Doc Copper-Breakout of 6-year resistance in play

Doc Copper-Breakout of 6-year resistance in play

 

Below looks at Copper Futures on a monthly basis, since the late 1980’s. A good deal of the past 30-years, Doc Copper has remained inside of rising channel (1), reflecting that the long-term trend is up. The top of this channel was hit back in 2011 and since then, Doc Copper has created a series of lower highs inside of falling channel (2).

 

Chart of Copper Monthly Kimble Charting Solutions

 

CLICK ON CHART TO ENLARGE

Before the election last year, Copper hit rising support at (3) and spent a good six months testing this support. After support held for a good length of time, a rally then took place, pushing it up to test the top of falling channel resistance.

Of late, Doc Copper is breaking above 6-year falling resistance at (4), which historically is a positive sign for Copper. Positive sign for other companies in the industry? Sure could be.

The Power of the Pattern has liked the looks of Doc Coppers chart for a good while. Due to the pattern, Premium and Metals members bought Freeport McMoran (FCX) two months ago. So far FCX is up over 20% and has been much stronger than the broad market.

 

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Intel Vets Challenge “Russia Hack” Evidence

Via ConsortiumNews.com,

In a memo to President Trump, a group of former U.S. intelligence officers, including NSA specialists, cite new forensic studies to challenge the claim of the key Jan. 6 “assessment” that Russia “hacked” Democratic emails last year.

MEMORANDUM FOR: The President

FROM: Veteran Intelligence Professionals for Sanity (VIPS)

SUBJECT: Was the “Russian Hack” an Inside Job?

Executive Summary

Forensic studies of “Russian hacking” into Democratic National Committee computers last year reveal that on July 5, 2016, data was leaked (not hacked) by a person with physical access to DNC computers, and then doctored to incriminate Russia.

Director of National Intelligence James Clapper (right) talks with President Barack Obama in the Oval Office, with John Brennan and other national security aides present. (Photo credit: Office of Director of National Intelligence)

After examining metadata from the “Guccifer 2.0” July 5, 2016 intrusion into the DNC server, independent cyber investigators have concluded that an insider copied DNC data onto an external storage device, and that “telltale signs” implicating Russia were then inserted.

Key among the findings of the independent forensic investigations is the conclusion that the DNC data was copied onto a storage device at a speed that far exceeds an Internet capability for a remote hack. Of equal importance, the forensics show that the copying and doctoring were performed on the East coast of the U.S. Thus far, mainstream media have ignored the findings of these independent studies [see here and here].

Independent analyst Skip Folden, a retired IBM Program Manager for Information Technology US, who examined the recent forensic findings, is a co-author of this Memorandum. He has drafted a more detailed technical report titled “Cyber-Forensic Investigation of ‘Russian Hack’ and Missing Intelligence Community Disclaimers,” and sent it to the offices of the Special Counsel and the Attorney General. VIPS member William Binney, a former Technical Director at the National Security Agency, and other senior NSA “alumni” in VIPS attest to the professionalism of the independent forensic findings.

The recent forensic studies fill in a critical gap. Why the FBI neglected to perform any independent forensics on the original “Guccifer 2.0” material remains a mystery – as does the lack of any sign that the “hand-picked analysts” from the FBI, CIA, and NSA, who wrote the “Intelligence Community Assessment” dated January 6, 2017, gave any attention to forensics.

NOTE: There has been so much conflation of charges about hacking that we wish to make very clear the primary focus of this Memorandum. We focus specifically on the July 5, 2016 alleged Guccifer 2.0 “hack” of the DNC server. In earlier VIPS memoranda we addressed the lack of any evidence connecting the Guccifer 2.0 alleged hacks and WikiLeaks, and we asked President Obama specifically to disclose any evidence that WikiLeaks received DNC data from the Russians [see here and here].

Addressing this point at his last press conference (January 18), he described “the conclusions of the intelligence community” as “not conclusive,” even though the Intelligence Community Assessment of January 6 expressed “high confidence” that Russian intelligence “relayed material it acquired from the DNC … to WikiLeaks.”

Obama’s admission came as no surprise to us. It has long been clear to us that the reason the U.S. government lacks conclusive evidence of a transfer of a “Russian hack” to WikiLeaks is because there was no such transfer. Based mostly on the cumulatively unique technical experience of our ex-NSA colleagues, we have been saying for almost a year that the DNC data reached WikiLeaks via a copy/leak by a DNC insider (but almost certainly not the same person who copied DNC data on July 5, 2016).

From the information available, we conclude that the same inside-DNC, copy/leak process was used at two different times, by two different entities, for two distinctly different purposes:

-(1) an inside leak to WikiLeaks before Julian Assange announced on June 12, 2016, that he had DNC documents and planned to publish them (which he did on July 22) – the presumed objective being to expose strong DNC bias toward the Clinton candidacy; and

-(2) a separate leak on July 5, 2016, to pre-emptively taint anything WikiLeaks might later publish by “showing” it came from a “Russian hack.”

*  *  *

Mr. President:

This is our first VIPS Memorandum for you, but we have a history of letting U.S. Presidents know when we think our former intelligence colleagues have gotten something important wrong, and why. For example, our first such memorandum, a same-day commentary for President George W. Bush on Colin Powell’s U.N. speech on February 5, 2003, warned that the “unintended consequences were likely to be catastrophic,” should the U.S. attack Iraq and “justfy” the war on intelligence that we retired intelligence officers could readily see as fraudulent and driven by a war agenda.

Secretary of State Colin Powell addressed the United Nations on Feb. 5. 2003, citing satellite photos which supposedly proved that Iraq had WMD, but the evidence proved bogus.

The January 6 “Intelligence Community Assessment” by “hand-picked” analysts from the FBI, CIA, and NSA seems to fit into the same agenda-driven category. It is largely based on an “assessment,” not supported by any apparent evidence, that a shadowy entity with the moniker “Guccifer 2.0” hacked the DNC on behalf of Russian intelligence and gave DNC emails to WikiLeaks.

The recent forensic findings mentioned above have put a huge dent in that assessment and cast serious doubt on the underpinnings of the extraordinarily successful campaign to blame the Russian government for hacking. The pundits and politicians who have led the charge against Russian “meddling” in the U.S. election can be expected to try to cast doubt on the forensic findings, if they ever do bubble up into the mainstream media. But the principles of physics don’t lie; and the technical limitations of today’s Internet are widely understood. We are prepared to answer any substantive challenges on their merits.

You may wish to ask CIA Director Mike Pompeo what he knows about this. Our own lengthy intelligence community experience suggests that it is possible that neither former CIA Director John Brennan, nor the cyber-warriors who worked for him, have been completely candid with their new director regarding how this all went down.

Copied, Not Hacked

As indicated above, the independent forensic work just completed focused on data copied (not hacked) by a shadowy persona named “Guccifer 2.0.” The forensics reflect what seems to have been a desperate effort to “blame the Russians” for publishing highly embarrassing DNC emails three days before the Democratic convention last July. Since the content of the DNC emails reeked of pro-Clinton bias, her campaign saw an overriding need to divert attention from content to provenance – as in, who “hacked” those DNC emails? The campaign was enthusiastically supported by a compliant “mainstream” media; they are still on a roll.

“The Russians” were the ideal culprit. And, after WikiLeaks editor Julian Assange announced on June 12, 2016, “We have emails related to Hillary Clinton which are pending publication,” her campaign had more than a month before the convention to insert its own “forensic facts” and prime the media pump to put the blame on “Russian meddling.” Mrs. Clinton’s PR chief Jennifer Palmieri has explained how she used golf carts to make the rounds at the convention. She wrote that her “mission was to get the press to focus on something even we found difficult to process: the prospect that Russia had not only hacked and stolen emails from the DNC, but that it had done so to help Donald Trump and hurt Hillary Clinton.”

Democratic presidential nominee Hillary Clinton at the third debate with Republican nominee Donald Trump. (Photo credit: hillaryclinton.com)

Independent cyber-investigators have now completed the kind of forensic work that the intelligence assessment did not do. Oddly, the “hand-picked” intelligence analysts contented themselves with “assessing” this and “assessing” that. In contrast, the investigators dug deep and came up with verifiable evidence from metadata found in the record of the alleged Russian hack.

They found that the purported “hack” of the DNC by Guccifer 2.0 was not a hack, by Russia or anyone else. Rather it originated with a copy (onto an external storage device – a thumb drive, for example) by an insider. The data was leaked after being doctored with a cut-and-paste job to implicate Russia. We do not know who or what the murky Guccifer 2.0 is. You may wish to ask the FBI.

The Time Sequence

June 12, 2016: Assange announces WikiLeaks is about to publish “emails related to Hillary Clinton.”

June 15, 2016: DNC contractor Crowdstrike, (with a dubious professional record and multiple conflicts of interest) announces that malware has been found on the DNC server and claims there is evidence it was injected by Russians.

June 15, 2016: On the same day, “Guccifer 2.0” affirms the DNC statement; claims responsibility for the “hack;” claims to be a WikiLeaks source; and posts a document that the forensics show was synthetically tainted with “Russian fingerprints.”

We do not think that the June 12 & 15 timing was pure coincidence. Rather, it suggests the start of a pre-emptive move to associate Russia with anything WikiLeaks might have been about to publish and to “show” that it came from a Russian hack.

The Key Event

July 5, 2016: In the early evening, Eastern Daylight Time, someone working in the EDT time zone with a computer directly connected to the DNC server or DNC Local Area Network, copied 1,976 MegaBytes of data in 87 seconds onto an external storage device. That speed is many times faster than what is physically possible with a hack.

It thus appears that the purported “hack” of the DNC by Guccifer 2.0 (the self-proclaimed WikiLeaks source) was not a hack by Russia or anyone else, but was rather a copy of DNC data onto an external storage device. Moreover, the forensics performed on the metadata reveal there was a subsequent synthetic insertion – a cut-and-paste job using a Russian template, with the clear aim of attributing the data to a “Russian hack.” This was all performed in the East Coast time zone.

“Obfuscation & De-obfuscation”

Mr. President, the disclosure described below may be related. Even if it is not, it is something we think you should be made aware of in this general connection. On March 7, 2017, WikiLeaks began to publish a trove of original CIA documents that WikiLeaks labeled “Vault 7.” WikiLeaks said it got the trove from a current or former CIA contractor and described it as comparable in scale and significance to the information Edward Snowden gave to reporters in 2013.

No one has challenged the authenticity of the original documents of Vault 7, which disclosed a vast array of cyber warfare tools developed, probably with help from NSA, by CIA’s Engineering Development Group. That Group was part of the sprawling CIA Directorate of Digital Innovation – a growth industry established by John Brennan in 2015.

Scarcely imaginable digital tools – that can take control of your car and make it race over 100 mph, for example, or can enable remote spying through a TV – were described and duly reported in the New York Times and other media throughout March. But the Vault 7, part 3 release on March 31 that exposed the “Marble Framework” program apparently was judged too delicate to qualify as “news fit to print” and was kept out of the Times.

WikiLeaks founder Julian Assange at a media conference in Copenhagen, Denmark. (Photo credit: New Media Days / Peter Erichsen)

The Washington Post’s Ellen Nakashima, it seems, “did not get the memo” in time. Her March 31 article bore the catching (and accurate) headline: “WikiLeaks’ latest release of CIA cyber-tools could blow the cover on agency hacking operations.”

The WikiLeaks release indicated that Marble was designed for flexible and easy-to-use “obfuscation,” and that Marble source code includes a “deobfuscator” to reverse CIA text obfuscation.

More important, the CIA reportedly used Marble during 2016. In her Washington Post report, Nakashima left that out, but did include another significant point made by WikiLeaks; namely, that the obfuscation tool could be used to conduct a “forensic attribution double game” or false-flag operation because it included test samples in Chinese, Russian, Korean, Arabic and Farsi.

The CIA’s reaction was neuralgic. Director Mike Pompeo lashed out two weeks later, calling Assange and his associates “demons,” and insisting, “It’s time to call out WikiLeaks for what it really is, a non-state hostile intelligence service, often abetted by state actors like Russia.”

Mr. President, we do not know if CIA’s Marble Framework, or tools like it, played some kind of role in the campaign to blame Russia for hacking the DNC. Nor do we know how candid the denizens of CIA’s Digital Innovation Directorate have been with you and with Director Pompeo. These are areas that might profit from early White House review.

Putin and the Technology

We also do not know if you have discussed cyber issues in any detail with President Putin. In his interview with NBC’s Megyn Kelly, he seemed quite willing – perhaps even eager – to address issues related to the kind of cyber tools revealed in the Vault 7 disclosures, if only to indicate he has been briefed on them. Putin pointed out that today’s technology enables hacking to be “masked and camouflaged to an extent that no one can understand the origin” [of the hack] … And, vice versa, it is possible to set up any entity or any individual that everyone will think that they are the exact source of that attack.”

“Hackers may be anywhere,” he said. “There may be hackers, by the way, in the United States who very craftily and professionally passed the buck to Russia. Can’t you imagine such a scenario? … I can.”

Full Disclosure: Over recent decades the ethos of our intelligence profession has eroded in the public mind to the point that agenda-free analysis is deemed well nigh impossible. Thus, we add this disclaimer, which applies to everything we in VIPS say and do: We have no political agenda; our sole purpose is to spread truth around and, when necessary, hold to account our former intelligence colleagues.

We speak and write without fear or favor. Consequently, any resemblance between what we say and what presidents, politicians and pundits say is purely coincidental. The fact we find it is necessary to include that reminder speaks volumes about these highly politicized times. This is our 50th VIPS Memorandum since the afternoon of Powell’s speech at the UN. Live links to the 49 past memos can be found at http://ift.tt/1S8koLL.

FOR THE STEERING GROUP, VETERAN INTELLIGENCE PROFESSIONALS FOR SANITY

William Binney, former NSA Technical Director for World Geopolitical & Military Analysis; Co-founder of NSA’s Signals Intelligence Automation Research Center

Skip Folden, independent analyst, retired IBM Program Manager for Information Technology US (Associate VIPS)

Matthew Hoh, former Capt., USMC, Iraq & Foreign Service Officer, Afghanistan (associate VIPS)

Larry C Johnson, CIA & State Department (ret.)

Michael S. Kearns, Air Force Intelligence Officer (Ret.), Master SERE Resistance to Interrogation Instructor

John Kiriakou, Former CIA Counterterrorism Officer and former Senior Investigator, Senate Foreign Relations Committee

Linda Lewis, WMD preparedness policy analyst, USDA (ret.)

Lisa Ling, TSgt USAF (ret.) (associate VIPS)

Edward Loomis, Jr., former NSA Technical Director for the Office of Signals Processing

David MacMichael, National Intelligence Council (ret.)

Ray McGovern, former U.S. Army Infantry/Intelligence officer and CIA analyst

Elizabeth Murray, former Deputy National Intelligence Officer for Middle East, CIA

Coleen Rowley, FBI Special Agent and former Minneapolis Division Legal Counsel (ret.)

Cian Westmoreland, former USAF Radio Frequency Transmission Systems Technician and Unmanned Aircraft Systems whistleblower (Associate VIPS)

Kirk Wiebe, former Senior Analyst, SIGINT Automation Research Center, NSA

Sarah G. Wilton, Intelligence Officer, DIA (ret.); Commander, US Naval Reserve (ret.)

Ann Wright, U.S. Army Reserve Colonel (ret) and former U.S. Diplomat

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The Case for Gender Anarchy: New at Reason

Beyond Trans: Does Gender Matter?, by Heath Fogg Davis, New York University Press, 208 pages, $25

Philadelphia used to require every public transit pass to say whether a rider was female or male. For Charlene Arcila, a transgender woman, it didn’t matter which option she chose; either way, some bus drivers deemed her pass illegitimate. Left to decide on the spot whether Arcila qualified as a man or woman, individual city workers would come to different conclusions—but every one of them had the power to refuse to let her ride the bus.

Instituted in the 1980s as a protection against fraud, Philadelphia’s sex-identifying transit cards didn’t cause trouble just for transgender passengers. Plenty of cisgender folks—those whose gender identity conforms to the norm for their biological sex—fail to present as obviously male or female, and passengers of androgynous or ambiguous gender expression also found themselves at the mercy of the public transit sex police.

Following a lawsuit from Arcila and an outcry from local activists, Philadelphia removed sex identification from its transit passes in 2013. Harper Jean Tobin, policy chief for the National Center for Transgender Equality, followed this victory by pushing for mechanisms to make it easier for transgender Americans to change their sex identification on government documents. It’s a popular idea in the modern feminist and LGBT movements. But for Heath Fogg Davis, a transgender man who teaches political science at Temple University, the strategy reflects a deficit in the way many activists think about gender liberation.

Instead of making it easier for individuals to move between two binary positions, Davis writes in his new book Beyond Trans, they should be “questioning our need for sex-classification policies” in the first place, writes Elizabeth Nolan Brown.

View this article.

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Cryptocurrencies Are Crashing Again

The largest cryptocurrencies are under presure again today – Bitcoin, Ethereum down around 10% – as it seems some anxiety remains ahead of the August 1st scaling decision deadline, chatter about Russian Bitcoin viruses, and a new report from BofA has raised more questions than answers about the future of virtual currencies.

On average major crytos are down around 10%…

 

With Bitcoin back near $2500…

 

And Ethereum testing $200 support…

 

No obvious catalyst but several notes going around include… Concerns over a Bitcoin Virus infecting Russian devices… (via CoinTelegraph)

Russia’s chief presidential advisor on the Internet has stated a Bitcoin mining virus has infected up to 30 percent of Russian computers.

 

Speaking in interviews with RNS and RBC, Herman Klimenko said that although infection rates varied by region and device, it involved at least 20 percent of machines.

 

“In regions with lower bandwidth instances are reduced, but we’re looking at 20 to 30 percent of devices being infected – iPhones and Macs are less prone,” he commented.

Elliott-wave guru Prechter is predicting a bear market for Bitcoin.. (via CoinTelegraph)

Market analyst Elliott Prechter has projected that digital currencies, particularly Bitcoin, will experience a sharp decline in the near future. Prechter has correctly forecast the surge of Bitcoin in 2010 when the cryptocurrency’s price was just six cents.

 

In his July 13, 2017 report, Prechter claimed that the Elliott wave pattern, optimistic psychology, and Blockchain bottlenecks will lead to the collapse of the digital currency market.

 

"The price activity and manic sentiment that led to present prices have dwarfed even the Tulip mania of nearly 400 years ago. The success of Bitcoin has spawned 800-plus clones (altcoins) and counting, most of which are high-tech, pump-and-dump schemes. Nevertheless, investors have eagerly bid them up.”

 

Prechter, meanwhile, has correctly predicted Bitcoin’s rise when it was just priced at six cents in September 2010. Elliott Prechter, however, said that the excitement about Bitcoin surpasses the tulip bulb mania in The Netherlands in the early 1600s.

 

“A mania can be both a mania and a revolution at the same time."

and a big BofA report suggests to sustain a virtuous cycle of rising liquidity & falling vol bitcoin has to gain acceptance as collateral, an unlikely event

Is bitcoin a currency? A commodity? Neither? A proper store of value like the EUR, T-bills, or gold is measured by 3 factors: safety, liquidity, and return. Diversification is a plus. Bitcoin remains very volatile. But it has experienced a surge in liquidity in the last six months, surpassing $2bn a day. Moreover, bitcoin is uncorrelated to any financial asset, commodity, or currency we study in this note. The flipside of extreme diversification is that there is no way to explain let alone predict returns. Could bitcoin see a virtuous cycle of increased liquidity, lower volatility, attractive returns, and wider acceptance? Possibly, if regulated financial institutions move to allow bitcoin as pledgeable collateral. However, large inherent risks to digital tokens such as fraud, hacking, theft, new protocol adoption, limited acceptance, and that it is not legal tender many places in the world make it an unlikely development.

 

A wide array of risks obscure the future of cryptocurrencies

 

When examining the safety of any asset, volatility is not the only source of concern. In the case of bitcoin and other virtual tokens, worries are magnified given that it is not legal tender in many places in the world or regulated by any government bodies. In fact, decentralization is central to bitcoin. As such, risks like fraud, hacking, and outright theft have plagued the cryptocurrency world in recent years. In particular, the surge in initial coin offerings seems hard to justify and creates a risk of fragmentation in the market. Confidence could suffer if many of these offerings turn out to be outright scams to circumvent investor protection regulations. After all, it is hard to "know your client" if a bitcoin transaction happens through an exchange in an obscure jurisdiction. Other issues more specific to the functioning of cryptocurrencies, such as finding an agreement regarding the adoption of certain protocols, are also worth mentioning. For example, should bitcoin split into two digital tokens because miners cannot find common ground, a collapse in confidence and value could follow. Lastly, it is worth noting that cryptocurrency transactions are taxable in many jurisdictions, presenting additional challenges to users that are unfamiliar with the fiscal implications of using bitcoin.

 

A key step for bitcoin would be to become pledgeable collateral

 

Still, bitcoin and ethereum have delivered impressive returns so far as fiat currency flowed into these digital tokens. Is it realistic to assume cryptocurrencies will continue to appreciate over time? The dollar price of gold has appreciated over centuries in line with inflation, but some periods have experienced much faster gold price appreciation than others. Moreover, periods of high real interest rates have been particularly damaging for gold returns in the past. In our view, cryptocurrency returns will mostly depend on the faith placed by individuals, corporations, and financial institutions on this emerging technology. As discussed earlier, there are large inherent risks to digital tokens such as fraud, hacking, outright theft, new protocol adoption, limited acceptance, and that it is not legal tender in many places in the world. Moreover, a crucial hurdle remains. Most regulated financial institutions allow their clients to borrow against financial or physical assets, but we are not aware of any major institution that takes cryptocurrency as collateral at the moment. Thus, in our view, a key step for bitcoin would be for it to become pledgeable collateral.

And finally anxiety remains ahead of the fork.

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Greece Sells €3 Billion In Bonds In 2x Oversubscribed Offering

Just over three years after Greece “triumphantly returned” to capital markets in April 2014, when it issued €3 billion in 5 year bonds at a yield of 4.95%, and a cash coupon of 4.75% – an offering which was 8x oversubcribed – and which crashed and nearly defaulted one year later when only the 3rd Greek bailout prevented the country from going bankrupt, only to get taken out at 102, moments ago Greece once again returned to the bond market, if far less triumphantly, by selling another €3 billion in 5 year paper which however was “only” 2x oversubscribed, with indications from Bloomberg that there was only €6.5 billion in demand for the “high yielding” paper. And speaking of yield, it came in lower than 3 years ago, pricing at 4.625% with a coupon of 4.375%.

For those who did not get their desired allottment in today’s offering, fear not there will be more:

  • GREEK FIN MIN SAYS THERE WILL BE A SECOND AND A THIRD BOND SALE

And while we await the final term sheet, here is an interesting observation from EuroWeek’s Owen Sanderson, who explains why, in the more surprising aspect of today’s bond sale, Greece had to spend €78 million for the previously discussed tender of the existing 5 year bond auction.

 

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US Navy Patrol Ship Fires Warning Shots At Iranian Vessel

One day after a US spy plane had to take “evasive action” over the East China Sea after a Chinese fighter jet showed off its Top Gun skills and appeared 90 meters in front of the interloper, a US Navy patrol ship fired warning shots toward an Iranian vessel near the northern Arabian Gulf on Tuesday after the vessel came within 150 yards (137 meters).

Reuters, which confirms the report, quotes an  official who said the USS Thunderbolt fired the warning shots after the Iranian vessel ignored radio calls and the ship’s whistle. The Thunderbolt was being accompanied by several U.S. Coast Guard vessels.

The official also said that the Iranian vessel appeared to be from Iran’s Islamic Revolutionary Guard Corps.

“The IRGCN boat was coming in at a high rate of speed. It did not respond to any signals, they did not respond to any bridge-to-bridge calls, they felt there was no choice except to fire the warning shots,” the defense official told AFP.

The incident comes as tensions in the Arabian Gulf remain elevated throughout the Qatar crisis, with Iran backing up the small kingdom against the Saudi-led Arab bloc. Additionally, Iran lashed out at the US following the latest sanctions and even though Trump’s administration recently declared that Iran was complying with its nuclear agreement with world powers, he warned that Tehran was not following the spirit of the accord and that Washington would look for ways to strengthen it.

Similar incidents have happened periodically, the last in January when a U.S. Navy destroyer fired three warning shots at four Iranian fast-attack vessels near the Strait of Hormuz after they closed in at high speed and disregarded repeated requests to slow down.

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Paid To Wait… “I Bought It For The Dividend”

Authored by Lance Roberts via RealInvestmentAdvice.com,

Okay, I have to discuss something this week that has been bugging me. I have had several emails as of late suggesting one of the biggest investing fallacies stated during late stage bull market advances.

“I don’t care about the price, I bought it for the yield.”

First of all, let’s clear up something.

Company ABC is priced at $20/share and pays $1/share in a dividend each year. The dividend yield is 5% which is calculated by dividing the $1 cash dividend into the price of the underlying stock.

Here is the important point. You do NOT receive a “yield.”

What you DO receive is the $1/share in cash paid out each year.

Yield is simply a mathematical calculation.

The distinction will become important in just a moment. But first, I need to touch on one of the primary issues currently being ignored by the markets which is the inherent risk of mean reversions.

Mean reversions are one of the most powerful forces in the financial markets as, like gravity, moving averages provide the gravitational forces around which prices oscillate. The chart below shows the long-term view of the S&P 500 as related to its long-term 6-year moving average.

Not surprisingly, when prices deviate too far from their underlying moving average (2-standard deviations from the mean) there is generally a reversion back to the mean, or worse.

As you will notice, the bear markets in 2000 and 2007 were not just reversions to the mean, but rather a massive reversion to 2-standard deviations below the mean. Like stretching a rubber band as far as possible in one direction, the snapback resulted in devastating bear markets.

While these bear markets did result in subsequent bull markets, as they should, at the peak of each cycle it was believed that somehow “this time was different.” As discussed previously, the current bull market, which is also believed to be different, is likely not given the lack of economic dynamics required to foster an extended secular period.

The chart below brings this idea of reversion into a bit clearer focus. I have overlaid the 3-year average annual real return of the S&P 500 against the inflation-adjusted price index itself. 

Historically, we find that when price extensions have exceeded a 12% deviation from the 3-year average return of the index, the majority of the market cycle had been completed. Following the large spike in 3-year annualized returns in 2014, returns have begun to revert and will likely continue to do so into the next bear market cycle.

While this analysis does NOT mean the market is set to crash, it does suggest that a reversion in returns is likely. Unfortunately, a historical reversion in returns has often coincided, at some juncture, with a rather sharp decline in prices.

I Bought It For The Dividend

This brings me to the “I Bought It For The Dividend” investing problem.

I previously posted an article discussing the “Fatal Flaws In Your Financial Plan” which, as you can imagine, generated much debate. One of the more interesting rebuttals was the following:

“‘The single biggest mistake made in financial planning is NOT to include variable rates of return in your planning process.’

 

This statement puzzles me. If a retired person has a portfolio of high-quality dividend growth stocks, the dividends will most likely increase every single year. Even during the stock market crashes of 2002 and 2008, my dividends continued to increase. It is true that the total value of the portfolio will fluctuate every year, but that is irrelevant since the retired person is living off his dividends and never selling any shares of stock.

 

Dividends are a wonderful thing, Lance. Dividends usually go up even when the stock market goes down.

This comment drives to the heart of the “buy and hold” mentality and, along with it, many of the most common investing misconceptions.

Dividends Always Increase, Right?

Let’s start with the notion that “dividends always increase.”

First, his statement is incorrect because during market reversion “cash dividends” DO NOT increase – but the YIELD does because of the collapse in prices. 

But, more to the point, the notion is true, until it isn’t.

During the 2008 financial crisis, more than 140 companies decreased or eliminated their dividends to shareholders. Yes, many of those companies were major banks, however, leading up to the financial crisis there were many individuals holding large allocations to banks for the income stream their dividends generated. In hindsight, that was not such a good idea.

But it wasn’t just 2008. It also occurred dot.com bust in 2000. In both periods, while investors lost roughly 50% of their capital, dividends were also cut on average of 12%.

Of course, it wasn’t EVERY company cutting dividends by 12%. Some didn’t. Many did and some even eliminated their dividends entirely to protect creditors.

Due to the Federal Reserve’s suppression of interest rates since 2009, investors have piled into dividend yielding equities, regardless of fundamentals, due to the belief “there is no alternative.” The resulting “dividend chase” has pushed valuations dividend yielding companies to excessive levels disregarding underlying fundamental weakness. 

As with the “Nifty Fifty” heading into the 1970’s, the resulting outcome for investors was less than favorable. These periods are not isolated events. There is a high correlation between declines in asset prices and the actual dividends being paid out throughout history.

While I completely agree that investors should own companies that pay dividends (as it is a significant portion of long-term total returns), it is also crucial to understand that companies can, and will, cut dividends during periods of financial stress. During the next major market reversion, we will see much of the same happen again.

It is during these times when prices collapse, and dividends are slashed, the “I bought it for the dividend plan” doesn’t work out.

EVERY investor has a point, when prices fall far enough, that regardless of the dividend being paid they WILL capitulate and sell the position. This point generally comes when dividends have been cut and capital destruction has been maximized.

Psychology

Of course, while individuals suggest they will remain steadfast to their discipline over the long-term, repeated studies show that few individuals actually do. This was shown clearly in the 2016 Dalbar study that I discussed in “You Still Suck At Investing:”

“However, even the issues shown above do not fully account for the underperformance of investors over time. The key findings of the study show that:

  • In 2015, the average equity mutual fund investor underperformed the S&P 500 by a margin of 3.66%. While the broader market made incremental gains of 1.38%, the average equity investor suffered a more-than-incremental loss of -2.28%.
  • In 2015, the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 3.66%. The broader bond market realized a slight return of 0.55% while the average fixed income fund investor lost -3.11%.
  • In 2015, the 20-year annualized S&P return was 8.19% while the 20-year annualized return for the average equity mutual fund investor was only 4.67%, a gap of 3.52%.”

Dalbar-2016-Performance-060616

“Here is a visual of the lag between expectations and reality.”

Dalbar-2016-ReturnComparision-060616

“Accordingly to the Dalbar study, the three primary causes for the chronic shortfall for both equity and fixed income investors is shown in the chart below.”

Dalbar-2016-Psychology-060616

Notice that while “fees” are important to overall returns, “fees” are not a key issue to the majority of underperformance by individual investors. As shown above, the key issues come down to primarily a lack of capital to invest and psychology.

Despite the logic behind “buying and holding” dividend yielding stocks over the long term the biggest single impediment to the success of that strategy over time is psychology. Behavioral biases, specifically the “herding effect” and “loss aversion,” repeatedly lead to poor investment decision-making.

Ultimately, when markets decline, there is a slow realization “this decline” is something more than a “buy the dip” opportunity. As losses mount, so does the related anxiety until individuals seek to “avert further loss” by selling. It is generally believed that dividend yielding stocks offer protection during bear market declines. The chart below is the Fidelity Dividend Growth Fund (most ETF’s didn’t exist prior to 2000), as an example, suggests this is not the case.

As you can see, there is little relative “safety” during a major market reversion. The pain of a 38% loss, or a 56% loss, is devastating particularly when the prevailing market sentiment is one of a “can’t lose” environment. Furthermore, when it comes to dividend yielding stocks, the psychology is no different – a 3-5% yield and a 30-50% loss of capital are two VERY different issues.

In the end, we are just human. Despite the best of our intentions, it is nearly impossible for an individual to be devoid of the emotional biases that inevitably lead to poor investment decision-making over time. This is why all great investors have strict investment disciplines that they follow to reduce the impact of human emotions.

While many studies show that “buy and hold,” and “dividend” strategies do indeed work over very long periods of time; the reality is that few will ever survive the downturns in order to see the benefits. Furthermore, with valuations and market correlations at extremely elevated levels, the next major market correction will be equally unkind to all investors. But then again, since the majority of American’s have little or no money with which to invest, maybe that is the bigger problem to begin with.

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Conference Board Consumer Confidence Soars To 2nd Highest Since 2000

Second only to March’s highs, The Conference Board’s Consumer Confidence printed at its highest level since the year 2000 (ironic given where Nasdaq is trading). Despite a tumble in ‘hard’ data, and a plunge in Bloomberg’s economic expectations, it appears record high stocks are working to pump Americans up.

 

“Consumer confidence increased in July following a marginal decline in June,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions remained at a 16-year high (July 2001, 151.3) and their expectations for the short-term outlook improved somewhat after cooling last month. Overall, consumers foresee the current economic expansion continuing well into the second half of this year.”

 Consumers’ assessment of current conditions improved in July. Those saying business conditions are “good” increased from 30.6 percent to 33.3 percent, while those saying business conditions are “bad” was virtually unchanged at 13.5 percent. Consumers’ appraisal of the labor market was also more favorable. Those stating jobs are “plentiful” rose from 32.0 percent to 34.1 percent, while those claiming jobs are “hard to get” decreased slightly from 18.4 percent to 18.0 percent.

Consumers were also more optimistic about the short-term outlook in July. The percentage of consumers expecting business conditions to improve over the next six months increased from 20.1 percent to 22.9 percent, while those expecting business conditions to worsen declined from 10.0 percent to 8.2 percent.

Consumers’ outlook for the labor market improved. The proportion expecting more jobs in the months ahead was unchanged at 19.2 percent, but those anticipating fewer jobs decreased from 14.6 percent to 13.3 percent. 

Consumers, however, were not as upbeat about their income prospects as in June. The percentage of consumers expecting an improvement in their income declined moderately from 20.9 percent to 20.0 percent, while the proportion expecting a decline increased from 9.3 percent to 10.0 percent.

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Warning: the Biggest Trend of the Next 12 Months Has Hit

The single biggest trend for the next year or so will be the collapse of the $USD.

The fact is that the Fed will be forced to walk back its hawkishness. Indeed, this process has already begun with Janet Yellen testifying before Congress that the Fed was just about done with rate hikes.

Bear in mind, the $USD had already dropped 8% year to date during a period in which the Fed had hiked rates TWICE.

So what will happen to the $USD when the Fed walks back its hawkishness and slows down the pace of rate hikes… or even STOPS hiking altogether?

Again… the $USD is set to collapse. And as it does, inflation plays will be EXPLODING higher.

If you’re not taking steps to actively prepare your portfolio for this, you need to so now.

We just published a Special Investment Report concerning a secret back-door play on Gold that gives you access to 25 million ounces of Gold that the market is currently valuing at just $273 per ounce.

The report is titled The Gold Mountain: How to Buy Gold at $273 Per Ounce

We are giving away just 1,000 copies for FREE to the public.

Today there are just 87 left.

To pick up yours, swing by:

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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Daily Trading Volume In Bitcoin Surpasses GLD

Several weeks after Goldman’s chief technician started covering bitcoin, overnight Bank of America has released what some may call an “initiating coverage” report on bitcoin which notes that while the cryptocurrency remains very volatile and risky, bitcoin has experienced a spectacular surge in liquidity in the last six months. However, BofA remains stumped when it comes to making any official forecasts BofA’s commodity strategist Francisco Blanch writes that bitcoin is uncorrelated to any financial asset, “so there is no way to explain let alone predict returns.”

While we will present some of the more notable findings from the report shortly, one observation caught our attention, namely that in at least one regard, bitcoin has already surpassed gold: the total daily trading bolume for bitcoin has now surpassed that of the biggest gold ETF, the GLD.

As BofA notes, “it is hard to ignore that trading volumes for major digital currencies like bitcoin and ethereum have skyrocketed in recent years. For example, daily trading volumes for bitcoin were $400mn in 2012 and have now moved up to about $2bn a day at present” which also means that – at current BTC prices – the total ADV of BTC traded is higher than that of GLD.

BofA continues:

Meanwhile, ethereum had daily trading volumes of $1.5mn when it first launched in 2015 and it is now experiencing daily trading of about $1bn. Most importantly, for a digital token to become a currency, it must build to a certain scale, a bit like the silver mine in Bolivia found by the Spanish. In some ways, this is exactly what has been happening in recent quarters, with the total market value of digital tokens growing exponentially from $1.5bn to around $87bn at present.

And while Bitcoin liquidity still has a ways to go before catching up to equity and fixed income markets, BofA does note that there is a distinct overlap in the historical price pattern of gold with that of bitcoin:

A big uncertainty facing bitcoin and other digital tokens we see is their expected real rate of return. So far, early adopters have enjoyed a sharp appreciation in prices. While bitcoin seems to have followed a pattern similar to gold over a much more compressed time period (Chart 18), there is no certainty that that will continue and, most certainly, no way to predict it. Also, there are large inherent risks to digital tokens such as fraud, hacking, outright theft, new protocol adoption, limited acceptance, and it is not legal tender in many places in the world.

As Blanch summarizes, “put differently, cryptocurrencies have built scale rapidly and are now accepted as a means of payment by some corporations and individuals.”

The only question is if, and when, will cryptos in their current iteration start being accepted by central banks, and more importantly, as pledgeable collateral. More on that shortly.

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