Margin Debt & Trends

The debate over the pending crash in the stock market seems endless. Whether or not margin debt as reported by the NYSE has relevance any more is an interesting question in a world in which the retail investor has abandoned investing (decline in liquidity). The real marginal buyers are hedge funds and some banks while the cash buyers remain central banks. The make-up of the market has changed and the interest rates are well below even many dividends. So talking about total margin debt nearing $500 billion cannot be compared just on a nominal basis.

This post was published at Armstrong Economics on August 27, 2014.

Managing Expectations: Part III of III: Picking Mining Stocks In A Bear Market

In the first part of this three-part series, I discussed the importance of cycles such as four-year presidential elections and the life of a gold mine, and how they play into our investment strategy here at U. S. Global Investors. Part II dealt with statistical diagnostic tools, in which I strived to simplify the definitions of standard deviation and mean reversion and explain how they’re applied.
The third part of this series on managing expectations is devoted to fundamental resource stock evaluation. I’ll discuss some of the statistical tools we use to pick quality stocks during a treacherous bear market, such as what we’ve seen in gold stocks the last three years.
Let it be known, however, that, though our approach might vary slightly depending on the condition of the market, we fervently seek to pick the best stocks at the best price and execution.
How I Learned to Respect the Bear
The traditional definition of a bear market is when broad stock market indices fall more than 20 percent from a previous high – which sounds like a catastrophe, but is in fact ‘normal’ market behavior. According to self-professed ‘investing nut’ Ryan Barnes, a contributor for Investopedia, ‘bear markets… are a natural way to regulate the occasional imbalances that sprout up between corporate earnings, consumer demand and combined legislative and regulatory changes in the marketplace.’
Think of bear markets, then, as the gradual transition from warm summers into frozen winters. Trees lose their leaves, snow and ice blanket the ground, many animals – the bear the most notable – hibernate for the season. All life seems to take a breather. But just as you can always count on spring to emerge and, with it, new life, you as an investor can count on the market to rebound with fresh vigor.
As you might have known, the tail end of ‘winter’ is when you want to take part in the inevitable recovery. If the market never had a winter season, if it were perpetually trapped in an endless summer, investors would be hard-pressed to find an ideal entry point.
It’s easy to determine when winter becomes spring. But what about the end of a bear market? How do you know when it’s bottomed and the optimal buying time has been reached?
CLSA consultant Russell Napier, in his now-classic 2009 book Anatomy of the Bear, describes the determinants of the end of a bear market:
‘The bottom is preceded by a period in which the market declines on low volumes and rises on high volumes. The end of a bear market is characterized by a final slump of prices on low trading volumes. Confirmation that the bear trend is over will be rising volumes at the new higher levels after the first rebound in equity prices.’
Look at the chart below. You’ll see that, in three decades, the Philadelphia Gold & Silver Index (XAU) has never had a losing streak for more than three years.

This post was published at Gold-Eagle on August 25, 2014.

The Winner-Take-All Economy

When the majority of Americans examine the world around them, they see a stock market at record highs and modest apparent improvement in the economy, but, as John Hussman notes, they also have the sense that something remains terribly wrong, and they can’t quite put their finger on it.
Exceprted from John Hussman’s Weekly Market Comment,
According to a recent survey by the Federal Reserve, 40% of American families report that they are ‘just getting by,’ and 60% of families do not have sufficient savings to cover even 3 months of expenses. Even Fed Chair Janet Yellen seemed puzzled last week by the contrast between a gradually improving unemployment rate and persistently sluggish real wage growth.
We would suggest that much of this perplexity reflects the application of incorrect models of the world.
Before the 15th century, people gazed at the sky, and believed that other planets would move around the Earth, stop, move backwards for a bit, and then move forward again. Their model of the world – that the Earth was the center of the universe – was the source of this confusion.
Similarly, one of the reasons that the economy seems so confusing at present is that our policy makers are dogmatically following models that have very mixed evidence in reality.

This post was published at Zero Hedge on 08/25/2014

Former Mafia Boss Tells CNBC: “Stocks Are In A Bubble, Buy Physical Gold”

Michael Franzese, a former mob boss for the Colombo crime family in New York (and GoodFellas character), told CNBC, “there’s a bubble there that’s going to burst at some point and when it does it’s not going to be good,” but there is another reason he says investors should avoid the U. S. stock market – “I did a lot of things at times with people on Wall Street.. a lot of guys are shady and they did shady things with me and I don’t trust them. And I don’t like other people that I don’t know really well taking care of my money.” As we noted earlier, his advice is to hold gold (in Physical bullion bars not ETFs), because “there will always be something there,” unlike stocks “where in our country, you go to sleep, everyone tells you everything is wonderful, you wake up and everything is gone.”

This post was published at Zero Hedge on 08/23/2014

Grant Williams: Wizened in Oz

Grant Williams, author of the newsletter, Things That Make You Go Hmmm, reviews the results of the last decade of Central Bank activity – namely: Bubbles.  Bubbles are everywhere…. stocks, bonds, commodities, real estate.  But Williams goes on to explain how the central bankers are stuck.  There is no way out of this mess without severe pain.  They (the central bankers) have found themselves in a position where they can only talk about halting the easy money policies, but cannot actually do it without completely crashing the system.  He notes that Janet Yellen may indeed try to taper from $85 to $65 billion per month, but soon would have to re-engage more QE because the US economy is not strong enough on its own.

So what to do?  Williams recommends holding a lot of cash right now in order to take advantage of the situation coming after the crash.

Precious Metals Wrap-Up

This Precious Metals Wrap-Up is inspired by and dedicated to Ed Steer, of Casey Research.
Mr. Steer continues to work relentlessly, keeping the public informed on important matters around the globe & on all things related to precious metals.  A subscription to his publication, Gold & Silver Daily is available, free of charge, to anyone wishing to be enlightened on a daily basis.

The Gold in GLD

September 1, 2011
Many people are suspicious and doubt that the SPDR GLD ETF actually has all the physical gold it says it has. Here’s a CNBC video, where Bob Pisani was one of the few people in the world who was able to visit HSBC’s vault somewhere in London and was able to see all those beautiful stacks of gold bars.




This may have eased some suspicions, but some are still concerned. Some people suspect that the GLD ETF may not have sole ownership ties to these bars of gold due to central bank gold leasing programs in addition to the fact that there isn’t enough physical gold in the world to back the volume of daily paper trades in the gold futures and options markets.

Update
September 9, 2011
Wow, talk about trashing a concept – here’s a video that lays out all the weaknesses in the GLD prospectus. As you watch the video and learn about the prospectus, keep in mind the three main players behind the SPDR GLD Shares:



Precious Metals Crash

The precious metals investor has to ask, “Why?” All the fundamentals that made gold and silver rise to the highs they saw in August are still in place. How can it all be erased in 3 days?

First of all, looking at a multi-year chart of gold performance, one can immediately see that the price rise was ascending at a much accelerated pace since July. Here’s the GLD chart which exemplifies this pattern.

Two year GLD chartThere were good reasons for gold to take off like it did – as political and economic problems persisted in Europe, the middle east and the U.S., things were looking bad. And nothing’s changed. In fact, much has gotten worse! For example, the Swiss have effectively pegged their currency to the Euro, which means there isn’t any true safe haven currency to flee to anymore. In the face of all that, why the sudden plunge in precious metals?

The “leap” in the slope shown in the graph above is more speculation of future prices, rather than an indication of current prices. And the markets love to take advantage of speculators on both the long and short sides when they can make money from it. And that’s exactly what’s happened here.

There isn’t a bubble in precious metals. Gold and Silver will continue to rise until the governments of the world stop their incessant spending programs and central banks stop accommodating them by printing paper money at will.

There are two levels of investing going on here:

  1. Speculators on the long term trend of gold and silver due to the fundamentals;
  2. Traders taking advantage of short-term, irregular trends in the market.

Keep your cool & stay the course. Watch the trends for good times to buy back into the market (like RIGHT NOW!!!!)