We live in very anxious times. People everywhere are talking about their fear.
The demise of the US economy has become gradually and then widely accepted as the U$ dollar plummeted for 7 years.
As the dollar fell and credit derivatives buoyed consumption, commodity prices shot to the moon.
But here is where human's fall down. We are backward looking creatures. When something has been happening for a while most of us can only see more of the same in the future. This is why most people (and governments) are poor planners and horrible investors.
To survive and thrive each phase of human history we must fight for objectivity and make fluid, realistic plans as we go.
For a long time, at my Canadian money management firm, based on our own set of technical rules, we had a sell on the US dollar. So we stayed out of the US dollar. At our firm we like to keep things simple and objective as possible. The U$ was dropping versus our home currency so we stayed out of it. While the U$ was dropping commodities rallied and we made money on commodities.
But we did not fall in love with commodities. We did not hate the US. We did not need to.
Last November we got a buy on the US dollar so we bought it. The trend has been going up ever since. This spring we got a sell on our gold and energy positions so we sold them. We did not question the signals we received on our rules. We did not argue against them, we did not try to insist on our way.
I have learned the hard way over the years, that I am small and inconsequential in world financial markets. My education is worthless, my reasoning superfluous. Financial markets don't give a damn what I think. They do what they do– with or without us. The only thing that we can control as investors is our rules about when and how we agree to take part in markets.
A few months ago, as commodity prices were peaking out, I noted that many long-only commodity investors had turned into the frenzied, rabid creatures in Will Smith's movie “I AM”. Their eyes had glossed over. They were foaming at the mouth. They had literally gone “postal” in their adoration for commodities and gold and their hatred for all things American. But I have seen this insanity before in the tech bubble of the 90's. I recognize the characteristics.
This weekend I was a guest on a short segment on the Korelin Economics Report. During the interview I noted that the US dollar had in fact been rising for several months against the basket of world currencies and that during the same time frame commodities had been correcting.
Notice this was not my opinion on anything. This was simply a statement of fact about what has actually happened the past few months. I also pointed out that in the anti-American sentiment prevalent in our times, many people seem to have missed that credit abuse and over-consumption have been a western-wide phenomenon the past few years. I said the US has been dumb for sure, but many other western countries have perhaps been even dumber. I know this not because I love or hate the US. I know this because it is part of my job to monitor and measure a multitude of macro-economic trends in countries around the world every day. My clients do not pay us for emotional arguments; they pay us to protect their assets with realistic analysis.
This week when I was speaking at the Vegas Hard Assets conference, I met many people that had lost heavily in gold and commodities over the past several months. They were still heavily invested and emotionally arguing their positions. They flash anger at anyone who cannot agree with their thesis.
The following email I received yesterday is an example of the emotional attacks I frequently receive when a listener is incensed by my observations. He had heard me this weekend on the Korelin Economic segment:
I am using my wife's E-mail address. The comments are my own.
I had come to appreciate much of what you had to say on BNN, a show not always seeking the brightest lights in the universe. You often presented sage comment that is appreciated by contrarians, many of whom have been proved entirely correct.
However, your wave the flag for the U.S. dollar and U.S. economy turned my stomach. You exposed yourself as a continentalist and probably good old Yankee style consumer capitalist. You tried to soften your earlier comments on another segment of the show, but it was too late by then.
It never ceases to amaze me how very few unique thinkers there are and how few Canadians understand the depths of the American economic corruption. You just don’t seem to get it that the United States is yesterday's story as the great financial empire, just as Britain's tenure disappeared after WW1. America is done. Many of the people on that show, most of them American, knew that. But not you. In your perky way, you went on to deify the American economic thinkers, most of whom are corrupt and hypocritical.
The next time I hear your perky voice, I shall turn you off. You have shown us “now” who you are.”
These words speak for themselves. This man is long precious metals, has lost heavily of late, and is lashing out emotionally. He can only tolerate statements that correspond with his positions.
I take no pleasure in watching others make classic errors and lose capital. As I tell my kids, the truth is the truth no matter what I say. We cannot change reality by arguing our own position more and louder. I am sorry for those that have not had a sell rule on their positions. I am sorry for those who do not have a buy rule to know when and where they should invest next.
I do not profess to know where world markets or the US dollar are headed next, but we will watch trends carefully and make tactical decisions based on objective data. It is the objective rules we have developed and that we stick to, that have allowed our accounts to be up 6% year to date in 2008 while others have lost heavily.
If we get a sell on the U$ again we will sell it. If we get a buy on gold again, we will buy it. It is that simple. It is that humble.
Cory’s Chart Corner
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