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Super Force Signals
A Leading Market Timing Service
We Take Every Trade Ourselves!
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Weekly Market Update Excerpt
January 18, 2013
Morris Hubbartt
TLT (US T-Bond Proxy) Tap Out Chart
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Contrarian Gold Stocks
Before investors can sell high and multiply their wealth, they first have to buy low. The lower any trade’s entry price, the greater its ultimate profits. The best time to buy low is when stocks are deeply out of favor, when few others are willing to buy. And that certainly describes gold and silver stocks today. This sector is universally loathed despite fantastic fundamentals, offering vast opportunities for brave contrarians.
Contrarian investing is simple in concept, yet very difficult in execution. The fortunes of stocks flow and ebb, their prices rising and falling. After they’ve risen, they quickly become popular. Everyone wants them and bids up their prices. That’s when it feels the best to buy, so that’s when the great majority of investors rush in to chase the rally. But following the herd leads to buying high, the recipe for failure.
Contrarians seek to buy low, which is only possible after stocks have fallen. The very definition of contrarian is “an investor who makes decisions that contradict prevailing wisdom, as in buying securities that are unpopular at the time”. But this is very hard psychologically, as fighting the crowd is never easy. All our instincts scream against buying into a sector that the great majority is utterly convinced is doomed.
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Has the Fed killed the Kress cycle?
Some have called it the Age of the Central Bank. Record monetary stimulus interventions in recent years have propelled the stock market to levels not seen since the 2008 credit crash. By whatever name you call it, central bank intervention has altered the investment and economic landscapes.
The most common worries surrounding this new interventionism are centered on the inflation outlook. Investors worry that all the excessive liquidity created in the last four years will result in higher commodity and consumer prices. Indeed, the monetary liquidity has found its way into food and fuel price increases, which comprise a substantial part of middle class budgets. By increasing inflation expectations by keeping interest rates at near zero, the Federal Reserve has even forced savers to spend more money and purchase goods in anticipation of even higher prices.
Another impact of the Fed’s ultra-loose money policy is buoyant equity prices. One could assert that this is the main objective of the bank’s quantitative easing (QE) program. By increasing stock prices the Fed is bolstering corporate balance sheets in the face of dwindling demand for exports. The corporate economy has arguably become the Fed’s number one priority in the final portion of the deflationary Kress cycle.
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- The American government credit card limit, aka the debt ceiling, was just increased. Politicians around the world are loudly cheering this supposedly great news.
- Early this morning, “Queen Gold” also celebrated this event, by taking out a key downtrend line on the daily chart.
- For a closer look at the celebration, please click here now.
- You can see that gold has risen above HSR (horizontal support & resistance) at $1675, and did so while bursting above a key short term trend line.
- The bond market is also showing signs of life here, and that should help gold move higher.
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Super Force Signals
A Leading Market Timing Service
We Take Every Trade Ourselves!
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it.
This e-mail address is being protected from spambots. You need JavaScript enabled to view it.
Weekly Market Update Excerpt
January 11, 2013
Morris Hubbartt
US Dollar Collapse Chart
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Real Silver Highs 4
Silver bearishness has naturally mushroomed following this metal’s rough December. A growing chorus is declaring silver’s secular bull finished, implying it must have peaked after silver’s dazzling April 2011 surge. But secular bulls climax in popular speculative manias, which dwarf the silver action of a couple springs ago. Looking at silver in real inflation-adjusted terms drives home the point its bull is far from over.
For any multi-decade price comparison, adjusting for inflation is essential. A dollar today is worth a lot less than a dollar in the past. The Federal Reserve keeps conjuring up new fiat dollars out of thin air, inflating the money supply. As it grows faster than the underlying economy, relatively more dollars compete for relatively less goods and services. This monetary inflation bids up the prices of everything.
And to get an idea of what a secular-bull-ending popular speculative mania in silver really looks like, we have to travel back to the last one in early 1980. Silver peaked at the then-breathtaking level of $48, which no longer sounds extreme. But a dollar back then went a heck of a lot farther than a dollar today. The intervening three decades of relentless inflation have greatly eroded each dollar’s purchasing power.
Back when silver’s last secular bull climaxed, the US median household income was under $18k! Today it is around $50k. Across the nation new houses averaged just $76k while new cars generally ran less than $6k. A candy bar cost a quarter. It is grossly misleading to look at decades-past prices without first converting them into today’s dollars which we all understand. That creates a righteous apples-to-apples comparison.
Unfortunately the most widely accepted inflation gauge today is the US Consumer Price Index. Even though it greatly understates true monetary inflation for political reasons, it is still the inflation yardstick that Wall Street accepts. Using the horribly flawed CPI to recast past silver prices into today’s dollars is actually very conservative. Since this construct lowballs inflation, it really understates silver’s last mania.
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US Mint Bullion-Coin Sales 3
Gold and silver come in multiple forms, each with their own unique yet interrelated supply-and-demand profiles. Among the most popular in the US physical market are the bullion coins produced by the US Mint. Investor demand for these beautiful coins has been robust in recent months despite all the unrelated fund selling weighing on gold. US Mint bullion-coin sales offer great insights into physical demand.
The US Mint’s bullion coins are called American Eagles. The “bullion” distinction means their value is based solely on the spot prices of gold and silver, with no special premium for rarity. So they offer investors far more physical metal per dollar spent than expensive collectible coins. I’ve always believed maximizing one’s total gold and silver holdings is far more prudent than playing the scarcity game.
The American Eagles were born in the Gold Bullion Coin Act of 1985, which Ronald Reagan signed into law. Back in the early 1980s, foreign bullion coins like the famous South African Krugerrand were soaring in popularity. The US Congress wanted the US to compete in this prestigious national market, so it directed the US Mint to start producing gold coins exclusively with gold mined in the US within the past year.
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A look at crisis year 2013
In the course of history, some of the great crises of the past were beyond the pale of human control. Other crises, however, were created by the very people who suffered the effects of them. The coming year could well afford a testament in how a “crisis of our own making” leads to economic destruction.
We have an excellent example of a created crisis in the ongoing fiscal cliff debate in the U.S. Congress. The debate centers on whether or not Congress intends to extend the Bush-era tax cuts or allow taxes on the middle class to rise in 2013. This is no small consideration, for if taxes are allowed to increase in the coming year it would mean almost certain death to the 4-year economic recovery. Investors would also likely suffer.
Even if a compromise is soon reached which prevents middle class taxes from rising, the very fact that Congress is struggling with an issue as simple as this – namely, the truism that rising taxes in a recessionary environment are contractionary in nature – displays an appalling lack of understanding among our elected leaders. Is it any wonder that many Americans are fed up with the dearth of political and economic wisdom to be found in the nation’s capital?
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Super Force Signals
A Leading Market Timing Service
We Take Every Trade Ourselves!
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it.
This e-mail address is being protected from spambots. You need JavaScript enabled to view it.
Weekly Market Update Excerpt
January 04, 2013
Morris Hubbartt
Dow Versus Gold Chart
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- Gold functions like an alarm clock. A rising gold price usually indicates that financial uncertainty and volatility are the dominant market themes.
- Inflation that begins to get out of control can cause the price of gold to rise almost vertically, but during the transition period from deflation to inflation, bank stocks and financial companies tend to be the best leading indicators.
- Please click here now. You are looking at the monthly chart of the XLF financial sector ETF. The $16 area is one of strong resistance.
