Friday, July 29, 2011
The Euro debt crisis and the US Federal debt ceiling malarkey are the center of attention right now. Despite what you read, these are already priced into the market. Amazingly, it's been mostly a yawn so far, but I don't expect this to last. However, it is often something out of left field that scares the market into a new bear cycle. It could be Danish banks failing or the area I have been watching - a municipal bond implosion in the United States. I was recently looking for a top in the muni bond market and I think we may have just gotten it. Here's a 6 year weekly chart of the $MUNP muni bond ETF price return index thru today's close:
This ain't a bullish chart, folks. How many straws does it take before the camel's back breaks? If the US monetizes the muni debt, the Dollar could go into a tailspin. If not, we are headed for another deflationary wave in line with the 2008 fiasco. There are no good solutions, only tough choices that will be painful on main street.
The Dow to Gold ratio broke down this week and is set to make new secular lows, almost certainly before the year is over. Physical Gold holders continue to become significantly more wealthy in common stock terms, simply by buying and holding a so-called shiny piece of worthless metal. History repeats right in front of our eyes but paperbugs still refuse to believe it. Here's a weekly log scale 5 year chart of the Dow to Gold ratio ($INDU:$GOLD) through today's close:
I can only smirk when the commentators who never saw the latest Gold rally coming are falling all over themselves to call the "imminent" top in Gold. Keep calling. I'll stay long for now in my trading account. And when the time comes, my subscribers and I will be shorting the $%@ out of this pig of an equity market. Specific short-term trading recommendations are reserved for subscribers. My long-term investing recommendations have been consistent for years: avoid common equities, avoid real estate, avoid paper currencies, and avoid government bonds and buy physical Gold (and a little silver) and secure it outside the banking system.
The scoreboard is getting a little lopsided in favor of those "crazy" Gold bulls, but that doesn't mean the paperbug financial massacre is coming to an end. Actually, it's going to get worse this fall. I'm sure Krugman will blame it on not enough stimulus and individual mistakes within our colossal and ineffective government, but I'll just stick with basic long-term cycles that repeat over and over. To be honest, I'm not at all bearish on the US Dollar right now relative to other paper currencies. But trampoline jumping ignores the basic premise that will sustain those willing to use common sense and ignore mainstream advice: all paper currencies are sinking relative to Gold and will continue to do so until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle). Long after Bernanke has retired or been run out of town and long after the US Dollar ceases to exist in its current form, Gold will be money. Cash is king during a bear market and Gold is the ultimate form of cash for this secular cycle.
Sunday, July 24, 2011
Here are some short-term charts I sent to my subscribers Tuesday night (July 19th) for GDX, GLD and SLV:
The next morning as the markets opened, I sent out an email alert for traders to buy paper precious metal ETFs and/or precious metal stock ETFs pronto. The bottom was that morning for Gold, silver and precious metal stock indices. I think we move significantly higher over the next few weeks in the precious metals sector.
Just a glimpse of what my new service provides. It is geared towards trading, as my investment advice is too simple to justify a newsletter: buy physical Gold (and silver). And then buy more.
Consider joining us if you are so inclined to speculate in the casino with some of your capital. I focus on the precious metals sector but am happy to go short or long when trading, as I have no allegiance to any asset class in the short term.
In fact, I am already planning for our first big short position in the pending cyclical global stock bear market. For now, it's long all things precious and metal, but we are getting close to the end for the few remaining Western stock markets that haven't broken down. One of my favorite ratios, the industrial metals to Gold ratio ($GYX:$GOLD) as well the copper to Gold ratio I suspect will provide the "all clear" signal to start going short. Here's a 2.5 year weekly $GYX:$GOLD chart thru Friday's close to show you what I am looking for:
If we don't breakdown, no problem. We'll just keep making money on our long precious metal positions. Long or short. It doesn't matter to me when trading.
When it comes to investing, I never lose sleep knowing that I own shiny physical metal during a secular downtrend in the Dow to Gold ratio. This ratio will reach 2 before the secular Gold bull market is over and we may go below 1 this cycle.
As an aside, the public where I live still has no clue. I went to one of those "Out of the Box" Gold stores (i.e. sell us your Gold jewelry at a lousy price outfits), which actually had decent prices for standard bullion, and chatted up the manager. He said their business is booming. Every time the price of Gold goes up, the store is flooded. Flooded, that is, with people rushing to sell their jewelry. They are seeing roughly 90% sellers and 10% buyers so far this summer. Just a little anecdote for thought, as those same 90% will be buying their jewelry back (and hopefully my Krugerrands) near the top of this Gold bull market. Sad but true...
Sunday, July 17, 2011
When ignoring the day-to-day noise and focusing on the intermediate to longer term, all the pieces in the puzzle are lining up for another significant cyclical bear market. Yes, policy makers will do everything in their power to prevent it, just like they did in 2007 and 2008. Bear Sterns, Lehman Brothers, Fannie and Freddie Mac - there were government interventions and guarantees all along the way. All to no avail, although the United States apparatchiks and bankstaz did manage to waste a lot of other people's money. Now it is Europe's turn to bail out that which shouldn't be bailed out in order to save the elite from the losses incurred on their maniacal gambling. When you know you're going to be bailed out at the first sign of trouble, why not be as reckless as possible in the quest for ever increasing profits?
This time will be no different than the last, however. There comes a time when the urge to hit the "sell" button among those risking capital becomes a herd-like instinct as fear begins to overwhelm greed. Will "QE to infinity" stop us from ever seeing a bear market again? The question would make me laugh if it weren't actually being seriously considered by so many investors.
When looking at charts of stock markets around the globe, there are some serious warning signs that a global bear market is on the horizon for the remaining Western economies that aren't in one already. Much like the summer of 2007, the writing is on the wall and yet many believe that central banks and fiscal stimulus can prevent the next bear market as long as desired. This is nonsense. Although potentially correct in theory (give everyone $1 billion in cash and all prices will rise, including common equities), this is not how things have worked in the real world even in recent history. The money goes to the banks, not the people, and when the banks hoard the money due to risk aversion, asset prices fall. Then the bankstaz swoop in and buy using other people's money or money created out of thin air and the game starts all over again.
No sense crying over the way the world works. It isn't fair, of course. But we punters can at least try to profit from these manic-depressive swings related to a secular private sector credit contraction being fought tooth and nail by clueless apparatchiks.
But enough blabbering, as the charts are what contain the truth of the markets. Though certain Western economy stock markets are holding up well (e.g., U.S., Germany, UK), they will apparently be the last to fall this cycle and other economies are giving the preview of what's to come. I am not significantly short anything (yet), but you can bet I will be when I think the time is right. Recently I looked at financial firms and their warnings. This time I thought I would look at whole countries and the warning signals they are flashing for those willing to listen.
First up, one of the world's largest economies, Japan. Here's a 2.5 year weekly chart of the Nikkei Index ($NIKK):
Next up, the powerhouse growth story that is supposed to rescue us all: China. Here's the Shanghai Index ($SSEC) using the same 2.5 year weekly chart format:
Apparently, the growth in China is not enough to have their stock markets rise significantly, despite money printing over there that is on the verge of making Helicopter Ben blush. Warning: does not compute. Super fast growth plus massive money printing = stock market bubble (doesn't it?).
Next up, Brazil, the resource powerhouse that can't stop the "hot" money flows from coming in:
Moving on to a few peripheral European countries, let me preface these charts with a little comment. People like to say that Greece or Portugal or Ireland are small economies and don't make that big of a difference. The people who say this are the same ones that said "subprime is contained," "Bear Stearns is just one company," and "soft patch, green shoots, Goldilocks, muddle through, everything is fine, everything is fine, EVERYTHING IS FINE!" In other words, people you probably don't want to trust too much. It was an Austrian bank default that set off a panicky chain reaction in the 1930s, not a British one (Britain was the economic superpower of that time).
Anyhoo, here's the Portuguese stock market ($PTDOW):
And here's Italy ($INE):
Next up, Spain ($ESDOW):
Ireland ($IEDOW) is on the verge:
And the last of the so-called PIIGS, poor Greece ($GRDOW):
Getting to a slightly larger European fish, the French stock market ($CAC) ain't exactly smelling like a rose at current levels:
At least we can count on Australia ($AORD) to power higher on the back of insatiable Chinese demand for everything "raw," right?
If all those currency reserves in China plus 20-30% (or more) per year monetary growth in China can't buy enough raw materials to push up Australia's stock market, what happens when the point of recognition related to Australia's bursting housing bubble hits?
And what of the Baltic Dry Index ($BDI)?:
Well, at least the bond market is signalling hyperinflation, so we don't have to worry about prices falling any time soon. Here, just look at the 1 year United States Treasury yield ($UST1Y) chart:
Just some food for thought among those trying to figure out where we go from here over the next year or so. I know which way I am leaning and it ain't towards the paperbug crowd's side. Matter of fact paperbugs, how about that Dow to Gold ratio?
Bottom line: Don't be a bag holder here. Use rallies to lighten up on long positions in common equities. If we have a nasty common equity bear market, Gold stocks may or may not be a safe haven, but physical Gold held outside the banking system will do just fine (and probably a whole lot better than fine). Navigating the current equity minefield is not for the faint of heart, to be sure.
NOTE: Specific trading recommendations are reserved for subscribers.
Wednesday, July 13, 2011
Let others worry about trampoline jumping fiat currencies in the financial arena constructed by paperbugs. Gold bulls know all paper is sinking relative to Gold (and silver). It's not rocket science, it's the common sense that seems to be in short supply in a world held hostage by printing press-running central banksta fascists/corporatists.
Here are the charts showing the strength of Gold. It ain't a U.S. Dollar thing, it ain't a Euro thing, it ain't a British Pound thing, and it ain't a Canadian Dollar thing or even an Australian Dollar thing, it's all the above (charts courtesy of goldprice.org):
We are oversold in the short term and due for a brief correction in the precious metals patch, but come now paperbugs, you really aren't ready to cry uncle yet? Get with the secular cycle before the Dow to Gold ratio makes new secular lows. You want deflation? Price the Dow in Gold. You want inflation? Price the Dow in U.S. Dollars. Such a simple concept and yet this is what separates the herd from the strong hands holding shiny metal outside the banking system.
Specific short-term trading recommendations reserved for subscribers, but buy physical Gold if you want to align yourself with the long term financial trend.
Monday, July 11, 2011
How can it be? How can an item within spitting distance of its all time nominal highs generate such negative sentiment? I am speaking of Gold. In other words, the world's global reserve currency, which will crush the U.S. Dollar in the clash of the titans for financial dominance.
I saw this Gold sentiment chart in a piece by Mr. Roy-Byrne over at thedailygold.com and actually laughed out loud:
Now, I wasn't laughing at the people in this survey - I was laughing at my good fortune. I am guessing this low occurred around July 1st, when there was a brief dip in the Gold price of a FEW PERCENT (oh my gosh, how horrible!). I admit I made my purchase of Gold on June 27th (buy the dips in a bull market, right?) and told my subscribers the low for Gold was in at that time, so I missed the short-term bottom by about 1%. As hard as it is to believe, the Gold sentiment (by this single sentiment measure and none are perfect of course) just went to its lowest level in MORE THAN 2 YEARS at a time when Gold was less than 7% from all-time new nominal highs!
The markets never fail to both confuse and amuse. We are setting up for a great rally that I suspect will last into the end of the year for both Gold and Gold stocks. I plan to keep my subscribers on board for the ride, including navigating some of the short-term swings. Why don't you join us?
Saturday, July 9, 2011
When bankers are suffering, they shut off the money spigot transmission effect (via the so-called "federal" "reserve") to the rest of us out here in the real world. Don't believe me? Try looking for a home loan right now in the U.S. with zero money down. Though this was standard loan policy 5 years ago, good luck trying to find it now.
The take-home message for traders and investors is that you need to pay attention when financial firms are not doing well. The lag time between a top in the financial sector and the general stock market indices is variable. Here's a look over the past 7 years, the following chart showing the financial sector, using the Dow Jones US Financials Index ($DJUSFN, the green area plot) as a proxy, versus the S&P 500 Index ($SPX, black linear plot):
I would like to show a few specific, really stinky looking short-term charts in the financial sector, which should worry longer-term equity bulls significantly. First up, Morgan Stanley (ticker: MS) over the past 6 months:
And here's Bank of America (ticker: BAC) over the same time frame:
Remember that AIG insurance firm? In case you forgot, despite their utter insolvency and previous implosion, they are still an ongoing corporation trading in the free markets:
Next up, Goldman Sachs (ticker: GS):
Finally, one of the biggest financial fish left swimming, JP Morgan (ticker: JPM):
I own no financial firm stocks and haven't for years. I do own physical Gold, which helps me to sleep well at night. My bearish tendencies are in hibernation right now, but they are keenly aware of a pending spring awakening. I am patient, knowing that the Dow to Gold ratio will decline to 2 (and we may well go below 1 this cycle). This means that as a Gold investor, I will gain in relative wealth (regardless of any shorting activity) compared to the paperbugs that dominate the financial landscape in the United States.
Thursday, July 7, 2011
One ten year monthly chart through today's close, one message: The Dow Jones Transportation Average ($TRAN) is at new all-time nominal highs:
This ain't U.S. Dollar deflation, folks. I don't watch tout TV (e.g., CNBC) and haven't since the internet days, but I'm guessing someone was throwing confetti today and celebrating. Price the transports in Gold and the picture, of course, looks very different:
Stick with Gold over common stocks until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle).