and most of our cultures and that is to resist the herd mentality and try to be a leader. In any crowd, or group behaviour situation, the ones that lead are the ones that draw all the benefits, while the ones that follow blindly are the ones that take all the risks. This is very clearly illustrated in the stock market. Let’s take the internet era of the 1990’s.

Investor who took the time to analyse what was going on, could see that the internet would revolutionize the way information was transmitted; the consumer would finally move from the passenger seat to the drivers’ seat. They also noted with great interest that the public at that time was against or completely ignoring this sector; this is a key facet of mass psychology. They took positions in these stocks as early as 1994 to early 1995, with the majority taking stakes in 1996, the masses only began to awaken to this phenomenon in mid to late 1998, by 1999, there was a feeding frenzy as everyone simply piled in.

The leaders were alarmed at this behaviour, as they should have been, since this frenzy was not sustainable. Knowing that the end was near, they started to sell towards the end of 1999 and move their assets into cash and bonds, while the feeding frenzy continued. In March 2000 the markets started to correct and by the end of the year the main up trend line was violated and the market was ready to crash. By 2002 the market had lost more than 70% of its value and many of the masses who had momentarily tasted wealth were reduced to a state of poverty that they could not have envisioned a few months back.

1) The leaders represent less than 2% of the population yet take in more than 90% of the profits. Getting to this stage is not easy as it involves changing ones ingrained modes of.

2) You have to learn that whenever something is popular the end is very near.

3) That the time to take a position or start something new is when it is viewed with extreme negativity and disdain.

4) You have to learn how to fight the fear of selling out to fast after taking a position, remember it won’t just go up., most likely it could even go down a bit more or move sideways for months or even a year. The one area you can draw comfort from is this, the longer the sideways action the more powerful the upward move will be when it finally transpires.

5) Keep extra money to take additional positions.

6) In all likelihood you will have a 50-100% retrenchment in the first stage of the bull market, meaning that your shares could double only to fall back to the original value you purchased them at. This is usually known as the shakeout stage, whereby the weak hands are forced out of their positions and end up selling at rock bottom prices. Hold and the rewards are extremely huge.

7) When the investment suddenly becomes to popular be on guard and perform simple trend analysis on all your holdings, once the super main up trend. Wait patiently for the next opportunity to show up, there is always another opportunity.

This is meant to be a brief introduction into the very esoteric but highly rewarding field of Mass psychology, to do an in depth analysis would take months. When one combines Mass psychology with Technical analysis you truly have a very potent weapon that can be used very effectively to position oneself in the right investments and consistently be on the right side of the market.

The term contrarian investing was most likely derived from the study of mass psychology as it basically means taking a position that is completely at odds with the masses.

With that in mind, mass psychology has once more provided a new opportunity in the financial markets for the astute individual willing to take an early position and wait. Sectors that are going to explode even further in the years to come are the precious metal’s sector, the energy sector, agriculture, etc.; virtually anything tied to commodities will do well in the years to come.

It would be wise to have a position in several of the key stocks in each sub sector of the commodity’s markets. A starting point would be to establish a position in Gold and Silver bullion.

It’s not the bulls and bears you need to avoid — it’s the bum steers.
~ Chuck Hillis ~

1= Stock is going no where; its pure junk, let me look at something else.
2= Lucky break, its going to definitely crash.
3= What, it’s still going up, earnings are not so good, people are definitely getting carried away, its going to pull back and crash.
4= Ahh, see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes it pulled back, but look where the pull back ended–miles away from its first break out. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere they focus on the negative aspects but not on the positive aspects.
5= What happened here; this stock was supposed to crash, how the hell did it get here? Perhaps I should have bought, I could have made a lot of money; this looks like a sure thing. (So only halfway through stage 5 will the mass mindset decide its safe to venture out. Now this person finally musters the courage to buy.) Wow it actually went up, great, I’m making money.
6= This stock is going to go to the moon; let me tell all my friends about it; it looks like a sure thing.
7= What happened? it pulled back. Ahh, I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more, buy on the dip, that’s it.
8= I knew it, its going up and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser’s mindset does not bother to take time to notice that the stock did not put in a new high. All that matters is that it went up.)
9= It’s going down again, time to really load up; I don’t want to lose this opportunity. Earnings are great so it must be a good time to buy some more.
10= First dose of bad news and the stock takes a big hit; okay, this is just temporary; it’s going to go back up. (Blind faith huge mistake, one of the main ingredients of a losing mindset). Let me buy more and average down.
11= Maybe I should sell now; things don’t look good, but you know what, let me just hold for a bit longer. Maybe things will change. Yeah, things have to change; look how fast this stock went up and it has pulled back so much. The worst is over; it has to go up.
12= This stock is dead, I have to get out; it’s not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in state of extreme distress and shell-shocked). I am never going to look at this stock again; I knew it was garbage, why did I ever buy it in the first place?
13) Slow base formations and the possible start of new up trend and the worst part is that this trader is out.

Conclusion

Take a close look at the above picture; the masses will react in the same way when it comes to this commodities bull market. They will dump when they should be buying and then they will try to buy when they should be selling. Nothing in this world comes easy for if it did, it was not worth it in the first place. So make sure you’re positioned well to take advantage of the coming spectacular bull market. So far we have just barely begun the first run.

This is not to be confused with the concept of buying and holding. Every now and then it’s prudent to take some profits off the table and invest this money when there (gold, silver, oil, etc) is a pull back. However one should always maintain a core position as long as the long-term trend is up. That’s exactly what we did; we took profits in November-December 2003 on ½ our positions and are waiting for an opportune moment to add to them again. When we wrote an article suggesting that individuals take some profits on their gold and silver positions, we were attacked on the basis that we were trying to promote a sell off. We specifically stated that one should not sell their core positions, but only take some money off the table; but everyone seemed to miss the last part of our statement. If you look closely most of 2004 Gold stocks did not really do anything and in most cases actually lost money. However, this type of behaviour is quite normal. First you have a massive move up, then sideways to down, and then a final quick pull back to flush out all the weak hands. Now just when everyone should be studying the charts to look for new entry points, the weak hands will start to unload their core positions and this will indeed be a fatal mistake.

It is what we think we know already that often prevents us from learning.
~ Claude Bernard 1813-1878, French Physiologist ~

Tactical investor.com

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http://seekingalpha.com/author/sol-palha/articles

by Sol Palha

The main focus of any good trader should be to spend time trying to identify new and upcoming trends; this is not an easy task. It’s a difficult task because one has to go against the herd; one has to on many occasions even go against one’s own way of thinking because one is embracing a concept that one’s own nature will naturally try to rebel against. The reason for this struggle is due to the fact that we are wired to seek the company of others; we feel safety in numbers. This may be true when it comes to real life dangers but when it comes to investing it’s a fatal error.

In fact, if one just focused on the main issues we have discussed over the years, the end result would have been quite profitable. For example, we focused quite a bit on Palladium from the end of 2008 to early 2009. In the bullion portfolio, we had the label screaming buy up several times when Palladium was trading in our suggested entry ranges. Subscribers know that we do not often use the phrase screaming buy, so when we do it usually means that we think we have a unique situation at hand that won’t last long.

Towards the end of 2008 we also spoke of the potential for bonds to mount a very strong correction and warned individuals against opening new long positions. Bonds mounted one of their strongest corrections ever and by June of 2009, they were down over 20%; a massive move for the bond market.

From roughly the end of 2008 towards the beginning of 2009 we spoke of the fact that the market was going to mount a strong rally as the plunge was overdone, and that it was trading in the extreme zones. Again patience and discipline were needed, for the markets did not turn around immediately. We issued our final targets of 10,500 plus for the Dow in February; at that time, everyone thought the world was going to end.

Towards the end of the 2009 we started to focus heavily on the markets pulling back. This is the reason we started to actively close out many of our positions and it’s also the reason we tightened many of our stops. So far, we have had a brief taste of what lies in store, but the main move has not begun yet. Most will wait until it’s too late to react, very few have the patience to take profits and wait for a better opportunity.

We also spent a lot of time talking about the Dollar mounting a strong rally and gold pulling back. Again individual could have jumped out of other currencies into the dollar, closed out some of their long positions in gold and so on. We could list many such stories; however, that’s not our goal here.

Why are we bringing this up? Well, it’s not to talk about our timing skills. Our goal here is to illustrate that most individuals are lacking when it comes to patience and discipline; most individuals want to chase every single opportunity or at least what they deem to be an opportunity. To most opportunity means following the herd. They feel that if they pay for something they should get maximum usage out of it regardless of whether they win or loss.

To illustrate this point, try this simple exercise. Choose a day and try to do nothing for 1-2 hours and by nothing we mean absolutely nothing. Very few will be able to achieve this. In fact, most will find that it’s really hard to do absolutely nothing. (Doing nothing does not mean watching TV, reading book, playing games, etc., it means doing nothing). However, many can run around the whole day trying to do something but achieving nothing. So in reality the truth comes down to this. As long as one can fool oneself that one is doing something (even if one is achieving nothing in the process) its fine, but to actually sit down and do nothing, now that is a terrible and undoable deed. Now apply the above concept to investing and see how true it is. Many feel that they should try to do something all the time, even if they achieve nothing or even loss money in the process, its fine because they are doing something; sitting down, doing nothing and waiting for an opportunity to present itself, now that is simply unimaginable.

Patience and discipline are the most important traits any trader can hope to master. Would it not be much easier to focus on your real needs and not your fantasies? Why not sit down and look for 1-3 great opportunities and wait for the trades to come to you instead of chasing them

We are almost certain that if a subscription service stated that after they produced 6 or more plays that produced wins in excess of 30%, they would issue no more plays, that the majority would throw a fit and cancel their subscriptions. This clearly illustrates the principle of wanting to get something even though nothing might be achieved by forcing a move. The wise man is happy if he can find 1-2 good opportunities a year. There is no need to chase them, just wait for them to come to you. Sometimes you have to wait a few weeks for them and sometimes months and this is what we focus on. We do not like chasing for it usually leads to trouble. All one really needs is one great opportunity a year and one will achieve spectacular results over the long term.

Is it not funny that most find it difficult to sit down and do nothing for 1-2 hours, but as long as they can pretend they are doing something while achieving nothing they are happy? There is a huge difference between the two, in one you are dealing with reality, in the other reality is eluding you; you are just living in an illusory phase.

Thus going forward, try to find out what you really want, who you really are, what are your needs, what are your goals really are? When you know what you really want, achieving it becomes a lot easier than simply aiming for some arbitrary pie in the sky dream.

Tactical Investor

This is a very fascinating field for if you understand it you can truly lead a very fruitful and full life. To truly understand mass psychology one must fully understand oneself; in other words one must be willing to strip oneself to the bare bones and in doing so examine all ones weakness and strengths with equal intensity. One cannot sugar coat ones weakness and then apply thick layers of honey to ones strength. If anything one should be more willing to downplay ones strength and emphasize ones weakness for it’s the areas that we are weak in that hold us back and not the areas that we are strong in.  School and society teach us a total bunch of nonsense when they state that one should hide ones weakness and manifest ones strength; its for this reason the world in general has not learned anything and its for this reason that we are still barbarians. The only thing that has changed is the clothes we wear to disguise our primitiveness, other then that the cave man mentality still dominates.

I have read a lot of good books over the years but as far as I can remember at least going back 12-15 years or more I have never been so fascinated by a book where I wanted to savour each and every page of it. I would find interesting tit bits here and there or several paragraphs or even several pages that reached out and compelled me to go through slowly for fear of missing something valuable but never the entire book. The last time I read a book to its entirety savouring each and every page was probably in my 20’s. I stopped doing this is for the reason that I could no longer find any book that was compelling enough to read each and every single page until I stumbled on a very old book by chance very recently.

I was in small town in Connecticut (I usually take random trips to observe individuals as it helps in assessing what the markets are doing and where they might go) and stumbled upon this small used book store.  I almost feel guilty for having paid the paltry sum of 1.50 for such a truly insightful book that I went back to this store and bought several other books which I will almost definitely speed read in order to feel that at least I partially paid fair price for this book.   This book was written in the 1500’s yet the man that wrote this book in my opinion is brilliant to say the least; he was born several hundred years before his time and almost all his insights are applicable today.  Over the course of the next few weeks we will list excerpts from this book and then we will reveal the name and the author of this book.  I know many of you will want the info immediately but this way you get to understand and appreciate this book for the true value it carries and not treat it as just another book.  I would personally rate this as one of thee greatest books I have yet read and one of the best in dealing with the concept of mass psychology.  This gentleman probably deserves the title of being the father or better yet the Grand father of mass psychology. As they say if one cannot understand oneself then how can one ever hope to understand another?

A young man ought to break the rules in order to rouse his vigour and keep it from rusting. There is no course of life so stupid and weak as that governed by inalterable rule and discipline. If he takes my advice he will occasionally kick over the traces. Otherwise, the slightest debauch will put him flat on his back and make him a social nuisance. The nastiest quality in a decent man is fastidiousness and a stubborn devotion to the eccentric behaviour and all behaviour is eccentric if its not pliable and supple.

Our young man should be able to do everything but love to do nothing but the good. Let him laugh, play and wench with the prince. I would wish that even in debauchery he outdid his companions, so when he refused to indulge in vice it was not because he lacked the knowledge or power but simply the will. A man should not be ashamed not to dare or to be able to do what he sees his companions doing. Such a one should stick by the kitchen fire.

When Socrates was asked: what is your country? He did not answer:  “Athens”, but “the World”. His fuller and wider imagination embraced the universe for his city. He extended his knowledge to society and his friendship to all mankind unlike ourselves who look no farther then end of our nose. The vast world which some men now think is but one among many of its kind is the mirror in which we must look in order to know ourselves in our true scale.  And this world in short is the book my young scholar must study.

Pythagoras used to say life resembles the Olympic Games: a few men strain their muscles to carry of a prize; others bring trinkets to sell to the crowd for a profit; and some there are (and not the worst) who seek no further advantage then to look at the show and see how everything is done. They are spectators of other men’s lives in order to better judge and manage their own.

These are my lessons. The man who applies them will profit more than the man who merely knows them. When you see such a man, you will hear him; when you hear him, you see him. God forbid says someone in Plato, “that philosophy should mean learning a pack of facts and discouraging on the arts”. Hegesias once begged Diogenes to read a certain book.  “You are jesting”, Diogenes replied, “surely you prefer real to painted figs, why then don’t you choose living lessons rather then written ones?”

It may happen that our pupil will prove to be a contrary fellow. He may prefer to hear a silly fable rather then a wise discourse or the true story of a notable voyage. While his playmates fire to the beat of a martial drum, he may respond to the tub-thumpings of a circus clown. Perhaps he will find it less delightful to return dusty and victorious from a battlefield then stroll home after wining a match of tennis.  In that case, I see only one remedy. Even though he be the son of a duke, either his teacher should strangle him at an early hour or if that can’t be done without witness, he should be apprenticed in some nice town to a pastry cook.

www.tacticalinvestor.com

February 1, 2005

It’s not the bulls and bears you need to avoid — it’s the bum steers.
~ Chuck Hillis ~

1= Stock is going no where; its pure junk, let me look at something else.
2= Lucky break, its going to definitely crash.
3= What, it’s still going up, earnings are not so good, people are definitely getting carried away, its going to pull back and crash.
4= Ahh, see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes it pulled back, but look where the pull back ended–miles away from its first break out. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere they focus on the negative aspects but not on the positive aspects.
5= What happened here; this stock was supposed to crash, how the hell did it get here? Perhaps I should have bought, I could have made a lot of money; this looks like a sure thing. (So only halfway through stage 5 will the mass mindset decide its safe to venture out. Now this person finally musters the courage to buy.) Wow it actually went up, great, I’m making money.
6= This stock is going to go to the moon; let me tell all my friends about it; it looks like a sure thing.
7= What happened? it pulled back. Ahh, I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more, buy on the dip, that’s it.
8= I knew it, its going up and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser’s mindset does not bother to take time to notice that the stock did not put in a new high. All that matters is that it went up.)
9= It’s going down again, time to really load up; I don’t want to lose this opportunity. Earnings are great so it must be a good time to buy some more.
10= First dose of bad news and the stock takes a big hit; okay, this is just temporary; it’s going to go back up. (Blind faith huge mistake, one of the main ingredients of a losing mindset). Let me buy more and average down.
11= Maybe I should sell now; things don’t look good, but you know what, let me just hold for a bit longer. Maybe things will change. Yeah, things have to change; look how fast this stock went up and it has pulled back so much. The worst is over; it has to go up.
12= This stock is dead, I have to get out; it’s not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in state of extreme distress and shell-shocked). I am never going to look at this stock again; I knew it was garbage, why did I ever buy it in the first place?
13) Slow base formations and the possible start of new up trend and the worst part is that this trader is out.

Conclusion

Take a close look at the above picture; the masses will react in the same way when it comes to this commodities bull market. They will dump when they should be buying and then they will try to buy when they should be selling. Nothing in this world comes easy for if it did, it was not worth it in the first place. So make sure you’re positioned well to take advantage of the coming spectacular bull market. So far we have just barely begun the first run.

This is not to be confused with the concept of buying and holding. Every now and then it’s prudent to take some profits off the table and invest this money when there (gold, silver, oil, etc) is a pull back. However one should always maintain a core position as long as the long-term trend is up. That’s exactly what we did; we took profits in November-December 2003 on ½ our positions and are waiting for an opportune moment to add to them again. When we wrote an article suggesting that individuals take some profits on their gold and silver positions, we were attacked on the basis that we were trying to promote a sell off. We specifically stated that one should not sell their core positions, but only take some money off the table; but everyone seemed to miss the last part of our statement. If you look closely most of 2004 Gold stocks did not really do anything and in most cases actually lost money. However, this type of behaviour is quite normal. First you have a massive move up, then sideways to down, and then a final quick pull back to flush out all the weak hands. Now just when everyone should be studying the charts to look for new entry points, the weak hands will start to unload their core positions and this will indeed be a fatal mistake.

It is what we think we know already that often prevents us from learning.
~ Claude Bernard 1813-1878, French Physiologist ~