All signs point to an imminent, violent and downward move in the stock market. Fortunately, as a reader of "Marko's Take", not only can you AVOID it, but you can BENEFIT from it!
First, let's go through the reasoning. The Dow Jones Industrial Average (Dow), recently broke a very reliable chart pattern known as a "rising wedge" or "bearish wedge". This pattern is characterized by a series of higher highs and higher lows, but the pattern of highs and lows eventually cross, forming an upward sloping triangular shape, or "wedge".
As the market moves to the apex, or point of crossing, it can only do one of two things - break up or break down. Normally, these patterns break down and when they do, it is highly likely that a key reversal has taken hold.
Second is the sudden increase in "volatility". Normally, a healthy and rising market, NOT in a mania, will be characterized by low volatility or a small amount of either day-to-day fluctuation or intra-day fluctuation. A falling market will typically experience rising volatility as investor panic sets in. In the last two weeks the market has broken a year long trend of falling volatility. It has suddenly spiked higher.
Low volatility is the result of good liquidity. In other words, as there is a better balance between buyers and sellers, market movements are dampened. When liquidity is low, volatility rises as sellers swamp buyers and larger movements are required to entice buyers to step in.
Finally, this breakdown in stocks would be consistent with the oncoming double dip of this DEPRESSION.
So, how can you benefit?
There are many interesting alternatives - especially "inverse" Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs).
So, it depends on how aggressive you want to be. Inverse ETFs and ETNs come in a variety of flavors. ETFs often act as inverses by a factor of 1 - meaning that if an index drops by 1% in a day the ETF will rise by 1%. ETFs or ETNs, on the other hand, can also use leverage and MAGNIFY the effect. For example, ETFs and ETNs exist with both double and triple leverage. A triple inverse ETF or ETN will rise 3% for every 1% drop in the market on a daily basis.
Some ETFs that can be employed to create a short position can be found here (http://tradermike.net/2007/03/list_of_inverse_short_bear_etfs), as can an excellent selection of double inverse vehicles.
For some of the more aggressive ones they can be found here (http://www.stockrake.com/3x-triple-leveraged-etfs~2008~11.html).
Naturally, I cannot recommend anything but merely provide you with the information. I am no longer a Registered Investment Adviser (RIA) and need to make this disclosure. Each of these vehicles carry tax consequences and you should consult with a real RIA, as opposed to taking my word for it.
It's a crying shame that the country is on the cusp of entering perhaps its darkest period. But that doesn't mean that you need to go down the tubes with it.
On Monday, we'll cover the new employment data released last Friday and its implications for the economy.
Marko's Take
Showing posts with label stock market. Show all posts
Showing posts with label stock market. Show all posts
Sunday, February 7, 2010
Sunday, January 24, 2010
Preparing For The Coming Waterfall
Now that we've laid out the background as to why investors need to re-assess tactics, we can finally move on to suggesting some options. This is the hard part. For one, every investor's risk tolerances and goals are unique. Second, factors such as age and exposure to other risks need to be taken into account. Since we can't do this on an individual basis for Marko's Take, we'll take a "rules-of-thumb" approach using the general categories of risk: "conservative", "moderate", "aggressive" and "very aggressive".
As a disclaimer, I'd like to say that I am NOT currently a registered investment advisor and am only offering an OPINION. You should NOT rely solely on what I've written, but possibly use this in conjuction with YOUR registered advisor and/or other investment professional before adopting anything written here today.
For investors who might believe themselves to be conservative, the best approach, in my opinion would be to go to cash and wait the storm out, before making any further commitments.
Moderate investors have more options. At at minimum, they should lighten on all long exposure. My own rule-of-thumb would be to reduce investments by 50%, put the rest in cash and wait the storm out.
It starts to get tricky when we approach some sort of aggressive status. I would still recommend a reduction of AT LEAST 50 % to all long positions, coupled with either a hedging strategy utilizing Exchange Traded Funds (ETFs) or Exchange Traded Notes (ETNs) to place some chips on the downside. For Gold investors, the ETN which goes by the symbol DZZ would do quite nicely. It's a double-inverse play on the price of Gold with a leverage of 2.0. In other words, DZZ is designed to GAIN 2% for every 1% loss in the price of Gold on a daily basis.
Before I go further, it is extremely important to note that ETNs involve "counter-party" risk, and any use of them should be limited to the very short term and they should be scaled back if they indeed start to generate gains. Unfortunately, if you begin to make decent money in an ETN, they get VERY volatile. Therefore, I would view them entirely as a very short term play. Diversify them, and take money "off the table" frequently.
For playing the downside in stocks, my personal view is the financial sector is in the greatest trouble AGAIN, and some very interesting ways of playing the waterfall exist. My personal favorites are FAZ, a triple-inverse ETN to the financial sector, or SKF, a double-inverse ETN.
There also exist many ways to play the downside in various indicies like the Dow, Nasdaq, or Russell 2000 - an index of "small cap" stocks. In waterfall situations, larger companies like those which make up the Dow or Nasdaq will normally perform better than the types of smaller companies which comprise the Russell. Therefore, I prefer to use TZA - another double-inverse play specifically designed to benefit from losses in the Russell 2000.
If you consider yourself very aggressive, I would lighten up on all long exposure as much as possible and use some combination of the above mentioned ETNs to create a true downward playing portfolio.
Finally, we need to consider the "what if Marko is wrong again" scenario. I believe that answer as to Gold is simple. Use a material and sustained UPWARD breach of $1,100 as your guide. I'd wait at least one day before taking action, and if such a breach does occur, I'll revisit Gold at that point.
As to stocks, I'd consider the 10,600 level of the Dow as my failsafe. In other words, should the market suddenly reverse and rally upward through 10,600 then my cascading waterfall scenario would likely become null and void. Again, should that occur or look like it might, I'll cover stocks.
Finally, it appears volatility is ready to jump and unless you have the stomache to deal with it, I'd sit this dance out. The market may "bounce" on Monday, or it could "gap" lower, I have no idea.
I hope, after reading this, you're ready for Monday.
Good luck! If you have any questions, agree or disagree, you know what to do. TAKE ME ON!
Marko's Take
As a disclaimer, I'd like to say that I am NOT currently a registered investment advisor and am only offering an OPINION. You should NOT rely solely on what I've written, but possibly use this in conjuction with YOUR registered advisor and/or other investment professional before adopting anything written here today.
For investors who might believe themselves to be conservative, the best approach, in my opinion would be to go to cash and wait the storm out, before making any further commitments.
Moderate investors have more options. At at minimum, they should lighten on all long exposure. My own rule-of-thumb would be to reduce investments by 50%, put the rest in cash and wait the storm out.
It starts to get tricky when we approach some sort of aggressive status. I would still recommend a reduction of AT LEAST 50 % to all long positions, coupled with either a hedging strategy utilizing Exchange Traded Funds (ETFs) or Exchange Traded Notes (ETNs) to place some chips on the downside. For Gold investors, the ETN which goes by the symbol DZZ would do quite nicely. It's a double-inverse play on the price of Gold with a leverage of 2.0. In other words, DZZ is designed to GAIN 2% for every 1% loss in the price of Gold on a daily basis.
Before I go further, it is extremely important to note that ETNs involve "counter-party" risk, and any use of them should be limited to the very short term and they should be scaled back if they indeed start to generate gains. Unfortunately, if you begin to make decent money in an ETN, they get VERY volatile. Therefore, I would view them entirely as a very short term play. Diversify them, and take money "off the table" frequently.
For playing the downside in stocks, my personal view is the financial sector is in the greatest trouble AGAIN, and some very interesting ways of playing the waterfall exist. My personal favorites are FAZ, a triple-inverse ETN to the financial sector, or SKF, a double-inverse ETN.
There also exist many ways to play the downside in various indicies like the Dow, Nasdaq, or Russell 2000 - an index of "small cap" stocks. In waterfall situations, larger companies like those which make up the Dow or Nasdaq will normally perform better than the types of smaller companies which comprise the Russell. Therefore, I prefer to use TZA - another double-inverse play specifically designed to benefit from losses in the Russell 2000.
If you consider yourself very aggressive, I would lighten up on all long exposure as much as possible and use some combination of the above mentioned ETNs to create a true downward playing portfolio.
Finally, we need to consider the "what if Marko is wrong again" scenario. I believe that answer as to Gold is simple. Use a material and sustained UPWARD breach of $1,100 as your guide. I'd wait at least one day before taking action, and if such a breach does occur, I'll revisit Gold at that point.
As to stocks, I'd consider the 10,600 level of the Dow as my failsafe. In other words, should the market suddenly reverse and rally upward through 10,600 then my cascading waterfall scenario would likely become null and void. Again, should that occur or look like it might, I'll cover stocks.
Finally, it appears volatility is ready to jump and unless you have the stomache to deal with it, I'd sit this dance out. The market may "bounce" on Monday, or it could "gap" lower, I have no idea.
I hope, after reading this, you're ready for Monday.
Good luck! If you have any questions, agree or disagree, you know what to do. TAKE ME ON!
Marko's Take
Friday, January 22, 2010
Next Stage of Double-Dip Depression About To Emerge?
While signs of an economic recovery are indeed real (http://markostake.blogspot.com/2010/01/what-economic.html), what's important to us here at Marko's Take is the future. Sure, we appear to be in a bona-fide recovery, but for how long?
Corporate earnings, which are streaming in for the Fourth Quarter, are hardly a blowout once the "improvement" in financial companies is stripped out. Last year's period demonstrated record losses among the financial sector and this year the sector has returned to slight profitability... or so we're told. The problem is that the accounting of financial companies is incomprehensible to virtually anyone - making it impossible to understand exactly what is going on.
Among financial companies reporting so far, Goldman Sachs turned in the best performance. In part this was attributable to the firm's decision to greatly restrain bonuses - proving that even the world's most powerful firm can live without for at least a year. Other companies were mixed: JPMorganChase and Wells Fargo turned in solid performances, while Bank of America, Citigroup and Morgan Stanley lost a combined $5 billion.
But, the real problem which brings up the high probability of a short-lived recovery, is that the policymakers have continued the same low interest rate practices that got us into trouble in the first place. And, given the country's $12 TRILLION National Debt, any rise in rates will do nothing but exascerbate the deficit, which is already at mind-numbing levels. For every 1% increase in rates, the addition to the deficit will be $120 billion! Imagine if rates were allowed to float to say 5%. That would raise the deficit by $600 billion, or, as some of us would call it, "real money".
I've used a "drug dealer" to "drug addict" analogy in describing the situation in conversation, but here it is in print. Imagine the Federal Reserve as the drug dealer, dispensing its 0% interest rate policy as the drug of choice. This policy has led to asset bubble after asset bubble, finally culminating in the near wipeout of the world financial system in late 2008.
So, now that the economy is "hooked" on low rates, what do our friends at the FED do? They give us more of the same "drug" that caused us to crash in the first place! However, as occurs with all "addicts", the economy has built up a tolerance to the drug - making its efficacy vastly reduced.
That's what appears to be happening now. Yes, unprecented stimulus and low rates helped re-start the economy's heart like a couple of electrified paddles, but the "high" was even more temporary than before and the inevitable crash will be LARGER than the one preceding it!
Even the ever optimistic FED isn't exactly overjoyed with the spotty recovery so far. According to the most recent "beige book", a release of anecdotal activity around the various FED districts, policymakers remain concerned about continued high unemployment, low factory utilization, weakness in credit activity and commercial real estate.
So, while the temporary "bounce" in the economy has slowed the rate of deterioration in the quality of many people's lives, the sad reality is that it won't be long before the downturn resumes with a greater vengeance. The only question is - when?
The stock market may be providing an answer. Yesterday, it broke 213 points lower and could be on the verge of a nasty correction, or perhaps a resumption of the bear market that began in late 2007.
If the break was indeed the beginning of a serious move lower, that would suggest an economic downturn is no later than 6 months away. However, it's WAY too early to draw conclusive evidence from the last few days of trading.
At this point, given all this evidence, I WOULD HIGHLY RECOMMEND INVESTORS CONSIDER GETTING MORE DEFENSIVE. I realize that I have predicted that the stock market would rise in 2010, but for the moment, it is acting like it wants to go much lower and in a hurry.
The same may apply for Gold. Yesterday, the break of $1,100 occurred and was sustained. At the very least, assuming that TODAY does not show otherwise, I would become more defensive there, too.
While my longer term prediction for Gold remains the same, we are on the verge of the point where I would be careful not to get crossed up by a sharper correction than need be.
As I've stated many times before, the market does what it wants and WHEN it wants to, whether or not it has read Marko's Take!
Today is a critical day. I'll have more over the weekend on U.S. stocks and Gold so that by the time trading resumes on Monday, I'll have proposed a plan.
Agree? Disagree? TAKE ME ON!
Marko's Take
Corporate earnings, which are streaming in for the Fourth Quarter, are hardly a blowout once the "improvement" in financial companies is stripped out. Last year's period demonstrated record losses among the financial sector and this year the sector has returned to slight profitability... or so we're told. The problem is that the accounting of financial companies is incomprehensible to virtually anyone - making it impossible to understand exactly what is going on.
Among financial companies reporting so far, Goldman Sachs turned in the best performance. In part this was attributable to the firm's decision to greatly restrain bonuses - proving that even the world's most powerful firm can live without for at least a year. Other companies were mixed: JPMorganChase and Wells Fargo turned in solid performances, while Bank of America, Citigroup and Morgan Stanley lost a combined $5 billion.
But, the real problem which brings up the high probability of a short-lived recovery, is that the policymakers have continued the same low interest rate practices that got us into trouble in the first place. And, given the country's $12 TRILLION National Debt, any rise in rates will do nothing but exascerbate the deficit, which is already at mind-numbing levels. For every 1% increase in rates, the addition to the deficit will be $120 billion! Imagine if rates were allowed to float to say 5%. That would raise the deficit by $600 billion, or, as some of us would call it, "real money".
I've used a "drug dealer" to "drug addict" analogy in describing the situation in conversation, but here it is in print. Imagine the Federal Reserve as the drug dealer, dispensing its 0% interest rate policy as the drug of choice. This policy has led to asset bubble after asset bubble, finally culminating in the near wipeout of the world financial system in late 2008.
So, now that the economy is "hooked" on low rates, what do our friends at the FED do? They give us more of the same "drug" that caused us to crash in the first place! However, as occurs with all "addicts", the economy has built up a tolerance to the drug - making its efficacy vastly reduced.
That's what appears to be happening now. Yes, unprecented stimulus and low rates helped re-start the economy's heart like a couple of electrified paddles, but the "high" was even more temporary than before and the inevitable crash will be LARGER than the one preceding it!
Even the ever optimistic FED isn't exactly overjoyed with the spotty recovery so far. According to the most recent "beige book", a release of anecdotal activity around the various FED districts, policymakers remain concerned about continued high unemployment, low factory utilization, weakness in credit activity and commercial real estate.
So, while the temporary "bounce" in the economy has slowed the rate of deterioration in the quality of many people's lives, the sad reality is that it won't be long before the downturn resumes with a greater vengeance. The only question is - when?
The stock market may be providing an answer. Yesterday, it broke 213 points lower and could be on the verge of a nasty correction, or perhaps a resumption of the bear market that began in late 2007.
If the break was indeed the beginning of a serious move lower, that would suggest an economic downturn is no later than 6 months away. However, it's WAY too early to draw conclusive evidence from the last few days of trading.
At this point, given all this evidence, I WOULD HIGHLY RECOMMEND INVESTORS CONSIDER GETTING MORE DEFENSIVE. I realize that I have predicted that the stock market would rise in 2010, but for the moment, it is acting like it wants to go much lower and in a hurry.
The same may apply for Gold. Yesterday, the break of $1,100 occurred and was sustained. At the very least, assuming that TODAY does not show otherwise, I would become more defensive there, too.
While my longer term prediction for Gold remains the same, we are on the verge of the point where I would be careful not to get crossed up by a sharper correction than need be.
As I've stated many times before, the market does what it wants and WHEN it wants to, whether or not it has read Marko's Take!
Today is a critical day. I'll have more over the weekend on U.S. stocks and Gold so that by the time trading resumes on Monday, I'll have proposed a plan.
Agree? Disagree? TAKE ME ON!
Marko's Take
Saturday, January 16, 2010
10 For 10: 10 Predictions For 2010
Every pundit puts out an annual list of what to look for in the upcoming year. Most do so in either late December or very early January. It's now this pundit's turn to give his "Take".
In no particular order of importance, I expect to see the following:
1. The economy, currently in "recovery" mode, will start to sputter by no later than the middle of the second quarter, and will cascade lower into the end of the year (http://markostake.blogspot.com/2009/12/recovery-recession-or-depression.html).
2. Residential home prices wll RISE through 2010 (http://markostake.blogspot.com/2010/01/bottom-in-real-estate.html).
3. Commercial real estate collapses, led by closures of strip malls and the failure of small businesses (http://markostake.blogspot.com/2009/11/small-business-failures-leading.html).
4. Stocks RISE in 2011 (http://markostake.blogspot.com/2010/01/why-does-stock-market-act-like.html).
5. Republicans take the House and the Senate.
6. Interest rates will remain low throughout the year (http://markostake.blogspot.com/2010/01/have-any-interest-in-future-direction.html).
7. Some version of a "Windfall Profits Tax" gets enacted on oil companies.
8. Obamacare does NOT pass in anything close to its current form, unless via executive mandate (http://markostake.blogspot.com/2009/12/obamacare-part-1-whos-fer-it-whos-agin.html), (http://markostake.blogspot.com/2009/12/obamacare-part-2-when-us-gets-involved.html),
(http://markostake.blogspot.com/2009/12/obamacare-part-3-economic-reality.html).
9. Shortages of necessities such as food, water, gasoline and other staples will lead to unprecedented civil disobedience and riots.
10. Gold will reach something in the order of $5,000 and Silver $250 per ounce by the end of the year or early 2011.
11. I will make an 11th prediction: The U.S. Dollar will be virtually, if not entirely relegated to second-tier status.
As you can tell from the 11th prediction, at least one of my forecasts came true. I did indeed make an 11th prediction!
You didn't think I'd take a chance on going 0 for 10 did you?
Thanks for reading! If you have some predictions of your own or think I missed mentioning one, you know what to do: TAKE ME ON!
Marko's Take
In no particular order of importance, I expect to see the following:
1. The economy, currently in "recovery" mode, will start to sputter by no later than the middle of the second quarter, and will cascade lower into the end of the year (http://markostake.blogspot.com/2009/12/recovery-recession-or-depression.html).
2. Residential home prices wll RISE through 2010 (http://markostake.blogspot.com/2010/01/bottom-in-real-estate.html).
3. Commercial real estate collapses, led by closures of strip malls and the failure of small businesses (http://markostake.blogspot.com/2009/11/small-business-failures-leading.html).
4. Stocks RISE in 2011 (http://markostake.blogspot.com/2010/01/why-does-stock-market-act-like.html).
5. Republicans take the House and the Senate.
6. Interest rates will remain low throughout the year (http://markostake.blogspot.com/2010/01/have-any-interest-in-future-direction.html).
7. Some version of a "Windfall Profits Tax" gets enacted on oil companies.
8. Obamacare does NOT pass in anything close to its current form, unless via executive mandate (http://markostake.blogspot.com/2009/12/obamacare-part-1-whos-fer-it-whos-agin.html), (http://markostake.blogspot.com/2009/12/obamacare-part-2-when-us-gets-involved.html),
(http://markostake.blogspot.com/2009/12/obamacare-part-3-economic-reality.html).
9. Shortages of necessities such as food, water, gasoline and other staples will lead to unprecedented civil disobedience and riots.
10. Gold will reach something in the order of $5,000 and Silver $250 per ounce by the end of the year or early 2011.
11. I will make an 11th prediction: The U.S. Dollar will be virtually, if not entirely relegated to second-tier status.
As you can tell from the 11th prediction, at least one of my forecasts came true. I did indeed make an 11th prediction!
You didn't think I'd take a chance on going 0 for 10 did you?
Thanks for reading! If you have some predictions of your own or think I missed mentioning one, you know what to do: TAKE ME ON!
Marko's Take
Saturday, January 2, 2010
Why Does The Stock Market Act Like The Energizer Bunny?
It keeps going and going and going. And, not to the men's room!
Being serious, the stock market rally has me a tad puzzled for a variety of reasons which I'll outline.
A rally off the March lows was very expectable to something like 9,500, which would roughly be the midpoint of its all-time high of approximately 14,000 and recent low of 6,600. Yet, it has been recently flirting with 11,000, closed the year at 10,428 and change and seems poised to shoot higher still!
This has various market timers, especially those empolying an idiotic system known as the "Elliot Wave" in a complete snit and ready for the loonie bin, if they're not there already! I realize that most readers will not be familiar with the Elliott Wave, but it can be "googled" in Wikipedia. If you DO read about it, you'll realize how utterly complicated, ridiculous and unreliable it is!
According to the Wall St. Journal, the reason for the rise is the unprecedented stimulus and money creation by the Federal Reserve, Treasury and Obama Administration. According to Marko's Take, it is not. According to others, the stock market is anticipating a powerful economic recovery, especially by the talking heads at CNBC! Again, according to Marko's Take, it is not.
As you've gathered, my "thesis" is entirely different! I believe the ongoing rally is a combination of two factors: the severely needed bounce off the March lows and market manipulation by the troika consisting of the Federal Reserve, Treasury and Goldman Sachs. As to where it goes from here, I ain't got the vaguest!
Hope you had a most joyous New Year. Your's truly definitely did.
Tomorrow, we'll review the situation in real estate.
Marko's Take
Being serious, the stock market rally has me a tad puzzled for a variety of reasons which I'll outline.
A rally off the March lows was very expectable to something like 9,500, which would roughly be the midpoint of its all-time high of approximately 14,000 and recent low of 6,600. Yet, it has been recently flirting with 11,000, closed the year at 10,428 and change and seems poised to shoot higher still!
This has various market timers, especially those empolying an idiotic system known as the "Elliot Wave" in a complete snit and ready for the loonie bin, if they're not there already! I realize that most readers will not be familiar with the Elliott Wave, but it can be "googled" in Wikipedia. If you DO read about it, you'll realize how utterly complicated, ridiculous and unreliable it is!
According to the Wall St. Journal, the reason for the rise is the unprecedented stimulus and money creation by the Federal Reserve, Treasury and Obama Administration. According to Marko's Take, it is not. According to others, the stock market is anticipating a powerful economic recovery, especially by the talking heads at CNBC! Again, according to Marko's Take, it is not.
As you've gathered, my "thesis" is entirely different! I believe the ongoing rally is a combination of two factors: the severely needed bounce off the March lows and market manipulation by the troika consisting of the Federal Reserve, Treasury and Goldman Sachs. As to where it goes from here, I ain't got the vaguest!
Hope you had a most joyous New Year. Your's truly definitely did.
Tomorrow, we'll review the situation in real estate.
Marko's Take
Saturday, December 5, 2009
Has A True Economic Recovery Actually Begun?
Right off the bat, I can tell you that I don't know. I've been as skeptical as anyone and said so in prior blogs. However, it appears POSSIBLE that we indeed are in the very early stages of some sort of recovery. But, the evidence remains a mixed bag. In addition, it's WAY too early to speculate as to how strong that recovery might become, if it's started at all.
On the positive side, a website called Shadow Stats (http://www.shadowstats.com/), which calculates various government-reported statistics and adjusts them for a variety of misleading alterations, has shown an actual slight "downtick" in the unemployment rate. Now, one month doesn't make a trend, but it IS the first time they show a drop since late 2007.
There is also the persistent strength in the stock market, which has historically led recoveries by 6 to 12 months. The stock market bottomed 9 months ago.
Another very reliable leading indicator is the money supply, which, thanks to Fed chief Ben Bernanke, has been exploding. Historically, high rates of growth in money supply have led to economic recovery within a period of between 6 to 18 months. All of the emergency stimulus and bailouts, which have caused the growth in money, began within the terminal months of the Bush administration, so they fall within the reliable historical precedent.
In addition, yesterday I became aware of a new program offered by certain banks of mortgage relief - EVEN FOR THE UNEMPLOYED! This was reported in an article by the Sacramento Bee, ironically titled "Mortgage relief program helps relatively few troubled homeowners". An unemployed friend of mine spent two hours talking to Wells Fargo, the holder of his mortgage, and found that this was indeed true. They went over his financial condition meticulously. They couldn't pre-qualify him for any immediate relief, but they are sending him a package requesting certain documents from which they can verify the information and consider the merits of his request.
Now, for the bad news! Retail sales remain DISMAL On "Black Friday", the day after Thanksgiving, one of the two most heavily trafficked shopping days of the year, Sacks reported a 26% DROP in year-over-year sales. Macy's and J.C. Penney also reported greater than estimated slides of about 6%. We don't yet know about Wal-Mart, as it has stopped reporting monthly sales statistics altogether! But, this bad news may be somewhat offset by some good news in online sales, which were UP 11% year-over-year.
According to the FDIC, six more banks were seized on Friday, with combined assets of $13.4 billion. And, as pointed out in recent blogs, the fortunes of states and municipalities continue to deteriorate.
So, the "recovery" theory remains quite speculative as the evidence is a mixed bag. However, I suspect that we will know the answer relatively soon. More evidence will arise after Christmas. Anecdotally, I know that most of my friends have, at most, a "token gift only" intention this holiday season.
Finally, the REALLY bad news is that any recovery is merely more evidence of a precursor to a vastly heightend level of inflation. Without exception, history shows that the "growth effect" of stimulus programs precedes the subsequent "price effect". And, as the "growth effect" tapers off, the "price effect" accelerates.
Therefore, we are sowing the seeds of an even greater crisis which is yet to be experienced.
I hope you found this essay useful, interesting and informative. I appreciate the rapidly growing readership and the questions, which I am delighted to answer.
Marko's Take
On the positive side, a website called Shadow Stats (http://www.shadowstats.com/), which calculates various government-reported statistics and adjusts them for a variety of misleading alterations, has shown an actual slight "downtick" in the unemployment rate. Now, one month doesn't make a trend, but it IS the first time they show a drop since late 2007.
There is also the persistent strength in the stock market, which has historically led recoveries by 6 to 12 months. The stock market bottomed 9 months ago.
Another very reliable leading indicator is the money supply, which, thanks to Fed chief Ben Bernanke, has been exploding. Historically, high rates of growth in money supply have led to economic recovery within a period of between 6 to 18 months. All of the emergency stimulus and bailouts, which have caused the growth in money, began within the terminal months of the Bush administration, so they fall within the reliable historical precedent.
In addition, yesterday I became aware of a new program offered by certain banks of mortgage relief - EVEN FOR THE UNEMPLOYED! This was reported in an article by the Sacramento Bee, ironically titled "Mortgage relief program helps relatively few troubled homeowners". An unemployed friend of mine spent two hours talking to Wells Fargo, the holder of his mortgage, and found that this was indeed true. They went over his financial condition meticulously. They couldn't pre-qualify him for any immediate relief, but they are sending him a package requesting certain documents from which they can verify the information and consider the merits of his request.
Now, for the bad news! Retail sales remain DISMAL On "Black Friday", the day after Thanksgiving, one of the two most heavily trafficked shopping days of the year, Sacks reported a 26% DROP in year-over-year sales. Macy's and J.C. Penney also reported greater than estimated slides of about 6%. We don't yet know about Wal-Mart, as it has stopped reporting monthly sales statistics altogether! But, this bad news may be somewhat offset by some good news in online sales, which were UP 11% year-over-year.
According to the FDIC, six more banks were seized on Friday, with combined assets of $13.4 billion. And, as pointed out in recent blogs, the fortunes of states and municipalities continue to deteriorate.
So, the "recovery" theory remains quite speculative as the evidence is a mixed bag. However, I suspect that we will know the answer relatively soon. More evidence will arise after Christmas. Anecdotally, I know that most of my friends have, at most, a "token gift only" intention this holiday season.
Finally, the REALLY bad news is that any recovery is merely more evidence of a precursor to a vastly heightend level of inflation. Without exception, history shows that the "growth effect" of stimulus programs precedes the subsequent "price effect". And, as the "growth effect" tapers off, the "price effect" accelerates.
Therefore, we are sowing the seeds of an even greater crisis which is yet to be experienced.
I hope you found this essay useful, interesting and informative. I appreciate the rapidly growing readership and the questions, which I am delighted to answer.
Marko's Take
Wednesday, December 2, 2009
Gold $1200: Is It Too Late To Buy?
No! NOT EVEN CLOSE!! But that DOESN'T mean that the price of Gold won't be subject to sharp downward moves from time to time.
Now, I don't pretend to KNOW, with any degree of certainty, what level the "yellow metal" will ultimately reach, but we CAN review history to provide some guideposts.
One involves the ratio produced when the Dow Jones Industrial Average is divided by the price of Gold. Let's call it the DGR (Dow-Gold Ratio). Yesterday's ratio was 8.725 (10,471 divided by 1200). When the Dow is HIGH, while GOLD is LOW on a relative basis, this results in a HIGH ratio. Therefore, it's A LOW ratio that indicates that Gold is relatively expensive to stocks.
The DGR has bottomed at about 2.5 during the Great Depression and in 1900. However, the ratio fell to as low as 1 in 1980! At that time, Gold was in the terminal phase of a genuine mania. My belief is that history is in the process of repeating itself. Therefore, based on yesterday's Dow close of 10,471 a top for Gold could range from as low as $4,000 to $10,471! Of course, the market may decline or rise, so these are moving targets and certainly NOT guaranteed by any means.
Another approach would be to "inflation adjust" the last mania peak of $850 for Gold, which occurred in 1980. Using the calculations provided by the Bureau of Labor and Statistics, this prior peak would be equivalent to about $2,400 today. However, as discussed in prior blogs, the methodology for calculating the rate of inflation has been altered since then.
A man named John Williams, who has a fantastic website (http://www.shadowstats.com/), specializes in computing various statistics like inflation in a manner similar to that used in 1980. If HIS calculation of inflation is employed, the "inflation-adjusted" price of Gold projects a top of more than $7,000.
As to Silver, using Williams' number, its $50 peak, also reached in 1980, extrapolates to a top of over $400 per ounce. Or, more than 20 times the closing price yesterday!
It's vital that I re-iterate what I said yesterday in my essay regarding the possible reasons for the current strong stock market rally. No one truly knows where any market will ultimately peak or bottom, nor when. That is only known in hindsight and ususally well after the tops or bottoms occur. The most famous investor, Warren Buffett, avoids timing the market as much as possible and has accumulated his enormous wealth through a very simple "buy and hold" approach.
I hope you like this piece, find it informative and invite you to make comments, pro or con.
Marko's Take
Now, I don't pretend to KNOW, with any degree of certainty, what level the "yellow metal" will ultimately reach, but we CAN review history to provide some guideposts.
One involves the ratio produced when the Dow Jones Industrial Average is divided by the price of Gold. Let's call it the DGR (Dow-Gold Ratio). Yesterday's ratio was 8.725 (10,471 divided by 1200). When the Dow is HIGH, while GOLD is LOW on a relative basis, this results in a HIGH ratio. Therefore, it's A LOW ratio that indicates that Gold is relatively expensive to stocks.
The DGR has bottomed at about 2.5 during the Great Depression and in 1900. However, the ratio fell to as low as 1 in 1980! At that time, Gold was in the terminal phase of a genuine mania. My belief is that history is in the process of repeating itself. Therefore, based on yesterday's Dow close of 10,471 a top for Gold could range from as low as $4,000 to $10,471! Of course, the market may decline or rise, so these are moving targets and certainly NOT guaranteed by any means.
Another approach would be to "inflation adjust" the last mania peak of $850 for Gold, which occurred in 1980. Using the calculations provided by the Bureau of Labor and Statistics, this prior peak would be equivalent to about $2,400 today. However, as discussed in prior blogs, the methodology for calculating the rate of inflation has been altered since then.
A man named John Williams, who has a fantastic website (http://www.shadowstats.com/), specializes in computing various statistics like inflation in a manner similar to that used in 1980. If HIS calculation of inflation is employed, the "inflation-adjusted" price of Gold projects a top of more than $7,000.
As to Silver, using Williams' number, its $50 peak, also reached in 1980, extrapolates to a top of over $400 per ounce. Or, more than 20 times the closing price yesterday!
It's vital that I re-iterate what I said yesterday in my essay regarding the possible reasons for the current strong stock market rally. No one truly knows where any market will ultimately peak or bottom, nor when. That is only known in hindsight and ususally well after the tops or bottoms occur. The most famous investor, Warren Buffett, avoids timing the market as much as possible and has accumulated his enormous wealth through a very simple "buy and hold" approach.
I hope you like this piece, find it informative and invite you to make comments, pro or con.
Marko's Take
Tuesday, December 1, 2009
Exactly Why IS The Stock Market Rallying?
To he honest answer is that I don't know! But, I can think of several possibilites. In fact, NO ONE can know with any degree of certainty. The fact is that markets of all sorts do what they want and when they want. The reasons are only clear in hindsight. What I CAN do is review the potential reasons and make an educated guess.
One possibility is that the economy is indeed recovering. That's less ridiculous than it might seem at first. Given the level of stimulus, coupled with the high level of growth in the money supply, the economy typically would respond with an initial recovery. The unfortunate side effect of all the economic juicing is that eventually, prices start to rise at an accelerated rate. A good analogy would be a drug addict. At first the drug gives one a "high" but is followed by the inevitable withdrawal symptoms. The drug addict then builds a tolerance and needs MORE of the drug. Subsequently, the crashes become more painful.
Another reason for this rally may be inflation expectations. In Zimbabwe, which is just starting to recover from one of the most severe bouts of hyperinflation I've ever heard of, their stock market shot up exponentially. Zimbabwe's inflation rate was so high that it reduced the value of ITS dollar to 6 QUADRILLIONTHS of its value in 2003! However, in the U.S., in the late 1960's through 1982, a period of high inflation, stocks fell by an astonishing 90% from peak to trough, if the cumulative inflation was taken into account. That loss was virtually identical to that experienced during the Great Depression.
A third possibility is that we are in a temporary rally within a longer-term overall downtrend. This is a very common occurrence, especially after the severity of the accelerating panic that engulfed the market between the emergency takeover of Bear, Stearns in 2008 and the March lows of 2009. The market behaves like a pendulum. It frequently overshoots in one direction only to be followed by a sudden sharp about-face.
Finally, the idea that the market is manipulated by agents or proxies of the government is gaining acceptance. It has also been, to some extent, even admitted to, but only very recently. Until we get an audit of the Federal Reserve, we won't know with any certainty as to what extent this may or may not have occurred. It's clear the Federal Reserve DOES manipulate some markets such as interest rates and, therefore, the price of bonds.
They also manipulate the U.S. Dollar. But we don't know how far that manipulation extends, nor its overall effect on the stock market. If this indeed is true, it will ultimately fail because it can only work temporarily. We can be certain that whatever power the Federal Reseerve exerts, it must be limited. Otherwise, the market would have never crashed in the first place!
So, here's "Marko's Take" on all this! My own personal belief is that we are indeed in a temporary rally that will ultimately prove to be of limited duration and NOT make new highs for a long time. And it may be somewhat overdone with help from our friends and their proxies at the Federal Reserve. Even if I AM correct, I don't have any firm conviction as to how long it will last, nor how high it will ultimately go.
I'm always delighted by your comments, pro or con. If you like what you've seen, it would thrill me to have you email this piece, or any other of my pieces, to a friend or two.
Marko's Take
One possibility is that the economy is indeed recovering. That's less ridiculous than it might seem at first. Given the level of stimulus, coupled with the high level of growth in the money supply, the economy typically would respond with an initial recovery. The unfortunate side effect of all the economic juicing is that eventually, prices start to rise at an accelerated rate. A good analogy would be a drug addict. At first the drug gives one a "high" but is followed by the inevitable withdrawal symptoms. The drug addict then builds a tolerance and needs MORE of the drug. Subsequently, the crashes become more painful.
Another reason for this rally may be inflation expectations. In Zimbabwe, which is just starting to recover from one of the most severe bouts of hyperinflation I've ever heard of, their stock market shot up exponentially. Zimbabwe's inflation rate was so high that it reduced the value of ITS dollar to 6 QUADRILLIONTHS of its value in 2003! However, in the U.S., in the late 1960's through 1982, a period of high inflation, stocks fell by an astonishing 90% from peak to trough, if the cumulative inflation was taken into account. That loss was virtually identical to that experienced during the Great Depression.
A third possibility is that we are in a temporary rally within a longer-term overall downtrend. This is a very common occurrence, especially after the severity of the accelerating panic that engulfed the market between the emergency takeover of Bear, Stearns in 2008 and the March lows of 2009. The market behaves like a pendulum. It frequently overshoots in one direction only to be followed by a sudden sharp about-face.
Finally, the idea that the market is manipulated by agents or proxies of the government is gaining acceptance. It has also been, to some extent, even admitted to, but only very recently. Until we get an audit of the Federal Reserve, we won't know with any certainty as to what extent this may or may not have occurred. It's clear the Federal Reserve DOES manipulate some markets such as interest rates and, therefore, the price of bonds.
They also manipulate the U.S. Dollar. But we don't know how far that manipulation extends, nor its overall effect on the stock market. If this indeed is true, it will ultimately fail because it can only work temporarily. We can be certain that whatever power the Federal Reseerve exerts, it must be limited. Otherwise, the market would have never crashed in the first place!
So, here's "Marko's Take" on all this! My own personal belief is that we are indeed in a temporary rally that will ultimately prove to be of limited duration and NOT make new highs for a long time. And it may be somewhat overdone with help from our friends and their proxies at the Federal Reserve. Even if I AM correct, I don't have any firm conviction as to how long it will last, nor how high it will ultimately go.
I'm always delighted by your comments, pro or con. If you like what you've seen, it would thrill me to have you email this piece, or any other of my pieces, to a friend or two.
Marko's Take
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