Friday, February 24, 2012

Caution, Children At Play

I think I've been remiss in my blogging. I should have been posting caveats in each post, admonishing any readers that I am not a certified investment advisor of any sort. Lest you be enticed into attempting to replicate my own performance, let me repeat the traditional mantra of the stock market. Past performance is not indicative of future performance, your results may vary. I feel you might be best warned by a large rectangular yellow sign with the words "Caution, Children at Play." In my case, it might be better to state "slow children at play."

Caution is due when playing with leveraged ETF's. They are not for the faint of heart, nor those who are not well-healed, nor novices who cannot monitor the markets they represent closely. As has been stated by others, never play the markets on margin, and never play with money you can't afford to lose. As well, position limits might be a safe precaution. There are those who recommend no more than two percent of your portfolio being bet on any one speculative trade, so as to limit your losses if the wager goes south.

I tend to break all the rules, myself, that I would chasten others to abide by. Maybe Momma did raise a fool. Whatever the reasons, I tend to have a high tolerance for risk. The funds that I play my stock market games are within various 401k accounts, and I can afford to lose them, though that is far from being my goal. There is a risk/reward ratio involved in my trading, and I'm willing to assume tremendous risk as long as I'm very well rewarded. I'm up over seventy percent so far this year, but that could change in a heartbeat.

Let's take a look at the wisdom of using leveraged ETF's on a long term basis. The prospectuses of the various LETF's all warn that the basis of the leverage employed is intended to replicate the change in value of one day of trading. Over longer periods of time, that performance can so degrade as to completely distort the returns you might have expected. The link I am posting would make any explanation of mine redundant, so please take a moment to read

Okay, you're back? Did you get that? Over longer periods than say, just intraday at best, or one or two days, you will not achieve the performance you expect. I am confident that the silver market is in a long term bull, one that will rise steadily with more up days than down. So I will continue to employ LETF's myself. But today, when I reviewed some previous trades that were placed on 11/17/2011, I noticed an anomaly. Due to the high volatility silver pricing has undergone since that time, I am underwater on what should have been a profitable position.

Specifically, on that date I purchased 196 shares of USLV, using the proceeds from the sale of 164 shares of AGQ. Were I today to sell the USLV to repurchase the AGQ, I would actually lose ground on the trade, reacquiring only 162 shares in the process. This due, undoubtedly, on the vagaries of fate and idiosynchrasies of employing a short term vehicle for a long trip ride. Apparently, there were enough down days in that interim period that it exacerbated the losses, rather than the gains, even though silver has recently experienced a nice uptrend.

So how do I extricate myself from this mess? Well, I'll have to let the triples run for much longer, during an uptrending market, before converting back to doubles. I guess I've just discovered what my core position is of USLV, because I am loathe to sell at a putative loss. A fairly lengthy uptrend, say to $40 or $42 silver should be enough to clear the books, and I'll just need to be cognizant of this mischievous aspect of LETF's going forward. When you like to play in the fast lane, you need to keep an eye open for vehicles with undependable steering.

But Silver. Buy Gold. Save Copper. Start Now.

Thursday, February 23, 2012

Patience is a Virtue

A little over a month ago, I detailed my strategy for utilizing double and triple leveraged silver ETF's to take advantage of silver's notable bi-directional volatility. Specifically, in the piece entitled A Good Parking Place, I related my tactics for selling silver mining equities to raise cash in order to purchase Velocity Share's triple-leveraged silver ETF USLV. Kind of similar to switching allegiance from the tortoise to the hare, whenever the race course suddenly dips and enters a steep decline.

My reasoning is that the silver miner's are stolid, and lag physical silver's price moves, sometimes by days, and seldom to the same magnitude of gains or losses when compared to triple leveraged physical silver prices. So, on those occasions when the market offers you a buying opportunity, those otherwise disastrous days when you're getting hammered, watching your retirement dreams bleed into cyberspace, if fortune does indeed favor the bold, then gather up your courage and strike.

I would suppose you could call such a strategy derivative of Freiherr von Rothschild, Nathan Mayer Rothschild. Prior to The Battle of Waterloo the London financier is accredited with having said, "The time to buy is when blood runs in the streets, even if that blood is your own." Today, Warren Buffet epitomizes the virtues of patience as an investor, his own maxim being to "buy when everyone else is selling, then hold, finally to sell when everyone else is buying."

My contention is that silver prices will ultimately rise dramatically from their present levels, as so many others have dutifully noted with their rationale. Eric Sprott, one of the BMOC on the Silver Campus has been one who has heralded silver as "the greatest investment opportunity of the decade, perhaps of a lifetime" and the link provided encapsulates his reasoning. Thus, in my thinking, there is little danger in aggresively capitalizing on short term dips, other than the necessity, at times, to subsequently employ patience prior to selling.

After analyzing silver's volatility and the concomitant performance of USLV, I have settled upon 15% as a goal to aim for as my "fair profit" target. Many times, often intraday, the price will drop and surge 5 and even sometimes 10 percent, but as I do these trades within 401k's that require a three day settlement of trades, I can't take advantage of such lightning moves with foudroyant reflexive responses. I often give away topside profit, but no sense in being greedy. So 15% it is. Thus, were I to purchase USLV shares at $49, my sell limit order would be $56.35.

You'd be surprised by how rapidly the hare can cover that ground. Actually, I don't feel penalized by the constraints placed by having to abide by a three day wait period to avoid committing a good faith violation by selling equities that hadn't been "paid for" yet. Let me tell you about the latest episode of selling the tortoise and backing the hare. On Monday, January 30th silver underwent its most recent haircut, and the following day was more of the same. USLV, which had closed at $49.12 the previous Friday, dropped to $47.24 that first day, dipping even more to $46.01 on the 31st.

It was time to step into the fray and take advantage of the (presumed) temporary carnage. On both days I sold numerous positions and converted them to USLV. I liquidated positions in First Majestic Silver, Alexco Resources, Endeavour Silver Corp, Fortuna Silver, Great Panther, Market Vectors Junior Gold Mines GDXJ, Hecla, Mag Silver Corp, North American Palladium Ltd, Silvercorp, Silver Wheaton, Tahoe Resources, and the Global X Silver Miners ETF, SIL.

It was frustrating at times, but I was forced to wait until today, more than three weeks later, to sell many of the USLV positions I had entered on those previous trade dates. How did I do? Well, in some cases I hit my 15% target, and on others I exceeded it by a bit by adjusting my sell orders as I monitored the day's pricing activity. I converted back into the tortoise positions, in the same proportion as I had sold out of them, with the results as follow.

AG sold 1026 shares, was able to repurchase 1180. AXU sold 1039 shares, was able to buy back 1139. EXK sold 1842, was able to reacquire 2140. FSM 308 to 336. GPL 2254 to 2643. GDXJ 255 to 300. HL 1369 to 1511. MVG 866 to 875. PAL 275 to 326. SVM 1799 to 2198. SLW 664 to 697. THOEF 114 to 137, and SIL 723 to 813. Overall, I was pleased by the gain in share numbers as opposed to a buy and hold strategy which would have left me with the starting positions.

Of interest was the performance of each stock, during the interim period, before being rebought. Some of them, such as Hecla, had rebounded dramatically. That stock, on improved guidance, was up as much as 13.55% this last Monday, before finishing up the day a bit over 9 percent. Mag Silver ran up quite nicely in the interim period, as did Silver Wheaton. Those stocks that improved in pricing while I was away show commensurately lower percentage share gains. With 15% being the standard, here are the results.

SVM share count up 22.18%
THOEF share count up 20.18%
PAL share count up 18.55%
GDXJ share count up 17.65%
GPL share count up 17.26%
EXK share count up 16.18%
AG share count up 15.01%
SIL share count up 12.45%
HL share count up 10.37%
AXU share count up 9.62%
FSM share count up 9.09%
SLW share count up 4.97%
MVG share count up 1.04%

Having sold into the rally on this ascent, I am now configured to "wash, rinse, and repeat." Bring on another dip, JPMorgan, I have the chips to play. I am not worried about "missing profits" by not remaining in USLV, as I am still playing a healthy percentage of my portfolio with double-leveraged AGQ. But I also am now the proud papa of significantly more little tortoises which, as slow as they might be, in the long run may turn out to win the race after all. You just have to be patient.

Buy Silver. Buy Gold. Save Copper. Start Now.

Sunday, February 12, 2012

Weird Dreams

I just awoke from an afternoon nap after making a startling discernment. I was having one of my usual action dreams, where I get to be an Indiana Jones in one of his Adventures. I'm the good guy, sometimes with super powers, often the ability to fly, and always the hero. I generally find treasures and wind up with the beautiful gal hanging onto my arm, gazing adoringly into my eyes, caressing my cheek with her fingertip. Then I awaken and realize my head had been buried in my pillow, and it was just the fabric of the pillowcase that had stimulated those senses.

This time was different. I'm writing hastily to capture the essence of the dream before it fades into oblivion. I remember sitting in a cubicle, about to receive an injection in my left thigh from a large stern female of Germanic heritage dressed in camo fatigues as I resisted this apparently mandatory shot. "Sit still," she commanded in response to my attempt to squirm away from the approaching needle. "What is it, I retorted, "Rohypnol?" "That's a sexist attitude," was her gruff response.

A thousand questions were swirling in my brain as I persisted, "but why do I need this?" Her answer was chilling. "Because we want you to be strong and truthful." As if, without some sort of sodium pentothal truth serum my initial response would be one of corrupt integrity or morals, a natural deceptive riposte feigned in self-defensive nature? Who was being duplicitous here, me or this government entity forcing mass inocculations upon an unwilling quarantined populace when there was no threat of any form of contagion?

You've heard of the concept garbage in, garbage out. I guess this dream is the result of the word candy I've been feeding my brain recently, through avenues of print media, broadcasting, and the world of cinema. Namely, in the last week I watched the recent films Contagion and Rise of the Planet of the Apes. I had just finished listening, on King World News, to a Gerald Celente interview regarding military exercises in Los Angeles in urban population control and subjugation of rioters in anticipation of widespread civil disobedience. I have watched the youtube videos of the FEMA encampments. For what purpose will they be employed?

And I have been reading, on Zero Hedge as well as other sites, about the loss of liberties endangered by such recent codices enacted by the follies of the Capitol Hill Fools such as FATCA, the Foreign Account Tax Compliance Act, which may threaten your ability to safeguard your money by offshore investments. The implementation costs upon mid-sized foreign banks is prohibitively costly and could easily result in the unforeseen consequence of those same banks shunning deposits of American citizens.

I have also become aware of the far-reaching, although unintentional, potentially calamitous repercussions of the two internet restrictive mandates SOPA and PIPA, as well as the draconian strictures passed into law on 12/31/2012. Seems like we won't have to wait for 12/21/2012, the termination date of the Mayan calendar, to usher in the prophesied end of the world. Obama beat Quetzacoatl to the punch by signing the NDAA. It is now written in stone, and its circumlocution mimics the shape of that archaic Doomsday petroglyph.

Prior to its inception, supporter Sen. Lindsey Gramm (Rep-S.C.) spoke out stating that under the 'worldwide indefinite detention without charge or trial' provision of S.1867, the National Defense Authorization Act bill, the legislation will "basically say in law for the first time that the homeland is part of the battlefield." Despite claims to the contrary, such legalese is open to misinterpretation, and thus subject to abuse. Should you have the misfortune to be deemed a "belligerent of the state" heaven help you, because the law won't.

Since it's signing, Ron Paul has been vociferous in his advocacy that the Act, and any subsequent declaration of martial law, directly imperil our civil liberties. Alas, the media blackout shrowded upon Paul serves to suffocate his message or twist his words, taking them out of context, in an effort to demonize his oratory. Thus, what attention he does draw from the Left is, accordingly, often knee-jerk backlash to disingenuous liberal media coverage, fomented by inaccurate interpretations of his own campaign statements, lumping him scornfully with maliciously characterized Tea Party "extremists."

Does your near future hold the portent of Department of Homeland Security officials pulling up to your curb, spilling their own version of jackbooted thugs from three black Chevy Suburbans, and manhandling you or your loved ones into the dark interior to whisk you away to indefinite detention? Merely because your browsing of websites or search fields contained catch phrases or watch words classified as being seditionist in nature, and being monitored by the elite Cyber Command Force?

Not everything you see in Hollywood movies is fictional. Most scripts are, at least partially, based upon facts. Whether or not Enemy of the State, or Eagle Eye, are unequivocally accurate in their depiction of the extent to which all of our communications are subject to scrutiny, programs similar to those portrayed currently record and monitor all communications inside the United States; their purported intent being to stop terrorist events in an incipient stage. Will they soon be interrogating high school students researching a paper on taboo subjects?

How long will you even be able to browse online? The Internet remains the last bastion of the autodidact, those self taught individuals who rebel at the thought of dining upon the pablum served up by the so-called news entities in this country. How long will we be able to visit domains deemed dubious by TPTB who wish to restrict free-thinking? Those sites that might be subject to blackouts for containing content that would promote civil disobedience in protest of increasingly draconian measures? SOPA, the Stop Online Piracy Act, contains provisions that are far-reaching in their potential for abuse.

Laurence Tribe, a high-profile Harvard law professor and author of a treatise titled American Constitutional Law, has argued that SOPA is unconstitutional because, if enacted, "an entire Web site containing tens of thousands of pages could be targeted if only a single page were accused of infringement." Youtube, Google, Facebook and countless other online sites could be ultimately affected.

How long will it be before is forbidden to advertise reference works on certain Muslim subcultures? Or banned for failure to comply? As detractors of The Patriot Act would all too willingly emphasize, "it all starts innocently enough, for ostensibly noble purposes" but, all too often, sinister consequences swiftly ensue. Certainly, I am using hyperbole for effect, but these leaps of the imagination aren't really that hard to envision, are they? They are the logical steps in the calculus now being employed, and the answers they are capable of deriving are not to my liking, nor should they be to yours.

The reality is I woke up from my siesta and realized that my afternoon dream was a nightmare. In a world where the regulations are already in place that could manifest such loss of liberties, it is only a matter of time until they are enforced. My fear is that too many Americans will continue their endless daydreams, their senses dulled into semi-narcotized comatose state, and they will only awaken from their en masse somnambulism too late to recognize that 1984's author George Orwell was right about Big Brother, he was just two decades too early.

Buy Silver. Buy Gold. Save Copper. Start Now.