by @JaredDillian

January 2011. Gold at 1900. Silver at 50. I was all-in.

Hey, it takes a big man to say that he lost money, but it takes an even bigger man to admit that I got sucked into a bubble just like Joe Retail. How did it happen? Honestly, I don’t know. I like shiny stuff. I was ordering lots of PM online, and accumulating it in my house, and I had this idea that if the Fed one day backed the dollar with gold, then the price would go to $10,000 an ounce. So that is what I was shooting for-- $10,000 an ounce.

As you probably have heard lots of bitcoin guys are shooting for $1 million per coin, and my guess is that it ain’t gonna get there, at least not this time around.

So I have perspective on bitcoin but I didn’t on gold. Why is that?

No explanation, really. But it gives me a little sympathy for the bitcoin guys. They are just not going to sell, no matter what. Or let me put it this way— they are not going to sell until bitcoin is down 90%. If 1,000,000 is your price target, and bitcoin is currently at 10,000, you are not going to take profits.

So I think that is a feature of bubbles—ridiculous price targets. After all, we had Dow 36,000 and Dow 100,000 during the dot com bubble. But yeah, I remember messaging with my FX friend Brent Donnelly the day that silver did a giant outside reversal, from 50 to 45. He was trying to get me to sell. I was locked in. Not going to sell until 10,000 (in gold)!


So here is a rule of thumb—if you are in a big bull market/bubble, you should take profits along the way. Don’t be an idiot (like I was). Sell 10% in 1,000 dollar increments. Or whatever. Stick to the plan.

Because inevitably what happens is that if you don’t sell gold at 1900, you end up selling it at 1050. And by the way, I am still long it at 1300, and unhappy! So really what we human beings need is an on/off switch. We need to believe in bubbles and disbelieve in them simultaneously. I read a George Soros quote about when a bubble starts to form, he gets in there and drives it higher. Now that is the right attitude. But you have to have a certain degree of emotional detachment. Like, I saw the bitcoin bubble forming, but instead of getting in there and driving the price higher, I was like, “that’s dumb.” My goal is to be blowing bubbles one day and shorting them the next. Now that takes some kind of intellectual flexibility. Most people can catch it on the way up, or on the way down, but not both.

Anyway, you try not to make the same mistakes twice but inevitably you do. I’m still a little blown away by the P. Coast guy I was telling you about last week. Literally lived through dot-com. Watched his business go to zero. Watched his career end. Now crowing about bitcoin on Facebook. Like I said last week: some people are just always

wrong. All those people at the bitcoin conference, you should put a lojack on them and see where they end up in seven years. It’s like a speculative bubble divining rod.

Canada Blowout Payrolls It Never Ends

Canada payrolls came in at 79K jobs versus 10K expected. And, the unemployment rate went down to 5.9%. And GDP came in a touch higher.




This isn’t going to result in rate hike now, or even in Jan. But it puts one on the BOC’s radar.

Zerohedge had a great headline about it— said it was a 14-sigma beat, which kind of speaks to the quality of Canadian economic data, which is about as reliable as China’s. Possibly subject to manipulation? I am not going into Jack Welch territory. But Trudeau and Morneau have been running into trouble lately, so I am going to do the classic conspiracy theorist thing and say, “just leaving that out there...”

You know what’s amazing? The amazing thing is that I cannot be participating in any of these bubbles—including getting most of them outright wrong—and

still be making money. And pretty good money, at that. Not exciting or sexy, but it’s a living. It’s a job. Which is the whole point of TDD.

That was kind of my approach at LEH as well. I had a very low PNL volatility. Which, in retrospect, didn’t get me paid.

Anyway, you’ll hear more about Canada this week on the podcast. Seth Daniels. It’s good.

I could use some help from the program guys on this one. Why is the Dow going bananas? Well, it’s a price-weighted index, and the stocks at the top of the index (BA, AAPL, MCD, HD) are going bananas while the low-priced stocks (like GE) are going nowhere. But this is weird. Usually the Dow does a good job of sticking with the S&P. It has totally diverged. And as of this morning, it is rocketing higher another 200 points, which makes it almost halfway to 25,000 already. That didn’t take long. Like I said, they should cut it out with the Dow hats.

A few thoughts:

1) Who could have predicted this?

2) For all the outperformance, nobody is really investing in DIA.

3) Nobody really talks about Dow futures.

4) If you want to bet against this market, the best place to do it is not the S&P, but the Dow.

Kind of makes you wonder what stock is going to end up in it next? The Dow has always been accused of adding winners on the highs, so I fully expect something like FB going into it.

The weird thing is that value has been getting lapped by growth, and INDU is typically value, but not anymore. And the weird thing about this market is that value has migrated into growth and some growth has migrated back into value. The definition of what is growth and what is value is always shifting, which is kind of neat. At least an index guy like me would think it is neat.

The Daily Dirtnap ("TDD) is an economic newsletter by @JaredDillian , the former head of ETF trading at Lehman Brothers. Click here to subscribe. 

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