The horrible jobs report just released this morning showed what we've been saying all along. There is NO recovery. Interesting that economic adviser Christine Romer announced her resignation last night. Could she be a regular reader of "Marko's Take"? Could she have known that the jobs report was going to be so damn bad?
More important to investors is the very, very likely occurrence of another Hindenburg Omen in today's trading. For more information on the significance of this, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
Another relevant item is the calendar. The 3 major NYSE crashes occurred within a 6 week window of the equinox, which is typically September 22. That would suggest that after August 10th, the market will be within this time frame. Tuesday is August 10th. It may occur anytime thereafter. Crashes also occur WELL below the level of the preceeding market peak. In general, the largest down days in history followed a rapid drop of 20-25% off the peak. If history repeats, the coming crash should commence from BELOW Dow 9000!
If one goes back just to the crashes in the NYSE, we had the meltdowns of 2008, 1987 and 1929 as examples. All were late summer, early fall events. Don't ask me why. I'm still trying to understand what solar eclipses and full moons have to do with anything financial.
During the lead-in period to a crash, the market experiences what technicians refer to as "90%" days. These refer to a preponderance of trading volume to either advancing or declining issues. During the sizzling advance of the last 3 weeks, we experienced several of these days. And, during the decline that just preceeded it, we had a number of 90% downside days. This schizophrenia is what the Hindenburg Omen measures: an emotional dis-jointedness that is conducive to a sudden shift from euphoria to panic.
A key question for investors is what they should do now. If, as I believe, we are in another deflation scare, the only safe places are likely to be ultra-high quality bonds, and probably the U.S. Dollar.
What about Gold? In the near term, it's hard to be definitive. On the one hand, it will undoubtedly benefit from a "flight-to-safety" bid. On the other hand, the temporary deflation scare will put pressure on all hard assets. Under just about any forseeable scenario, Gold ought to hold up better than virtually any other asset. However, there MAY be a better entry point. I'd prefer to wait and see on this one.
In the intermediate to longer term, Gold remains in a very powerful bull market. With the inevitability of the introduction of "Quantitative Easing 2", and more stimulus spending in the offing, the seeds of hyper-inflation are being sown. Once we succeed in completely debasing the currency, where can investors protect their wealth except by owning Gold? In addition, the long underperforming junior miners should finally see those magnificent parabolic advances that have been long anticipated. Again, there should be better entry points.
This is no time to put your head in the sand.
Marko's Take
I feel that trying to time the gold and silver stocks is a risky play at this point. Many of the gold stocks are still cheap even if gold falls to 900-1000oz. The smaller producers are the cheapest, many with PE's in the 3-5 range, I am not selling any of them here. I think trying to use techinal analysis at this point of the game is a waste of time, this is the part that separates the believers from traders. Gold and silver stocks are a buy and hold here, if they go lower, have some cash to buy even more.
ReplyDeleteWhat's stopping Uncle Sam from injecting tons of money into the market to boost the stock market? After all, it's election time...
ReplyDeleteAda:
ReplyDeleteIt's been done....
Marko
Great post as usual Marko, but I'd differ on the gold entry point. All things equal, for most people I believe it's better to accumulate or continue to accumulate gold/silver/miner shares on a dollar cost average basis. Timing a lower gold entry point that may or may not ever materialize is a risky proposition. And so what if PMs take some short term whacks on way from $250 to God only knows? Gold's rise is inexorable and silver is in tow. Compared to the wealth insurance and possible large value gains of PM in hand now, even a 25% haircut in the short term is ok, IF one is in it for the long haul. Of course in trader mode I'd likely think more like you, but I'm not one.
ReplyDeleteIronically I'm steadily accumulating way more metal and miner shares than I could if free market forces prevailed. The cartel's long scam is transitory, if very ugly and painful to witness. But that's the main benefit of conviction of purpose: like many, I'm picking my way through the cartel's minefields on the way to an inevitable return to real money.
I guess it comes down to one's own assessments, expectations, and investment horizon. But for me, I'm buying, have bought, and will continue to buy each and every month. Just prior to Option Expiry dates of course. I just love buying real money low!
Ever since I started perusing the financial commentary 20 years, I have noticed that a majority portion of the commentary world are executing the hidden agendas of powerful forces in order to manipulate the perceptions and actions of small investors. After reading a x-section of this for many years, you can develop a sixth sense on who the Charlatans are and can sometimes clean excellent advice by learning to ignore those who are carpetbaggers.
ReplyDeleteGold is real money
ReplyDeleteIs this the first Hindenburg Omen this year? When was the last one? From what I have read, you need 2-3+ in a row to really mean something in order to heighten alert levels of a downturn.
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