In August of 2005 I wrote an article entitled Waiting for Goldot. It seems silly now but the mood of the time was one of frustration for many gold bugs as the S&P 500 was on a robo grind upward and gold was seemingly going nowhere. The theme of the article was to have patience, gold was just fine. Of course, that period was in the midst of a more traditional inflation, when gold and commodities out performed stocks. So any measure of patience then was a tiny thing compared to what is needed today.
The bear market in which gold resides today is a complex thing, with global inflation and deflation interacting and producing among other things, a Goldilocks environment in the US and rock solid confidence in the Bernanke and later Yellen Feds. Greenspan was continually derided as he allowed a dangerous commercial credit bubble to expand right along with stock prices and the economy.
I suspect some of you saw the article over on ZH about the “trader” who had the misfortune of having his entire account short KBIO which ripped about 700% higher this morning. The guy blew out his entire account (and a lot more) and put up this page to ask for people to help him make his six-figure margin call (the margin call itself is three times bigger than the original account). As of this writing, he’s raised about 1.8% of what he owes Etrade.
Having read the text of his GoFundMe page (which is typically used for more worthy causes, such as helping out families or individuals with medical emergencies or charitable organizations that need assistance), I wanted to review the entirety of his missive, since I think there are some important lessons in here. I’ve cleaned up some of the more egregious misspellings and syntactical errors, since it bothers me to sully my blog with such things. Here we go:
Hello to all you traders out there. I’m starting this page out of the recommendation of other traders in the community.
I was a grumpy old man even as a child, so this post emanates from that legacy.
I’ve been puzzling over the peculiar reaction the market had on Monday to the savage attacks that took place in Paris. Never would I have dared imagine that assets across the board would excitedly zoom upward following this brutal mass killing in one of the most beloved cities in the world. It just made no sense.
From time to time, I will hear someone on the news cautioning participants in a conversation that they are saying things in support of “class warfare.” Inevitably, that shuts the conversation even quicker than calling someone a racist (or trotting out some stomach-churning childishness like references to ‘the N word”) . Apparently any notion that doesn’t glorify socioeconomic stratification in our society is denigrated as “class warfare”, and all parties go scurrying for cover.
Babe Ruth certainly need no presentation, but what needs presentation is the “Babe Ruth Effect” which is a nickname that some bank analysts gave in the early 2000s to a classic goal of many investment managers: hitting a home run.
It quickly became the wet dream of many retail investors as well: pick the new Microsoft, or the new Google (or the new Amazon, as of lately) but also some well-researched market theorists like Nassim Taleb fell for the same idea, that what matters is to make one big home run on the right trading idea or investment, and you will make a kill and be set for life.
I am so furious at myself. And I don’t normally give Springheel Jack’s post so little time, but I had to get this off my chest.
Remember that terrific day I had yesterday thanks to energy? Well, it’s been completely unwound by a huge rally in crude oil. It’s like it never happened.
Well, that sucks, but why am I so mad at myself? Simple. I ignored the clearest, most important indicator ever, as shown below.
Now let me be stone cold clear here: I’m not trying to cute, clever, witty, funny, or snarky. I’m dead serious. I had before me the closest thing to a foolproof signal ever created in human existence, and I thought, “well, maybe it’s different this time.”
Shame on me. Shame. On. Me.
Well, it’s confession time: I’m scared.
I know as the designated martyr for equity bears, I should show more steely-eyed steadfastness, but the past six years have put the zap on my brain, and memories of what this jackass did a year ago still haunt me.
In a strange way, though, my fear is borne from the suspicion that the charts I am seeing are simply too good to be true. If I were to contribute a chapter to a book on charting called This Is What A Top Looks Like, the hypothetical, idealized charts would look like this: