When History Repeats, It Pours (Mumbai Rains 2017 Edition)

It poured heavily yesterday in Mumbai. The lifeline of the city - the local trains - stopped working. Roads were waterlogged and jam packed with vehicles. All of Mumbai came to a standstill.

It looked like an action replay of 26 July 2005.

Twelve years ago, we witnessed torrential rains and high tides that lead to floods across the city. It was similar situation on 29 August 2017.

This deluge is warning for us all to learn from history...lest we be doomed to repeat it. Three hundred millimeters of rain in 24 hours brought the city to a standstill. Imagine if it had been 900 millimeters like in 2005.

Our Mother Nature nurtures us, but when we exploit or offend her, she has the power to take back all that has been given. Nature has its own way of teaching us, and the lessons apply not only to society at large but to each and every individual.

And yes, even traders have much to learn.

That's why today I am sharing a piece I wrote after the Chennai Floods in December 2015. The place has changed, but the context and lesson are the same.

Please read on...

Nature Is the Best Teacher

Apurva Sheth

Forwarded by someone from Chennai...

I am working as a system analyst for an American software company in Chennai. Presently drawing 18 lakhs p.a. proud owner of a 3 BHK in suburbs of Chennai. Today I have 2 credit cards with more than 1 lakh credit limit and a bank balance of 65 thousand in my account. But due to heavy water logging I am not able to move out of house, all I need is water and food for survival. Till yesterday I was worried about my appraisal and was expecting at least 15% hike but today I am standing in my terrace waiting for a food packet.Nature is the best teacher.

I don't know who this person is, but his short story made me sit up and ponder over the things that are truly essential in our lives...and the things that are not.

All our lives, we work for either of these things - wealth, money, success, achievements, a big home, a bigger bank balance, a new car, the latest mobile phone, or the newest edition designer handbag. And there is nothing wrong with it. But in the race to acquire these things, we miss out on many other important aspects of our life.

Fortunately, nature acts as a balancing force in our lives. When you explore the natural beauty around you, you live in the present moment. You are free from the pains of the past and the worries of the future. That's when you realise your true self. And rather than the latest gadget or the zeros on our bank statement, that's what should matter most.

Unfortunately, nature isn't always kind. Nature has a ruthless way of teaching us these lessons and restoring balance to our lives. The story of this guy from Chennai is a testimony to this fact. It took nature's wrath for him to realise what is critical for survival and what isn't.

As traders, we swing between greed and fear, and it can be difficult to find a sense of balance. After all, much more than money is at stake. There are emotions, ego, pride...

For a trader, profit is one of the most important factors of survival. And one should aim for higher profits. But that shouldn't be the only goal in a trader's life.

Whether you are a full-time or part-time trader, trading is just one aspect of your life. You play many other roles in life - husband, father, brother, friend - and every role you play comes with certain duties you must perform.

But even more important than these is your role as an individual and your duties to yourself. Only when you are comfortable with yourself will you be able to perform this duty. And then, fulfilling your other duties will follow.

Unfortunately, trading tends to become the one and only aspect in life. How many times have you found yourself awake in the middle of the night checking what's happening in the overseas market? How many times in a day do you check quotes of stocks on your smart phone?

Traders become so engrossed in trading that they forget the rest of the world. They even forget the reason they got into trading - to lead a richer and meaningful life.

It's quite normal to be occupied with your positions. But if this becomes a regular habit, then you are on the wrong track and may be not doing it the right way.

Successful trading should be effortless and fun. It shouldn't drain you physically or emotionally. And if that's how you feel, then it's time to take a break and go back to the drawing board.

But before you work on your strategies, I strongly recommend you go out and enjoy the nature around you. Take that walk in the park, go to the beach, feel the breeze on your face, and walk barefoot in the wet sands. You may even take that small vacation you've needed for so long.

Then, when you come back, I am sure you will be re-balanced and ready to face the challenges the markets throws up every day.


Market Notes

As Safe-Haven Demand Picks up, Silver Will Likely Outshine Gold

While scanning various charts, we came across a very interesting one. Have a look...

Gold - Out of Downtrend
Gold - Out of Downtrend 

This is a chart of the spot price for an ounce of gold in US dollars.

As you can see, gold prices have broken out of their falling resistance line. The breakout suggests gold is now out of its six-year downtrend and could resume its larger uptrend.

But it's not just the technicals. A few fundamental factors also suggest higher gold prices in the near future...

  • US Dollar: The US dollar index has been in a downtrend since the start of 2017. And when the dollar is weak, gold prices naturally rise.

  • Geopolitical Tensions: US, North Korea, Russia, China, Middle East, and more - geopolitical risks are rising. And when that happens, investors rush for safe havens like gold.

  • Stock Markets: The markets are trading at exceptionally high levels. Valuations, as measured by the PE ratio, are very high, and the VIX, the measure of volatility, is low - neither of which bode well for stocks. If the markets start to fall, investors will rush to protect their wealth. Gold is considered a hedge, or a kind of 'insurance', against falling markets.

Given the fundamental and technical conditions, gold prices could trade in an uptrend in the near future. And if gold prices in international markets rise, gold in rupee terms will follow suit.

But before you jump to buy gold, we would like to show you another interesting chart. Have a look...

Gold-to-Silver Price Ratio

This is a chart of the gold-to-silver price ratio in dollars over the last twenty years. The gold-to-silver price ratio is simply the price of gold divided by the price of silver. When this ratio is high, gold is relatively expensive compared to silver, and vice versa. We showed you this chart back in October 2014 and explained the differences between gold and silver and why this ratio fluctuates so much.

Gold and silver are substitutes for one another. Not perfect substitutes, but substitutes nonetheless. Particularly when it comes to investing, gold and silver often move together, and tend to represent safe haven demand.

This chart helps us to outperform other investors when the world is seeking safe haven protection.

Note how the ratio does not stay above 80 or below 50 for long. So when the price ratio is close to 80, we can say gold is overpriced relative to silver and chances are silver will outperform gold in the near future. The reverse is true if the ratio is close to 50 (that is, gold will outperform silver). Currently, the ratio is at 80, suggesting gold is likely to underperform silver in the near future.

We must stress that the ratio only means gold is likely to underperform silver. It does not mean gold will fall and silver will rise. It means that if precious metals are to go up, silver will probably rise faster than gold. Or if precious metals fall, silver will probably fall slower than gold.

So where we stand today, if the demand for safe havens picks up, silver could rise faster than gold. Meaning investing in silver would be the smarter choice between the two.

Now, we're not saying precious metals are going to rally in the near future. But if they do, silver could outshine gold.

From the Market Wizards...

'Lose your opinion, not your money.' - Linda Bradford Raschke

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