Trading Educators Blog
A Personal Message from Joe Ross dated February 12, 2014
After going through my email, I came across a personal message from Joe Ross to his students and wanted to share. I did make a few changes to omit outdated information, but other than that, below are Joe's words. Enjoy! ~ Martha Ross-Edmunds
From: Joe Ross' Personal Letter - Trading Educators
Subject: Personal Message from Joe Ross at Trading Educators
Sent: Wed, Feb 12, 2014 4:25:13 PM
This is a personal message from Joe Ross at Trading Educators (TradingEducators.com). Most of you know that, from time to time, I send a letter to our trading friends in order to share ideas that I am not able to fully cover elsewhere. Please read on to find out what I want to share with you in this letter.
RESOURCES AND CYCLES
I'm not a big fan of cycle trading in the way that proponents of "cycles" are, simply because cycles are too imprecise, sometimes with predictive ranges measured in years. They just don't seem to want to come on time.
There are currently two very "reliable" cycle analysts whose writings I look at periodically. One of them is calling for the DJIA rising, starting in late 2014, culminating at 31000 by 2020; the other is calling for DJIA 10000 by the end of 2014, and as low as 3300 by 2020. I suppose it depends on which cycles each one looks at.
Regardless of what they think, I am aware of the cyclical nature of things, and because of that awareness I often see the opportunity to make a lot of money. This is especially true in resource markets and in defense (offense) markets.
Most traders and investors are unaware of the cyclical nature of resources.
Resource markets tend to be cyclical for a couple of basic reasons. Resource markets are both time sensitive and capital intensive. By that I mean they take a lot of time and a lot of money to discover, mine, extract, and produce the final product.
Great price swings occur whenever there are supply and demand imbalances. The resource sector, because it is time sensitive, is not able to react as quickly to over supply or under-supply as can other markets - markets not as time sensitive or capital intensive. This long time lag causes resource markets to have huge price swings from high to low, and low to high.
When there is a supply shortage in gold, silver, copper, platinum, uranium, etc., a potential supplier has to raise money to explore to locate a source, then build a mine, equip the mine, and begin the extraction process necessary to produce the needed supply. With resources we are talking about years, not days, weeks, or months. For supply to be able to meet demand can take as much as ten years of development and extraction in some cases. A decade is a long time to wait, especially as prices for the available supply climb higher and higher in the interim.
When there is too much supply, as you might expect, prices begin to fall. But then a very strange thing begins to happen. Instead of holding back supply in order to keep prices high, producers bring even more supply to the market in an attempt to regain the costs they have put into the process, from discovery to extraction. Suppliers then engage in vicious price cutting, which devolves into a contest known as "last man standing." In other words, they are selling at prices below cost in the hopes that they can liquidate on high volume.
The question is: "How do you know when it's time to buy - keeping in mind that resource bottoms last a long time?" When it costs more to produce the resource than it is selling for on the open market, prices will hit bottom. This is when the disillusioned public sells - right at the bottom. Any time after that is time to buy and hold on, or wait until you see prices make a 1-2-3 low, or a Ross Hook following a breakout from the sideways bottom. The next imbalance will bring a huge upswing in prices.
"When is it time to sell?" When producers overall are enjoying 50% or better pre-tax margins, and returns on capital are greater than the S&P500s return on capital by 50%. Of course, that is when the public will be fighting to get into the market. The public usually buys at the high and sells at the low. If you want to reverse and go short, this is the time to do it. Since you don't know the exact top, I would use a long-dated put option to take advantage of the expected downslide in prices.
It takes discipline to trade resources. Not many people have the discipline to sell when prices are soaring. Not many have the courage to buy something when it has been beaten down and is dirt-cheap.
Another set of cycles of which I am particularly aware, and you should be as well, are what are called "cycles of war." The war cycles are turning up dramatically. From 2014 to 2020, they will probably bring total havoc to Europe and the U.S.
And in Europe and Washington, leaders are becoming more and more dictatorial, more fascist, more authoritarian.
Big Western socialist governments are dying, and the leaders know it. So they are acting like caged animals and fighting back the only way they know how: by attacking their own citizens.
This is how Rome died; this is how the Byzantine Empire fell. It's how the maritime merchant-based Venetian times ended, and those of many other civilizations throughout history that had often been at the core of the global economy.
They do not die by hyperinflation, as many seem to think. They do not die by severe deflation either. Instead, they die by leaders turning against their own people to hunt down every penny of wealth they can find to tax and confiscate — all in the name of saving the government.
Some might say it's our duty to save our respective governments. I respect that opinion, but I don't agree with it.
Instead, I believe it's our duty to design the right government and elect the right leaders. When the government doesn't work or the leaders turn out to be as bad as they are now, it is also our responsibility to throw them all out, improve the government, and install new leaders.
The good news: Changes are coming. But the process of change is going to seem wild, chaotic, and even violent at times - in society and, as a result, in the financial markets.
If there's one important thing I need to tell you today, it's this:
We are about to enter a period that I you might call "A New Dark Age."
A period where everything you thought you knew, everything you worked hard to create and save, will be turned upside down.
You can survive it. You can even prosper through it. But you simply must take specific, high-level action to do so. That action is to first question everything and anything the government is telling you. They will be lying to your face more than ever before.
Second, question everything and anything you hear about the markets, no matter what market it is, and do your homework. I figure that more than 90 percent of all advisors are going to predict the markets incorrectly in the months and years ahead.
They are either too young, or they simply don't have the historical awareness of the times we live in to understand the future times facing us.
Third, be as emotionally disciplined and as objective as possible. Don't fall victim to crowd hysteria. That's always good advice, but in the months and years ahead it will be absolutely critical to your financial survival.
In 2014, we will see new trends emerge in most markets. Those new trends will be the result of the next phase of the financial crisis kicking in, and they will also be the consequence of the first phase. For, in the end, we have not fixed anything. There has been no real change: just some healing. The wounds and broken bones are still present.
As with all other trading and investing: until you master yourself, you will not be highly successful in the markets. It is for this reason that I continue the drum beat for self-discipline, self-control, derived from serious self-introspection.
I will never take credit for the trader and investor I've become. In my own case, I got down on my knees and asked God to show me my weaknesses and how to overcome them. Scripture says "Ask and you shall receive." I asked, and revelation came. Try it! You might like the results.
Earlier, I mentioned 1-2-3 formations and Ross Hooks. These concepts are taught in my eBooks and hardback books.
I am still really excited about the Money Master eBook and Money Master Advanced Strategies Recorded Webinar. Those strategies are now being used to trade managed money. If you do not have time to do it yourself, it is possible to have your money traded for you. But if you want to know how to trade those strategies on your own, I am happy to show you everything I can about them. I always try to do for you what I would want you to do for me if I were in your shoes.
The feedback from those who have started trading the strategies has been truly positive. I am really serious about the fact that not only can you use them, but that you should be teaching them to your children and grandchildren. Once they employ the strategies, you can be sure they will never have to depend on the government or any company for a pension at the end of their working careers. In fact, those strategies can become the way you and they earn a living for the rest of your lives.
"If you are really looking for a safe way to invest your money with minimal time and effort what Joe teaches you is extremely practical and valuable. If you have been chasing all kinds of trading techniques relax this is one you can retire on." - Charles R., USA
My very best to you all,
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