At some point in the near future, the next BIG trade will likely come from a leveraged short position of the precious metals sector. With proper execution, it could easily exceed the record Paulson short of 2008. Unlike the Paulson trade, where he actually had to create the trading vehicle to perform his thesis of thinking - there's a line around the block waiting for someone to take the other side of this market at a moments notice.
Generally speaking, the criteria for an asset bubble in Gold and Silver have been met:
- Explosive & exponential gains (>400% gains w/Gold & >700% gains w/Silver since 2002)
- General public participation (is MC Hammer the general public?)
- Everyone's a winner (how could Glen Beck and Laura Ingraham both be wrong?)
- People who did not participate before - participate now (gold party anyone?)
- "This time is different" syndrome (the financial system is broken, therefore...)
This trade is no different than Paulson's short on the housing sector - or Buffet's short on the dollar. They did their due diligence - recognized an asset class that was so historically stretched in relation to the mean and waited for their ship to come in. It is most similar to the Paulson trade - because everyone believed that the housing market was infallible to the kind of declines Paulson recognized as inevitable....MORE, including some great charts.
HT: I think it was the Reformed Broker
