Wednesday, March 9, 2011
From an early age, we are told that we should learn from our mistakes. However, there are some mistakes, especially in the stock market game, where this axiom is tough to implement. You see, it is very difficult to learn from a mistake you don’t even know you are making. In short, the mistake I’m referring to comes from within and as such, you are likely oblivious to the notion that a mistake is even being made.
It is safe to say that most successful investors are fairly strong willed and their opinions are not easily swayed. Although we all walk that fine line between having conviction and just being stubborn, the key here is that those who succeed over the long haul in the stock market game have learned to think for themselves. However, this is actually the root of the problem that I’m getting at.
The title of yesterday morning’s missive was about two words. And cutting to the chase (at long last), the BIG mistake that can destroy an investor can also be summed up with two words: Absolute Certainty.
My biggest blunders in the stock market have come when I was absolutely certain that I had it right. And to make matters worse, my view at the time was agreed upon by the masses. Therefore, I had lots of company telling me how right I was on a daily basis. And believe you me, being right in this business is a curse. Just about the time you get yourself convinced about how right you are and how good you are becoming at the game, Ms. Market swings that Louisville Slugger she’s got with your name on it, and hits you upside the head.
Marty Zweig was famous for always being worried about something and I think most investors likely have a little of that in them. In this business it is healthy to be skeptical and to always question what is happening in the market. However, the big mistake I’m talking about runs counter to this idea. The bottom line is that when you find yourself absolutely certain of your view of the market, you might want to start thinking about going the other way.
At issue here is the fact that by the time it is easy to see what the market is doing and that everyone agrees with your theme, most investors have already taken action based on the theme at hand. Thus, by the very nature of people being absolutely certain about what is playing out, the move is almost over.
How does this concept fit into the current market, you ask? Well, in spending a little time with the sound actually turned up on the T.V. and in doing a little light reading on some stock market websites, I found that analyst after analyst appears to be absolutely, positively, 100% certain that oil prices have only one way to go right now – up. It’s like it is written in stone somewhere: Oil must rise.
Yes, I know that trends take on a life of their own and that the market can stay irrational longer than one can stay solvent. However, I found it very interesting that everyone is absolutely certain about what comes next for oil prices. Hmmm…
Turning to this morning… There are conflicting reports relating to the situation in Libya. The latest seems to be that Gadhafi had offered to negotiate stepping down in return for a guarantee of safe passage out of the country. However, the opposition has rejected talks. This has led Gadhafi forces to again use airstrikes against the rebels.
Also on the oil front, there are reports that some OPEC members are working to increase oil production.
On the Economic front… Germany’s Industrial Orders rose in January and the NFIB Small Business Optimism index gained ground again here in the U.S.
Thought for the day: Choose to have a mind that is open to anything and everything…
Topics to be discussed will include the cause of the decline of: our monetary system and our economy, the housing markets, the equity markets, and commodities, Why gold and silver are rising in value and how investors can profit from the direction of these markets through specific stocks, ETF’s and precious metals will also be discussed. Turning Hard Times into Good Times is broadcast live every Tuesday at 11 AM Pacific Time on the VoiceAmerica Business Channel.
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Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.
“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”
The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.
Last month, the Republican-led House of Representatives passed a $61 billion federal spending cut, but Senate Democratic leaders and the White House made it clear that had no chance of becoming law. Short-term resolutions passed have averted a government shutdown that could have occurred this month, as Vice President Biden leads negotiations with Republican leaders on some sort of long-term compromise.
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“You’ve got to cut back government spending and the Republicans will run on this platform leading up to next year’s election,” said Joe Terranova, Chief Market Strategist for Virtus Investment Partners and a “Fast Money” trader.
Terranova noted some sort of opt out for social security or even raising the retirement age.
But the country may not be ready for these tough choices, even though economists like Schnapp say something will have to be done to avoid a significant economic crisis.
A Wall Street Journal/NBC News poll released last week showed that less than a quarter of Americans supported making cuts to Social Security or Medicare in order to reign in the mounting budget deficit.
Those poll numbers may be skewed by a demographic shift the likes of which the nation has never seen. Only this year has the first round of baby boomers begun collecting Medicare benefits—and here comes 78 million more.
Social welfare benefits have increased by $514 billion over the last two years, according to TrimTabs figures, in part because of measures implemented to fight the financial crisis. Government spending normally takes on a larger part of the spending pie during economic calamities but how can the country change this make-up with the root of the crisis (housing) still on shaky ground, benchmark interest rates already cut to zero, and a demographic shift that calls for an increase in subsidies?
At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the U.K., social welfare benefits make up 44 percent of wages and salaries, according to TrimTabs’ Schnapp.
“No matter how bad the situation is in the US, we stand far better on these issues (debt, demographics, entrepreneurship) than other countries,” said Steve Cortes of Veracruz Research. “On a relative basis, America remains the world leader and, as such, will also remain the world's reserve currency.”
You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future.
All of these factors remain very bullish, in spite of gold’s 450% rise over the past 10 years. No, it’s not too late to buy, especially if you don’t own a meaningful amount; and yes, I’m convinced the price is headed much higher, regardless of the corrections we’ll inevitably see. Each of the aforementioned catalysts will force gold’s price higher and higher in the years ahead, especially the currency issues.
But there’s another driver of the price that escapes many gold watchers and certainly the mainstream media. And I’m convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we’ve ever seen.
Global pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion).
We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.
So, what about pension funds?
Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund’s asset allocation.
Now here’s the fun part. Let’s say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.
How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.
The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.
But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward.
And let’s not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view mirror at $100 trillion.
I don’t know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there’s a paradigm shift in how these managers view gold, look out!
I thought of titling this piece, “Why $5,000 Gold May Be Too Low.” Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed.
My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month's level prices.
Jeff Clark is the editor of BIG GOLD, Casey Research's monthly advisory on gold, silver, and large-cap precious metals stocks.
Author and trade expert Clyde Prestowitz warns that it would take up to a 50 percent devaluation of the dollar against the Chinese yuan and an end to the greenback as the global reserve currency to truly right the global trade economy.
Prestowitz is founder and president of the Economic Strategy Institute and formerly a counselor to the Secretary of Commerce during the Reagan Administration.
In a post at the website of Foreign Policy magazine, Prestowitz details a list of scheduled global banking and trade discussions. Then he dismisses them all, saying that the real problems facing the U.S. economy relate to a fundamental imbalance that cannot be negotiated or smoothed over by simply talking.
“At present, virtually all the world's economies are attempting to grow and create jobs by exporting primarily to the United States, which, despite the recent economic crisis, high unemployment, and a fragile recovery, is still acting as the world's buyer of last resort,” Prestowitz writes.
|US dollar is global reserve currency|
China and “other high-growth emerging economies” cannot grow, either, using cheap currencies, financing domestic construction booms, and maintaining low internal consumption. “Few believe this situation to be indefinitely sustainable,” he says.
The “fix” means the following things are due to occur, Prestowitz says:
• The United States must solve its budget deficits while “doubling present household savings rates.”
• “Massive investment” in U.S. infrastructure and a renewed manufacturing base.
• A 40 percent to 50 percent devaluation of the greenback against the yuan and “some other Asian currencies,” along with “a lesser devaluation” against the euro or “a new German deutschmark” if the euro ceases to exist.
• And finally, possibly the end of the dollar as the global reserve currency.
• An increase in consumption and a reduction in saving, production, and exports by Germany, China, Japan, and the east Asian “tigers” as they revalue their own currencies.
U.S. Treasury Secretary Timothy Geithner, speaking to the Senate Thursday, said there was "no material risk" to the dollar’s role as the global reserve currency.
The real risk, he said, would be if the United States lost global confidence in its “financial leadership" position in the world. "That is the only risk to the role of the dollar," Geithner said.
Fitch sees the risk of “holes in bank balance sheets” should a property bubble burst, Richard Fox, a London-based senior director, said in a phone interview on March 4. The risk assessment is from a macro-prudential monitor used by the ratings company.
Chinese banks fueled record property-price gains by extending a record 17.5 trillion yuan ($2.7 trillion) of loans over 2009 and 2010 under the stimulus program that propelled the nation through the financial crisis. Regulators’ efforts to contain the risks for lenders have included stress tests for declines in house prices and a crackdown on lending to local- government financing vehicles.
China’s risk of a systemic crisis is based on the nation’s MPI3 classification, the highest of three risk categories, in a Fitch monitor begun in 2005. The indicator signaled crises in Iceland and Ireland and has been tested back to the 1980s, Fox said.
In contrast with Fitch’s concern, the Hang Seng Finance Index (HSF), which includes five Chinese banks traded in Hong Kong, advanced 1.5 percent as of 3:34 p.m. local time.
Fitch follows an International Monetary Fund definition of a systemic financial crisis, Fox said. Such crises exhaust “all or most of the aggregate banking system capital,” cause a “large number of defaults” and “financial institutions and corporations face great difficulties repaying contracts on time,” according to a November 2008 IMF working paper.
“We’re talking about systemic crises here, affecting most of the major banks,” Fox said. “A crisis is something which technically de-capitalizes the banking system.”
Sixty percent of emerging-market countries downgraded to MPI3 face banking crises within three years, he said. China entered that classification in June. The indicator’s failures have included not sounding an alarm about the banking system in Spain, he added.
Banking systems in emerging markets are vulnerable to systemic stress when credit growth exceeds 15 percent annually over two years with real property prices rising more than 5 percent, according to Fitch.
Credit growth in China averaged 18.6 percent annually over 2008 and 2009 as house prices jumped, according to the ratings company. Chinese Premier Wen Jiabao pledged more efforts to cool the property market on March 5, telling lawmakers that “exorbitant” increases in housing prices in some cities are a top public concern.
The fallout from China’s lending spree may be bad loans totaling $400 billion, according to Hong Kong-based advisory firm Asianomics Ltd.
China is seeking to avoid a repeat of its last banking crisis, when the government spent more than $650 billion over a decade to bail out banks after years of state-directed lending.
Fitch’s concern contrasts with gains in banks’ profits and capital adequacy ratios and declines in non-performing loan ratios, according to data released by the China Banking Regulatory Commission.
The industry’s “capitalization has been noticeably strengthened throughout 2010, with capital ratios of major banks being well supportive of their standalone credit profiles,” Liao Qiang, a director of financial institutions ratings for Standard and Poor’s in Beijing said today.
“With reasonable loan loss reserves at present, good pre- provisioning profitability and strong liquidity, Chinese banks are likely to gradually absorb potential spikes in credit costs caused by looming bad loans, particularly from China’s property sector and local government financing platforms,” Qiang said.
Chinese banks listed in Hong Kong will likely report “strong” 2010 earnings when they report at the end of the month, BNP Paribas SA said in a report today.
In November, Moody’s Investors Service said that it had “concerns over the intrinsic, stand-alone strength of China’s banking system.” At the same time, the largest lenders weren’t materially damaged by the global financial crisis and aren’t likely to pose any significant contingent liability risk to the government balance sheet, the ratings company said.
“Furthermore, we expect that future credit losses -- arising from the surge in lending in 2009, from exposures to the property market, from risky loans to local government financing vehicles, and from off-balance sheet operations in the ‘shadow’ banking system -- will be mostly absorbed by the banks themselves, either from capital, or from future earnings,” Moody’s said in a statement.
To limit risks for banks, China has increased oversight of lending to the local-government vehicles, which surged during the nation’s two-year stimulus program. In a March 5 speech to lawmakers, Wen pledged a “comprehensive audit” of local- government debt, while the Ministry of Finance said separately that “local governments face debt risks that can’t be overlooked.”
Banks have also been told to assign a higher risk rating to local-government loans.
The country’s “systemically important” lenders may be subject to an overall capital adequacy ratio of as high as 14 percent when their credit growth is judged excessive, a person with knowledge of the matter said on Jan. 28. Other lenders would need to meet a 13 percent threshold, the person said. The minimum ratio, used to gauge banks’ ability to withstand financial stress, is currently 11.5 percent for big banks.
Lenders including China Minsheng Banking Corp. and Agricultural Bank of China Ltd. (1288) have announced plans to sell more than 80 billion yuan ($12 billion) of shares and 70 billion yuan of subordinated bonds this year.
Pimco’s Gross: US Has No Way Out of Debt Trap Read more: Pimco’s Gross: US Has No Way Out of Debt Trap
Americans should brace for big changes in their lives in the coming years, warns Pimco founder and co-CIO Bill Gross. There is simply no exit from the significant decline in U.S. living standards to come.
Borrowing to finance huge deficits will eventually come home to roost on the U.S. taxpayer, either in the form of higher interest rates or a radical reduction in entitlement spending, Gross tells Yahoo Finance in an interview.
U.S. debt is now at $14.195 trillion, just $99 billion below the current limit. The Treasury Department has been taking money from an emergency reserve to avoid hitting the limit as Congress debates raising the debt ceiling, Reuters reports.
The White House projects the deficit – or how much we borrow each year to pay for just the federal government, not counting state and local borrowing — will hit $1.6 trillion this fiscal year, or 10.9 percent of GDP.
|Pimco's Bill Gross|
“If we continue to abuse and continue spend money, with trillion-and-a-half dollar deficits, then ultimately what it means is that the dollar goes down, that foreign goods become more expensive, and our standard of living is eroded,” says Gross, Pimco’s co-chief investment officer.
As borrowers demand compensation for the risk, interest rates will move higher. Gross points out that higher interest rates mean higher mortgage rates and higher credit-card rates will follow.
In addition, borrowing rates have stayed at a generational low in part thanks to the Federal Reserve’s highly unusual purchases of roughly $2 trillion worth of U.S. Treasurys. The latest version of that program is set to end in June, if the Fed doesn’t cancel it beforehand.
“There is really no way out of this trap and this conundrum at this point,” says Gross. “If we refuse to go along, and we refuse to attack entitlements, then the world itself will impose restrictions and lower our standard of living through the dollar and through higher interest rates.”
The answer, he suggests, is to have a serious discussion in Washington about Social Security and Medicare, not just the discretionary spending around the edges. But doing that in a serious way implies a major change in the American way of life, too.
“If we do decide to reduce our deficits, then of course our standard of living will not be what it was because we are simply not allowing enough, or as much, money as we’ve become used to in terms of those entitlement-spending programs,” he says.
A failure to rein in spending and rising interest rates could cause that to spike to “Greek-like” levels if not addressed, Gross warns.
“When a country reaches a certain debt level, confidence in that country’s ability to repay that debt becomes jeopardized,” Gross says.
As for Washington, Gross says, don’t get your hopes up.
“Perhaps in 2012 it will be addressed,” Gross says. However, ultimately, history has proven that both Democrats and Republicans have been big spenders and low taxers, he warns.
“Both are equally at fault here, and to suggest otherwise, I think, is not being realistic,” he says. “I don’t have too much faith and hope.”
Billionaire real-estate magnate Sam Zell, meanwhile, warns that Americans should brace for a "disastrous" 25 percent decline in the standard of living if the U.S. dollar’s reign as the global reserve currency ever ends.
He says that there are signs in the market that it could eventually happen. As it is now, a Korean manufacturer who wants to sell to Brazil must first buy dollars to complete the deal. If countries decide to bypass the dollar, the effect would be a disaster, Zell says.
“Frankly, I think we’re at a tipping point. What’s my biggest single financial concern is the loss of the dollar as the reserve currency,” he told CNBC in an interview. “I can’t imagine anything being more disastrous to our country than if the dollar lost its reserve-currency status.”
The euro fell the most in two weeks against the dollar as concern the region’s leaders won’t agree on a solution to its debt crisis damped appetite for its assets.
The 17-nation currency retreated from almost the strongest level in nine months against the yen. Financing costs rose as Greece sold 1.625 billion euros ($2.3 billion) of treasury bills a day after having its credit rating cut by Moody’s Investors Service. The Norwegian krone declined against 15 of its 16 major peers as oil fell for the first time in three days.
“It’s a combination of overextended speculative positioning and renewed sovereign-debt jitters,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The post-ECB rally has gone too far too fast and the euro is coming back to the reality of still very uncertain prospects for the peripheral economies.”
The shared currency declined 0.4 percent to $1.3907 at 2:16 p.m. in New York. It reached $1.4036 yesterday, the strongest level since Nov. 8. It rose 0.1 percent to 114.94 yen after touching 116 on March 4, the highest since May 14. The dollar strengthened 0.5 percent to 82.64 yen.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies including the euro and yen, climbed for a second day, gaining 0.4 percent to 76.784.
The euro, which has risen 3.9 percent against the dollar this year, has struggled to extend its advance beyond $1.40 as European Union leaders clashed about how to deal with the sovereign-debt crisis that forced Ireland and Greece to seek financial aid last year. The 27-nation EU intends to approve a “comprehensive” package of measures at a March 24-25 summit in a bid to calm bond markets.
“As we get closer to the results of the euro summit and you have these concerns lingering and spreads widening, you have these pent-up aggressions playing out,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Being overweight euros is probably not the most prudent decision.”
The yield on 10-year Greek debt jumped as much as 46 basis points to the most since before the euro was created in 1999, according to data compiled by Bloomberg. Greece sold the 26-week bills today to yield 4.75 percent, up from 4.64 percent the last time the securities were sold in February, the Athens-based Public Debt Management Agency said.
Portugal plans to sell up to 1 billion euros of September 2013 notes tomorrow, its second auction this year.
The euro climbed 1.2 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, which track the currencies of 10 developed nations, fueled by speculation that the European Central Bank may raise interest rates as early as next month to contain inflation.
“There are other issues than simply a more hawkish ECB,” said John McCarthy, director of currency trading at ING Groep NV in New York. “The implication of higher rates is also there. The last thing those countries need is higher interest rates.”
New Zealand’s dollar advanced, halting a five-day loss, as a technical indicator showed its recent declines may have been excessive. The kiwi rebounded from the weakest level since September against the yen as traders reduced their bets that the central bank will cut interest rates at its meeting this week.
The New Zealand dollar rose to 74.03 U.S. cents from 73.69 in New York yesterday, after falling to 73.39 on March 4, the weakest since Oct. 1. The kiwi gained to 61.22 yen from 60.60 yen yesterday, when it touched 60.35 yen, the weakest level since Sept. 9.
Norway’s krone depreciated by 0.6 percent to 5.5838 per dollar and was little changed at 7.7630 against the euro.
Crude oil traded in New York fell 0.6 percent today as the Organization of Petroleum Exporting Countries discussed the possibility of boosting output, easing concern that supply shortages may be prolonged. It reached $106.95 yesterday, the most since September 2008.
The Swiss franc dropped 0.9 percent against the dollar, the biggest drop of any major counterpart versus the greenback, to 93.48 centimes. The franc depreciated 0.5 percent against the euro to 1.3007, and touched 1.3040, the weakest level since Feb. 16.
The pound reached a one-week low against the dollar and snapped a four-day decline versus the euro. Retail sales dropped 0.4 percent from January, when they gained 2.3 percent, a report from the British Retail Consortium and KPMG showed. Bank of England policy makers will maintain the U.K. interest rate at 0.5 percent on March 10, according to all 61 economists surveyed by Bloomberg News.
The pound was 0.3 percent lower at $1.6158, after touching $1.6126, the least since Feb. 28. It strengthened to 86.06 pence per euro from 86.21 pence, after reaching 86.36 pence, the weakest since Jan. 28.
Sterling may depreciate to $1.58, its weakest level since January, should it fall below $1.61, according to Kathleen Brooks, London-based research director at Forex.com, part of online currency trader Gain Capital. Sterling hasn’t traded at $1.5800 or weaker since Jan. 16, according to data compiled by Bloomberg.
“In the short term, there isn’t much that’s going to prop up sterling,” Brooks said in a phone interview. “The recovery might stall a bit. The growth outlook is sterling-negative.”
- The PDAC conference is in full swing in Toronto. The PDAC is the Prospectors & Developers Association Conference. I can tell you that the feel of this conference is: solid. There is no indication of any mining stocks bubble. Markets tend to display this kind of aura in their middle phase. Mining stocks are in the middle phase of a monster bull market, and poised to enter an epic third phase higher.
- This 3rd leg higher will be fuelled by financial system implosion fears that grow amongst institutional investors, not by a 1979-style “I’m greedy, gimme the gold!” public buying mania. It will be fuelled higher by long-term central bank gold buying programs, which means long term dollar devaluation and long term gold revaluation.
- On Sep 11, 2001, thousands of people were killed as the world trade centre was destroyed, and the world changed. As the mid-east revolutions began, once again, the world changed.
- When the world changes, you need to respond to that change. I began to short the stock market with real cash, as the mid-east revolutions changed the velocity of the rise in price of oil, against the dollar. The revolutions opened the door of possibility, but not the door of guarantee, to a drastic drop in GDP growth, or even a total elimination of GDP growth, and a return to official recession.
- Oil was headed higher anyways, due to Ben Bernanke’s trigger finger on the banksters’ money printing gun, as well as long term demand/supply issues, but the velocity of the price rise suddenly changed, bigtime.
- Corporations and institutional money managers around the world are suddenly racing to substantially lower their GDP and corporate earnings estimates, just here at oil $105. What happens at oil 115? How about at $125? $150? $200? What happens to institutional liquidity flows if that happens?
- Shorting the stock market is not a game, when real money is on the line. The public is not involved in the market in a big way right now. You don’t have a billion price chasing public investor wieners on the other side of your Dow short trade, like you did in 1999. Do you see Morgan Stanley issuing you a free Triple Sell Signal, like they did in 2007? No.
- Your competitors in the market this time are the Fed, the banksters, and thousands of institutional money managers. They may not be very nice people, but they are market winners. The bottom line is you better come to the Dow shorting battlefield with a lot of weapons, a lot of risk capital ammunition, and be prepared for a bloody long war.
- A minor suggestion: Leave granny alone. Granny doesn’t need a portfolio of Dow put options, just because you’ve “called the turn”, to save her from herself. My “minor” suggestion is: Make a lot of wealth using your capital, then give some to her!
- Here’s a look at the near-term Dow Chart. Remember when upside momentum died on gold and gold stocks at $1387 in October? Momentum is a moniker for the velocity of the rise in price of an item against the currency it trades against. The upside momentum of the Dow has died.
- Click here now to view my longer term Weekly Dow Chart. What you are looking at over the past month, is the direct result of institutional money managers re-allocating their cash, to reflect the effects of their projected oil price ($110-125) on corporate earning and GDP numbers.
- If the global revolution theme ends quickly, the markets could go back to rising mode, but we are fast approaching “sell in May and go away” and then the Aug-Sep-Oct period that I call “stock market hurricane season”, because crashes often occur in that time period. If you are out of the market, I would not be looking to enter the market on the buy side in size, unless we get a much more substantial take-down in price.
- Ben “Dr. Pinocchio” Bernanke has a new worry. Oil. A high-velocity rise in the oil price could speed up the need to raise interest rates. Ben’s hope to keep rates low and then aim a new blast of QE at the stock market may be seriously delayed or even imperilled, if oil skyrockets.
- More revolutions could take place, and if they occur in countries like Saudi Arabia, then the stock market, the T-bond, and the US Dollar could all go into a united free fall.
- The risk of this death spiral is real, and it calls for a limited tactical shorting attack on the stk mkt.
- Silver. The dreamer looks at the past, and seeks to recreate and repeat the past. Unfortunately, that’s impossible. The public tried it in the 1990s in the stock market and in real estate into 2005. Don’t repeat the tactics of losers against a background of pretending to know where silver is going. Silver has soared in price from the depths of the bear market. Your dollars now only buy you a fraction of the silver that they bought when there was a glut of silver. You can’t build serious wealth by paying up for dreams.
- The (pipe)dreamer thinks, “but what if silver soars like it just did, maybe silver will be at $200 or even $300, I should back up (what remains of) my financial truck now!” If I mention silver stocks, a kind of eerie silence presents itself. A few silver stocks that are soaring are bought, but most are ignored.
- Don’t buy the sizzle. Buy the steak. The steak is what hasn’t moved. The sizzle is the item you feel the urge to chase after, and rename that urge “analysis”. I’m starting to see highly dangerous statements about silver’s rise being made like, “sell everything you own, do it now! Put it all in silver, now!”
- These are the statements of market losers. They failed to buy into the silver glut and want to re-create what they just missed. Can’t happen. Pipe-dreaming your way to wealth, solely by following your emotional urges, is not a viable strategy. It’s a price chasing clown act. If silver is going to ten billion dollars an ounce, or even just 50% higher, where do you think silver stocks are going?
- If you don’t build ownership of an item in size, you can’t build wealth. The only time size is available is when the item is cheap. Click here now to view the Silver Miners ETF Chart. As the price of silver blasts higher, the silver stocks will move exponentially higher. Notice the huge size of the pyramid is that I’ve drawn above the rough $20-27 range. Price could soar to unknown heights if silver blows thru $52, as I’m 99% sure it will. My strongest suggestion is to look thru the ETF and find the stocks that really haven’t performed yet.
- It takes time, a lot of time, for companies to recover from events like the greatest financial crisis since 1929. I absolutely believe that gold $1400-1700 is the zone where the stocks begin to do all you hoped they would do at gold $800-1200.
- Here’s the GLDX Gold Juniors ETF Daily Chart.
- Notice the huge h&s continuation pattern I’ve highlighted. The GLDX ETF holds less companies than other ETFs, so it brings you more risk and more possible reward, because it is more volatile. Using my PGEN pyramid generator, which goes far beyond scale trading, the GLDX could be the ideal ETF to play what I believe is coming astronomical volatility.
- The reality is that the gold community is not greedy at gold $1430. Most analysts blew it, and shorted gold or sold out into $1310, instead of buying. Now the game is to wait for some magical correction that is “just right”, to get back in. That crazed mentality is nothing more than jumping out of the fire and into the fry pan. Rather than standing on the sidelines and waiting until gold $1700 to make the same type of statements about gold you see on silver now, instead you need to focus on gold and silver stocks, and be prepared to buy the weak ones now, and at prices far below what seems rational.