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Shiver Me Timbers!

By: Wayne Krautkramer

-- Posted 23 February, 2006 | |


Long John, I gotta tell you true. Thereís all kinds of stories about silver floating around at the Traders Pub! And they all sound right. But thatís not possible, so what do we do?

AAAAAARRGH, settle down Young Jim, and fetch ye some learning! When the winds and sea are high, and the days be dark and stormy, the scuttlebutt rises like the tide! There ainít no anchor on those words, so this scuttlebutt floats everywhere, till the current gets strong enough to clear the waters! So go to your quarters, and study your charts, afore we run aground somewhere, or get thoroughly lost in the Queenís waters!

Itís walking the margin call plank time for the fools who swallow an enemies bilge! The Crown puts its agents into the Traders Pub to fool the pups like you! So Iím confining you to the ship till you master your charting techniques! Only then you can go to the Pub for rum, scuttlebutt, and wenches!

Yes, the battle of the silver fundamentalists has begun. There are a few arguments involved, but the main point of contention is very basic. There is, or is not, a shortage of silver at this time.

Your response will depend on which argument you believe, and this argument can also lead one into total confusion.

If we are low on silver, then you will want to buy silver, or at least not want to be short silver at this time! Franklin Sanders seems very sure of his facts, and he does have over 26 years of experience selling silver coins.

If there is no shortage of silver, than you might want to avoid silver purchases, or even consider selling silver short at times.Gary North tells us that he sold silver coins for Monex for a little over one year, prior to becoming a full time writer! Gary North is a formidable writer, and well versed in the rhetorical skills from his many years of training under R. J Rushdooney (Gary Northís father in law). Gary North is one of the major forces in the propagation of a economic belief called Theonomics.

The actual facts may, or may not be discernible from reading this debate, and the relevance of the disputed facts is questionable Confusion is the likely outcome for most readers, and confusion leads to fear and inaction. This can be fatal to an investor!

Our purpose here is not to join the fundamentalist debate on silver. We only want to show the difficuty, and probable futility in attempting to resolve this debate. We can only state with certainty that one, or both of the arguments are wrong. Itís impossible for them both to be correct. Therefore, we will break this impasse by suggesting a viable alternative for our readers.

Clive Maund has provided us with some information in his latest article, Now Try Telling Me That Charts Donít Work. He is to be commended for stating that price charts must be used with in-depth analysis of volume, the lifeblood of the market.

"We have one primary goal, to make as much money as we possibly can in the shortest possible timeframe. We aim to outflank the majority of investors, and - I know it sounds cruel - to drain their funds into our coffers. Let's face it, there's no such thing as a free lunch in this business - if you make money in stocks, it means that someone, somewhere, has had or is going to make a loss. It's tragic, I know, but that's life." Clive Maund reminding us of the point of this entire exercise!

The market price charts are the vital signs that a market master works with. Everything that is known is always in the charts.Any good physician checks the vital signs of his hospitalized patients. The nurses usually update the charts every four hours, though it seems sooner as they wake the patients up all night to check their vitals.

The main premise that justifies calling "insider trading" a crime is absurd to a master trader. Any idiot should know that the stock or commodity in question had to be bought or sold somewhere. That means it must show in the volume numbers. There is no way to hide their activity! Learn to observe the charts, and just mirror the big boys activities. Let them get the education, do all the work, make the correct decisions, and just piggyback on their efforts. Hey, this works for me!

Virtually all activity is in the charts, so we need look no further than our charts for a valid premise to base our investment strategies upon. There are the occasional anomalies, such as acts of nature, and true insider trading which is almost done by government officials , as they know precisely when they will declare war, or announce a force majeure. Eleanor Rooseveltís purchase of a massive position in wheat just prior to the outbreak of WW2 is a case in point. But the collectivists will be quick to claim that this was just a coincidence!

Ed Seykota, dismisses all fundamental analysis as Funny-Mentals. The timing of this debate on the fundamentals of silver is perfect for introducing early trading history of Ed Seykota. It was silver that first taught Ed Seykota that all information is already in the market (charts). One could say that this discovery started the career of one of the greatest traders in all history.

Seykotaís Comments on silver!

"Q. How did you first get involved in trading?
A. In the late 1960s, I decided that silver had to rise when the U.S. Treasury stopped selling it. I opened a commodity margin account to take full advantage of my insight. While I was waiting, my broker convinced me to short some copper. I soon got stopped out and lost some money and my trading virginity. So I went back to waiting for the start of the big, inevitable bull market in silver. Finally, the day arrived. I bought. Much to my amazement and financial detriment, the price started falling! At first it seemed impossible to me that silver could fall on such a bullish deal. Yet the price was falling and that was a fact. Soon my stop got hit. This was a very stunning education about the way markets discount news. I became more and more fascinated with how markets work.


There is an amusing incident discussed in Reminiscences of Stock Operator (Edwin Leferve), where the master trader takes enormous losses in cotton due to following the advice of one Percy Thomas. Percy Thomas was a charismatic fundamentalist in cotton who had convinced Livermore that he (Percy Thomas) was absolutely correct on cottonís fundamentals.

When it was over, Livermore realized that he had ceased to do his own thinking, and had stopped looking at the marketís price action, because the market had to be wrong (according to Percy Thomas) I quote the book (pg. 154.) "It was the most asinine play of my career!

Has it ever occurred to you that if you know something, everyone else (at least the oneís with the money and influence) already know it! The investment markets are the most watched, most analyzed phenomenon in the world. Why is this true? Because thatís where the money is!

"The tape (the price and volume charts) tells you the censenus of opinion and reveals the trend according to supply and demand. Ignore the news, reports, opinions and views of everyone if it disagrees with what the charts and tape shows, for supply and demand must govern in the end, and if the selling power is greater than the buying, prices will decline, regardless of bad crop news or anything else.On the other hand, if the demand, or buying power exceeds the selling, prices will advance regardless of good news. Of course, the general trend of the market does not continue for long contrary to natural conditions,but supply and demand govern the prices and the market discounts future events.Therefore, before you act too strongly on the good or bad news, be sure that your chart, which is but the reading of the tape, and the correct interpretation of it, confirms the news and shows that it is yet to be discounted." William D. Gann, Truth of the Stock Tape, 1923.


Wayne N. Krautkramer

-- Posted 23 February, 2006 | |

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