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James Turk: Erosion of Trust Will Drive Gold Higher

By Casey Research

A Q&A with Casey Research

James Turk, founder of precious metals accumulation pioneer GoldMoney, has over 40 years’ experience in international banking, finance, and investments. He began his career at the Chase Manhattan Bank and in 1983 was appointed manager of the commodity department of the Abu Dhabi Investment Authority.

In his new book The Money Bubble: What to Do Before It Pops, James and coauthor John Rubino warn that history is about to repeat. Instead of addressing the causes of the 2008 financial crisis, the world’s governments have continued along the same path. Another—even bigger—crisis is coming, and this one, say the authors, will change everything.

One central tenet of your book is that the dollar’s international importance has peaked and is now declining. What will the implications be if the dollar loses its reserve status?

James: In a word, momentous. Although the dollar’s role in world trade has been declining in recent years while the euro and more recently the Chinese yuan have been gaining share, the dollar remains the world’s dominant currency. So crude oil and many other goods and services are priced in dollars. If goods and services begin being priced in other currencies, the demand for the dollar falls.

Supply and demand determine the value of everything, including money. So a declining demand for the dollar means its purchasing power will fall, assuming its supply remains unchanged. But a constant supply of dollars is an implausible assumption given that the Federal Reserve is constantly expanding the quantity of dollars through various forms of “money printing.” So as the dollar’s reserve status erodes, its purchasing power will decline too, adding to the inflationary pressures already building up within the system from the Federal Reserve’s quantitative easing program that began after the 2008 financial collapse.

Most governments of the world are fighting a currency war, trying to devalue their currencies to gain a competitive advantage over one another. You predict that China will “win” this currency war (to the extent there is a winner). What is China doing right that other countries aren’t? How would the investment world change if China did “win”?

James: As you say, nobody really wins a currency war. All currencies are debased when the war ends. What’s important is what happens then. Countries reestablish their currency in a sound way, and that means rebuilding on a base of gold. So the winner of a currency war is the country that ends up with the most gold.

For the past decade, gold has been flowing to China—both newly mined gold as well as from existing stocks. But that flow from West to East has accelerated over the past year, and there are unofficial estimates that China now has the world’s third-largest gold reserve.

The implications for the investment world as well as the global monetary system are profound. Why should China use dollars to pay for its imports of crude oil from the Middle East? What if Saudi Arabia and other exporters are willing to price their product and get paid in Chinese yuan? Venezuela is already doing that, so it is not a far-fetched notion that other oil exporters will too. China is a huge importer of crude oil, and its energy needs are likely to grow. So it is becoming a dominant player in global oil trading as the US imports less oil because of the surge in its own domestic fossil fuel production.

Changes in the way oil is traded represent only one potential impact on the investment world, but it indicates what may lie ahead as the value of the dollar continues to erode and gold flows from West to East. So if China ends up with the most gold, it could emerge as the dominant player in global investments and markets. It already has become the dominant player in the market for physical gold.

You draw a distinction between “financial” and “tangible” assets, noting that we go through a recurring cycle where each falls in and out of favor. Where are we in that cycle? With US stocks at all-time highs and gold down over 30% since the summer of 2011, is it possible that the cycle is rolling over?

James: Our monetary system suffers recurring booms and busts because of the fractional reserve practice of banks, which allows them to create money “out of thin air,” as the saying goes. During booms—all of which are caused by too much money that banks have created by expanding credit—financial assets outperform, but they eventually become overvalued relative to tangible assets. The cycle then reverses. The fractional reserve system goes into reverse and credit contracts, causing a lot of promises made during the good times to be broken. Loans don’t get repaid, unnerving bankers and investors alike. So money flees out of financial assets and the counterparty risk these assets entail, and into the safety of tangible assets, until eventually tangible assets become overvalued, and the cycle reverses again.

So for example, the boom in financial assets that ended in 1967 led to a reversal in the cycle until tangible assets became overvalued in 1981. The cycle reversed again, and financial assets boomed until the popping of the dot-com bubble in 2000. We are still in the cycle favoring tangible assets, but there is no way to predict when it will end. We know it will end when tangible assets become overvalued, but as John and I explain in The Money Bubble, we are not even close to that moment yet.

You cite the “shrinking trust horizon” as one of the long-term factors that will drive gold higher. Can you explain?

James: Yes, this is an important point that we make. Our economy, and indeed, our society, is based on trust. We expect the bread we buy from a baker or the gasoline we buy for our car to be reliable. We expect our money on deposit in a bank to be safe. But if we find the baker is putting sawdust in our bread and governments are using depositor money to bail out banks, as happened in Cyprus last year, trust begins to erode.

An erosion of trust means that people are less willing to accept the counterparty risk that comes with financial assets, so the erosion of trust occurs during financial busts. People as a consequence move their wealth into tangible assets, be it investments in tangible things like farmland, oil wells, or mines, or in tangible forms of money, which of course means gold.

Obviously, gold has been in a painful slump since the summer of 2011. What near-term catalysts—let’s say in 2014—could wake it from its slumber?

James: We have to put 2013 into perspective, because portfolio management is a marathon, not a 100-meter sprint. Gold had risen 12 years in a row prior to last year’s price decline. And even after last year, gold has appreciated 13% per annum on average, making it one of the world’s best-performing asset classes since the current financial bust began with the popping of the dot-com bubble.

Looking to the year ahead, there are many potential catalysts, but it is impossible to predict which event will be the trigger. The derivatives time bomb? Failure of a big bank? The sovereign debt crisis returns to the boil? The Japanese yen collapses? It could be any of these or something we can’t even imagine. But one thing is certain: as long as central banks continue their present money-printing ways, the price of gold will rise over time to reflect the debasement of national currencies. The gold price might not jump to its fair value immediately because of government intervention, but it will rise eventually and inevitably.

So the most important thing to keep in mind is the money printing that pretty much every central bank around the world is doing. The central bankers have given it a fancy name—”quantitative easing.” But regardless of what it is called, it is still creating money out of thin air, which debases the currency that central bankers are supposed to be prudently managing to preserve the currency’s purchasing power.

Money printing does the exact opposite; it destroys purchasing power, and the gold price in terms of that currency rises as a consequence. The gold price is a barometer of how well—or perhaps more to the point, how poorly—central bankers are doing their job.

Governments have been debasing currencies since the Roman denarius. Why do you expect the consequences of this particular era of debasement to be so severe?

James: Yes, they have, and to use Rome as the example, its empire collapsed when the currency was debased. Worryingly, after the collapse of the Roman Empire, the world went into the so-called Dark Ages. Countries grow and prosper on sound money. They dissipate and eventually collapse when money becomes unsound. This pattern recurs throughout history.

Rome of course did not collapse overnight. The debasement of their currency cannot be precisely measured, but it lasted over 100 years. The important point we need to recognize is that the debasement of the dollar that began with the formation of the Federal Reserve in 1913 has now lasted over 100 years too. A penny in 1913 had the same purchasing power as a dollar has today, which, interestingly, is not too different from the rate at which Rome’s denarius was debased.

After discussing how the government of Cyprus raided its citizens’ bank accounts in 2013, you suggest that it’s a near certainty that more countries will introduce capital controls and asset confiscations in the next few years. What form might those seizures take, and how can people protect their assets?

James: It is impossible to predict, of course, because central planners can be very creative in coming up with different forms of financial repression that prevent you from doing what you want with your money. In fact, look at the creativity they have already used.

For example, not only did bank depositors in Cyprus lose much of their money, much of what was left was given to them in the forms of shares of the banks they bailed out, forcing them to become shareholders. And the US has imposed a creative type of capital control that makes it nearly impossible for its citizens to open a bank account outside the US. Pension plans are the most vulnerable because they are easy to get at. Keep in mind that Argentina, Ireland, Spain, and Poland raided private pensions when those countries ran into financial trouble.

Protecting one’s assets in today’s environment is difficult. John and I have some suggestions in the book, such as global diversification and internationalizing oneself to become as flexible as possible.

You dedicated an entire chapter of your book to silver. Which do you think will appreciate more in the next year, gold or silver? How about in the next 10 years?

James: I think silver will do better for the foreseeable future. It is still very cheap compared to gold. As but one example to illustrate this point, even though gold underwent a big price correction last year, it is still trading above the record high it made in January 1980, which was the top of the bull run that began in the 1960s.

In contrast, not only has silver not yet broken above its January 1980 peak of $50 per ounce, it is still far from that price. So silver has a lot of catching up to do.

Silver is a good substitute for gold in that silver, too, can be viewed as money outside the banking system, which is an important objective to keep wealth liquid and safe today. But silver may not be for everyone, because it is volatile. This volatility can be measured with the gold/silver ratio, which is the number of ounces of silver needed to equal one ounce of gold. The ratio was 30 to 1 in 2011, and several months later jumped to 60 to 1.

So you can see how volatile silver is. But because I expect silver to do better than gold, I believe that the ratio will fall to 16 to 1 eventually, which is the same level it reached in January 1980. It is also the ratio that generally applied when national currencies used to be backed by precious metals.

Besides gold, what one secular trend would you be most comfortable betting a large portion of your nest egg on?

James: Own things, rather than promises. Avoid financial assets. Own tangible assets of all sorts, like farmland, timberland, oil wells, etc. Near-tangibles like the equities of companies that own tangible assets are okay too, but avoid the equities of banks, credit card companies, mortgage companies, and any other equities tied to financial assets.

What asset class are you most bearish on?

James: Without any doubt, it is government debt in particular and more generally, government promises. They have promised more than they can possibly deliver, so a lot of their promises are going to be broken before we see the end of this current bust that began in 2000. And that outcome of broken promises describes the huge task that we all face. There will be a day of reckoning. There always is when an economy and governments take on more debt than is prudent, and the world is far beyond that point.

So everyone needs to plan and prepare for that day of reckoning. We can’t predict when it is coming, but we know from monetary history that busts follow booms, and more to the point, that currencies collapse when governments make promises that they cannot possibly fulfill. Their central banks print the currency the government wants to spend until the currency eventually collapses, which is a key point of The Money Bubble. The world has lost sight of what money is.

What today is considered to be money is only a money substitute circulating in place of money. J.P. Morgan had it right when in testimony before the US Congress in 1912 he said: “Money is gold, nothing else.” Because we have lost sight of this wisdom, a “money bubble” has been created. And it will pop. Bubbles always do.

As James Turk said, “near-tangibles like the equities of companies that own tangible assets” (i.e., gold stocks) are good investments—and right now, they are dramatically undervalued. In a recent online video event titled “Upturn Millionaires,” eight influential investors including Doug Casey, Rick Rule, Frank Giustra, and Ross Beaty gathered to discuss the new realities in the gold stock sector—and why the odds of making huge gains are now extremely high. Click here to watch the event.

via Zero Hedge http://ift.tt/1c7n72y ilene

Submitted by Lance Roberts of STA Wealth Management,

The market correction that begin in January appears to be subsiding, at least for the moment, as Yellen's recent testimony gave markets the promise of the continuation of Bernanke's legacy.  A synopsis of her "accommodation supportive" comments (courtesy of Bill King) is below:

* The recovery in the labor market is far from complete.

 

* The hope is that by stimulating more borrowing and spending, lower interest rates can jumpstart the economy.  [Of course, we are still waiting for that to actually happen]

 

* QE tapering is "not on a preset course. The Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."

 

* Asset prices are not at "worrisome levels." [This statement caused the midday surge.]

 

* The Fed will have to keep rates near zero "well past the time" that unemployment crosses below the 6.5 percent threshold; and the Fed will be an active participant in increased bank regulation, specifically focusing on avoiding the too-big-to-fail problems

With the markets back into rally mode, for the moment, this week's "Things To Ponder" focuses on some of the bigger issues concerning the effectiveness of QE, investing and that chart of 1929 that has been making the rounds.

1) QE Is A Mistake – A Big One by Allan Meltzer of E21

If you review the Yellen's comments above, she stated that the "hope" of QE was to stimulate more borrowing and spending.  Unfortunately, as shown in the chart of M2V below, it has simply not been the case.

Allan Metzer wrote a terrific article for E21 driving home this point:

"The Fed deserves high praise for the first round of QE in 2008. However, the benefits ended long ago. More than 95 percent of the reserves that the Fed supplied under QE 2 and 3 sit idle on bank balance sheets. M2 money growth for the year to the end of January 2014 is less than 5.5 percent. There is no mystery about why inflation remains low.

 

The mistaken results of QE policy include Federal Reserve financing of outsize budget deficits. No one should require a tutorial about the longer-term consequences of using central banks to finance government deficits. Sooner or later the results are inflation, always and everywhere."

2) The Cash On The Sidelines Myth by Pater Tenebrarum via Zero Hedge

In a recent interview by JP Morgan's Tom Lee, he asserted that:

“This could be only the middle innings of what could be one of the longest bull markets in history," Lee said in a "Squawk Box" interview. "There is a lot of firepower to fuel this rally. There is a lot of cash on the sidelines, consumers have delevered."

Pater dismantles this very ill-founded argument, a pet peeve of Cliff Asness as well, in great detail.

"Let us think about this statement for a moment. What is 'cash on the sidelines' even supposed to mean? We submit that it is a meaningless concept. All stocks are owned by someone at all times, and all cash is held by someone at all times. When people trade stocks, all that happens is that the ownership of stocks and cash changes hands. There is as much 'cash on the sidelines' after a trade concludes than there was before. There are no owner-less orphan stocks flying about in the Wall Street Aether, waiting to suck up cash.

 

In other words, the 'cash on the sidelines' argument is a really bad argument, or rather, it's not an argument at all."

3) Can Earnings Get Better Than This? by Tom McClellan via Pragmatic Capitalist

"The conventional stock market analysis world revolves around earnings.  'Earnings drive the stock market,' they say.  This myopic view is akin to the belief that carbon dioxide is the driving force behind the greenhouse effect (water vapor actually accounts for 90-95% of it, but you don’t hear that).  People believe that earnings are everything because they have been told that it is so, and everyone thinks so,  therefore it must be so.  Circularity of logic and contradictory evidence do not seem to be significant impediments to the acceptance of this belief system.

This week’s chart looks at the BEA’s data on corporate profits.

Why doesn't everyone look at earnings this way? My answer is that Wall Street has a fascination with its own forecasts of earnings, and with the reported earnings of listed companies stocks. But those are a pair biases which excluded private company earnings, and which also accept earnings estimates which are notoriously subject to revision. I prefer to deal in hard data. The next BEA report on earnings is not due out until Feb. 28, so using these data means accepting the inherent reporting lag.

 

What we see now is an indication that the reading for overall corporate profits as a percentage of GDP is at one of the highest levels of recent years. And when it cannot get higher, it can only get lower. It is true that this measure has been higher in the distant past, but that was back in the 1960s and earlier, when GDP was a bit different than it is now, and when accounting standards for measuring profits were also different. The current high reading has only been exceeded once in the past 46 years, and that was at the real estate bubble top for earnings back in 2006. And
we all know how that ended."

 

4) Everything I Know About Investing I Learned From Drivers Ed by Jason Zweig

Jason's articles are always a must read as he has a brilliant ability to very complex issues into an understandable, and enjoyable, format.  His recent piece on investing is no exception and well worth your time to read.

"Only recently did I realize that his messages apply at least as much to investing as they do to driving. Here are the pithy expressions Mr. Terry taught us about driving – and how I think they apply to investing as well.

 

Put Your Head on a Swivel – Risk is all around you, and the likeliest places to look for it are the places that appear to be the safest. That’s where the next danger will come from – just where and when nobody is looking.

 

Edge On, Edge Off– Making a sudden change in your plan is usually a mistake. Making a sudden, big change in your plan almost always is.

 

 

Get in the Ground-Viewing Habit – It’s what is beneath eye-level that matters

 

Give Him Room and Let Him Zoom – People who try to get rich quick don’t end up any farther along – and take a lot more risk, and incur a lot more cost, to get there. You don’t get bonus points in investing for arriving at your destination ahead of time. The only thing that matters is getting there in one piece."

5) The 1929 Scary Chart via Bill King, The King Report

The chart below, which compares the 1929 stock market to today, has been making the rounds stirring up quite a bit of angst.  I thought Bill did a good job of dispelling some of these concerns.

"There is another factor that drove stocks higher on Tuesday – some of the 1928-1930 algorithm followers are now covering their shorts. [Especially after the S&P 500 blew threw 1800]"

"In our missive on Monday we stated: We believe that the current stock market will now diverge from the 1928-1930 algorithm. For the near future we cannot see or fathom a catalyst for a stock market crash. Plus, it's the wrong time of the year for a dramatic decline in stock prices.

 

PS- Several people voiced irritation with our forecast that stocks would not tank in coming days.

 

Apparently a critical mass of traders now realize that stocks are diverging from the 1928-1930 algorithm. This unleashed massive short covering on Tuesday.

 

This story by Mark Hulbert appeared yesterday on Drudge: Scary 1929 market chart gains traction

 

There are eerie parallels between the stock market's recent behavior and how it behaved right before the 1929 crash…

 

Tom Demark [has a huge hedge fund and institutional following] added in interview that he first drew parallels with the 1928-1929 period well before last November.

 

'Originally, I drew it for entertainment purposes only,' he said—but no longer: 'Now it's evolved into something more serious.'"

I agree with Bill.  Statistically speaking, the odds are high that the markets will diverge from the pattern.   While history does indeed rhyme, it often does not repeat exactly.  Do I think that eventually the markets will have another major reversion?  Absolutely.  The natural ebb and flow of market dynamics tells us this will be the case.  Unfortunately, we just don't know when or what will cause it.

Bonus Reading:  77 Reasons You Suck At Managing Money by Morgan Housel

"People usually get better at things over time. We're better farmers, faster runners, safer pilots, and more accurate weather forecasters than we were 50 years ago.

 

But there's something about money that gets the better of us. If you look at the rate of personal bankruptcies, financial crises, bubbles, student loans, debt defaults, and savings rates, I wonder whether people are just as bad at managing money today as they were in previous generations, maybe even worse. It's one of the only areas in life we seem to get progressively dumber at."

Yes, there are indeed 77 charming nuggets of wisdom contained within the article, all of which are worth every minute you spending reading them.  They are funny, enlightening and humbling with insights like:

"You get upset when you hear on TV that the government is running a deficit. It doesn't bother you that you heard this on a TV you bought on a credit card in a home you purchased with a no-money-down mortgage."

He concludes with the most salient point:

"You nodded along to all 77 of these points without realizing I'm talking about you. That goes for me, too."

Have a great weekend.

via Zero Hedge http://ift.tt/1dQC1a4 Tyler Durden

Submitted by Lance Roberts of STA Wealth Management,

The market correction that begin in January appears to be subsiding, at least for the moment, as Yellen's recent testimony gave markets the promise of the continuation of Bernanke's legacy.  A synopsis of her "accommodation supportive" comments (courtesy of Bill King) is below:

* The recovery in the labor market is far from complete.

 

* The hope is that by stimulating more borrowing and spending, lower interest rates can jumpstart the economy.  [Of course, we are still waiting for that to actually happen]

 

* QE tapering is "not on a preset course. The Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."

 

* Asset prices are not at "worrisome levels." [This statement caused the midday surge.]

 

* The Fed will have to keep rates near zero "well past the time" that unemployment crosses below the 6.5 percent threshold; and the Fed will be an active participant in increased bank regulation, specifically focusing on avoiding the too-big-to-fail problems

With the markets back into rally mode, for the moment, this week's "Things To Ponder" focuses on some of the bigger issues concerning the effectiveness of QE, investing and that chart of 1929 that has been making the rounds.

1) QE Is A Mistake – A Big One by Allan Meltzer of E21

If you review the Yellen's comments above, she stated that the "hope" of QE was to stimulate more borrowing and spending.  Unfortunately, as shown in the chart of M2V below, it has simply not been the case.

Allan Metzer wrote a terrific article for E21 driving home this point:

"The Fed deserves high praise for the first round of QE in 2008. However, the benefits ended long ago. More than 95 percent of the reserves that the Fed supplied under QE 2 and 3 sit idle on bank balance sheets. M2 money growth for the year to the end of January 2014 is less than 5.5 percent. There is no mystery about why inflation remains low.

 

The mistaken results of QE policy include Federal Reserve financing of outsize budget deficits. No one should require a tutorial about the longer-term consequences of using central banks to finance government deficits. Sooner or later the results are inflation, always and everywhere."

2) The Cash On The Sidelines Myth by Pater Tenebrarum via Zero Hedge

In a recent interview by JP Morgan's Tom Lee, he asserted that:

“This could be only the middle innings of what could be one of the longest bull markets in history," Lee said in a "Squawk Box" interview. "There is a lot of firepower to fuel this rally. There is a lot of cash on the sidelines, consumers have delevered."

Pater dismantles this very ill-founded argument, a pet peeve of Cliff Asness as well, in great detail.

"Let us think about this statement for a moment. What is 'cash on the sidelines' even supposed to mean? We submit that it is a meaningless concept. All stocks are owned by someone at all times, and all cash is held by someone at all times. When people trade stocks, all that happens is that the ownership of stocks and cash changes hands. There is as much 'cash on the sidelines' after a trade concludes than there was before. There are no owner-less orphan stocks flying about in the Wall Street Aether, waiting to suck up cash.

 

In other words, the 'cash on the sidelines' argument is a really bad argument, or rather, it's not an argument at all."

3) Can Earnings Get Better Than This? by Tom McClellan via Pragmatic Capitalist

"The conventional stock market analysis world revolves around earnings.  'Earnings drive the stock market,' they say.  This myopic view is akin to the belief that carbon dioxide is the driving force behind the greenhouse effect (water vapor actually accounts for 90-95% of it, but you don’t hear that).  People believe that earnings are everything because they have been told that it is so, and everyone thinks so,  therefore it must be so.  Circularity of logic and contradictory evidence do not seem to be significant impediments to the acceptance of this belief system.

This week’s chart looks at the BEA’s data on corporate profits.

Why doesn't everyone look at earnings this way? My answer is that Wall Street has a fascination with its own forecasts of earnings, and with the reported earnings of listed companies stocks. But those are a pair biases which excluded private company earnings, and which also accept earnings estimates which are notoriously subject to revision. I prefer to deal in hard data. The next BEA report on earnings is not due out until Feb. 28, so using these data means accepting the inherent reporting lag.

 

What we see now is an indication that the reading for overall corporate profits as a percentage of GDP is at one of the highest levels of recent years. And when it cannot get higher, it can only get lower. It is true that this measure has been higher in the distant past, but that was back in the 1960s and earlier, when GDP was a bit different than it is now, and when accounting standards for measuring profits were also different. The current high reading has only been exceeded once in the past 46 years, and that was at the real estate bubble top for earnings back in 2006. And we all know how that ended."

 

4) Everything I Know About Investing I Learned From Drivers Ed by Jason Zweig

Jason's articles are always a must read as he has a brilliant ability to very complex issues into an understandable, and enjoyable, format.  His recent piece on investing is no exception and well worth your time to read.

"Only recently did I realize that his messages apply at least as much to investing as they do to driving. Here are the pithy expressions Mr. Terry taught us about driving – and how I think they apply to investing as well.

 

Put Your Head on a Swivel – Risk is all around you, and the likeliest places to look for it are the places that appear to be the safest. That’s where the next danger will come from – just where and when nobody is looking.

 

Edge On, Edge Off– Making a sudden change in your plan is usually a mistake. Making a sudden, big change in your plan almost always is.

 

 

Get in the Ground-Viewing Habit – It’s what is beneath eye-level that matters

 

Give Him Room and Let Him Zoom – People who try to get rich quick don’t end up any farther along – and take a lot more risk, and incur a lot more cost, to get there. You don’t get bonus points in investing for arriving at your destination ahead of time. The only thing that matters is getting there in one piece."

5) The 1929 Scary Chart via Bill King, The King Report

The chart below, which compares the 1929 stock market to today, has been making the rounds stirring up quite a bit of angst.  I thought Bill did a good job of dispelling some of these concerns.

"There is another factor that drove stocks higher on Tuesday – some of the 1928-1930 algorithm followers are now covering their shorts. [Especially after the S&P 500 blew threw 1800]"

"In our missive on Monday we stated: We believe that the current stock market will now diverge from the 1928-1930 algorithm. For the near future we cannot see or fathom a catalyst for a stock market crash. Plus, it's the wrong time of the year for a dramatic decline in stock prices.

 

PS- Several people voiced irritation with our forecast that stocks would not tank in coming days.

 

Apparently a critical mass of traders now realize that stocks are diverging from the 1928-1930 algorithm. This unleashed massive short covering on Tuesday.

 

This story by Mark Hulbert appeared yesterday on Drudge: Scary 1929 market chart gains traction

 

There are eerie parallels between the stock market's recent behavior and how it behaved right before the 1929 crash…

 

Tom Demark [has a huge hedge fund and institutional following] added in interview that he first drew parallels with the 1928-1929 period well before last November.

 

'Originally, I drew it for entertainment purposes only,' he said—but no longer: 'Now it's evolved into something more serious.'"

I agree with Bill.  Statistically speaking, the odds are high that the markets will diverge from the pattern.   While history does indeed rhyme, it often does not repeat exactly.  Do I think that eventually the markets will have another major reversion?  Absolutely.  The natural ebb and flow of market dynamics tells us this will be the case.  Unfortunately, we just don't know when or what will cause it.

Bonus Reading:  77 Reasons You Suck At Managing Money by Morgan Housel

"People usually get better at things over time. We're better farmers, faster runners, safer pilots, and more accurate weather forecasters than we were 50 years ago.

 

But there's something about money that gets the better of us. If you look at the rate of personal bankruptcies, financial crises, bubbles, student loans, debt defaults, and savings rates, I wonder whether people are just as bad at managing money today as they were in previous generations, maybe even worse. It's one of the only areas in life we seem to get progressively dumber at."

Yes, there are indeed 77 charming nuggets of wisdom contained within the article, all of which are worth every minute you spending reading them.  They are funny, enlightening and humbling with insights like:

"You get upset when you hear on TV that the government is running a deficit. It doesn't bother you that you heard this on a TV you bought on a credit card in a home you purchased with a no-money-down mortgage."

He concludes with the most salient point:

"You nodded along to all 77 of these points without realizing I'm talking about you. That goes for me, too."

Have a great weekend.

via Zero Hedge http://ift.tt/1dQC1a4 Tyler Durden

Silver gained a stunning 7% this week – its biggest week in 6-months – and gold up over 4% as precious metals handily outperformed US equities (despite the latter being bathed in the glory of a media-gloating low-volume melt-up). Nasdaq is now up 1.7% on the year and broke to new highs not seen since Dec 2000. There was a clear effort to get the more critical S&P 500 to unch in 2014 but it failed – despite slamming VIX to 13.5% (and STVIX to record lows). High-beta Nasdaq and Russell outperformed on the week and Trannies lagged. The USD drifted lower from Wednesday with GBP (+2%, best week in 8mo.) and EUR strength the biggest drivers but notably equities disconnected from JPY carry after 1030ET. Treasury yields slid higher today and ended the week 2bp (30Y) to 6bps (5Y and 10Y) on the week. Healthcare and Utilities are the massive outperfomers in stocks in 2014 – that must be good right?

 

Silver (and Gold) ripped higher on the week…

 

Silver now tops gold in 2014…

 

But the headlines will be made by the screamfest higher in US equities (even though they underperformed PMs)…

 

This chart perhaps sums up the market conviction – the lower pane is volume above/below average  – not exactly 'piling back in' are they…

 

Healthcare and Utilities have led 2014… not exactly confidence-inspiring…

 

JPY carry has lost its mojo…

 

and so have bonds as it seems gold and stocks are best friends…

 

And VIX decoupled this afternoon…

 

And bonds weakened on the day – end up 2-6bps on the week…

 

 

The USD has slid 0.8% in thelast 2 days as EUR weakness gave way and strengthened along with GBP after Carney's comments… this is the best week for GBP isn 8 months and highest since Nov 09

 

 

Charts: Bloomberg

Bonus Chart: Emerging Markets are unfixed…

 

Bonus Bonus Chart: S&P 500 Futures trend reversion…

via Zero Hedge http://ift.tt/1dQC19Q Tyler Durden