Monday, December 04, 2006

Of Markets and Men.....

(I originally wrote this post below on November 3, 2006 and purposely *didn't* post it for one month to test the fuBarrio first theorem of "bad luck" (TM).

Fubarrio's first theorem of back luck (TM) states that: the mere act of talking positively about any asset class (or new relationship, or job prospect, etc) will have (almost) immediate and catastrophic short term consequences on said speculation (or aspiration's) positive outcome.

I will be reporting on the stated assets listed below (especially the Uranium juniors) in the next couple of weeks that follow so as to test the theory -- anecdotally obviously! :)

I even have a theory for why the first theorem seems to hold so often, but I won't get into that unless this little experiment gives everyone a very public viewing of fB's first theorem in practice.
)

Ok, now the post:

Great Bull markets and bubbles seem to all follow a well-worn path to speculative excesses.

I've been taught the hard (read: expensive) way that these two old sayings still hold true today:

"The trend is your friend" and
"The market can stay irrational longer than you can stay liquid"

The second quote is attributed to Keynes, the first is unkown (Jesse Livermore?), but he must have been a trader.

Great amounts of speculative capital can be amassed by trend following as long as you are willing to sell "too early" (rather than "too late"). In thinking (briefly) about the two quotes above however we see that sometimes in trading, thinking, or trying to understand the "why" something is trending in a certain direction can be detrimental to your (financial) health.

That said, however, it is an invaluable asset to be able to recognize when the jig is "up"and a longn running trend is near or at a speculative apex and it is time to step aside or "flip the script".

As anyone who has read this blog knows, I've been "bearish" on US residential housing and bullish on metals, miners and energy. While I don't believe the energy bull is dead, in the last couple of months I've shifted a portion from carbon based energy to mineral based (U3O8).

A month or two ago in the face of crude oil, refined products and natural gas declines there was significant rumblings from mainstream media that the resource bull market was dead.

While pullbacks will be extremely violent and decimate portfolios, the bull will not be deceased until AFTER it becomes a speculative fervour....

Remember when housewives were selling formed silver to traders for the metal content in 79/80....I was 10 and 11 years old and *I* was caught up and fascinated by the run-up....granted I was uniquely alert to all things financial as a yougster, but i took a portion of my paper route earnings not wasted on candy and baseball cards and bought silver ingot :) (--- AFTER the bubble had collapsed -- on the way down....becauase it was a better price! the "greater fool" ....so young to be a knife catcher!! :) )

Ironically, the fact that *I* was fascinated by the precious metal bull market as an 11 year old would have been the warning bell to the me 25 years older. I hopefully would have seen the paperboy interested in buying ingot as a sure sign that the great bull needed a "little" 18-20 year "cleansing" period to wash out the speculative excesses.

When cocktail party chatter is abuzz with gold mining stock profits, when you hear stories of everyday people making vast sums of wealth betting on junior Uranium miners, when a cab driver/waitress/homeless person/shoe shine boy/barber/mailman, etc starts telling you about their ingot or silver mining stock picks, you'll know it's time to park your funds in safer harbors. Until then, buy the dips.

If you need reminders of what speculative excess looks like, think about realestate in 2004-2005, dot-coms in 1999-2000, nikkei and japanese realestate 1989, oil in the early 80's, precious metals 79-80. (the last two I'm too lazy to look up, but hopefuly that is a reasonably accurate ballpark)....There are also several more I never lived through- nifty fifty late 60's - 1929, etc.

Ok...so, how do I know that I'm not STILL the greater fool and I should add "expatriate blogging from South America" to the list of everyday people??? Because right now the only people that agree with me are still viewed as "fringe" and a little cooky by "normal" people :)

ciao for now,
fB

3 comments:

Anonymous said...

Greetings, FuBarrio! I'm in the last stages of moving to Uruguay and am enjoying your blog. Can I ask how you are doing your trading? Ie, are you trading through a US broker, or have you found a Uruguayan broker, or an online broker (US or non-US)? Just wondering what the options are. Thanks! I look forward to meeting you.

-- Shirley

FuBarrio said...

Shirley,

Thank you for checking out the blog.

fuBarrio, for numerous reasons prefers leaving his monthly settlement checks with North American financial institutions...

But, fuBarrio simply cannot comment on the availability or quality of a South American broker because he hasn't even bothered to look into it.

fuBarrio loses most of his money at interactivebrokers.com but there are numerous brokerages that will handle your trading equally poorly whether your physical presence is Montevideo, Minnesota, or Montevideo, Uruguay.

I look forward to meeting you when you arrive -- if you will be spending any time in the capitol!

Good luck (please see fuBarrio's firth theorem of bad luck and look at what the uranium juniors did in the month before this post was posted and since)! :)

ciao,
fB
fB

Anonymous said...

Thanks! I'll be living in Montevideo (Palermo neighborhood), so I look forward to meeting you and GL!

Funny you should mention the other Montevideo. I grew up in Minnesota, so when I first came to Uruguay, I had to remind myself that I was in Mon-te-vi-DAY-o, not Mon-ti-VID-e-o (as it is pronounced in Minnesota)!

-- Shirley