Wednesday, December 2, 2009

Sometimes Positions Cost money

Hello FDR,

Please know that I greatly respect you, and always appreciate all of the ideas, and posts that you write both on your blog and on marketwatch community.

Believe me when I say that I completely understand about deflation, and everything you have written on your blogs.

By looking at your portfolio on the Virtual Stock Exchange, I see that you have approximately 50% of the portfolio allocated to shorting gold and silver (25% each). Is this a coincidence or is it on purpose to be fully allocated to those positions??

Also, I know you are pretty convinced (as I am, too) that deflation is ravaging America, and lower prices will be reflected across the board. However, metals (gold and silver) keep defying all expectations and continue climbing. I understand that it is a bubble, that participants are so bullish (>95%) and everything. Nevertheless, at what point, if any, do you conclude that indeed higher prices might still be coming, it might be a good idea to close short positions and short again at some other levels??

I completely understand that your time horizon is bit extended and you can weather any storm, but, do you ever consider that possibility? I mean, do you reset positions? At what moments do you do so? For how long do you support (recommend supporting) the heat?

You wrote that your current stance is accumulation for the medium term? What happens to "losing positions" if before the price decline, price continues to increase? Isn't it more difficult to get back on track?

Please note that I'm not trying to be disrespectful at all. I still remember when you called for an oil top (in real time) at $134.50. It went up a little bit more to $147, but, then, it ended up crashing to $40. Do you something like this occurring to the PMs?

Sorry for the length of this message.


Yes, I think metals will fall as hard as oil, but maybe not quite as far in terms of total percentage. The feel of the trade has become eerily similar.

I'm not worried about it at all. For one thing, I don't bet money I can't lose and still not have to go to work. The second thing is that I don't mind at all--in fact I hope for it--when a position I'm buying or shorting goes the other way. Think about it. If you were willing to be short or long at $X, and the stock goes the opposite way, you can lower your cost basis which is great! I don't understand people who get upset that their "investment" is going down, that's the way you want it to go initially.

Don't get hung up on today.

The reason my returns are bigger than most people expect, is because I don't mind putting money into a position, and they usually refuse. I can't count the number of puts and calls I've sold and bought with a 50% to 100% premium. That's ok, if you understand what you are doing. Does it both me? No. Of course not. Does it bother a casino mogul to blow $1B on an ornate property? A 100% loss up front?

Then again, most people buy or sell and pray; I don't do that. So it makes me more excited when the trade goes backwards, because I know it will go forward farther. I can't believe the deal I'm getting. I genuinely love it. People who buy and sell then hope for the best deserve to lose, and they ALWAYS do. Watch.



  1. Hi FDR,

    Could you please explain why these old Marketwatch comments of yours seem contradictory? Thanks.

    Marketwatch FDR Profile Comments Page 504
    Story: Is gold market sensing deflation? (397 days ago)
    In reply to:oldbill
    +3 Votes
    3 Up
    0 Dn

    Money (assets) never change in value, a house always trades for a house, etc.

    Don't buy the central bankers' age old scam.

    Only currency (a paper accounting system for money) changes in value.

    That is how they steal away all of your money.


    Marketwatch FDR Profile Comments Page 505
    Story: Happy days for gasoline consumers and retailers alike (397 days ago)
    In reply to:Keeg
    -4 Votes
    5 Up
    9 Dn
    3 Replies

    Prices won't go up. Gas prices will fall until your kids are grown.

    But that is because gas is getting more and more expensive, not less expensive. This is deflationary demand destruction, which means the reason gas PRICE is falling is because fewer and fewer people can afford to buy it since the VALUE of energy is rising.

    Not understanding the difference between price and value is why almost everyone loses the game.

    So yes, the LOWER energy prices go, the MORE we need to drill. Good luck convincing 99.99% of people what is best for them.


    Marketwatch FDR Profile Comments Page 506
    Story: Gold parties let consumers trade in jewelry for cold, hard cash (398 days ago)
    In reply to:SequoiaRedux
    +1 Votes
    9 Up
    8 Dn

    Gold absolutely goes up in value during DEflation. Problem most people don't understand is, it goes down in price.

    It is the exact opposite of INflation, where gold goes up in price and down in buying power or value.

  2. I am not so sure about averaging into a precious metals short position makes sense. Especially if we are going parabolic.

    If it reacts like oil, there is no need to try to call a top. Wait, wait, wait, for it show a major breakdown, then, climb on board.

    I am sure some thought $100 a barrel was a parabolic top.

  3. Sure. Gold isn't the only form of money.

    Money is anything of value to people: a house, a car, a parcel of land, an autographed baseball, an ounce of gold. You can trade it for things because people value it. Over time and in general, these things trade for the same amount of stuff that they always trade for, because dead people valued various things about the same as living people.

    Currency is a paper accounting system for money. If you have a central bank commercially profiting from booms and busts by printing more or less paper currency, the paper price of money will fluctuate wildly, while the value of money, the amount of stuff it trades for, does not change. If the value of money did change, the privately held Fed corporation wouldn't want to steal it from you by counterfeiting or draining their currency.

    Gold, one type of money, always trades for the same thing, historically and over time: a business suit, shoes, and belt. But it tends to go up in value (trade for more stuff) when it goes down in price. And it tends to go down in value when it goes up in price.

    Why? Because if people have a lot of paper (central bank engineered currency inflation = high prices; credit and currency plentiful) they tend to not notice gold.

    When currency gets drained (central bank engineered currency deflation = falling prices; lack of credit and currency), they start to notice gold.

  4. I have been short silver for awhile and am taking a terrible pounding. As a Canadian the action of the US Dollar isn't helping either. I don't have the luxury of adding much to the position until I see the 'Ralph Wiggum heart break' moment (or a reasonable facsimile) but intend to stick with it. Admire your titanium nerve and well reasoned convictions FDR. Keep up the good work.

  5. "Money is anything of value to people: a house, a car, a parcel of land, an autographed baseball, an ounce of gold. "

    Careful here. In the list that you give, Gold is the only asset that is fungible. The others are not. Solid money must be fungible. Whether we like it or not today Gold is Money. Nothing Else. It is still the real money behind the World's Central Banks and will continue to be for all of our lifetimes.

    Oh the mystique of Gold!
    Place it on Women and Beauty Unfolds.

    Show it to man wanting to sell his wares,
    And watch him grow anxious and sweaty forgetting all other cares!

  6. "Gold is Money. Nothing Else."

    All wealth is money.

    In your example, the girl is wealthy because she's hot, that's why men will gladly part with their gold for her. Just ask the poor tramp.


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