IAAM: The Economics Trade

crude oilRemember when I stated that the Economics of supply and demand screamed that oil at $65 per barrel was about to take the plunge to a low of $25? What did you do?
How about when the 10 year Treasury was approaching 3% and the world, including Bill Gross, said higher and higher. The Economics dictated a different direction. What did you do then?
Now a commodity has joined the list of Economics pointing the way! What to do? Perhaps a few thoughts from the greatest trader of all time, Jesse Livermore, are in order.

According to Livermore, always determine the total amount you want to commit to a position BEFORE you start. The first trade should be 20% of the total. A stop loss of 10% is immediately put into position. If you are wrong you have lost only 10% of 20%, not 10% of 100%. Livermore knew he was not infallible and always cut his losses.

But what do you do if you are right? (This is the Livermore discipline) As your position appreciates between 5-7% add another 20%, then more appreciation another 20%. The final trade, according to Jesse, is 40%. Always raise your stop to 10% below your last trade.

That is the HOW. Now the question is which commodity is the WHAT?

While all eyes are focused on Gold, and the Historic rise in ETF holdings, its poor man’s little brother is presenting another Economic opportunity. SILVER, the ETF(slv), appears to have a large Economic reason for being. It would seem that not everyone is buying the equity bounce, the jobs recovery or even the thinking that the GOP establishment has things under control.

I will never say buy, sell or hold since that is financial advice and we are here to simply discuss ECONOMICS. So Economically speaking it would appear that the demand for this particular precious metal is starting to build a following.

Jesse might have, nothing ventured nothing gained.


Written by
With his passion for economics, Bill Tatro has been entertaining audiences on the radio and in seminars for over 30 years. Bill’s dynamic and no nonsense style has made him one of his stations’ most popular show hosts.