Monthly Archives: December 2022

Precious Metal Accumulation and Distribution

Info Links, Money, Trading, , , ,

Precious Metal Exchanges

A few examples to get started with…

https://www.coinexchangeny.com
https://libertycoin.com/
https://www.jmbullion.com/

Resources

Silver Dragons

The Silver Dragons channel is about silver stacking, buying silver, silver investing, precious metals, gold investing and anything to do with silver or gold …
https://www.youtube.com/channel/UCucqfNRyBkieAop_LDUqHEg

Yankee Stacking

One New Englander trying to stack silver and gold the “Yankee Way”!Stack silver and gold to hedge against our debt-fueled, fiat currency-based economy that …
https://www.youtube.com/c/YankeeStacking

Tickers on Yahoo Finance, this is where the iPhone gets prices

SI=F Silver Futures next delivery period, close enough to the spot price.
GC=F Gold Futures next delivery period, close enough to the spot price.
DXY (DX-Y.NYB) Dollar Index, strength of the USD against a basket of other currencies, The six currencies included in the USDX are the Euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona. When the dollar goes up, metals go down and vice versa.

Investing Basics

All of the basics of investing apply to not only gold and silver but in general, only this first idea is specific to gold and silver.

Do you buy gold, silver, both?

A general rule for investing that gives a short answer for Gold -v- Silver.

When the ratio of the Gold price divided by the Silver price is…
> 80 Buy Silver
60-80 Buy Both
< 60 Buy Gold
Some people will even pairs-trade (swap) between the two to accumulate more metal over time. As in when > 80 buy silver by selling gold. When < 60 buy gold by selling silver. 60-80 is a neutral zone do nothing.

DCA

The following applies to metals or any other long term investment.

You can’t always predict the right moment to move a large sum into or out of an investment.

For investing it is best to dollar cost average (DCA) in and out of a position. Buying and selling on a periodic basis helps accumulate and distribute at average reasonable prices over the long haul of time. This can be done weekly, monthly, quarterly. And it could be done by considering good prices to buy or sell at, with a buy lower and sell higher plan.

Buy Lower/Sell Higher

The following applies to metals or any other long term investment.

You can’t always pick the bottom or top of a market.

A simple rule is to buy when the price is lower than it has been in a while, buying a local low and the converse on highs. The concept can be used to improve upon the ‘blind’ DCA, buy on a regular periodic basis.
Looking back at the high or low from the past year, or market cycle works fine for picking a reasonable high and low point. Keep buying in small amounts when below a local low and selling small amounts when above ( preferably longer timeframe ) local high. It is not always worth trying to ‘time’ the tops and bottoms of the market as this is very tricky even for sophisticated traders.

Judging Value Simply

The following applies to metals or any other long term investment.

Is it a bargain or overpriced?

When starting out it in investing is hard to judge value, so a quick and easy to spot way is the best way to start to get thinking about value.

A reasonable rule is to use the midpoint between the last big high or low price and keep accumulating up to that midpoint. In this manner you can easily tell that you are buying ‘value’ and not buying the asset when it is overpriced. Then hold the asset until the appropriate market cycle which reaches beyond local highs, preferably higher than a previous high in the future and do the converse, slowly sell above the midpoint which should always be checked out to make sure it is in profitable range. It is easier to sell into a rising market as when the price hits a peak sometimes it can drop violently. Prices tend to fall faster than they rise.

Price Charts

How to view the price and a handy tool, the moving average of price.

Kitco among others has decent charts for metals that have moving averages on them as well. The moving averages are a tool that can help with trading and investing. They act as guides to see to position of the price relative to a slower,smoother version of the price, the average price. These charts can be used to help DCA in and out using the buy lower/sell higher, judging value simply or using the moving averages as described below to use a trading type strategy or to accumulate and distribute for long term investing.

Using charts as a  trading tool example

Moving averages can be used to follow a trend. When the price is above a moving average or even better, a short time average (like 14,30,60 days) is above a long average (200 days) there is an uptrend. It is possible to follow a trend by buying in when the short average crosses the long average and sell when the short average goes below the long average. This is an example of a ‘trade’, specifically a long trade or going long. Technically this is called a Dual Moving Average Crossover. This is just one simple example of many trading styles.

Using charts as a tool to accumulate and distribute example

Moving averages can be also used to accumulate and distribute by looking for lows that are worth DCA-ing in and out on. For example good buys would be in the zone where the following line up, ..

  • short moving average lower (try 30 or days- blue line on Kitco chart) than long moving average. 200 day, green line on Kitco chart), with price lower than both ( buy when 30 or 60 day average below 200, with price below both, blue line below green, with red price below both

This is like buying little nips at a time, buying mini-bottoms. The opposite can be done for distributing….

  •   ( sell when 30 or 60 day average above 200, with price above both, blue line above green, with red price above both ), unless you have a buy and hold forever plan.

https://www.kitco.com/charts/techcharts_gold.html

https://www.kitco.com/charts/techcharts_silver.html

BTC When Bottom

Trading, , , , ,

In December 2022, with BTC hovering in the 17K range after the FTX unwind , the question is when is the bottom coming ? Or in other words is BTC in a good range to stack or is more waiting required?

A few thoughts, like I thought about this for too long, hours. What got me going was all these predictions on the business news, 5K,10K,13.5K, whatnot. So a theory stood out based on looking back at history using the MVRV Z-Score and Puell Multiple from lookintobitcoin.com and the Mayer multiple from https://bitcoinition.com/charts/mayer-multiple/

Examine the 2022 low and the last low (Dec 2018 ) on the Puell and Mayer Multiples

Hunting for a low in the Puell and Mayer Multiple charts something interesting jumps out, they both point to a July 2022 time when BTC was around 20K. Looking back to December 2018 when they were both in the same kind of zone and at a bottom the BTC price at 3.2K was a definite good buy. BTC spent a lot of time at 6.5K in the Fall of 2018 and then dropped after the  November 15th, due to a FED rate hike. Confirming by looking at the MVRV Z- Score, the negative zones have seemed to coincide with the prices that are worth accumulating at. Now as of December 2022, all three seem to have all hit their low already and are climbing higher.

Hints at 20K and below

The fact that the Puell and Mayer hit a low in 2022, mid year and both print 20K BTC at least for me, gives a hint. Anything under 20K is pretty good, so hunt those local lows. (Like, buy at the bottom of the 20 day Bollinger Bands or even watch 200 Day Bollinger Bands for a dip around 1.5 SD below the midline. )Yes, the bottom could really go lower than the 15.5K. It certainly would have as the DXY (Dollar Index against a basket f currencies, such as Euro, Yen, CAD, Swiss Franc, Krona, GBP and I am sure I am forgetting one or two more) was pointing down pretty good by the time FTX hit the skids. If the DXY was significantly higher, a drop to 12-13K would not have been out of the question. Ironically, BTC looked like it was just about to move higher when the FTX meltdown crushed it down. It seems almost like some entity was hovering their finger over the push BTC down button waiting to release the FTX news, probably just a coincidence but a strange one though.

Here are the charts, judge for yourself, time will tell on this theory

Makes a lot of good points on BTC versus Fiat and bonus material on FTX

Money, , , , , ,

Incentives are the strongest force in the world. They explain why good people do awful things, why smart people do stupid things, and why ordinary people do amazing things. Nearly everyone underestimates how much their own beliefs and actions are influenced by their incentives, many of which are designed to fulfill someone else’s goals. – Morgan Housel

For a 21 year old, he gets it. He seems to have a grasp on monetary policy, gold to fiat history and the place that Bitcoin has in the world and it’s future. Plus he has the guy in the middle frame speechless the whole time, not sure if that’s good or bad but, interesting as I kept waiting to see if he was going to jump in the conversation at some point.

 

Additional thoughts on FTX

Incentives for fraud

The FTX implosion looks to be likely fraud or some kind of massive oversight and/or just some bad incentives. With the wrong incentives people can just plain behave badly. Morgan Housel has a short blog post on incentives that covers this topic better than I can here. But, basically once you create incentives that are tempting, too tempting, people can behave badly. People that normally would not steal or commit fraud start to bargain with themselves and wind up slowly dipping into bad behavior, if they don’t get caught, it keeps going. There are many cases of embezzlement that start as innocent “borrowing” from petty cash. Once no one notices that the cash is going out and not coming back ,over time there is an incentive to dip in more. And then you have these news stories of let’s say, because I remember this happening in a town near where I live, I’ll go with this following. Example: You have a town clerk that gets busted for being on the take to the tune of $30K, it all started slowly with small dips and grows to a big number.

Misjudgement and/or Incompetence

Or is FTX/Alameda more about a big misjudgement or incompetence. After all there are precedents for this. Smart people losing boat loads of money as they have not counted on some kind of fat tail event happening. This even occurred with Nobel Prize winners, freshly minted in 1997, Myron Shoales ( Of the Black-Scholes option pricing formula fame ) and Robert Merton ( also part of the  the same famous formula as a contributor ) when in 1998 John Merriweather’s LTCM, Long Term Capital Management imploded as they were seriously over-betting. They were heavily leveraged at the time, which is OK to a point, but they didn’t diversify enough so when things went wrong, the leverage actually went up, when they should have manually dialed it down. What happened at the time was that in 1998 Russia defaulted on it’s debt which LTCM was invested in but they also were invested in the same way with other foreign debt. Well, once one country defaults, it casts a shadow on the rest of the foreign debt as people start to get a bit paranoid as to who might default next. So if you are LTCM and you have a bunch of positions in this same kind of sovereign bonds all over the world, you are certainly not diversified  enough ( they might have thought this all sovereign bond debt was uncorrelated somehow, that bonds would never fall in unison) and if this chunk is a big part of your portfolio and it tanks guess what, bad news fast.

Death Spiral

With LTCM and others,  you get a situation where you have to liquidate something before a margin call happens, usally it’s good stuff that you might want to hold otherwise. This can depress prices of those assets. Soon a firm can get in a situation where the best description would be a reverse hedge and the losses mount on both sides of the trade. With leverage, large leverage 30,60X, it quickly consumes the real capital available. If you try to ask for more capital at this point, nervous lenders may sense panic and then the gig is up. Once lending banks or any other credit line smells something ‘funny’ in the air, panic calls for more capital, through price movements, insider info, whatever, they and other competitors will start to work against a firm like LTCM. They can trade against it and bleed it dry even faster, or they might start dumping the same assets pushing price down more and dry up any liquidity for a firm like LTCM to sell into. Then the problem grows so big that Fed has an emergency meeting and either puts other banks up to the challenge, the creditors, to carve up the carcass and potentially hold the assets until a better time to unload, or worst of all like in Lehman Brothers and etc, the taxpayer gets the bill, or QE happens, which generates inflation, just another tax.

LTCM could have taken the market down much like what happened 10 years later. A excellent course on how the economic collapse of 2008 played out is available at Khan Academy for free as all the material there is, Current Economics

Something like this could have happened at FTX, to much leverage and some fraud with users money, over-betting on the market as it was going into a down-cycle and they couldn’t get out of the dive. If this was a bull market, this kind of stunt might have worked out. Worst of all seems like they used their own FTT token as collateral. It seems like a real conflict of interest, if not just a bad idea as you have created what could be best described as a type of recursive risk. A risk that becomes riskier and you take on more risk. A few more anecdotes from LTCM thanks to one of my favorite books, William Poundstone’s Fortune’s Formula….

  • LTCM lost $4.4B from it’s peak, the partners aloe had dropped about $1.8B. The entire fund had shriveled to $28M in weeks.
  • Robert Merton (1997 Nobel Prize Winner) lost as much as $100M.
  • Larry Hilibrand took out a $24M loan to increase his stake in the fund, leverage on top of leverage. His net worth went from $100M to $20M in debt thanks to the loan. He requested a bailout from the banks carving up LTCM known as the consortium, they said no.

More Interesting FTX Reads

https://www.coindesk.com/layer2/2022/12/02/sam-bankman-frieds-self-incrimination-tour/

https://www.coindesk.com/layer2/2022/11/30/ftxs-collapse-was-a-crime-not-an-accident/

FTX Contagion Slowly Being Revealed

A good interview on this FTX issue is one between C.J Wilson and Josh Olszewicz. It’s well worth seeing them pick this FTX issue apart further.