I think we’re entering a period where it will be very hard to make a return. This is not necessarily because asset prices won’t go up, because they will. It’s just that volatility is going to be substantial as the big money unloads their inventory of government bonds. Just as in the recent spike rally in silver, a lot of people will find themselves buying when they should be selling, and selling when they should be buying.
I am fascinated by bubbles because it so aptly demonstrates human nature. At bubble tops, every single person who has ever considered buying an asset finally buys. From my own personal experience, I know many people who have been on the brink of buying gold and silver for about 3 years. They have been watching the bull market in amazement while kicking themselves for not buying. While they haven’t been able to pull the trigger, I am very confident that they will eventually buy- at the top. I’ll do my duty and warn them that they are probably buying near the top, but I have to be realistic here. At the bubble top, people will be hysterical.
I am probably more interested in bottoms, because as an investor, I prefer to be long. Bottoms usually come when the masses proclaim the “end” for a particular asset class. In 1982, there was the famous Businessweek article “The Death of Equities”. Of course equities in America promptly went on a spectacular 2 decade run. Then there was Gordon Brown’s sale of 60% of the UK’s reserves of gold from 1999 to 2002. Apparently the logic behind the sale was to reduce portfolio risk. Interestingly, gold has gone up more than 500% since then. If that’s “portfolio risk”, please sign me up.
So basically at tops and bottoms, the majority of people will get things wrong. In the next cycle, I think we’re going to see a lot of tops and bottoms. There will be the top in government bonds, gold, silver, oil, and commodities. There will be a bottom in real estate and countries like Japan. China will probably experience huge swings as well. What I always focus on is capturing about 60% of a move, that’s it. Trying to capture the last 10% of a move is usually what creates big losses.
There are going to be some spectacular moves in assets and I am positioning myself to profit. The key is to be disciplined. For now, I am trying to figure out when the short-term bottom in gold and silver will be. The ensuing rally from a short-term bottom should be quite spectacular, especially since global debt concerns will reappear. Municipalities are still a ticking time bomb, and the fact that Meredith Whitney is now being ignored is a good sign that the blow up will come soon.
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