Asset protection

Exuberance, Divergence, Volatility, Resolution

Signs Of The Times

“Russia scrapped its second bond auction after the ruble’s retreat spurred bets that interest rates will increase.”

                                                                                      – Bloomberg, October 21.

“Russia’s international reserves shrunk for a ninth week, tumbling $7.9 billion in a little more than five months.”

                                                                                      – Bloomberg, October 23.

That week crude was trading at 84, nine weeks earlier it was trading at 98.

Recently it has been below 80.

“Russian tycoons seek to trim debt as [weakening] commodity demand hits values of holdings.”

                                                                                     – Bloomberg, October 28.

“Americans are less concerned than ever about another 1930-like Depression.”

                                                                                    – Rasmussen, October 23.

The numbers were that 27% thought it was “somewhat likely” and 62% polled “unlikely”. The report included that the poll was “more closely divided in 2009”.

And now for something completely honest – stupid but honest!

“Hillary: ‘Don’t Let Anybody Tell You That Businesses Create Jobs’ “

                                                                                   – Breitbart, October 24.


While the stock market gets most of the attention during a boom, we all know it is not an isolated phenomenon. We have been talking about the connections to the credit markets, but the culmination of a bull market seems to be part of a universal euphoria.

On the stock side this showed up as a very low number of only 13.3% bears, the lowest since 1987. On the social side it shows up in this week’s Conference Board’s Consumer Confidence number. From 89.0 in September it soared to 94.5. This is not only a big jump, it is the highest reading since October 2007.

The low at its worst in 2009 was 39.8.

The University of Michigan’s Consumer Sentiment number for October rose from 84.6 to 86.4, which is the highest since July 2007.

The low in 2009 was around 56.

Perhaps there is a new economic law. Consumer confidence is inversely proportional to interest rates. Well, it must hold for central bankers as well.

Stock Markets

Screen Shot 2014-11-07 at 6.41.15 AM

Some have attributed the stock market rebound to a bullish utterance by James Bullard, a normally “hawkish” Fed employee. As interpreted by the street, the Fed was getting concerned about the severity of the correction. At less than 10%, this was severe?


This is ironical as we have never been impressed by the school of research that imagines what the Fed would do given whatever the current circumstances are. The problem with this school is that every swing in the stock market, including every irresistible transition from boom to recession has to be rationalized in FedSpeak. In the 1970s the belief was that recessions were deliberately induced to bring the rate of CPI inflation down. Well, you had to be there.


Initial selling pressure set the low for the S&P on September 16th and our ChartWorks of the next day noted the excesses on the plunge in JNK had become acute.

This prompted the relief rally and the next Pivot noted that the volatility has changed from huge Daily swings to equivalently huge Weekly swings. We have been thinking that this “Weekly” swing is getting overdone.

This has shown up in last Friday’s Inverted Springboard readings in both JNK and the S&P. As noted in Monday’s “Volatility To Resolution” piece, the sharply overbought condition seems to be leading to the expected big test in November.

The most obvious S&P targets are the lows with the last hit. These are 1860 set on the October 16th close. On the extreme it could hit 1820, which was the intra-day low. Our theme since September has been the transition from Exuberance to Divergence to Volatility to Resolution. History has made it past the first three and is working on the Resolution to another outstanding financial mania.

On the way to the Resolution, the S&P seems to be within Ross’s “ABC” rally pattern.

Credit Markets

The Inverted Springboard signal on JNK was likely to have some effect this week. The index, without interest payments, set its rebound high at 40.56. This was at the 50-Day ma and the price has slipped to 40.30. This ma was also effective on the September rebound to 40.79.

The low close on the sharp setback in June 2013 was 38.72, which looks like a reasonable target for this hit. The low close on this decline was 39.22.

Whether this will be sufficient to correct the excesses of the biggest bond bubble in history remains to be seen. At any rate we have been out of the play since the big overbought in June.

Over in Europe the excesses have also been wondrous. Understandably, as central bankers, institutions and retail have all been speculating. The ECB, in so many words, has been “pounding the table” on bonds.

This drove the yield on Greek bonds down to 5.55% in June. This broke out at 6.69% in September and in a panic soared to 8.89% in the middle of the month. The retreat was to 7.34% on the 24th and it has increased to 8.18% today. Breaking above 8.89% would have serious implications.

In the middle of the month, Russian yields broke out at 9.90% and they reached 10.22% yesterday. The post-crisis low was 6.53% set in March 2013 and the crisis high was 12.90% set in February 2009. The chart follows.

The bond future can rally on the next decline in equities.


Many commodities have rallied out of the oversold for the stock market.

Grains (GKX) have recovered well. The low was 290 and last week we noted that if the rise got through resistance at 310, the rally could run into the spring. That was accomplished on Friday and at 320, the index is comfortably above the 50-Day ma. In getting above 325, the move could make it to the 200-Day at 355. This seems to be the best chance for a rally since January.

On base metals (GYX) we have been looking for copper to lead us down to a tradable low in November. The low for the index was 340 on the low day for the S&P and metals rallied to 358 and stopped at the 50-Day ma.

The low needs to be tested and this could be accomplished on a seasonal low sometime within the next four weeks.

Crude oil has been likely to find a seasonal low in December, but the bounce with the stock market has taken it from 78.65 to 82.51 yesterday. The next low could set up a tradable rally.

Precious Metals

This week’s slump in the sector seems tied to the rebound in stocks and low-grade bonds.

Commodities rebounded as well giving our Gold/Commodities index a needed correction.

Otherwise, gold’s real price has been rising since June and we take this as the early stages of a cyclical bull market. This will eventually drive share prices up.

When will the latter start?

We had thought that the buying opportunity would be found towards the end of this month. Last week we still thought that the time had not arrived.

The HUI has extended its decline from 251 in June to 166 today. The cyclical high was 638 in 2011. It is worth mentioning that we use momentum on the silver/gold ratio to determine important tops. In 2011 the RSI soared to 92 when we noted that level had not registered since the magnificent blow-off in January 1980. We advised that speculation had reached a “dangerous” level.

The main force on the sector has been that it has been in a cyclical bear while the orthodox world has been in a cyclical bull.

This is in transition.

Another “Rotation” in most commodities seem possible and this would help precious metal stocks.

Iron Ore Prices

35703 a

  • The cyclical high was set in March 2011.
  • This occurred with the cyclical peak in many commodities.
  • Our proprietary model, the Momentum Peak Forecaster, gave a rare “Sell” that fateful April.
  • The model does not provide “Buys” and it is uncertain when the general bear market will end.


Russia Ten-Year Note Yield

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  • Yields in Russia have been rising since the low of 6.50% in May 2013.
  • Of interest is that it was a seasonal low with the rush of enthusiasm that can run into May-June.
  • This was also the case with the decline from 9.52% to 8.38% in May of this year.
  • This year’s breakout level was at 9.85% and that was accomplished on October 10th.
  • This was a warning on most lower-grade bonds and the yield is now at 10.22%, which hasn’t been seen since 2009.


How Can Europe Service Its Debt Bubble?

35703 c

Link to October 31st Bob Hoye interview on

4 Steps for Avoiding a Capital “C” Catastrophe in the Next Downturn

When the tech and real estate bubbles burst, many of my friends lost 40-50% of their retirement portfolios almost overnight. Is a similar downturn looming?

Take a look at the chart below showing the S&P’s performance since 2008.

Screen Shot 2014-11-06 at 10.43.18 AM

Caution is in order. We may see a major correction, a huge downturn, or this bubble could continue to grow for quite some time. I’ll leave the timing predictions to others. Still, investor euphoria worries me. Even those playing with retirement money often ignore warning signs, thinking the parabolic rise in stock prices is never going to end. However, this time is NOT different.

Look at the Nasdaq’s performance just before the tech bubble crash:

Screen Shot 2014-11-06 at 10.43.35 AM

From March of 1999 to March of 2000, the Nasdaq doubled, and investors were euphoric. Are you feeling that euphoria today?

Don’t Let the Next Downturn Make You Poor

The goal for a retirement portfolio is to create enough of an income stream that you can maintain your current lifestyle over the long haul while the balance grows ahead of inflation. This portfolio should also include enough safety measures to keep you whole regardless of what the market does.

Sounds simple, but it can feel like walking and chewing gum—to the power of 10. Treasuries are supposedly safe… but from what? Sure, you won’t lose your principal, but they won’t protect you from inflation. Certain stocks are solid; after all, many companies survived the Great Depression… but will they keep paying dividends when you need them? Investing in a turbulent market is a gyroscopic balancing act with endless variables.

4 Lifejackets

While outlining the entire Miller’s Money safety system is beyond our scope here, there are four must-do safety measures anyone can easily implement.

#1—Set strict position limits. No single investment should make up more than 5% of your overall portfolio. That means rebalancing at least once a year. I have a friend who brags about how well his portfolio has been doing. Turns out, 80% of his holdings are in Apple. While Apple is a fine company and has done well, he should consider locking up most of his gain and focusing on capital preservation.

#2—Use trailing stop losses. We recommend setting trailing stop losses at 20% or less on all market investments. Stop losses can prevent catastrophic damage to your portfolio. As our portfolio grows, a trailing stop can help lock in a gain. While you may still face setbacks from time to time, a trailing stop limits them. You’ll live to fight another day.

I’ve spoken to some retirement investors who limit each holding to 4% of their portfolio and set 25% trailing stops. Whatever makes sense! Just limit the size of each position—and in doing so the potential for catastrophe.

#3—Diversification is the name of the game. This means internationalizing, too. Holding 5-6 mutual funds all in the United States or in US dollars just won’t cut it. You must diversify into non-correlated assets all over the world; so, should one segment or market tank, it won’t bring down a major portion of your portfolio.

You should also review the correlation of the asset you’re considering. What events in the market will cause the price to rise and fall? And pay particular attention to the near term. For example, until recently, utility stocks were considered the gold standard for retirees. Now there is so much capital in this sector, the stocks are correlating much closer to changes in interest rates.

Look for assets that are either uncorrelated to the market or those which may move in the opposite direction (the market goes down, this goes up, and vice versa).

Again, the game is: hold on to as much capital as possible and live to fight another day.

#4—Look for low duration on income investments. Bond sellers tout the safety of US government and investment-grade bonds. They are correct as far as default is concerned; however, a sudden rise in interest rates would mean a large loss for an investor holding these bonds who resells them in the aftermarket.

Retirement investors normally hold bonds for interest income, and they hold them until maturity. While some say bonds are still a good investment, most of these folks are traders. They buy high duration bonds (their market price moves significantly with changes in interest rates), betting on interest rates continuing to decline, and plan to sell for a profit down the road. We are not traders or market timers. Unless you are comfortable holding a bond until maturity, stay away from it.

When you invest money earmarked for retirement, using models that were in vogue as recently as 10 years ago will leave you vulnerable. Whether you’re considering bonds, utilities or any other investment vehicle, having the most up-to-date information is imperative. You can learn more about where bonds fit—or don’t fit—in your retirement plan by downloading our timely and free special report, Bond Basics, today. Access your complimentary copy here.

Could Collapse At Anytime: “When It Ends, All Hell Is Going To Break Loose”

shapeimage 22It happens fast and it often comes without any warning to the general public. In 2008 they were able restore some confidence in the system through massive infusions of cash and a healthy dose of mainstream propaganda.

 Back in 2008 we got a taste of what a massive economic and financial crash looks like. Millions of jobs were lost, tens of millions of people became dependent on government assistance, and trillions of dollars in wealth were wiped out almost overnight.


… more HERE

No! This is THE most important chart in the world.

Still most read article. Huge volume – MT/Ed

Worldwide equity markets are a nuisance compared to worldwide debt markets. When you understand that derivatives (think leverage) all have interest rate components and have only seen falling yields the past thirty years. You better pay attention to the following chart. When this chart breaks the Fat Lady has sung and it is game over and I do mean over.


That is a six year topping pattern in the benchmark 10 year US Treasury Note. When that angled, complex pattern breaks down chaos will ensue globally. Examine what happened to the Yen when a similar pattern of HALF the duration broke down.


Harken back to 2008 when the real estate bubble popped. Everything tanked because real estate is illiquid and

everyone needed to raise capital and NO ONE could. Even the mighty GE had trouble rolling over debt. So ask yourself who is going to lend anyone money if rates start rising aggressively? Think about how much debt everyone is holding across the globe. Citizens, corporations, sovereign entities all have financing needs each and every day. Who will be the lender of last resort? Will everyone go to the FED and ask for a loan?


How many people managing money today have ever managed money in a runaway bond bear market? While the move in the late 1970’s was impressive the amount of leverage that existed in the financial system would not even register relative to today. That allowed Volcker to unleash his tightening madness.

How does gold factor into what we are about to see when that first chart breaks down? Again, in 2008 money rushed into the safe haven that is bonds. Now bonds become the source of panic? Where will money hide?

The supply and demand fundamentals for gold at this stage are already completely upside down relative to price. The price continues to follow the value of the yen relative to the dollar as we showed last year. And while some will have you believe that higher rates make gold even less attractive, they could not be more incorrect. When the bond bear comes gold will outperform and society as a whole is completely unprepared for the chaos that will unfold.

The End of QE, Fed Policy Normalization and the Equity Market

UnknownAn Austrian economist’s take on the financial markets & economy

The Federal Reserve is “normalizing” its monetary policies. QE3, the latest installment of its multi-year $3.7 billion asset purchase program is ending this month.  And although its zero interest rate policy(ZIRP) is still fully in force, the Federal Reserve is signaling that as long as the economy continues to improve, interest rates are going up. Though these easy money policies are acknowledged by most investors as the driving force behind the strengthening U.S. economy and, as a derivative, the five-plus year bull run in the equity market, equity investors seem to be taking the Federal Reserve’s normalization plans in stride.  So too the Federal Reserve.  As we posited here, the reason is because equity investors and FOMC members alike believe the Federal Reserve’s easy money policies have worked; that they have finally put the economy on a sustainable, longer-run growth path.  In fact, the economy is doing so well that it’s time to normalize monetary policy.

As we wrote herehere and here, in the end this story will prove to be pure fantasy. The lion’s share of the supposed economic strength we see today is both artificial and unsustainable because it is built on malinvestments born out of the monetary largesse underwritten by the Federal Reserve’s policies. Normalize those policies; i.e., end QE and raise interest rates, and sooner or later those malinvestments will be liquidated. The supposed economic boom will turn to economic bust, and with that, a bust in the publicly traded equities that lay claim to those malinvestments. As Austrian Business Cycle Theory (ABCT) theorists teach, such is the course of every boom-bust cycle. Easy money – whether that originates directly from the central bank or from the central bank supported, fractional reserve banking system – gooses the money supply creating an artificial, unsustainable boom.  The boom will bust when that easy money abates.

…..continue reading HERE


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