A guy named Moe calls you with a business deal. He says put up 100 grand for 25% stake in a widget company. He tells you how the company will be building widgets for 50 cents, while the wholesale market is paying a dollar. Sounds like a no brainer, until you meet him and his two partners Larry & Curly. At this point, most people I know would not come up with the 100k, even if they could. No sane person would willingly go into business with stooges - no matter how compelling the business model may seem. Now Imagine a second example. Same widgets, Same risk, Same rewards, but this time the phone call comes from Warren Buffet , Mark Cuban, & Bill Gates. Most people I know, would be looking for ways to beg, borrow, or steal 100k just to get a piece of that deal.
The only difference between the two deals is the "structure". In other words, who is on your side of the trade. Stooges or moguls? Structure is very often overlooked by most people, who spend their time looking at other fundamentals like risk, price, model, return long before ever considering structure. While that thinking might fly in the stock & bond world, In the commodity world (read Gold & Silver) STRUCTURE is everything. Nothing else even rates - not price - not risk - nothing!!
The only difference between the two deals is the "structure". In other words, who is on your side of the trade. Stooges or moguls? Structure is very often overlooked by most people, who spend their time looking at other fundamentals like risk, price, model, return long before ever considering structure. While that thinking might fly in the stock & bond world, In the commodity world (read Gold & Silver) STRUCTURE is everything. Nothing else even rates - not price - not risk - nothing!!
If you haven't traded in the silver market before, the best way of following the structure is to familiarize yourself with the commitment of traders reports, the COT for short. In any industry, its the insiders - the people who deal in it everyday -that know which way a market is headed. Because its their business to know, they have the most accurate info on which to trade. The COT calls these folks the "commercials" - think moguls. Another group tracked are the "speculators". These are people with no connection to the industry, just looking to make a quick buck - think stooges. The COT is kind enough to split the speculator camp into large specs (hedge funds), and the small specs (gen public). COT tracking of positions of these different groups (commercials & specs) over time enables us to get a feel for the structure of the market.
If you are a veteran of the silver market, then you know back in the eighties the general public was getting long in a big way. They came in with rolls of cash and walked out with bricks of silver. So many bricks in fact, we were routinely buying bullion off Banks and selling it to the public. The cash was going uphill to the suits from the public, while metal went downhill from the suits to the public. More than enough time has passed to see who got the best of that trade. Anyone who got long metals in the eighties was annihilated. The suits, as usual, cleaned up.
About 1990, after a ten year ride from $50 down to $5 where the public was getting long the whole time, The structure of the silver market changed. The public began selling as much, or more silver than they were buying. By the mid nineties there were 20 sellers for every buyer. The public sold relentlessly, right on cue at the bottom, for 15 years straight into the teeth of one of the biggest generational bears in our lifetime. About 2005-06 there was another major structural change. The ratio of buyers to sellers became more balanced.
This makes perfect sense if you look at structure as a pendulum that swings a generation at a time. Lets review the general publics behavior in silver for the last 30 years. 1980's was all buyers & no sellers (one extreme). Early nineties things balanced out (pendulum is back at 6 o'clock) and then began 15 years of all sellers (other extreme). 2005-06 market back in balance again (pendulum back at 6 o'clock). The last few years we are starting to find more & more buyers of silver - as the pendulum heads back to the all buyers extreme. This is how commodity markets function - they swing from one extreme to the other in structure - over and over again in generational long swings.
I'm not sure where I heard it, but every deal made has two players - a fool and a thief. If you are going to play in the commodity world and expect to make a buck, you best align yourself with the thieves. Problem is, thieves aren't exactly known for transparency; so how do we find out what they are doing? Its a fact, a select few (read: thieves) make all the money in commodities and they do it trading opposite the masses (the fools). Its the suits who bought up all the publics silver from 1990 thru 2005. Now that the pendulum is swinging back it will be those same suits (who are long now and still getting longer) that will be selling - and the public, I mean fools, who will soon be looking to get long en masse. Thats an enviable position those suits are in as anybody who understands structure knows, that trade can only end one way. The only question is, how many zeroes will silver add to its price as the structure pendulum asserts itself & the general public becomes relentless buyers over the next decade? I have given a lot of thought to that very question. In 2003, with silver at $4, I decided the answer was 3 zeroes. It has added one already - still time for you to snag a couple for yourself over the next decade.
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