Pretty Sure Bets
Investing is little more than seeing opportunity when everyone else is terrified. Remember, you can’t invest in yesterday, only tomorrow.
The greatest time in US history to invest in the US stock market was between July of 1932 and June of 1933. The Dow was 295 in October of 1929 when the market crashed. It hit a low of 41 in July of 1932. That’s a decline of 87%.
Not a single cheerleader can tell you what happened next because they are so fixated on their own bellybuttons and mantra of “manipulation, manipulation, manipulation.” They know nothing of corrections or opportunity. When is the last time you ever heard of one of the cheerleaders even using the term, “correction?” Yet every investor with any sense knows that corrections are part and parcel of any commodity.
In July of 1932, during the depths of the depression, with the Dow at 41, a few brave souls realized that no market goes to zero and they invested. Just short of a year later, the Dow was 108, a climb of 150% during the worst part of the depression.
It’s been my observation in my 40 some years of investing that markets that decline between 87 and 91% will tend to have a countertrend rally of 150%.
Rhodium is quoted at $1,080 an ounce today. It is used in catalytic converters primarily but also to plate white gold and sterling silver jewelry. It is one of the platinum group metals. (PGM) It hit a high of just over $10,000 an ounce in mid-2008. It hit a low for this year today. [Aug 13, 2012].
Rhodium still has value and while it may not hit $10,000 any time soon it’s been higher than it is today for 99% of the last 8 years. It’s a pretty sure bet at these prices. It’s down some 89% from it’s record high in 2008.
I’ve followed the platinum/gold spread for many years. Platinum was discovered in Colombia around 1730. The natives had been mining rivers in the Condoto region for a thousand years and due to the similar density of platinum at 21.45 and gold at 19.3 confused the two elements. They believed the silver colored platinum nuggets were immature or undeveloped gold. So they threw it back into the river to grow.
Platinum is both more rare than gold, it is also more expensive to refine and mine. For 99% of history since its discovery, platinum has sold at a premium to gold. At the start of 2012, gold climbed to a premium of $220 over platinum before starting a long slow drop relative to platinum at mid-year when gold and platinum prices were the same.
As of Friday, August 10th as I write, the spread is up to $227 with $1620 gold and $1393 platinum. If you sold 100 ounces of gold (one contract) and bought 100 ounces of platinum (two contracts) you would be betting on the spread to narrow.
Only three times in the last 25 years has platinum sold at a discount to gold. The spread may well widen but I’m not the only investor looking at numbers and the platinum gold spread is a pretty sure bet. History doesn’t repeat but it does rhyme.