Analyze your personal risk and act accordingly

I wanted to quickly write something for anyone concerned with recent market action.  I have been saying for a couple of months that I was concerned with incredibly high sentiment in the stock market as well as the ridiculous volatility and YOLO trading in things like GME, TSLA and Bitcoin.  The world is leveraged to the hilt, which is why we have seen correlations of market dumps that have coincided with a ridiculous rise in one little stock, GME.  You would think the idea of 1 company taking the market down is ridiculous, but we've seen it happen, that is how leveraged it is out there.

Many have stated that if there is crash in stocks, that PM will likely NOT be affected, and instead see money flow into gold, silver and miners.  For the record, I do NOT agree with this in the short term. When investment funds get squeezed, they'll dump anything to get liquidity.  Consider how concentrated the money on Wall Street is these days.  This is not like the 1980s where there were actual "retail traders".  Most money on Wall Street are in funds of some kind managed by a few hundred institutions that comprise 90% of all the money traded in any given market.  In the longer term, I agree that as people continue to lose confidence in "the system" and markets, money flows will increase into Gold, Silver and miners.

Consider your own emotions and risk tolerance.  In the shorter term, if there is no risk to Gold in a market drop, you are fine.  But if I am right, a March 2020 like plunge could send your portfolio down significantly.  If you can stomach this, fine.  If it will make you lose sleep at night and run the risk of panicking and selling at lows when you look at your loses, you should keep some cash on the side.  Think of the cash like an anxiety pill incase of an extreme panic attack.  Just having a small cash position will do wonders for your mental health and give you the opportunity to buy at very low levels if we see them.

Please understand, I am not saying to dump gold and silver or miners.  I am also not saying you should cash out your 401k's or sell index fund and stock positions you are holding for the long term for your retirement.  I am simply saying to analyze your own mentality and emotions.  I used this analogy before, but if you are the type that usually buys the extra insurance on a rental car, maybe your risk tolerance is not suited for "All in" on a portfolio of call options.

The goal here is simple: Make it to pay day.  Do what you need to do for your mental health to get there.  I'd rather see people hold 10% cash (or more if that's how you feel) and make 5x your money on 90% of your gold and silver portfolio, then panic at the lows and dump everything and miss out altogether.

Here is what you should NOT do:

1. Do not own leveraged ETFs.  The perceived leverage is not worth it. I've seen them blow up and go to 0.  I've also seen them stop functioning properly, so a massive loss on a panic will never return to where it was no matter how much things go back up.

2. Do not use margin.  Sure you can use it responsibly and professionally, but most do not.  A March like panic, where gold miners dropped 50% in a few weeks could see you have to force sell positions at lows. Also the leverage there in a crash is not doing your emotions any favors.  It is not worth it.  (Very small amounts can be beneficial to use DURING a crash, but you can't do that if you're already leveraged.)

3. Don't buy out of the money short term calls.  If you prefer to have a portfolio of leaps because you can save capital and get better leverage to the stocks, that is your prerogative, just prepare for a hell of a draw down if things tank.  Again, your own emotions are your worst enemy so I don't think it's worth it, with the exception of using a small amount for extra leverage to your existing portfolio of stocks.

The bond market is in serious trouble here, and whether the FED steps in or not, in the long run I see a loss of confidence here and I see only one other asset that is a safe haven, that typically has a negative beta to stocks, and that gives you a better yield than negative yielding bonds for investors to go into with their money as they sell treasuries and that is GOLD.

In the short term, markets are freaking out right now over rates and it could get ugly.  It is better to have a life jacket and not need it, then to just HOPE your boat won't sink.

On Tuesday, I said "I think were at a low in gold"  We've lost only $10 from that point so far, but all bets are off if margin calls start and there is a race to raise liquidity.  Keep in mind, gold went from 1700, to 1450, back to 1700 in only 12 days.  All you had to do was not watch for 2 weeks and you were right back like nothing ever happened.  But in that 12 days you could have blown up your portfolio if you were over margined or using leveraged ETFs.  Both DUST and NUGT and the GDXJ counterparts JNUG and JDST stopped functioning correctly and got "reformulated" to 2x ETFs after the crash.  JNUG went from an adjusted high before the crash of 1000 then dropped to 33.  At the Aug highs, the GDXJ was 50% higher than before the March crash, JNUG climbed back to 200.  Still an 80% loss from before the crash. It is now 78, a 92% loss in 1 year, during a bull market in Gold.

I can't say this enough, THE GOAL IS MAKE IT TO PAY  DAY! Do whatever you have to do for your own emotions to get there.

-Jonathan Mergott