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The market is not fair, but it also does not fail to show us what lies ahead if we look at its internal action very closely. This is because these market internals show us what “Big Money” is doing with their money, not what they are saying. Of course, their spokesmen and “talking heads” will try to soothe investors’ fears now. But we should vow to “follow the money”, I’d suggest. See what the Big Money is doing. We want to “anticipate the anticipations” of others (as Keynes said). But as Keynes also said, the market tends to go to extremes. At times, it is ruled by “animal spirits” rather than rationality. And as he would agree, capitalism by its very nature produces big disparities of wealth and therefore under-consumption and over-production. I would say, we are back in the 1920s again, at least in terms of Trump’s economic policies (de-regulation, tax cuts for the rich and tariffs). These are very similar to Coolidge’s main economic policies. The bull market back then lasted 8 years, August 1921 to August 1929. Our has lasted almost nine years, March 2009 to January 2018. So, a bear market is due….
Dick Meyer of NPR believes that "the idea of blaming one person for the downfall of the economy with a gross domestic product of about $14 trillion, powered by 300 million people and engaged in complex global commerce is nuts — whether that person is Bush, Obama, Alan Greenspan, Bernard Madoff, Osama bin Laden or the editors of opinions at The Wall Street Journal."
Yet in many ways, bad news for bonds is good news for equities. Investors seem to turn to stocks when bond prices are falling, as changes in bond yields and equity performance have been positively correlated since 1998. Plus, an increase in inflation expectations that's driven by economic growth is usually a good sign for equities, especially when expected inflation crosses the 2 percent threshold.
For investors looking to maintain some positions in the stock market, a defensive strategy is usually taken. This type of strategy involves investing in larger companies with strong balance sheets and a long operational history, which are considered to be defensive stocks. The reason for this is that these larger, more stable companies tend to be less affected by an overall downturn in the economy or stock market, making their share prices less susceptible to a larger fall. With strong financial positions, including large cash holdings to meet ongoing operational expenses, these companies are more likely to survive downturns.
The chart formation built in the course of the early February sell-off and subsequent rebound continues to look ominous, so we are closely watching the proceedings. There are now numerous new divergences in place that clearly represent a major warning signal for the stock market. For example, here is a chart comparing the SPX to the NDX (Nasdaq 100 Index) and the broad-based NYA (NYSE Composite Index). Read More
The nominal returns, before accounting for inflation, were actually pretty decent for bonds during these real bears. Over their 45 and 50-year real bear markets, 5-year treasuries and long-term bonds returned 4.6% and 4.7% respectively on an annual basis. Bond investors would kill for those types of returns at the moment if it didn’t come with that pesky inflation.
321gold founder Bob Moriarty has been calling for a broader market crash to occur in October for the last few months. With the turmoil we’ve seen across global markets in the last couple of weeks it looks like Bob’s prognostication is playing out according to script. Energy & Gold caught up with Bob Moriarty at the end of last week to discuss topics ranging from gold & silver mining shares to what’s going on with Novo Resources to the Saudi assassination of Jamal Khashoggi in Istanbul. Without further ado here is Energy & Gold’s October 2018 conversation with Bob Moriarty… Read More
The past few days have highlighted nervous investors are sensitive to policy changes by the European Central Bank and the Bank of Japan, widely viewed as the most accommodative central banks in the world. Treasurys came under pressure earlier in the week after the Bank of Japan trimmed its monthly buying of long-dated government paper, drawing speculation that the move could herald a tapering to its assets purchases.
Warren Buffett’s favorite indicator is telling us that stocks are more overvalued right now than they have ever been before in American history. That doesn’t mean that a stock market crash is imminent. In fact, this indicator has been in the “danger zone” for quite some time. But what it does tell us is that stock valuations are more bloated than we have ever seen and that a stock market crash would make perfect sense. So precisely what is the “Buffett Indicator”? Well, it is actually very simple to calculate. You just take the total market value of all stocks and divide it by the gross domestic product. Read More
The Spanish government is about to fall after the Ciudadanos party decided to join PSOE (socialist) and Podemos in a non-confidence vote against PM Rajoy. Hmm, what would that mean for the Catalan politicians Rajoy is persecuting? The Spanish political crisis is inextricably linked to the Italian one, not even because they are so much alike, but because both combine to create huge financial uncertainty in the eurozone.
In detailing lessons learned from the 1930s and 1970s—and from the ways people invested when other economies experienced high inflation, collapsed markets, and rising interest rates coupled with declining currencies—The Little Book of Bull Moves in Bear Markets shows you how to successfully implement various bull moves so that you can preserve, and even enhance, your wealth within a prosperous or an ailing domestic economy. Strategies include a top-down investment approach; cutting expenses where you can; buying high-yielding equities in resource-rich and rapidly growing foreign markets; and investing in commodities, natural resources, and precious metals. Plus, at the end of each chapter, Schiff provides you with witty and insightful "parting words" that provide core advice for you to use as you work toward growing your wealth in any market environment.
Mild diversification is the ticket to making money. Have some concentration in your best ideas and avoid the worst spots of the economy. As you know, I have been buying the First Trust ISE-Revere Natural Gas ETF FCG, +0.56% on what I believe is value pricing that will not last much more than a year or two. I have been selling most high P/E stocks and mutual funds with the word "growth" in the title as new clients bring them to me. I don't like anything that relies on a weak dollar to succeed since I believe the dollar is likely in a new higher trading range compared to a decade ago. I talk more about what I like and don't like in my recent free quarterly investor report.
The active December contract expires next week, and 233,000 contracts will have to be liquidated or rolled forward. But if the shorts are reluctant to roll positions forward, then a bear squeeze should ensue. Traders will be looking for news and rumour for guidance, and ahead of the G20 meeting in Buenos Aires, there are likely to be plenty. Read More
In the S&P 500 chart below, you will see the long-term patterns going back to 1970. The "strategic number" is an algorithmic measure comprised of multiple factors which measure risk. When it is close to 100, risk is very high. When it is close to 0, risk is very low. In between, risk is about normal, and trend following can be employed. The "strategic risk range" shows the rough range that the market is likely to be in during the intermediate term.
“Back in the heyday of the old Soviet Union, a phrase evolved to describe gullible western intellectuals who came to visit Russia and failed to notice the human and other costs of building a communist utopia. The phrase was “useful idiots” and it applied to a good many people who should have known better. I now propose a new, analogous term more appropriate for the age in which we live: useful hypocrites. That’s you and me, folks, and it’s how the masters of the digital universe see us. And they have pretty good reasons for seeing us that way. They hear us whingeing about privacy, security, surveillance, etc., but notice that despite our complaints and suspicions, we appear to do nothing about it. In other words, we say one thing and do another, which is as good a working definition of hypocrisy as one could hope for.”—John Naughton, The Guardian Read More
Unless one thinks Trump is another Eisenhower. Ike also believed in Infrastructure spending and military preparedness. The Truman-Eisenhower bull market lasted from 1947 all the way to 1957, when the DJI fell 20%. But where Ike was very popular, Trump is much less so. Where Ike was cautious and trusted his advisors. Trump is the opposite. And unlike Trump, Eisenhower never courted bankruptcy.
What effect will a bear market in bonds have on equities? That depends. If bond yields rise above a certain level, equity risk premiums will start to look less attractive. Higher rates also push up interest costs for corporations, although the bank's analysts say interest rates would have to increase by 100 basis points in the U.S. and 250 basis points in Europe before they become a noticeable drag on earnings.