Comment: Well, 'yes'... and also 'no'... but with a bit of 'maybe' thrown in! I mean, concerning technical price analysis versus fundamental analysis. A properly constructed price chart, derived from accurate data, doesn't lie. On the other hand, it doesn't tell you exactly what to do. Well, it does, but only partially. The strength of technical analysis is that you can sort of see what the market participants are thinking at the moment and should be thinking in the near term. On the other hand, fundamental analysis gives you all the nitty-gritty about supply and demand and that stuff, and you are then required to infer what the market participants should be thinking in the future. That doesn't work so well because the market participants can, in the meanwhile, decide that some other odd-ball factors, emotion-producing factors, are more important than even supply and demand. And the greatest error-producing factor of all is the assumption that cyclicity is a powerful and reliable element of price motion. In truth, cyclicity is an epiphenomenon, it isn't at all a primary and reliable function of price. Cyclicity exists only in your own mind as a personal perception. "Ooh, look at that, it goes up and down. I'll use that as a trading tool!" says the neophyte trader as he then loses his poke!
 
So why do price functions seem to be cyclical? Because, by the nature of price it must be on the move, and these moves are normally modest because there aren't any great earth-shattering reasons for big price moves. But when earth-shattering reasons DO occur, then the sedate cyclical waltz of price can quickly become frenetic to the point of losing the appearance of cyclicity. If the earth-shattering reasons are truly EARTH-SHATTERING, then cyclicity can be lost entirely, either for an appreciable time... or forever. Forever? FOREVER? Surely you jest! But no, but no! What is the fiat currency of the Weirmar Republic now worth? Where is it quoted? Where do I find charts of it? See what I mean? Helicopter Ben Bernanke is convinced of the inevitability of dollar cyclicity. But that's only in his Jewish mind (like so many other things!), it doesn't really exist in the real world, now does it? ...
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 Cardozo was Wrong!
Market Update 8-5
by Edgar J. Steele  From: Edgar J. Steele

March 14, 2008  

 

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My name is Edgar J. Steele.

Silver is over $20 per ounce for good.  The dollar index is headed for 70, kicking and screaming every step of the way.  That's just the near term.

Long term:  Can you spell "Moon," Alice?

Mid term - this Fall, perhaps:  $30 silver, widespread homelessness, poverty and WWIII.  I predict a very harsh winter for next year.

More charts than normal are coming my way as people attempt to get a grip on the surging (and purging) financial markets.  Straight analysis by charting past price movement is what is known as "technical analysis."  Consideration of the full host of underlying assumptions, corporate changes, earnings-per-share and the like, falls under the rubric "fundamental analysis."  Technicians and Fundamentalists have been at odds over the correct approach ... forever, it seems.  As usual, the truth lies somewhere in between.

Famous New York appellate judge Benjamin Cardozo, later a US Supreme Court Justice, once observed (about his Palsgraf vs. Long Island Railroad Company opinion) that he judged best, the less he knew about the parties beyond the relevant case facts. He preferred not, even, to know their names.  His approach is revered today by almost every lawyer and judge but myself, it sometimes seems.  Cardozo's Palsgraf opinion, perhaps more than any other judicial case in American history, set the limits on simple negligence tort cases and is the centerpiece of every law school's first-year Torts class.  I thought Cardozo was wrong when I studied him in law school and, today, I am sure of it.

For nearly 30 years, I have been meaning to get a T-shirt printed up that states, simply, "Cardozo was WRONG!!!"  It would have played better, had I done so during law school.  Now it simply would be the ultimate obscure in joke for lawyers.

The investment analog to Cardozo's approach to judging is called "technical analysis."  No doubt, he was a Republican.  The late Supreme Court Justice William O. Douglas, on the other hand, represents the opposite end of the spectrum.  More recently, the late Chief Justice Rehnquist represented to me the diffident stiff in judging.  Both Douglas and Rehnquist had nasty habits of authoring strictly logical opinions that were perfectly orderly except for single paragraphs, buried deeply, which amounted to "he waved his hands and it magically appeared."  I long have dismissed all ridiculously-liberal judicial opinions as "Douglas opinions" and equally-ridiculously-conservative opinions as "Rehnquist opinions."  Real judging requires consideration of both ends of the spectrum.

Cardozo, by all accounts, lived and died a cold, impersonal and lonely man.  Douglas, on the other hand, laughed a lot, traveled, made no apologies for his abject liberalism and died married to a young babe.  You choose which approach seems to work best on a personal level.

There is a time and a place for everything.  All things in moderation, especially moderation, in other words.  This applies to investing, too, not surprisingly.

I respectfully suggest that technical analysis, by itself, truly is useful only in "normal" or "made-to-seem-normal-because-manipulated" markets.

When things change fundamentally, technicians sit on the sidelines, at best.  At worst, technicians tend to buy high and sell low in huge bull and bear markets.  We are in the midst of the most fundamental change seen in financial markets in modern times.  Now is the time to temper our predilection for charts with fundamentals, else charts will kill us all day long.  In other words, all chart-based market timing approaches suck these days.

I now am retired.  My solution, since I view this as the greatest silver bull ever, is to buy on dips and never sell squat on perceived peaks.  The last time I had anything with which to buy, silver dipped just below $12.  Now I intend simply to ride it until I die or silver hits $100 (adjusted for inflation), whichever comes first.

So far, so good.

When "Easy Al" (Bad Credit? No Credit? Come on down!) Greenspan spoke of the stock market's "irrational exuberance" 13 years ago, yet did nothing, letting the Dow surmount 5000 and thereby kill me and my naked S&P 500 shorts, I knew we were in trouble.  I started buying gold a year later, a coin or two at a time, as I could afford them.  Then I started buying silver 8 years ago and laid in a good foundation while it was beneath $5.

A little over 2 years ago, I went "all in," selling all the gold I had bought and using the proceeds to buy silver at $7.  I have added to that silver with all the funds I have had come available (including borrowing) since then, whenever the price got taken to the cleaners.  I have to take some down here and there for living expenses, but I'm continuing to roll the bones, day after day.

People keep emailing me to ask, "Is this a good time to enter the silver market, despite the recent price runup?"  Always, my response is, "Every day is a good day."

I could be wrong, but I doubt it.

What to do with our empty hours, once investing becomes so ... easy?  This would be a good time to mend fences with family and friends.  In the fast-approaching hard times, we will need them, more than ever.

-ed

Copyright ©2008, Edgar J. Steele

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