Bonds & Interest Rates

“Horrific Consequences For the US & For The World”

shapeimage 22On the heels of some wild trading action this week, today the 42-year market veteran, who correctly predicted that the Fed would not taper, warned King World News that investors should now brace for “horrific consequences for the US & for the world.”  Below is what Egon von Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this fascinating interview.

….read it all HERE

3 SCENARIOS FOR GOLD AS IT NEARS MAJOR TURNING POINT

I’d like to clarify my position on gold:

First, it’s bottoming. I can’t tell you precisely when or at what price, but I have every reason to believe that gold is now in the timeframe for a bottom, and a major bottom at that.

In fact, it may have already bottomed at $1,178 back in late June. That is possible. Or it may dip back to near $1,178 one last time, soon, or even after a big rally. Or it may just explode higher here and now.

It is impossible for me to say with any certainty. For anyone to say, actually.

All I can tell you is, again, that all of my models indicate that gold is very near, or already may have seen, an important bottom.

Second, trying to time the exact day or even the exact week, and the exact price, would simply be foolish.

That said, let me give you the three scenarios I see for gold. If it seems like I am talking out of both sides of my mouth, let me assure you that I am not.

I am merely giving you the three most likely scenarios for gold going forward, scenarios you will need to keep in mind to get properly positioned so you can minimize risk and maximize potential profits.

Screen Shot 2013-10-28 at 6.12.56 AMTo invest or trade gold now without having these scenarios in mind is simply foolish.

Scenario #1: Gold’s low at $1,178 in late June was the major bottom. In this scenario, gold must now confirm it by moving and closing above $1,449.50 on a Friday, weekly basis followed by a weekly close above $1,605.50.

So far, gold has taken out important short-term resistance at the $1,338 level. That does indeed imply a further rally, with the next important level of resistance at the $1,400 level, followed by $1,449.50.

This is now becoming the highest probability projection. But, still, as in life, nothing is certain, so we must keep an open mind toward …

Scenario #2: Gold continues to rally, as high as $1,605.50, but fails to close above $1,449.50 or $1,605.50 on a weekly closing basis. Gold then trades back down, even as low as the $1,265 level in early 2014, and then begins another move higher, one that eventually gives us the “buy” signals we need to confirm the end of the bear market and the beginning of the next leg up. The $1,178 June 2013 low holds, but gold swings wildly before taking off for good.

Scenario #3: Gold continues to rally, as high as $1,605.50, but fails to close above $1,449.50 or $1,605.50 on a weekly closing basis and then collapses into a major new low in 2014.

Whereas a new low below $1,178 was the highest probability before, it is now the lowest probability scenario. But we simply cannot throw it out the window.

In this scenario, we see a decent rally in the weeks ahead, but it fails to issue major confirming “buy” signals and, instead, trades lower as in Scenario #2 above.

But instead of holding major support at the $1,265 level early next year, gold crashes right through the June 2013 low at $1,178 and makes a new low down at major system support at the $1,035 to $1,050 levels.

Now, I fully realize you might not like anything I just told you, that you think I’m hedging my gold forecast or talking out of both sides of my mouth. Or that you like Scenario #1, the most bullish, and you don’t like, or agree, with the other two scenarios.

That’s OK. I am not trying to win a popularity contest. I am not here to tell you what you want to hear. My job is to tell you what I see ahead based on my tried-and-true models and indicators, and without any bias.

I always call ‘em like I see ‘em, and precisely the way I would put my own money on the line, which brings me to …

What should you do now in gold? In silver? In mining shares?

As you can tell from the above three scenarios, we are likely to see gold now rally into year-end, and as high as $1,605.50 or even higher.

That sounds really exciting, right? Heck, if that kind of rally were to materialize, it would be gold’s best performance in almost three years.

But as I’ve shown you, unless gold closes above $1,449.50 and $1,605.50 on a Friday closing basis, then the gold rally would be for naught, it would be nothing but a bear market rally. And if you loaded up too much on gold, it would backfire on you.

So instead, now is merely the time to begin to test the waters. You don’t go all in, you don’t over commit, you don’t become impatient, and you don’t get overly emotional.

You map out your strategy based on all the evidence and data you have, and then you focus most of your energy on controlling the unknowns, your risk. That’s how the most successful investors and traders make the most money, by controlling — and, indeed, insuring against — the unknowns.

For gold, that means long-term investors can start buying gold again, lightly, committing at this time, no more than 5 percent of your funds available for investing in gold, being fully aware that we do not have full confirmation yet that the low has been made. Testing the waters with up to a 5 percent position will help limit your risk.

For traders, you trade leverage positions, but hedge your bets with limited risk inverse ETFs, with options, or even spread your futures strategy both long and short. Basically, you put yourself in a position to profit from a rally from a bottom in gold if we have already gotten it, yet you take out some insurance in case you’re wrong.

As for silver, this may or may not surprise you, but I would continue to steer clear of the metal. There is a chance silver has not bottomed yet, even if gold has. Hard to believe, I know, but that is what my models are telling me.

For mining shares, my models tell me they have not yet bottomed. Again, hard to believe, but most mining-share ETFs have taken out that important cyclical low they made back on Aug. 6. That means lower lows are possible.

So, like silver, it is indeed possible that mining shares may still move lower, even if gold has already bottomed and even if gold stages a decent rally. Hard to believe, yes, but that’s what my models are telling me, and I never deviate from what they say. They have proven themselves over and over, time and time again. So, for now, mining shares are not yet primed for major investment.

Right now, I urge patience and emotional discipline. Those are always the two most important elements of successful trading and investing, especially near major market turning points.

Major market turning points offer tremendous opportunities for profit, but they are also the most dangerous. The markets never take any prisoners, so you want to make sure, through patience and emotional discipline, that you’re not going to be one of its victims.

Stay tuned to all of my writings during this critical juncture.

Best wishes,

Larry

 

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com/.

 

What 30 Years Has Taught Me

Confessions-of-a-Wall-Street-Whiz-KidConfessions of a Wall Street Whiz Kid

Chapter 12

What Three Decades In and Around Wall Street

Has Taught Me about Investing

You’ve heard the old saying, if I only knew then what I know now? How true that really is. When I think of how I was promoted to head of investment strategy in 1987 with less than three years experience, I wonder how I managed. I spent most of my energies buying and selling stocks and foolishly believing I could continuously predict what the stock market would do, and I spent little time on learning and appreciating how money really works. It was not until I met Frank Congilose in 1998 that I was shown the real truth about money and that traditional financial planning, a process 98 percent of all investors employ (and one which is steered by “professional advisors”), is a horribly flawed process.

Back in the 80s, most professionals used a simple legal pad to show clients how to set up their “financial plans.” Nowadays, firms use fancy computer applications with all sorts of interactive charts and graphs. But in the end, whether on a legal pad or high-tech computer model, all of these “plans” do the same thing: They guess.

First, they seek a dollar number the client believes (or is shown) he or she will need to live happily ever after.  This is the first absolute guess. Once that is agreed upon, the professional advisor picks a product or products—most involve stocks, mutual funds, etc. —and, based on past performance, projects similar returns for the future in order to reach that magical happily-ever-after figure.  This is the second raw guess—a total shot in the dark as to how high or low future returns will be.

What’s wrong with this very unscientific method? Four economic factors have a major impact on any financial plan, and unless you have a crystal ball you’re simply guessing where they’ll be at any given time. They are:

  • Interest rates
  • Tax rates
  • Inflation rates
  • Rates of return

I’m going to let you in on a little secret: I can’t accurately predict the course of all four of theseand neither can anyone else except Almighty God. Therefore, despite the average plan having hypothetical assumptions of these four factors, one or more of them will not be accurately assumed. One could get lucky as some did in the 1990s when everything was doing well, but do you want to depend on good fortune to keep your fortune?  This is simply a well-established guessing game with all the bells and whistles. Make no mistake about it: traditional financial planning is a guessing game—a high-stakes round of hangman, charades, or 20 questions.

I don’t know about you, but I don’t want to leave my family’s security to chance. That’s why I was so awestruck by the process Frank Congilose introduced to me; one that employs the two most important money facts:

  • Lost Opportunity Cost
  • Velocity of Money

Let me explain: If you had $20 and lost it, how much did you lose? Twenty dollars, right? Wrong. You lost the $20 plus whatever that 20 bucks could have earned if you had it. That is a Lost Opportunity Cost (LOC). Just about everyone and every business has LOCs. The key to financial success is identifying the LOCs and putting them back on the right side of the ledger—your side!

If you were to identify about $20 a week (a few cups of latte, perhaps?) you could save, that would add up to $1000 a year in savings. But it’s so much more when you take into consideration the LOCs. By saving that $1000 per year, over 25 years you would save $25,000 plus the lost earnings on that money of over $18,000 (that’s at the modest interest rate of only 4 percent) for a total LOC of over $43,000.  At 5 percent interest, the number increases to over $50,000.  That $50K becomes part of your cash flow.

Cash flow, in case you didn’t know, is nothing more than the money that comes in and the money that goes out. If you spend more than you make you have a negative cash flow. If make more than you spend (leaving some extra) you have a positive cash flow.  Obviously, increasing the positive cash flow allows you to save more and accumulate more wealth.

No one knows more about money and cash flow than banks. They don’t produce anything yet they are able to turn one dollar into two or three or more. Here’s how it works: you deposit a dollar in the bank. The bank pays you interest on that dollar. The bank then lends your dollar out to someone else at a higher rate. How much higher depends on what type of loan the borrower takes. Not only is the rate they charge higher than they paid you, but they get to lend your dollar out two or three times on average. During the time your dollar is deposited in the bank, it may be loaned out for a car loan, personal loan, home equity loan, mortgage, or credit card. Each time the bank loans out your dollar they make money by way of charging the borrower more interest than they are paying you.

This is called the Velocity of Money, the average rate at which money is exchanged from one transaction to another.  Velocity is the frequency with which a unit of money is spent over a specific time period. The bank has taken full advantage of the velocity of money and effectively made a dollar do the work of two or three or more.  What I learned to do through the services of Frank and his associates is help people understand and take advantage of the velocity of money in their own finances just like banks do.

Another way to appreciate velocity of money is to take a penny and double it once a day. On day one you double a penny and end up with two cents. On day two you double your two cents and have four.  On day three you double your four cents and have eight…and so on. How long before you have over a million dollars? It may shock you, but it’s only 27 days. That’s right: a penny doubled each day for 27 days is worth $1,342,177.20.

Without any out-of-pocket expenses or substantial risk, you can add hundreds of thousands of dollars to your worth over a lifetime by simply capturing LOCs and employing velocity of money strategies which in turn increase cash flow.  The sooner you learn that the key to successful finances is cash flow (saving your money instead of trying to gamble on an asset’s appreciation in price to increase net worth), the better off you will be.

I have found that there are four basic ways most people approach money matters. In which group do you fall?

  1. The “No Planning” Approach

This is the person with absolutely no plan. Nothing. Nada. Wing and a prayer. Their entire plan is to worry about it tomorrow. Obviously, this is the worst-case scenario.

  1. The “Occasional Planning” Approach

This is the person who intermittently thinks about money matters and might put forth a half-hearted attempt at a plan, especially right after New Year’s, but soon the day-to-day grind of life takes over and they end up doing what the no planning group does; worry about it starting tomorrow. But tomorrow never comes.

  1. The “Needs Planning” Approach

This is the person who plans for specific events like college or a child’s wedding but does not have an overall, integrated financial plan. They at times actually progress on a specific goal only to find out they have let other important goals fall by the wayside and then try to catch up with some “Hail Mary” schemes.

  1. The True “Financial Planning” Approach

The infrequent person who seriously plans for the things life throws at us. Not just retirement, mind you, but life. Buying a home, taking vacations, saving for college and retirement, and a nest egg for those things that just crop up.

Even among those who do plan, there are speed bumps along the way.  In my three decades on Wall Street, I have seen many of the same mistakes time and time again. Here, I have assembled my list of Top Ten Biggest Investment Mistakes.

Peter Grandich’s Top Ten Biggest Investment Mistakes:

10.  “Hot Potato” buying  Buying the popular stocks of the day or the latest get-rich-quick scheme. Unless you have a crooked rabbit, the turtle always wins this race in investing.

9.  Believing publications – You see it all the time. Some magazine headline that reads “Ten sure fire ways to riches,” or “Ten stocks to beat the market,” etc., all for the low, low price of a few bucks for that issue. While there are some really useful publications, magazines likeMoney who depend mostly on financial institutions for advertisement are, in my opinion, always tilted to the cup being half full and are not truly objective.

8.  Failing to consider spouse’s views – Guilty as charged. Through my first making of millions then losing a good portion of it, my wife’s only regret was I didn’t take into account her desires and wishes. Family financial planning must be a team effort.

7.  Believing money is evil – Yes, the love of money is evil, but money itself is not. It’s a necessity but not to the point where we literally lose our eternal life with the true owner of it. Some people are afraid of it and what owning a hefty sum of it may do to them. As stated earlier, if you truly come to understand you’re only a steward with it, you are likely to do much good with it.

6.  Not fully understanding what you’re doing – The less you know, the more people who live off the less knowledgeable can thrive. God knew how important matters of money would be and dedicated a good portion of His life’s manual (the Bible) to it. Shouldn’t you make a similar effort?

5. Inability to judge worthiness of risk – Here’s a news flash; if it’s too good to be true, it’s too good to be true. If the banks are paying you 1 percent and someone says you can make 10 percent, you better know that there’s a certain degree of risk that comes with the potential. Many times the anguish of a loss far outweighs the dollar amount, and it lasts longer and impacts other areas of your life.

4. Trusting financial institutions – Despites decades of deceit and fraud throughout the financial industry, most people still place a large degree of blind trust in the financial institutions and the personnel with whom they deal. Any financial adviser worth his or her weight should have a well-documented and long track record of success or at least have numerous references. Wouldn’t you be glad to give a reference if your adviser did well for you? Run, don’t walk, from those who can’t provide them.

3. “Hope” is not an investment Strategy – When it comes to faith, hope is very good, but in investing it can be a killer. If I only had a dollar for every time I heard an investor say they’re “hoping” their stock goes back up so they can get their money back. Look, if you’re hoping the price will rise yet not willing to buy more at the reduced price, who do you expect to do so and pay up to the price you originally paid? Just hoping for these changes without sound fundamental reasons to back up that hope is a license for disaster.

2.  No written financial strategy at all – Similar to the “No Planning” approach. Like anything else at which you want to succeed, you must write it down. In the landmark book The Magic of Thinking Big, author David J. Schwartz tells us to write down our goals—all of them. Financial goals are no different. Writing your plan down not only keeps you on track but acts as a benchmark as you achieve your financial goals. One of the first things to do is to take a 30-day account of every dime you spend—and I mean everything. Almost always, people are surprised how much they spend and on what. They soon realize they can either do without some things or spend less on them.

And the number one biggest investment mistake is…….

1. Procrastination – Without a doubt, putting off dealing with matters of finance is the single biggest investment mistake. Whether it’s by accident or on purpose, delaying dealing with finances can only hurt most.

~~~

Perhaps we can all take some advice from one of the richest men ever to walk this earth. No, not Donald Trump or Warren Buffet, but King Solomon. He was one of the Bible’s best investors.  King Solomon has a fantastic track record based on three basic biblical principles:

Principle #1 – Diversification

Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth. – Ecclesiastes 11:2

King Solomon knew that you don’t put all your eggs in one basket. This is especially true for those people who put all of their 401(k) savings into their company’s stock.

Principle #2 – Good Counsel

Without consultation, plans are frustrated, but with many counselors they succeed. – Proverbs 15:22

There’s no one person who can give universal counsel. Not only do you need to develop a support team, but you need to find a diverse group of a few individuals because one team member is not always aware of what another is doing and having someone quarterback all the different team players is important.

Principle #3 – Ethical Investing

The conclusion, when all has been heard, is” fear God and keep His commandments. –  Ecclesiastes 12:13

Not only should we be honest in our investments but make sure where we place our monies to be Godly. That’s different for every individual, but might include avoiding investing in businesses involved in alcohol, weapons, tobacco, or companies with questionable human rights practices.

SIDEBAR:

“Learn as if you were going to live forever.

Live as if you were going to die tomorrow.”

– Mahatma Gandhi

Remember this: on Wall Street there are bulls, bears, and pigs.  The bulls and bears each have their day, but the pigs always end up at the slaughterhouse.

More from Peter: 

Hitler on Obamacare

George Carlin is Right

 

The Bottom Line: Seasonal Strength

The Bottom Line

A surprising quiet week for U.S. equity indices and most sectors following early strength on Monday! Most indices were up or down slightly, typical of markets that have lost momentum after a major upside move. Preferred strategy is to accumulate sectors and markets with favourable seasonality on weakness in order to take advantage of the October 28th to May 5th period of seasonal strength.

The Markets

Welcome to the favourable six months of the year for equity markets.   Today, October 28th, marks the average optimal entry date for equity positions to take advantage of the period of strength for stocks that runs through to May 5th of next year.   Gain for the S&P 500 Index over this period, from October 28th through to May 5th, averages 8.53% with positive results realized in 16 of the past 20 periods.   Results are consistent for Canadian equities with the TSE Composite averaging a gain of 8.87% over the past 20 years.   Positive results were realized in 17 of the past 20 periods.   During this favourable season for equities, through to the end of the year, bonds and commodities can continue to perform well, however, returns are typically less than stocks, making the equity market more attractive as risk-on plays dominate portfolio allocations.

Equity markets have already returned substantial gains over recent weeks, pushing benchmarks into overbought territory as the seasonally strong period for stocks begins.   Overbought conditions on the October 28th average optimal date are fairly rare, based on an analysis of the past 50 years of data.   The S&P 500 has been overbought on October 28th only 8 times, making entry points into equity positions extremely challenging.   Equity benchmarks, such as the S&P 500 Index, offered more enticing entry points 6 of the 8 times within a few weeks following the average optimal date as stocks traded off of their overbought highs.   Strategically allocating funds to equities upon any sort of weakness over the next few weeks continues to make sense, ideally once overbought conditions have concluded.   Next short-term seasonal low for equity markets typically occurs on November 18th, on average.

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….view more seasonal charts HERE

 

Economic News

September Industrial Production to be released at 9:15 AM EDT on Monday is expected to increase 0.3% versus a gain of 0.4% in August. September Capacity Utilization is expected to increase to 78.0% from 77.8% in August.

September Retail Sales to be released at 8:30 AM EDT on Tuesday are expected to slip 0.1% versus a gain of 0.2% in August.Excluding auto sales, September Retail Sales are expected to increase 0.2% versus a gain of 0.1% in August.

September Producer Prices to be released at 8:30 AM EDT on Tuesday are expected to increase 0.2% versus a gain of 0.3% in August. Excluding food and energy, PPI is expected to increase 0.1% versus a gain of 0.0% in August.

Case Shiller August 20 City Home Price Index to be released at 9:00 AM EDT on Tuesday are expected to show a year-over-year gain of 12.4% versus an increase of 12.0% in July.

August Business Inventories to be released at 10:00 AM EDT on Tuesday are expected to increase 0.2% versus a gain of 0.4% in July

October Consumer Confidence to be released at 10:00 AM EDT on Tuesday is expected to slip to 75.0 from 79.7 in September.

October ADP Employment to be reported at 8:15 AM EDT on Wednesday is expected to fall to 150,000 from 166,000 in September.

September Consumer Prices to be released at 8:30 AM EDT on Wednesday are expected to increase 0.1% versus a gain of 0.1% in August. Excluding food and energy, CPI is expected to increase 0.1% versus a gain of 0.1% in August.

FOMC Decision on interest rates is scheduled to be released at 2:15 PM EDT on Wednesday

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to decline to 340,000 from 350,000 last week.

Canadian August GDP to be released at 8:30 AM EDT on Thursday is expected to increase 0.2% versus a gain of 0.6% in July.

October Chicago Purchasing Manager’s Index to be released at 9:45 AM EDT on Thursday is expected to slip to 55.0 from 55.7 in September.

October ISM to be released at 10:00 AM EDT on Friday is expected to fall to 55.0 from 56.2

…read Don Vialoux’s full Monday report HERE

 

 

Michael’s Money Talks for Oct. 26th

Michael Mike Campbell image The 1st 1/2 hour begins with Michael’s Economic & Financial Commentary. 

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The second hour of Money Talks begins with Michael interviewing Bert Dohmen of Dohmen Capital Research. Bert has been writing a financial newsletter since 1977 and Michael interviews him about markets in general as well as a book he has just written called “THE COMING CHINA CRISIS.”

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