Market Review: The Tin Heist

“We’ve never seen anything like it.”

Marlene Dubinsky’s Coin and Jewelry Exchange became so choked with customers one afternoon, she was forced to close her shop.

“The volume of customers has grown so much we can’t even calculate the increase,” snapped Marlene. “People are jumping on the bandwagon because they figure they can make more money by buying and selling gold and silver than leaving their money in the bank or playing the stock market.”

Marlene Dubinsky was being quoted in the New York Times. The date: January 20, 1980.

Your eager Baltimore-based editor is hot on the trail of a bull market in commodities. Two weeks ago, we went to a major international seaport, and a major international coin show. Last week, the trail led us to the local library…and their archive of New York Times microfilm.

The last commodity bull market took place in the 1970s. The climax came in January 1980, with the great metals crash. Gold fell $160 in one day; silver crashed too. Commodities have been ignored as an investment ever since.

That much we already knew. Now we wanted to see what it felt like to be there – as if we had traveled back in time to January 1980 and placed an ear on the sidewalk. History repeats itself; by examining the final episode of the 70s metal mania, we hoped to identify patterns we could use in the future. Once again, we’re in the midst of a commodity bull market, and these clues could prove very useful.

“For the past 23 years, this was just a quiet coin and stamp store, but within the past few weeks this place has turned into a junk shop,” said Istvan Varga, owner of the White Plains Coin and Stamp Exchange, speaking in 1980. “It’s a madhouse, what’s happened here.”

Obervation #1: The public was gripped by mania. In 1980, the bubble in gold and silver was ripe; thousands of regular people had become frenzied antique dealers. At a jewelry refiner in New York, the line snaked around the outside of the building, says the NY Times. An elderly man, hoping to sell his flatware, was quoted: “First I waited in a gas line earlier this year,” he said, “and now I’m waiting in a silver line.”

Next, we noticed the adverts. The newspaper was seething with “reputable” gold coin dealers and “#1-ranked” commodity traders.

“Are you trading in America’s industrial wealth and forgetting America’s natural wealth?” asks a half-page advert in the business section. “Simple statistics prove that the profit potential is greater in commodities than in stocks. It follows – as “B” follows “A” – that where the leverage is greater, the opportunity for profit is greater. And the greatest leverage in the world is found in the commodity futures market.”

“You say you don’t know anything about commodities market?” the ad goes on, “You don’t have to. We do. When all youtrade is commodities, as we do, you know commodities. For a better return on your trading dollar…get into commodities with Nelson, Ghun and Associates.”

Observation #2: Dumb-money parasites tried to tap the public’s exuberance.

Finally, we often found commodities featured on the front page. Usually the stories were of a market bent. “Gold makes record high, trading is wild,” was the headline one day. At other times, the stories had nothing to do with markets…

On January 19, 1980 a gang of thieves made off with a truckload of tin ingots worth more than $500,000, reports the Times. Handcuffed, blindfolded and held at gunpoint, a 30-year-old guard, Rene Tadros, was held hostage before the thieves vanished with 60,000 pounds of tin. “The price of tin, like that of gold silver and other metals, has risen sharply in recent months, from just of $7 a pound last October to $8.44 at the close of trading Friday in New York.”

Observation #3: The bubble pushed commodity-based stories to the front page. It was time to sell.

Here at the Daily Reckoning, we’d assert that a NEW bull market in commodities was underway. Don’t take our word for it though; just look at any commodity price chart over the last few years. Or listen to the experts, like Jim Rogers. “A new commodity bull market is underway and will continue for years,” he says, speaking in 2005. “I have been convinced of this since 1998, and have been making my case for commodities ever since.”

But you won’t much evidence of this juvenile resource bull run in your weekend edition of the New York Times…even though the last five years have been one-way traffic. In fact, the CRB – the benchmark commodity index – is up nearly 50% since the beginning of 2003. Last week, the CRB was unchanged at 284. Year to date, it’s up only 0.1%.

Gold, silver and oil all declined last week. Oil was off $1.62 a barrel to $47.18, while gold fell$1.30 an ounce to $425.70. Silver declined 2 cents to $6.79 an ounce.

In most newspapers, stocks and bonds are still all the rage. If you don’t believe us, just look which companies are making the headlines. Last week, both markets – bonds and equities – went up…the DJIA was up 34 points to 10,427, while the Nasdaq was 2 points higher, closing at 2,036. The bond market also found support. The 30-year T-bond yield closed at 4.61%, down 3 basis points on the week.

In 2005, a pound of tin trades for $3.64…and most thieves wouldn’t even give it a second glance. Soon they might reconsider.

Regards,

Tom Dyson,
The Daily Reckoning
January 30, 2005 — Baltimore, Maryland

P.S. We were proud to learn that the New York Times relied heavily on Paul Sarnoff’s analysis of the metal situation in early 1980. He was quoted nearly everyday.

We only mention this because, 25 years later, Steve Sarnoff, Paul’s son, finds himself in an equally distinguished position. Since taking over from his father as the editor of Options Hotline, Steve has gone from strength to strength. In fact, you could say his readers rely on him. Maybe it’s because, since January 1, 2004, he has made 34 option recommendations…and 30 were winners?

— Upcoming Events —

*** The Money Show, February 2-5, Orlando ***

Admission is FREE!

Total household debt? Consumer Spending? The Refi Boom?

Do any of these macro-indicators mean anything?

How do you make money off the REALLY BIG trends? Or…can you at all?

Don’t miss The Great Profit Debate at the World Money Show in Orlando, Fl, next Thursday. Investment heavy-hitters Dan Denning and James Boric are going to duke it out live. Denning is a big-picture macro-guy who plays options on ETFs. James, an inveterate small cap sleuth, could care less…he’s buying great companies cheap on their fundamentals – and watching them skyrocket in value.

“The Great Profit Debate” will be moderated by New York Times Best-selling author (and publisher of the Rude Awakening) Addison Wiggin. Stuck in the middle will be value seeker Chris Mayer, editor of the Fleet Street Letter. Chris has his own approach he calls: “Tangible Assets That Sweat.” Chris does just fine in any market.

*** Gold Summit II, Feb 23, Long Beach ***

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“In a low inflation world, housing bubbles are a much more dangerous phenomenon.” – John P. Calverley.

We ran an extract from this book as a Daily Reckoning Guest Essay, and the above quote was taken from the piece.

In fact, it was the last line!

Bubbles have played a major role in the world economy over the past 20 years, first in stocks and now in home prices.

If you are worried your home might be part of a bubble, we recommend you read this book.

If you are interested in markets, economics, trading or speculation, we recommend you read this book.

John P. Calverley is chief economist and strategist at American Express Bank.

THIS WEEK in THE DAILY RECKONING

01/28/2005 – Foolish Wisdom
by Bill Bonner

“When the crowd takes up a corrupt wish – to get something for nothing…or to make the world a better place by killing people – the last thing it wants is another point of view. It is already too late for that.”

01/27/2005 – Superleverage
by Steve Sarnoff

“But many speculators fail…even when armed with good picks. I think it was Woody Allen who said, ‘In life, there are pitfalls and there are opportunities. The idea is to avoid the pitfalls, seize the opportunities, and get back home by six o’clock.'”

01/26/2005 – Fear Factor
by Dan Ferris

Before I tell you what the greatest single secret of investing is, though, I want to tell you why I’m going to give it to you. I’m going to tell you this secret because it’s hiding in plain sight.

01/25/2005 – Economic Dinosaurs
by Dan Denning

“If the American fridges are cheaper in Europe, so are the Chinese fridges. No net competitive gain in the fridge market…or perhaps in ANY market for manufactured goods.”

01/24/2005 – Standing Solo in the Crowd
by Bill Bonner

“On page one of the International Herald Tribune we see George W. Bush, at his second Inauguration, whose mouth seems to have come such lofty guff he might have been mistaken for a hospital chimney.”

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