Thanks, anonymous promoter!

Someone promoted Clouds of Venus on Monday.  Nice little pop in free downloads.  Don't know who it was, but I'm very appreciative of it.

Thanks, whoever you are!  :D 

The day I realized the music had stopped

As a child in elementary school, there was at least one occasion where the class played musical chairs.  It was probably kindergarten.  I don't exactly remember.

I was never very good at musical chairs.  Well, not good enough to win, anyway.  I could last a little while, but as the number of chairs dwindled and my odds of being eliminated climbed, I would inevitably be left without a seat when the music stopped.

It's a tense part of the game then.  The music is playing, and you keep anticipating the silence, and the anticipation makes you anxious.  When the music finally does stop, there's a brief moment of shock and panic, and then the dismay of having lost the game sets in. 

On Monday, March 5, 2007, I realized the music had stopped.

It was the first day of the CNBC Million-Dollar Portfolio Challenge.  I was eager and ready to play, or so I thought.  Then I saw what would be the big financial news story of the day.

New Century Financial Mortgage Corporation's stock share price had crashed.  It was down approximately 60% on the day.

Thus began my research journey into the murky morass of subprime lending.

My trepidation would soon turn to horror at what I learned.  The entire economy was, directly or indirectly, teetering atop the mortgage industry's house of cards.  Everything depended on the banks staying afloat, and the banks were anchored to subprime debt.  The mortgage crisis, of which New Century was the canary in the coal mine, had the potential to completely unravel society.

Prior to 2007, real estate had been in a bubble.  Television was full of shows where people got rich in a hurry by house-flipping.  Buy a house, do some rudimentary renovation, sell the value-appreciated house, pocket the difference as profit, and then do it all again with another house.  As long as real estate prices kept going up, the scheme would continue to pay off.  It seemed, back then, that everyone and his brother was house-flipping.  "Real estate always goes up" was the mantra of the day.

That changed in February of 2007.  That's when the real estate spider peaked.  That's when it was apparent that the housing bubble was beginning to unwind.  The music had stopped, and the scrambling for chairs had begun.

 

 

Just days after the real estate spider peaked, New Century stock received its mortal wound.  Forbes article from that day:

"The rapid high-profile demise of the pure-play subprime lending industry has caused major, real dislocations in the market that should negatively impact the prime-oriented lenders earnings over the course of 2007 at the very least," wrote Harting.

Ironically enough, Harting's employer, Lehman Brothers, would itself fall victim to the financial unraveling that had just begun to ensue.

On the same day, Standard and Poor's lowered New Century's credit rating:

Standard & Poor's Ratings Services said today that it lowered its counterparty credit rating on New Century Financial Corp. to 'CCC' from 'B'.

The smart money got out while the getting-out was good:

“You just lost touch with reality after a while because that’s just how people were living,” said Mr. Elsayed, 42, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. “We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.”

Most people, of course, had no inkling anything was wrong, nor would they until a year and a half later when the stock market began its crash cycle and the legacy news started covering it in earnest.  In early 2007, the only people in the know were those who paid attention to financial markets, a minority of the general public.

I spent a lot of time on the Yahoo Finance message boards back then.  They were a great source of info, and people in banking and the mortgage industry were offering up their expertise on the matter.  The comments came fast and furious, and there was much less spam back then, so informational density was high.  It turned out the financial house of cards was far more convoluted than I could have imagined.  The mortgage guys, the guys who would presumably know best, were preaching doom, and that worried me.  Much of their ire fell on the CEO of Countrywide Financial, a man named Angelo Mozilo.  They derisively called him "Old Leatherface" due to his apparent affinity for tanning.  Later, Mozilo would be castigated by the broader media, rightly or wrongly, as the main villain in the story.

I hadn't panicked yet.  That wouldn't happen for another two years, at which time I would let my fear prevent me from taking advantage of the best stock-buying opportunity of the decade.  Later, when the market recovered and it was apparent that TEOTWAWKI had been averted, I was angry and disgusted with myself for allowing myself to succumb to panic and mass hysteria.  I swore then that I would never get swept up in a mania again.  (This experience and my sworn oath would come in handy in 2020.)

The mortgage crisis would eventually percolate out into the broader economy, and the "financial crisis" began in earnest in late summer of 2008.  The Fed and the government threw as much money at the problem as they could, hoping some of it would stick.  Some banks were bailed out.  Others weren't.

In 2007 and 2008, the federal funds rate was slashed like a character in a horror movie:

 

It was not enough to prevent the stock market crash.  In fact, it seemed to have little effect on the stock market at all.  The malinvestment simply had to work itself out organically, and no amount of easy money could paper over the structural problems and take the economy back to rainbows-and-unicorns land where nothing uncomfortable ever happens and no man need face the dire consequences of his destructive choices.

The Great Recession, as the time would later be called, was particularly tough on the younger adults who weren't yet firmly established in careers.  The Millennials were especially affected.

Many of the structural problems from that time are still there today, waiting for the right moment to emerge from hiding.

It will happen.  Some day, the music will stop once again.

I remember March 5, 2007.  I remember the day I realized the music had stopped.  And I remember how I failed to take advantage of opportunity later when stocks were on sale.

Now an AI bubble has begun.  I intend to benefit from it as best as I know how. 

And when the music stops, I'll be ready.

Gold and silver get haircuts

Disclaimer:  Nothing in this blog post, or in any other post on this blog, should be construed as personal investment advice.  This is for entertainment only and for my own amusement in particular.  If you want investment advice, hire a financial advisor.

 

I mentioned just a few days ago that gold and silver had gone parabolic and that I wouldn't be buying any time soon.  Now y'all know why.  They got some haircuts last Friday.  Gold got a buzz cut, falling by about ten percent, and silver's barber missed the hair completely and outright decapitated it with a wild thirty percent crash.

It was silver's worst single-day drop since 1980.

So now that it looks like the inevitable correction has begun, let's start looking for support levels.  Here's the ten-year chart for gold:

 

 

Upon inspection, it looks like the previous low prior to this bull run was at around the 1620 level, give or take, so we'll go with that for the starting point.  We'll call the peak 5600 even to (hopefully) make the math easy.  That gives us a total rise of 3980.

We'll look at Fibonacci retracement levels of 61.8%, 50%, and 38.2%, because I think those are the most likely to be relevant here.  (We'll use the same percentages for silver in a moment.)

3980 x .618 = 2459.64, for a support line at 4079.64

3980 x .5 = 1990, for a support line at 3610

3980 x .382 = 1344.64, for a support line at 3140.36

Due to the previous retracement of around 50%, give or take, I think the 3610 support line is the likeliest bottom, so if gold does indeed fall to that level, then that's where I'll be looking to buy either gold or gold mining stocks.  If it reaches the 61.8% line, though, and then treads water there for a sustained time, then that line might be the bottom, so I'm not counting that one out.  And, of course, due to the parabolic nature of this latest spike, a decline to the 38.2% level is also possible.  But I'm leaning towards the 50% line.

Now let's look at silver.
 

We'll assume silver began its climb in 2022 at around 17.50, give or take.  We'll call its peak 121.  That gives a total rise of 103.5.  Fibonacci numbers then look like this:

103.5 x .618 = 63.96, for a support line at 81.46

103.5 x .5 = 51.75, for a support line at 69.25

103.5 x .382 = 39.54, for a support line at 57.04

As I write, silver has already fallen through the first Fibonacci line, so I think we can safely eliminate the 61.8% retracement level as a support level.  Silver is more volatile than gold, as Friday's action makes eminently clear, so I suspect even more confidently for this metal to keep falling to the 38.2% retracement level.  It could even fall all the way back to below the previous highs of around 30, because it did something similar in 2022, falling back to below its 2016 highs after a spike up in 2020.  I won't jump into the metal at 57.04; I'll want to see it tread water there for a while before I'm convinced it's a bottom.

So that's my thinking at the moment.