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Everybody wants to know what the Fed does next. That's the wrong question. I've watched smart people lose real money asking it, and I've been one of them. Silver hit a record above $120 an ounce early this year. Lately, it's trading around half that. If you own some or you're staring at that price, thinking about buying the dip, this one's for you.
Here's what I'm going to do. I'll show you how I think about a Fed decision, how it reaches a metal that pays you nothing, and how I'd size a bet so a wrong call doesn't wreck you. And near the end, I'll give you the one question I ask before I put a dollar anywhere when the Fed moves. It isn't. What will they do?
Hold on to that because it's the part almost everybody skips. Start with the big thing. The thing that took me years to actually believe. Earnings don't move markets the way people think. Liquidity does. How much money the Federal Reserve leaves slloshing around the system and what it costs to borrow it.
I learned that the slow way. Early on, I'd spend weeks on a single company, its margins, its management, the new plant it was building. I was good at that work. And then the Fed would tighten and every good company I owned would go down together. Good research, bad tape. Picture a swimming pool. Earnings are the swimmers.
Liquidity is the water level. You can own the best swimmer on Earth. And if somebody pulls the plug, he's standing on concrete. So, when the Fed raised rates last month and signaled that another hike was on the table, I didn't read the headline and react. I asked something else. Is the water going up or down?
Not where is it? Which direction? That's the first piece. Watch the direction of liquidity, not the level of rates. 4% can be easy money in one year and a vise in another. It depends on where it's heading and what everybody expected. Let me put some real numbers on the table because the setup right now is an uncomfortable one.
Inflation ran hot this spring. Prices were up about 3.8% from a year earlier in April, the highest in roughly three years with energy doing a lot of the damage. By May, the gauge the Fed likes best had climbed past 4%. and growth. The economy managed about one and a half% in the second quarter. Soft hot prices and a soft economy.
That's the combination a central banker dreads because every tool he owns fixes one problem by feeding the other. Cut rates to help the job market and you pour gasoline on inflation. Raise them to fight inflation and you lean on an economy that's already wobbling. So in September, the Fed raised rates and the message left the door open for another.
The new chair, Kevin Worsh, has said he's sticking with the fight against inflation, even with pressure coming from the White House. Now watch what happened to the betting markets. Not long ago, they leaned hard toward a hike at the meeting at the end of this month. A few days later, they leaned the other way.
Same meeting, same people, wildly different odds in under a week. I read that as information. When the crowd flips that fast, nobody knows. And when nobody knows, the price of being wrong goes up, not down. Here's the takeaway. When the people who set the price can't agree among themselves, shrink your position.
Don't try to be the hero who guessed it. Let the fog clear a little and pay a bit more for the certainty. Here's a habit I'd steal if I were you. Ask what the world looks like 12 to 18 months from now, not tomorrow morning. Markets price a future. By the time a decision hits the news crawl, most of it's already in the price.
Traders call that priced in. I call it paying tomorrow's price for yesterday's headline. Now, a quick word about your own money because this isn't theory. Whatever sits in your retirement account right now, some slice of it moves with that water level, whether you've thought about it or not. The next few minutes are about finding out which slice.
And it starts with a metal that looks simple and isn't. Silver is a strange animal. It's an industrial input. It goes into solar panels, into electronics, into the guts of things you own. But it's also money people run to when they're scared. Two personalities in one bar. So which one is the market trading right now?
Keep that question in your pocket. Here's the mechanism. A bond pays you interest. A bar of silver pays you nothing. It just sits there and you might even pay to store it. So the real price of owning silver is what you give up by not owning something that pays. When the Fed hikes and yields after inflation rise, that giving up gets more expensive.
People sell the thing that pays nothing and buy the thing that pays something. A stronger dollar usually piles on because silver is priced in dollars. Think of a seessaw. Real yields on one end, silver on the other. It's not perfect. It's a decent first read. Now, here's where it gets sticky. The physical story looks strong.
The world has been using more silver than it digs out of the ground for several years running, and the bulls love that. Fine. I believe the deficit. But a true story and a rising price are two different animals. A deficit can be real and the price can still get cut in half. Over short stretches, the price answers to the dollar and to rates, not to the mine.
That's what happened this year. The Fed turned more hawkish. Silver sold off hard. And the supply story never changed. The mine didn't move. The water did. So, here's your first practical takeaway. Before you trade any metal on a supply story, check what real yields and the dollar are doing. If they're fighting you, you're swimming upstream.
And you'd better have a very good reason. Let me show you how rough this gets because the arithmetic is cruel. Silver ran to a record a bit above $120 early this year. Lately, it's been hovering around 60. That's a drop of about half. [snorts] Sit with that. If you bought near the top, you're down 50%.
And to get back to even, you don't need 50%. You need 100. The metal has to double. That's the part nobody tells you in the excitement. Low's 10 and you need 11 to get back. Low's 20, you need 25. Low's half and you need to double. And the doubling is the hard part. This is why I care about the downside before the upside.
Every trader who blew up was thinking about what he'd make. Almost none of them did the math on what they'd need to climb back. And silver moves fast, even on a quiet stretch. It dropped more than 13% in six trading sessions this spring with no change at all in the supply of metal. fast in both directions, which is exactly why position size matters more than the pick.
I can hear the question. Do I think silver goes back up? I don't know. Nobody does. If someone's certain, check what they're selling. What I can tell you is how I decide how much to risk. And that comes from the best trade of my life. It was 1992. I was running the quantum fund for George Soros. Britain had tied the pound to the German mark and the math didn't work.
Germany needed high interest rates. Britain's economy was weak and needed low ones. You can't hold both. Something had to give and I was fairly sure it would be the pound. I started building a short that summer and I thought I was being aggressive. I walked into George's office and told him the size.
He listened and then he told me I was thinking way too small. If I really believed the thesis, he said I should go for the jugular. So I went back to my desk and made it bigger. Much bigger. The position grew toward 10 billion. Then Britain pulled the pound out of the system and the fund made over a billion dollars in a single day.
Now here's what people get wrong about that story. They think the lesson is that I was right. I wasn't certain. Honestly, I wasn't. What I knew was the shape of the bet. The British government was defending a price. It wasn't going to let the pound climb much. So, if I was wrong, I'd lose a little. If I was right, it would fall hard.
That's lopsided. Lopsided is what you wait for. Being right isn't the point. how much you make when you're right and how little you lose when you're wrong. That's the point. You can be right 60% of the time and go broke if your losers are bigger than your winners. So, when you look at silver, don't ask if it goes up.
Ask what it costs you if it's wrong and what you make if it's right. If the answer is about even, pass. Wait for a better pitch. There's always another one. But there's a flip side to that story. A time I got it badly wrong. Before I get there, one thing. If you've ever bought something because it was going up and everybody around you was talking about it, you already know the feeling I'm about to describe.
Stay with me. It was 2000. The tech market was a bubble and I knew it. I'd been on the other side of it. And then it kept going higher and higher. I'd watch other guys making money and something in my gut started to itch. You know that itch. So I jumped in late and big. It turned over hard. I took a heavy loss and I left that firm that year.
I got that one wrong and I'm not going to dress it up. Here's what that taught me. The thesis broke the moment the market stopped behaving the way my thesis said it should. I just didn't want to see it. Ego did the seeing for me and ego is a terrible analyst. So what are the warning signs? Let me give you two for silver or anything else.
First good news that doesn't lift the price. If everything you expected to help comes in and the price sits there like a stone, the market's telling you something. Listen. Second, you catch yourself explaining why the price is wrong. When your story gets longer while your position gets worse, that's a tell.
The price isn't wrong. Your reason is gone. So, here's the takeaway. Before you buy anything, write down why you're buying it in one sentence. Tape it to your monitor if you have to. When that reason stops being true, you're out. Not when it feels better, not when it bounces, when the reason's gone.
And that brings us to the part that's really about you. Let's say you've got a retirement account, a paycheck coming in, and a little extra you've been sitting on. You're wondering what to do with the Fed meeting coming up. Let me tell you what I'd think about. First, don't make the meeting your trade date.
The decision itself is mostly priced in by the time it lands. What moves things is the surprise, and by definition, you can't schedule a surprise. Second, look at what you already own. growth stocks, long bonds, metals, a lot of them lean on the same water level. People think they're diversified and then the Fed tightens and everything drops together.
That's not diversification. That's one bet wearing four hats. Third, size it so being wrong is boring. If silver's got a place in your plan, make it a slice small enough that if it cuts in half again, you shrug. If you'd lose sleep, it's too big. That's not a weakness. That's math. And if you want to build a position, don't do it in one afternoon.
Spread it out over weeks. You're not trying to catch the bottom. Nobody catches the bottom. You're trying to avoid being forced out. I'd also be honest about what you're buying. A physical bar, a fund, a mining stock. Those aren't the same animal. They don't move the same. They don't cost the same to hold.
And in a panic, they don't behave the same. Know which one's in your account. None of that's complicated. It's just boring. And boring is what keeps you in the game long enough to get lucky or get right. Here's a tool I'd use, and it takes five minutes. Write three scenarios, not predictions. Scenarios.
One, the Fed hikes and sounds like there's more coming. Two, it holds and sounds relaxed. Three, it does something that surprises both camps. For each one, ask what happens to your account. The stocks, the bonds, the metals, and the cash you were saving for a rainy day. Write a rough number next to each.
You'll find something odd. in at least one scenario. Almost everything you own goes the wrong way at once. That's the one to fix. Don't try to guess which scenario wins. Make sure no single scenario can hurt you badly. I used to do this on a legal pad before the screens did it for me. It pulls you out of hoping you'll be right and into the habit of being ready.
And here's where your own money comes in. your paycheck, your retirement account, that slice you were thinking about putting into silver. The scenario with the worst number decides how much of it goes in. One more thing about dips. Every dip looks like a gift while you're watching it fall. I've bought dips that were gifts and dips that were trap doors.
You can't tell the difference on the way down. So, I never buy one without a reason on paper and never all at once. Now, I want to talk about something nobody puts in the brochure. What this feels like when you're down on a position, your body tells you things. Your stomach, your jaw. You check the price at 2 in the morning and you start inventing reasons.
Fear makes you sell the bottom. Greed makes you buy the top. And ego makes you hold the loser because selling means admitting you were wrong. I shut my fund down in 2010, a 30-year run, no losing year, and I closed it. People asked why. The truth is, the draw downs had worn me down. Every dip along the way took something out of me, and the winning didn't give it back.
There's a point where managing the stress costs more than the money's worth. So, the discipline isn't a trick. It's a way to protect yourself from yourself. Which brings me to the question I promised you. When the Fed moves, almost everybody asks, "What will they do next? It feels smart. It feels like homework.
But it's a guess about someone else's decision, and you don't get a vote. The question I ask is different. If I'm wrong about this, what happens to me?" And if I'm right, what do I make? That's it. That's the whole thing. Not what will the Fed do. But what does my money do if I'm wrong? And what does it do if I'm right?
Because the Fed isn't something you can control. It's weather. You can't argue with it, and you can't outgass it often enough to make a living. What you can do is decide how thick a coat to wear. Preserve your capital first. Then when the odds line up and you actually have conviction, bet like you mean it.
Not before. That's how I ran money for 30 years. Not because I saw the future better than anyone, but because I made sure the future couldn't kill me while I waited to be right. So quickly watch the direction of liquidity, not just the level of rates. Check what real yields and the dollar are doing before you trade a metal on a story.
Size it so a wrong call is boring and write down your reason before you buy so you know when it's gone. I don't know where silver goes from here and I don't know what the Fed does next. Anybody who says they do is guessing loudly. Protect the downside. The upside takes care of itself. If this was useful, subscribe and tell me in the comments what's the one rule you use to cut a loser. Share this with someone who's watching silver. They'll thank you
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