Sector expert Michael Ballanger muses on lessons learned and profits to be gained in silver trades.
"Even a broken clock is right twice a day." ― Stephen Hunt, The Court of the Air
There are times when every investor has to look long and deep into a mirror and determine whether a well-thought-out strategy is actionable or whether it is simply an ad hoc "hunch," barely worth chasing. With regard to silver, this is just one of those times.
In 2003-2004, I was stopped out four times under $5 per ounce trying to establish a 10-lot futures position in silver (50,000 ounces), which, at the time, demanded US$18,000 in maintenance margin. When I finally threw in the towel, my $18 grand worth of "dead presidents" was worth slightly less than $6,000.
At the time of my decision to abandon the trade, I remember a sense of impending doom as, with great regret, I returned the funds to the (joint) bank account. Days later, when the losses were detected by an appropriately suspicious spouse, one could hear the screaming of insults miles (if not counties) away. As embarrassing and emasculating as that was, the addition of insult to injury was aided and abetted by the cost of a chiropractor due to weeks of punishing couch-sleeping.
Further exacerbating my agony was silver, almost immediately upon my departure (and as if it had eyes), deciding to break out through $5 and proceeding to triple. Staring at the quote screen, slack-jawed and near-comatose, I watched with the same sense of disbelief one has when observing a slow-motion train wreck as silver—my precious silver—tapped $50 in 2011. Without including the possibility of parlaying the 10-lot to something larger, the original position would have generated a $500,000 profit or something close to a 2,700% ROR. Risk management at its very worst or stepping over a $50 bill to pick up a nickel.
The chart posted above captures at once the rapture and the agony of being a silver bull. The high-fiving and champagne-cork-popping of the advance is violently replaced by the agony and self-recrimination of the decline, and while it is typical of all assets that are the focus of the hottest of speculative money, it is a market designed strictly for risk-oriented individuals such as cryptojunkies or late-cycle weed players.
Speaking of crypto and cannabis, my investment thesis for silver lies in the addictive behaviours of these largely Millennial and GenY-er-type investors, who I see as logical heirs to the throne of "speculation of choice" once it becomes necessary for them to replace the rush of rapidly rising momentum plays. In a throwback to a kinder, gentler time, the speculation of choice in the first decade of the New Millennium was silver, which outperformed all other assets by a wide margin. As you can see from the chart posted below, silver outperformed the S&P, the TSE300, and the TSX Venture spectacularly from 2003 to 2011. and it is my opinion that it will do the same in 2019 and beyond.
Asset performances since the March 2009 lows are distinctly different due to blatant interference, manipulation, and interventions that were deemed so "necessary" to avoid the systemic near-collapse of the banking system in 2008. The presence of the central banks since the 2007-2008 Great Financial Bailout. . .er. . .Crisis has served to ensure American market outperformance at the expense of moral hazard and ethical abandonment.
But ten times as bad as that is the propensity and willingness of the entire U.S.-dominated banking cartelto "join in" and one-up their respective trading desks at every turn and all dips. Equities were "ordered" higher from 2009 until Jerome Powell arrived under new "orders" and directed 33 Liberty Street to "stand down." Since the arrival of "QT" (quantitative tightening), the global markets gradually, at first, then suddenly (Hemingway, anyone?) entered into an involuntary Chapter 11, the recognition of which can only be described as refreshing (by me) and "not fair and not my f---ing fault!" by legions of smug little 30-somethings who are just now experiencing their first "correction." Repeat: a correction. Not a crash (1929, 1987), nor an economic collapse (1931-1933), or even a "deep correction" (1998)—but merely a mild hiccup in the long-term trend of the S&P500.
For me, to see financial reporters like Jim Cramer and Bob Pisani joining in on the Fed-bashing party so disturbed, while watching Rick Santelli and Jim Grant and John Mauldin all part of the Fed-saluting party, is a wonderment and the true definition of a free economic society. We need more free-thinkers to man the gunboats at the G20 central banks to supercede the "global narrative," the nature of which is going to destroy the true meaning of global wealth creation, the origin of which is completely out of the hands of the global banking cartel.
To generate truly new "wealth," human labor must be applied to human ingenuity with the goal of pure financial profitability. If, as, and when that achievement occurs, truly new "wealth" has arrived, and with it, the security of a strong, labor-intensive society of working fathers and working mothers whose children grow up wishing with great alacrity the arrival of politicians capable of defining the meaning of the term "leadership."
Financial reporting has now taken over the role of the lobbyist, using the power and influence of cable and satellite TV and the Internet to attempt to sway Federal Reserve Board policy. The S&P is barely 10% off the all-time high print for 2018 but still up 279.4% since the 2009 crash lows, thanks largely to the money-printing and credit-creation mission statements of the global central banks and treasuries. Yet all we read or hear about is "the Fed is making a mistake!"
One has to wonder what the response will be when this global bear really begins to growl and snarl and gets the GenY-ers and Millennials in his crosshairs. As I have printed before, the countless interventions and manipulations have served to excessively starve this bear to the point of savage desperation and the result of failing to allow the beast to feed with normal regularity has today created an aberration of nature that will devour all in its path.
The chart posted below of the Morgan Stanley Total International Stock ETF (IXUS) has collapsed from the February peak and is now a thread away from entering full-blown bear market status thus confirming the global trend of equities and its attendant risk.
The purpose of pointing out the possibility of a lengthy bear market is that just as money will flow to defensive sectors, it will seek out new momentum plays. As mentioned above, the logical candidate is silver, a metal used in solar panels, water filtration, jewelery, ornaments, high-value tableware and utensils (hence the term silverware), in electrical contacts and conductors, in specialized mirrors, window coatings, in catalysis of chemical reactions, as a colorant in stained glass and in specialized confectionery. Its compounds are used in photographic and X-ray film. Dilute solutions of silver nitrate and other silver compounds are used as disinfectants and microbiocides (oligodynamic effect), added to bandages and wound dressings, catheters, and other medical instruments. These industrial applications make silver a viable futuristic necessity and one that the new generation of investors will more and more appreciate in the same manner in which they have embraced battery metals like lithium, cobalt, graphite, and vanadium.
For these reason, I am adding the SLV April $13 @ $1.15 calls to the trading account and will open a 50% position. I will refrain from trading this position and instead set a $10 target by expiry. I will also be ready at the drop of a hat to jettison the position on a two-day close for SLV below the 52-week low of $13.11, at which point I'll be taking a sledge hammer to the quote screen, the liquor cabinet and the medicine chest.
Broken clock be damned.
I concluded my missive with the following: "I am adding the SLV April $13 @ $1.15 calls to the trading account and will open a 50% position this morning." Since U.S. markets were closed for Thanksgiving, I had to wait until Friday morning to execute the trade.
Silver opened weaker on Friday on China weakness fears and a slightly stronger USD, with the SLV down $0.17 to $13.43, thus enabling the April $13 calls to open at $1.03. I am changing the limit on the call options to $1.00 and increasing the order size to a 100% position.
I like the precious metals in here for one very important reason as to timing. Everyone is fearful of a 2007- or 1987-type crash that will suck liquidity out of the precious metals along with all other risk assets. That logic is flawed because if, in fact, the U.S. markets collapse, the Fed will have no choice but to terminate its efforts at quantitative tightening, which would evoke a violent downside reaction in the USD, which in turn would put a strong bid into the precious metals. Any way you cut it, the precious metals are going to rally hard due to ideal conditions that include the very favorable COT set-up in both silver and gold.
Buy the SLV April $13 calls for $1.00 with a target price at $10 by expiry.
Charts provided by the author.
Michael Ballanger Disclaimer: This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.
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