Friday, January 31, 2014

"May You Live in Interesting Times"

For all my life I've heard that saying is a Chinese curse.  Not knowing any Chinese, I couldn't tell you for sure, but we sure live in interesting times, don't we?

The DJIA is down about 5 1/2% from the start of the year, but bear in mind there was a real run up to the end of the year, as you can see in this chart.  The DJIA is really about where it was in mid November, around two and a half months ago.  In terms of purchasing power, it's where it was around 1996
The question, as always, is where do we go now?  Was this just a mild correction, blowing off some steam from the holiday run up, or is it the start of something much bigger and deeper?

I subscribe to two economics/finance newsletters, Bill Bonner's free newsletter and the letter.  Stocktiming is essentially pure technical analysis: plots of dozens of things, updated on a regular basis, and comes out weekdays.  The letter doesn't push any particular agenda - other than getting you to subscribe to their paid version - and is a Dragnet-style "just the facts" approach.  Bill Bonner's "Diary of A Rogue Economist" has more of a philosophical air to it and he's more like a Peter Schiff/Ron Paul and other "sound money" economist.  His comes out on most weekdays, but will skip some.

The point of the previous paragraph is to point out how two authors in the financial realm can approach the analysis from decidedly different view points, yet they both have been singing the same tune.  Get Out of the Stock Market.  Bad Things Are Coming.

Yesterday's stocktiming newsletter was completely unique.  I've been getting it for a lot of years, maybe since the mid '00s, and he has never said what he said this time (copied in red to make it look as much like his email as I can):
ALERT, ALERT, ALERT ... We had 3 SELLS at the close yesterday.
The Risk levels are very high and the market is sitting on the edge, and I am not sure the Fed can pull off a save.   If you weren't around in 1987, this is about as close as you can come to a possible crashing environment ... a spectacular crash is even possible ... IF the Fed. doesn't get this one right. This is the WRONG time for them to pull back on money injections. The BIG IF here centers around what the Fed can do, and actually does ... and nobody knows what that will be.  
(The remark about 3 sells is from a setup of three complex decision matrices he maintains).  This alert is from the staid, quiet, technical analyst.  Bonner, for his part, has been saying the market run up is entirely fueled by the Fed's QE to infinity, and it's going to correct.  That's not unique to Bonner, dozens of honest commentators are saying this and if you come here regularly, you'll know I've been saying this, too.  Bonner says the Fed is going to continue with the taper for a while but ultimately will have to resume QE.  The test will be as the market continues to contract.
The Fed will continue attending its Counterfeiters Anonymous meetings – until the market really cracks. Then it will roll up its sleeves and get out the paper and ink. Janet Yellen will not want to preside over a crashing market any more than Ben Bernanke did.

Yes, the Fed has broken the US economy and its markets. Now, it owns them. It can no longer permit the stock market (and bond market, for that matter) to do what comes naturally to them – correct their mistakes.

And that means the mistakes will get worse.
Analyst Toby Connor of GoldScents says the scariest chart in the world is the S&P 500.  When this bubble goes, it's going to make 2008 look good, and it's coming soon.  He presents this chart going back to 1996; that means it shows the bubbles in the late '90s and the mid '00s. Note how much higher the price is than both of the previous bubbles.  It has been said the current bubble, which he describes as the "currencies and sovereign debt bubble" is going to be the final bubble.  After this, no one will ever trust a central bank again. 
Yesterday, Bayou Renaissance Man ran a piece summing up conditions and wondering if we have reached the tipping point.  With the recent problems in emerging markets, the banks limiting cash withdrawals, the major international financial groups (IMF, World Bank...) arguing for confiscating portions of taxing your savings and other goings on, I'd say to prepare for a rough year.  To use the sailing analogy, batten down the hatches and prepare for rough weather.  Prepare for water breaking over the deck.  Put on your PFD and prepare to end up in the water. 


  1. Thanks Graybeard, I saw Peter's post the other day a well. I have been saying to anyone that listens
    that the market is not real. It can't be doing what it is doing. You spell it out better and obviously follow more reliable sources ( thanks for the links, I will check them out). All the pieces of the puzzle are out there to be seen if one has their eyes open.. It's gonna get bad.....

  2. "Have an exit plan".

    I met with my investment advisors two months ago. The usual; blah, blah blah we think the market will yada yada yada so we recommend you do etc., etc. I'm already where I want to be with my investments so we closed the meeting without much change or discussion as usual. Then I asked them a personal question: "what is your exit plan?" They are a father and son team, I'd guess dad is about 65 and son about 40 something and you would think I farted outloud. My wife looked at me like "oh no!, now what?" They said "what do you mean?" I replied, the economy is a disaster, the feds are printing money and the congress and president are borrowing astronomical amounts of money and we are probably in a depression and the government is struggling to prop it up but sooner or later it will collapse. They looked at each other and my impression is son didn't want to talk about it but dad did. But they both owned up to storing food and "prepping" (they didn't say but I think they could be mormons), They also admitted to owning PMs and divesting most of their own stock and bond holdings. (None of my money is in stocks or bonds.) They said they are hoping that things will get better but if it does not that they have positioned themselves as well as they could to prevent asset loss. After 12 years of quarterly meetings it was the most frank discussion we've ever had. Son tried to remain stoic but dad looked worried and he has always been a pleasant happy person before.

    1. That's quite a remarkable story - but I've honestly heard similar in a few places.

      I seem to recall a guy on Survival Blog who said he had visited his advisor and had the usual cheerful conversation about the robustness of the market. The next day he ran into the banker at the Sam's Club/Costco. The banker had a large cart loaded with 50 pound sacks of rice, beans, and other standard supplies that preppers buy.

  3. "If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders." Ludwig von Mises

    I do believe we have passed the point of no return. Peter Schiff and many others have noted that if interest rates go back to something approaching "normal", say 5% or so, that the Federal Government will have to start massive austerity just to keep with interest payments on debt.

    The funny thing about money is that it's value is subjective and dictated by general consensus. Most readers of your blog probably recognize that dollar is as good as dead. What happens when the general public begin to understand and act accordingly?

  4. Went and did our regular order for the physical yellow stuff and got talking with the guy that lives in the phone. He had put me on hold for a bit and when he came back, he apologized for the delay. This was about dinner time EST; he's on the Left Coast. Seems he'd been at work all day - since 5:30AM he said ... and had been abnormally busy all day with buy orders.

    Now I'm not an economist but I took some business/econ classes in college - and even stayed in a Holiday Inn Express once - and it seems to me a basic premise was demand goes up, so does price; demand goes down, so does price.

    So why is the yellow stuff supposedly on the way down ... and it's fairly hard to buy it?
    And why is one of my favorite dealers willing to >buy< at spot?

    The mining majors are at lows and seem over-bought, yet the demand for their product doesn't seem to jibe with world-level price ... (But I think I'd avoid Newmont - unless one wishes to speculate on a buy-out by Barrick or Anglo)

    I suspect someone's been telling us funnies about the future decline of gold prices. I wouldn't be surprised to hear wailing and gnashing of teeth: Oh, why didn't we buy when it was only $1300/oz?


    1. I believe everyone (well, the majority) have called the bottom in the gold prices and say it's going to go up for a while again. Likewise, I think silver has hit its bottom, but I look up in the corner of the page and see it going for $19.07 - it has been retreating to this support area since the summer, but still has not gone below its summer low of $18.45.

      I just bought some of the white metal and had the same experience you had. It can't be had near spot. A couple of years ago, junk silver was 5-ish percent over spot. Now it's more like 11% - or more.

      I'm relatively sure the mining stocks have hit their bottom, too. The index I track bottomed in early December and has been fighting back since then.

  5. The law of supply and demand still works. It may appear that the demand is higher then ever before but it is not. What they aren't teling you is that a lot of gold is being sold too. Make no mistake, if the demand was high enough to raise the price the price would go up. They are not in business to sell you gold and silver cheaply. There is a myth being circulated that the banksor the government is artificially keeping down the price of gold by dumping gold into the market. Excuse me! How stupid would that be and how long could they do it. No! The answer is the more obvious and that is more people are selling then buying. Now as to the "why" of that... well that's another question.