Gold rebounds on Iran missile test, off two-week low
Gold regained ground on Wednesday as speculators resurfaced on news that Iran had test-fired nine long- and medium-range missiles, lifting the metal's safe-haven appeal in times of uncertainty.
State media said Iran had test fired missiles, including one which it had previously said could travel as far as Israel and US bases in the region, at a time of increased tension between Iran and Israel over Tehran's disputed nuclear programme.
Gold hit a low of $915,60 an ounce before bouncing to $921,15/922,15 an ounce on the Iranian news, steady from 921,35/922,55 an ounce late in New York.
Gold fell as low as $912,50 an ounce on Tuesday, its lowest level since June 27, on weaker oil and a rebounding US dollar. Gold was well below a record high of $1 030,80 hit in March.
"It's not surprising that the market has taken the news as positive for gold. I think $910 to $912 are going to be support, on the top side we are looking at $925 as resistance," said Darren Heathcote of Investec Australia in Sydney.
"We still have an awful lot of uncertainty out there, which should help to underpin it for the time being," he said.
Tension is also high between Iran and the United States over Iran's nuclear programme, which Washington says is aimed at making an atomic bomb but Tehran says is for generating energy.
There has been media speculation of a possible US or Israeli military strike against Iran's nuclear facilities.
Gold has hit a lifetime high on record-high oil prices which raise the metal's appeal as a hedge against inflation and expectations of more interest rate cuts in the United States, which lift its appeal as an alternative investment.
The euro rose to $1,5713 the Iran news, which also pushed up oil prices by more than $1 a barrel.
While jewellery makers were on the sidelines, dealers said gains in bullion held by SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, to 658.99 tonnes, within sight of a record in March, showed investors' confidence in gold.
"From an investment perspective, there's still demand there," said Heatchote of Investec Australia.
Spot platinum firmed to $1 945,00 s/1 965,00 an ounce from $1 940,50/1 960,00 late in New York. It hit a two-month low of $1 936,50 on Tuesday on fears a slowing US economy could weaken demand from car makers.
Platinum was well below a record high of $2 290 hit in March on supply fears in main producer South Africa. Arbitrage buying from speculators in Tokyo futures pushed up cash prices but platinum struggled to sustain gains.
"After platinum fell below the $1 950 region, I think it could move lower, from a technical perspective. Gold and silver are definitely much better off," said a dealer in Singapore, who pegged support at $1 920 for platinum.
The most active platinum contract for June 2009 delivery on the Tokyo Commodity Exchange fell as low as 6 635 yen per gram, its lowest level since early June.
Spot palladium rose to $439,00/447,00 an ounce from $437,50/445,50 an ounce late in New York. Silver edged down to $17,79/17,84 an ounce from $17,82/17,88 late in New York.
Gold futures for August delivery on the COMEX division of the New York Mercantile Exchange fell $0,5 an ounce to $922,8.
Wednesday, July 9, 2008
Iran test fires longer range missiles
Iran has test-fired a missile whose range puts Israel within reach, angering the United States amid growing fears that the stand-off over the contested Iranian nuclear drive could lead to war.
The Shahab-3 was among a broadside of nine missiles fired off early Wednesday from an undisclosed location in the Iranian desert, state-run Arabic channel Al-Alam and its English counterpart Press-TV reported.
Al-Alam said the missiles test-fired by the elite Revolutionary Guards included a "Shahab-3 with a conventional warhead weighing one tonne and a 2,000km range."
The firing comes at a time of growing tension over Tehran's nuclear drive, which Iran has insisted is peaceful but the West fears could be aimed at making an atomic bomb.
"The aim of these war games is to show we are ready to defend the integrity of the Iranian nation," Al-Alam quoted Revolutionary Guards air force commander Hossein Salami as saying.
"Our missiles are ready for shooting at any place and any time, quickly and with accuracy. The enemy must not repeat its mistakes. The enemy targets are under surveillance," he added.
The United States, which has never ruled out military action against Iranian atomic facilities, immediately condemned the missile tests.
"Iran's development of ballistic missiles is a violation of United Nations Security Council resolutions and completely inconsistent with Iran's obligations to the world," White House spokesman Gordon Johndroe said.
Nine missiles were tested in all, state-run Press-TV reported.
Along with the Shahab-3, also test-fired were the Zelzal, with a range of up to 400km, and the Fateh which has a range of around 170km.
Press-TV showed footage of the Shahab-3 and other missiles being launched, apparently successfully, leaving huge clouds of smoke around the launch site.
The Islamic republic test-fired the Shahab-3 for the first time in an exercise in November 2006, but launching its longest-range weapon amid the current tension is sure to concern Iran's Western foes.
The semi-official Fars news agency said the warhead on the Shahab-3 would fragment just before impact, maximising damage to the enemy.
There has been concern that an attack against Iran could be imminent after it emerged Israel had carried out manoeuvres in Greece that were effectively practice runs for a potential strike against Iranian nuclear facilities.
Israel is Iran's arch regional enemy and has expressed alarm over the rhetoric of President Mahmoud Ahmadinejad, who has repeatedly predicted that the Jewish state is doomed to disappear.
The missile launch comes a day after an aide to supreme leader Ayatollah Ali Khamenei warned that Iran would "set fire" to Israel and the US navy in the Gulf as its first response to any American attack over its nuclear program.
"Tel Aviv and the US fleet in the Persian Gulf would be the targets that would be set on fire in Iran's crushing response," said mid-ranking cleric Ali Shirazi, Khamenei's representative to Revolutionary Guards naval forces.
Wednesday's launch was part of The Great Prophet III war games by the missile and naval sections of the Revolutionary Guards which are aimed at improving combat readiness.
But diplomatic efforts are also continuing. Iran has responded to an offer from world powers to end the nuclear crisis and diplomats are analysing what is said to be a complex answer from Tehran.
The offer from world powers proposes that Iran suspend uranium enrichment - the key sticking point in the crisis and the process which they fear could be used to make a nuclear weapon - in exchange for technological incentives.
However the French foreign ministry has confirmed that Iran does not say in its response it is prepared to suspend uranium enrichment. Iranian leaders have repeatedly vowed never to suspend sensitive nuclear activities.
Iran rejects Western accusations and insists its nuclear program is aimed solely at generating energy for a growing population whose fossil fuel reserves will eventually run out.
The Shahab-3 was among a broadside of nine missiles fired off early Wednesday from an undisclosed location in the Iranian desert, state-run Arabic channel Al-Alam and its English counterpart Press-TV reported.
Al-Alam said the missiles test-fired by the elite Revolutionary Guards included a "Shahab-3 with a conventional warhead weighing one tonne and a 2,000km range."
The firing comes at a time of growing tension over Tehran's nuclear drive, which Iran has insisted is peaceful but the West fears could be aimed at making an atomic bomb.
"The aim of these war games is to show we are ready to defend the integrity of the Iranian nation," Al-Alam quoted Revolutionary Guards air force commander Hossein Salami as saying.
"Our missiles are ready for shooting at any place and any time, quickly and with accuracy. The enemy must not repeat its mistakes. The enemy targets are under surveillance," he added.
The United States, which has never ruled out military action against Iranian atomic facilities, immediately condemned the missile tests.
"Iran's development of ballistic missiles is a violation of United Nations Security Council resolutions and completely inconsistent with Iran's obligations to the world," White House spokesman Gordon Johndroe said.
Nine missiles were tested in all, state-run Press-TV reported.
Along with the Shahab-3, also test-fired were the Zelzal, with a range of up to 400km, and the Fateh which has a range of around 170km.
Press-TV showed footage of the Shahab-3 and other missiles being launched, apparently successfully, leaving huge clouds of smoke around the launch site.
The Islamic republic test-fired the Shahab-3 for the first time in an exercise in November 2006, but launching its longest-range weapon amid the current tension is sure to concern Iran's Western foes.
The semi-official Fars news agency said the warhead on the Shahab-3 would fragment just before impact, maximising damage to the enemy.
There has been concern that an attack against Iran could be imminent after it emerged Israel had carried out manoeuvres in Greece that were effectively practice runs for a potential strike against Iranian nuclear facilities.
Israel is Iran's arch regional enemy and has expressed alarm over the rhetoric of President Mahmoud Ahmadinejad, who has repeatedly predicted that the Jewish state is doomed to disappear.
The missile launch comes a day after an aide to supreme leader Ayatollah Ali Khamenei warned that Iran would "set fire" to Israel and the US navy in the Gulf as its first response to any American attack over its nuclear program.
"Tel Aviv and the US fleet in the Persian Gulf would be the targets that would be set on fire in Iran's crushing response," said mid-ranking cleric Ali Shirazi, Khamenei's representative to Revolutionary Guards naval forces.
Wednesday's launch was part of The Great Prophet III war games by the missile and naval sections of the Revolutionary Guards which are aimed at improving combat readiness.
But diplomatic efforts are also continuing. Iran has responded to an offer from world powers to end the nuclear crisis and diplomats are analysing what is said to be a complex answer from Tehran.
The offer from world powers proposes that Iran suspend uranium enrichment - the key sticking point in the crisis and the process which they fear could be used to make a nuclear weapon - in exchange for technological incentives.
However the French foreign ministry has confirmed that Iran does not say in its response it is prepared to suspend uranium enrichment. Iranian leaders have repeatedly vowed never to suspend sensitive nuclear activities.
Iran rejects Western accusations and insists its nuclear program is aimed solely at generating energy for a growing population whose fossil fuel reserves will eventually run out.
Friday, July 4, 2008
History Crude Oil Futures
A recent low point was reached in January 1999 of $16 (all prices are in US$ per barrel), after increased oil production from Iraq coincided with the Asian financial crisis, which reduced demand. Prices then increased rapidly, more than doubling by September 2000 to $35, then fell until the end of 2001 before steadily increasing, reaching $40-50 by September 2004. [2] In October 2004 light crude futures contracts on the NYMEX for November delivery exceeded $53 and for December delivery exceeded $55. Crude oil prices surged to a record high above $60 in June 2005, sustaining a rally built on strong demand for gasoline and diesel and on concerns about refiners' ability to keep up. This trend continued into early August 2005, as NYMEX crude oil futures contracts surged past $65 as consumers kept up the demand for gasoline despite its high price. Crude oil futures peaked at a close of over $77 in July 2006, and in December 2006 at about $63. That is just about where they began the year 2006.[3] In September 2007, US crude (WTI) crossed $80. Multiple factors caused this high price. OPEC announced an output increase lesser than expected.[4] US stocks fall lower than experts predicted[5] and six pipelines were attacked by a leftist group in Mexico. [6]
In October 2007 US light crude rose above $90 for the first time, due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar.[7]
On January 2, 2008, a single trade was made at $100[8], but the price did not stay above $100 until late February.
Oil broke through $110 on March 12, 2008[9], $125 on May 9, 2008[10], $130 on May 21, 2008 [11] and $140 on June 26, 2008.
Prices on June 27, 2008 touched $142.26 for August in the New York Mercantile Exchange, the highest price ever, amid Libya's threat to cut output, and OPEC's president predicted prices may reach $170 by the summer.[12][13] Oil prices on June 28 hit a record of $142.99 at 1:58 p.m., the highest since 1983, and to $142.97, the highest intraday price since 1988, owing to a weak dollar, geopolitical unrest and global equities slump.[14][15][16] Oil rose on July 1 to a NYME record $143.67 and a London ICE Futures Europe exchange record $143.91.[17][18] On July 3 prices hit $145 for the first time.[19] London Brent crude reached a record of $145.75 a barrel, and Brent crude for August delivery peaked to a record $145.11 a barrel on London's ICE Futures Europe exchange, and to $145.85 a barrel on the NYMExchange.[20][21] By midday in Europe, light, sweet crude for August rose to a record $ 145.85 a barrel on the NYME while Brent crude futures rose to a trading record of $ 146.69 a barrel on the ICE Futures exchange.[22][23]
The Future
Fatih Birol, chief economist of the International Energy Agency said in October 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the rapidly growing economies of India and China.[24] The ministers of OPEC, meeting in early December 2007, appeared to reach a consensus for high, but stable prices. This price point would deliver consistently high income to the oil producing states, but avoid prices so high that they would depress the economies of the oil consuming nations. A range of $70-80 was suggested by some analysts to be OPEC's goal.[25] This would be in step with the price of shale oil, which, though more expensive to drill, will not likely go above $100. [26] The ministers of OPEC Major oil-exporting countries are rapidly developing and are using more oil domestically. Particularly significant are Indonesia, which no longer exports oil, Mexico and Iran, where projected demand will exceed production in about five years, and Russia, which is growing rapidly.[27]
Due to rapidly changing valuations of the United States dollar, it is unclear when these price points will break. While it is not expected to reach as high as $200 anytime soon, backsliding but still leveling at the previously unheard of $70 could become the norm.
Russian energy giant Gazprom meanwhile forecast that soaring oil prices would "very soon" hit 250 dollars a barrel.
A difficult factor to isolate is the total volume of the futures markets themselves. As there are many indirect owners of futures (401k plans, mutual funds, and even simple savings accounts are routinely invested in such things without the account holder being explicitly aware,) the knock-on effect of a downwardly spiraling economy could itself further devalue oil. Similar factors corrected the run away that gold and silver experienced in the early 1980s, for example.
As with any speculation market, it is well within investors' ability to drive up the price of futures well out of proportion with the supplies and demands involved. But there are two dangers that can quickly effect such transient spikes. Demand can drop off, and supply can increase. This was the case in 1998/1999 when the Asian market collapsed, reducing demand, and Iraq increased production by over 12%, increasing supply. This caused the all-time low of $8. As it pertains to recent events, the demand side is slowing, though not appreciably enough. The US Congress opened to panels to investigate the potential speculation fraud on Tuesday June 17. On the same day, Saudi Arabian oil production increased by 200,000 barrels a day, the largest in its history was announced as a potential option. This and other factors caused oil to drop for fourth day in a row, closing at $133.53.[28]
In October 2007 US light crude rose above $90 for the first time, due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar.[7]
On January 2, 2008, a single trade was made at $100[8], but the price did not stay above $100 until late February.
Oil broke through $110 on March 12, 2008[9], $125 on May 9, 2008[10], $130 on May 21, 2008 [11] and $140 on June 26, 2008.
Prices on June 27, 2008 touched $142.26 for August in the New York Mercantile Exchange, the highest price ever, amid Libya's threat to cut output, and OPEC's president predicted prices may reach $170 by the summer.[12][13] Oil prices on June 28 hit a record of $142.99 at 1:58 p.m., the highest since 1983, and to $142.97, the highest intraday price since 1988, owing to a weak dollar, geopolitical unrest and global equities slump.[14][15][16] Oil rose on July 1 to a NYME record $143.67 and a London ICE Futures Europe exchange record $143.91.[17][18] On July 3 prices hit $145 for the first time.[19] London Brent crude reached a record of $145.75 a barrel, and Brent crude for August delivery peaked to a record $145.11 a barrel on London's ICE Futures Europe exchange, and to $145.85 a barrel on the NYMExchange.[20][21] By midday in Europe, light, sweet crude for August rose to a record $ 145.85 a barrel on the NYME while Brent crude futures rose to a trading record of $ 146.69 a barrel on the ICE Futures exchange.[22][23]
The Future
Fatih Birol, chief economist of the International Energy Agency said in October 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the rapidly growing economies of India and China.[24] The ministers of OPEC, meeting in early December 2007, appeared to reach a consensus for high, but stable prices. This price point would deliver consistently high income to the oil producing states, but avoid prices so high that they would depress the economies of the oil consuming nations. A range of $70-80 was suggested by some analysts to be OPEC's goal.[25] This would be in step with the price of shale oil, which, though more expensive to drill, will not likely go above $100. [26] The ministers of OPEC Major oil-exporting countries are rapidly developing and are using more oil domestically. Particularly significant are Indonesia, which no longer exports oil, Mexico and Iran, where projected demand will exceed production in about five years, and Russia, which is growing rapidly.[27]
Due to rapidly changing valuations of the United States dollar, it is unclear when these price points will break. While it is not expected to reach as high as $200 anytime soon, backsliding but still leveling at the previously unheard of $70 could become the norm.
Russian energy giant Gazprom meanwhile forecast that soaring oil prices would "very soon" hit 250 dollars a barrel.
A difficult factor to isolate is the total volume of the futures markets themselves. As there are many indirect owners of futures (401k plans, mutual funds, and even simple savings accounts are routinely invested in such things without the account holder being explicitly aware,) the knock-on effect of a downwardly spiraling economy could itself further devalue oil. Similar factors corrected the run away that gold and silver experienced in the early 1980s, for example.
As with any speculation market, it is well within investors' ability to drive up the price of futures well out of proportion with the supplies and demands involved. But there are two dangers that can quickly effect such transient spikes. Demand can drop off, and supply can increase. This was the case in 1998/1999 when the Asian market collapsed, reducing demand, and Iraq increased production by over 12%, increasing supply. This caused the all-time low of $8. As it pertains to recent events, the demand side is slowing, though not appreciably enough. The US Congress opened to panels to investigate the potential speculation fraud on Tuesday June 17. On the same day, Saudi Arabian oil production increased by 200,000 barrels a day, the largest in its history was announced as a potential option. This and other factors caused oil to drop for fourth day in a row, closing at $133.53.[28]
Wednesday, July 2, 2008
How to Predict Stock Market Crash
One of the greatest myths of all time is that market crashes are random, unpredictable events. The lead up to a market crash is often years in the making. Certain warning signs exist, which characterize the end of a bull market and the start of a bear market. By learning these common warning signs, you can liquidate your investments and prosper by shorting the market.
The stock market is a study in human psychology as it is human emotion that drives all market action. A healthy human mindset is cautious and skeptical, but also realistically optimistic. Throughout the early stages of a bull market, investors tend to be cautious and skeptical, as well. This caution always signifies the health of a bull market.
Nearing the end of a bull market, the market psychology becomes manic, or excessively euphoric. Being manic is a form of mental illness in humans, as well. This is characterized by euphoria that isn’t rational. For example, a manic person may feel so wonderful that they may not sleep for days or give away their life savings. Later on, the mentally ill person is no longer manic, they are depressed. The stock market follows same exact manic-depressive pattern. This realization of the market being manic-depressive was by the brilliant Benjamin Graham. Benjamin Graham was the mentor of the greatest investor of all time and second richest man in the world, Warren Buffett.
At the top of a bull market, words can’t describe how euphoric investors are. It is very common for investors of very modest means to now have portfolios valued in the hundreds of thousands of dollars. In the Dot Com Bubble, many secretaries had multimillion dollar stock option portfolios! This type of instant wealth isn’t reality, unfortunately. It is one of the prime characteristics of a coming stock market crash. In every stock bubble, people of average means become fantastically wealthy, all while barely trying.
Another major sign of a coming stock market crash is overly euphoric news media. The news media has an extremely poor track record at forecasting markets. Their record is so horrible, that doing the direct opposite is highly profitable! If financial newspapers have headlines that are exalting the recent stock market performance, SELL- as fast as you can!
The most deadly phrase in the market is “this time is different”! Another costly adage is “we are in a New Economy”! Both these phrases and their variations have been around since the dawn of markets. The markets never change, because human psychology never changes. When phrases like these are used, it’s because the user is in denial of reality. In these cases, it is the “dumb money” investors who want to keep riding the bull market in the same lazy fashion. The professional “smart money” realize that bull markets are always temporary. The smart money will profit in both a bull market and a stock market crash.
At the precipice of financial disaster, inflation becomes rampant. Inflation is the rising cost of living, which decreases the buying power of a dollar. The rising cost of living can be observed by much higher gasoline prices, housing prices and food prices. Ironically, it is the strong economy that causes inflation. In simple terms, the strong economy causes more demand for goods and transportation. When salaries go up, people take more vacations, which require gasoline, etc. Small inflation is a good sign, but when it really heats up, look out below!
Once high inflation sets in, the Federal Reserve tries to cool down the economy. The Fed tries to engineer a “soft landing” by raising interest rates. If inflation and stock speculation is out of hand, rates will have to climb fairly high to have an effect. Pretty soon, the stock market crashes as speculators head for the exits. The overvalued stocks quickly become a fraction of their previous values. The market will often crash for several years to come.
Stock market crashes are not difficult to forecast, as they all have the same tell-tale signs. If you are astute enough to recognize these signs, prospering from a crash is a realistic proposition.
The stock market is a study in human psychology as it is human emotion that drives all market action. A healthy human mindset is cautious and skeptical, but also realistically optimistic. Throughout the early stages of a bull market, investors tend to be cautious and skeptical, as well. This caution always signifies the health of a bull market.
Nearing the end of a bull market, the market psychology becomes manic, or excessively euphoric. Being manic is a form of mental illness in humans, as well. This is characterized by euphoria that isn’t rational. For example, a manic person may feel so wonderful that they may not sleep for days or give away their life savings. Later on, the mentally ill person is no longer manic, they are depressed. The stock market follows same exact manic-depressive pattern. This realization of the market being manic-depressive was by the brilliant Benjamin Graham. Benjamin Graham was the mentor of the greatest investor of all time and second richest man in the world, Warren Buffett.
At the top of a bull market, words can’t describe how euphoric investors are. It is very common for investors of very modest means to now have portfolios valued in the hundreds of thousands of dollars. In the Dot Com Bubble, many secretaries had multimillion dollar stock option portfolios! This type of instant wealth isn’t reality, unfortunately. It is one of the prime characteristics of a coming stock market crash. In every stock bubble, people of average means become fantastically wealthy, all while barely trying.
Another major sign of a coming stock market crash is overly euphoric news media. The news media has an extremely poor track record at forecasting markets. Their record is so horrible, that doing the direct opposite is highly profitable! If financial newspapers have headlines that are exalting the recent stock market performance, SELL- as fast as you can!
The most deadly phrase in the market is “this time is different”! Another costly adage is “we are in a New Economy”! Both these phrases and their variations have been around since the dawn of markets. The markets never change, because human psychology never changes. When phrases like these are used, it’s because the user is in denial of reality. In these cases, it is the “dumb money” investors who want to keep riding the bull market in the same lazy fashion. The professional “smart money” realize that bull markets are always temporary. The smart money will profit in both a bull market and a stock market crash.
At the precipice of financial disaster, inflation becomes rampant. Inflation is the rising cost of living, which decreases the buying power of a dollar. The rising cost of living can be observed by much higher gasoline prices, housing prices and food prices. Ironically, it is the strong economy that causes inflation. In simple terms, the strong economy causes more demand for goods and transportation. When salaries go up, people take more vacations, which require gasoline, etc. Small inflation is a good sign, but when it really heats up, look out below!
Once high inflation sets in, the Federal Reserve tries to cool down the economy. The Fed tries to engineer a “soft landing” by raising interest rates. If inflation and stock speculation is out of hand, rates will have to climb fairly high to have an effect. Pretty soon, the stock market crashes as speculators head for the exits. The overvalued stocks quickly become a fraction of their previous values. The market will often crash for several years to come.
Stock market crashes are not difficult to forecast, as they all have the same tell-tale signs. If you are astute enough to recognize these signs, prospering from a crash is a realistic proposition.
Tuesday, July 1, 2008
How to Profit from Stock Market
It’s quite common to hear someone grumbling about how much money they lost on a stock, but did you ever stop to think where that money went?
In contrary to popular opinion, that money is far from lost. In fact, that money was won by a professional trader who profited from the stock’s decline! Sophisticated traders such as these are called the “smart money” because they profit regardless if the market is crashing or booming. The smart money wins most of the money lost by the “dumb money”, or the “average joe” amateur investor. By learning how to trade like the smart money, you can profit tremendously in any type of market. Let’s learn the differences between the two types of traders:
According to the National American Securities Administrators Association, more than 70% of traders will lose nearly all their money! This is solid proof that the majority of traders and investors are dumb money.
What is the Dumb Money Doing Wrong?
First and foremost, the dumb money act as a herd or mob. This group exhibits very little individual decision making. This is exemplified by how the herd follows the financial news so religiously. The financial news is a severe lagging indicator. This is because reporters only report after the fact. It is so silly that people actually think they will gain knowledge that will allow them to have “the edge” in the markets. This isn’t possible because millions of other competing investors are watching the same news! The news is notoriously bullish right before a bear market and bearish right before the market starts soaring.
Another dumb money tactic is to take investment advice from their broker or advisor. Brokers make money from commissions, not from investment performance. They just want their clients to trade frequently to generate more commissions. Additionally, these brokers tell all of their clients the same information, which means you have absolutely no edge over the competition.
The dumb money make investment decisions based on their emotions, rather than solid information. This group will buy stocks based on glamour. For example, in the dot com boom, investors would buy any stock that was a “dot com”, regardless if it had earning or a business plan. The crowd tends to gain a gambling mentality when “playing the market”. They act upon “hunches” and tips, which never work.
This same group consistently buys stocks late into a bull market. The smart money accumulated tech stocks in the early 1990’s, when many investors didn’t even own a computer! By the late 1990’s every investor was buying tech stocks, and this is when the market crashed. Sadly, the markets are set up so that the second the dumb money gets the gist of the game, the rules are changed. This is because the markets are zero-sum, where for every winner there must be a loser.
What is the Smart Money Doing Right?
If the majority of traders and investors lose, then doing the opposite is a winning strategy. This is precisely is how the smart money trade. The smart money wait for a time when the dumb money is most vulnerable to losing. In most cases, this would at the top of a bull market when the dumb money is foolishly raving about how “stocks will never drop” and how “we are in a new economy”. Whenever the majority of investors are euphoric about the market, it is guaranteed to drop! At this point, the smart money liquidates their stock positions and shorts the market, anticipating the coming bear market.
Shorting the market is a process which allows a trader to profit as the market crashes. It is exactly the opposite of buying a stock. As most investors are entering the poorhouse, the people that short in a market crash become extravagantly wealthy. Jesse Livermore shorted stocks and made $100 million in the stock market crash of 1929!
The smart money rarely pay attention to the financial news media because they know that they can’t gain valuable information from something that everyone is watching. Hypothetically speaking, if profitable news media was available, investors would quickly trade upon it, immediately eradicating any competitive advantage. The smart money have their own top secret forecasting systems, however. These systems have rare information that allows the smart money to have an edge over the masses.
The smart money never act upon their emotions for trading decisions. The smart money buy and sell based on what the market and their trading systems are dictating. For example, when the markets have been crashing for a while, stocks become undervalued. This is the best time to buy, as the market will start to rally in the near future. The dumb money is always most fearful at this perfect buying point. This is exactly when the smart money accumulate stocks. If they relied on their emotions, however, it certainly wouldn’t seem like the best time to be buying stocks.
By learning to do the opposite of the crowd, you can become highly prosperous in the financial markets. So next time you hear of someone who lost their shirt in the market, think of the person that profited handsomely!
In contrary to popular opinion, that money is far from lost. In fact, that money was won by a professional trader who profited from the stock’s decline! Sophisticated traders such as these are called the “smart money” because they profit regardless if the market is crashing or booming. The smart money wins most of the money lost by the “dumb money”, or the “average joe” amateur investor. By learning how to trade like the smart money, you can profit tremendously in any type of market. Let’s learn the differences between the two types of traders:
According to the National American Securities Administrators Association, more than 70% of traders will lose nearly all their money! This is solid proof that the majority of traders and investors are dumb money.
What is the Dumb Money Doing Wrong?
First and foremost, the dumb money act as a herd or mob. This group exhibits very little individual decision making. This is exemplified by how the herd follows the financial news so religiously. The financial news is a severe lagging indicator. This is because reporters only report after the fact. It is so silly that people actually think they will gain knowledge that will allow them to have “the edge” in the markets. This isn’t possible because millions of other competing investors are watching the same news! The news is notoriously bullish right before a bear market and bearish right before the market starts soaring.
Another dumb money tactic is to take investment advice from their broker or advisor. Brokers make money from commissions, not from investment performance. They just want their clients to trade frequently to generate more commissions. Additionally, these brokers tell all of their clients the same information, which means you have absolutely no edge over the competition.
The dumb money make investment decisions based on their emotions, rather than solid information. This group will buy stocks based on glamour. For example, in the dot com boom, investors would buy any stock that was a “dot com”, regardless if it had earning or a business plan. The crowd tends to gain a gambling mentality when “playing the market”. They act upon “hunches” and tips, which never work.
This same group consistently buys stocks late into a bull market. The smart money accumulated tech stocks in the early 1990’s, when many investors didn’t even own a computer! By the late 1990’s every investor was buying tech stocks, and this is when the market crashed. Sadly, the markets are set up so that the second the dumb money gets the gist of the game, the rules are changed. This is because the markets are zero-sum, where for every winner there must be a loser.
What is the Smart Money Doing Right?
If the majority of traders and investors lose, then doing the opposite is a winning strategy. This is precisely is how the smart money trade. The smart money wait for a time when the dumb money is most vulnerable to losing. In most cases, this would at the top of a bull market when the dumb money is foolishly raving about how “stocks will never drop” and how “we are in a new economy”. Whenever the majority of investors are euphoric about the market, it is guaranteed to drop! At this point, the smart money liquidates their stock positions and shorts the market, anticipating the coming bear market.
Shorting the market is a process which allows a trader to profit as the market crashes. It is exactly the opposite of buying a stock. As most investors are entering the poorhouse, the people that short in a market crash become extravagantly wealthy. Jesse Livermore shorted stocks and made $100 million in the stock market crash of 1929!
The smart money rarely pay attention to the financial news media because they know that they can’t gain valuable information from something that everyone is watching. Hypothetically speaking, if profitable news media was available, investors would quickly trade upon it, immediately eradicating any competitive advantage. The smart money have their own top secret forecasting systems, however. These systems have rare information that allows the smart money to have an edge over the masses.
The smart money never act upon their emotions for trading decisions. The smart money buy and sell based on what the market and their trading systems are dictating. For example, when the markets have been crashing for a while, stocks become undervalued. This is the best time to buy, as the market will start to rally in the near future. The dumb money is always most fearful at this perfect buying point. This is exactly when the smart money accumulate stocks. If they relied on their emotions, however, it certainly wouldn’t seem like the best time to be buying stocks.
By learning to do the opposite of the crowd, you can become highly prosperous in the financial markets. So next time you hear of someone who lost their shirt in the market, think of the person that profited handsomely!
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