• Tue, Jan 14, 2014 - 04:32pm



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Well, I can see why you have this view of me, since you only look at what I say taken out of context.  I'd think I was crazy too if I just read what you quoted.

You also imagine that I was somehow pointing the "goldbug finger" at you.  Well, I can't help that.  I didn't write this at or for you.  I'm not quite sure why you would think I would do such a thing!

But if you've ever read mainstream goldbug news, you would know that there is often a big hullabaloo made whenever gold goes down and long stops get triggered.  This is held out as clear proof that "the bankers are trying to keep the price of gold down."  When gold goes up, and short stops are triggered, I just hear crickets from those same sources.  No NANEX millisecond charts (minus Chris, whom I don't count as "mainstream goldbug news"), no "long side goldbug manipulation" accusations – its just crickets.  Same market action, just with the chart upside down.

The majority of market participants, such as myself, do not have the ability to create naked paper futures, thus providing a huge unfair advantage and destroying the concept of a free and fair market that seeks to set correct prices.

Really.  I daresay that's simply because you're misinformed.  If you want to become more empowered, you can always open up a standard futures trading account, and you too will have this magical power.  I have it, this Ultimate Power in the Galaxy to open a short position in many, many commodities – I don't feel it is hugely unfair or anything – but then again we're not seeing things the same way so I'm not surprised.

You do realize this is the way futures are designed to work.  Speculators take positions on which they do not intend to take delivery, which helps provide price discovery and liquidity.

That's not to say I don't have issues with how the market currently works.  On many, many occasions I've said that position sizing is critical for proper price discovery.  So the issue I have is not "naked shorting", it is  one of position sizing.  I feel you're ranting against the wrong thing.  But again, we differ on these things, so I'm not surprised.

I believe that markets should fundamentally reflect fundamentals. I.e. a relatively scarce and commercially important element such as silver should be expensive and a relatively common substance such as sand should be cheap.

And this is the key point.  Its the single biggest reason why people lose money in the markets.  They expect the markets to move according to their understanding of the fundamentals.  Unfortunately, the market isn't comprised of Hrunners.  It has all different sorts of participants, each with their own understanding of the fundamentals, each motivated by their own reasons.

Although I daresay the market will most likely agree with your assessment with the relative valuation on silver vs sand.

I can't emphasize enough how often I had bad trades when I tried focusing on "fundamentals" (i.e. I stubbornly focused on my Dave-centric view of How Things Should Be) rather than on what the market was actually doing.

This often counter-intuitive behavior is standard in all markets everywhere.  They behave oddly, from the standpoint of common sense.  Why on earth would a great earnings report cause a company's stock to go down.  It's clearly manipulation!  Either that, or everyone who wanted to buy already had, and the market baked the good earnings into the cake already.

A fantastic real time example: I said to my friend that the best time to sell Dollar/Baht was on the day the big protest in Bangkok was due to start.  That's the point of maximum fear – so sell the event.  Should Baht have risen on the first day of the Bangkok city shutdown?  What are the fundamentals there?  A protest shutting down the city would certainly seem to be bad news, which should lead to the Baht selling off even more.  But how on earth could I figure out it would rise?  And – isn't that just manipulation by the Thai Central Bank? 

Not so much.  Many people experienced in markets would have made the same suggestion.

People imagine that markets should be rational (meaning, "markets should do exactly what I think they should do"), and when they don't do what people expect, those same people feel the need to place the blame everywhere but upon themselves and their poor understanding of how markets really function.  "Money printing means gold should be infinitely valuable."  And the implication is, "this trading thing should be easy."

Well, its not.  And its not because there is a conspiracy of bankers trying to keep the price of gold down.  Again, if this were the case, gold would not have risen from 2001-2011 with nary a down year.  Keystone Cops Conspiracy – least successful conspiracy ever – alleged by the goldbugs all during that move up.

But does anyone talk about that?  Again – crickets.