Stock Market News and Thoughts
This is a chart from advisorperspectives.com of the cyclically adjusted P/E ratio and the S&P 500.
As you can see the stock market is at an expensive valuation. Of course this means nothing in regards to what the stock market may do tomorrow, next week, or next year. It means nothing when it comes to trading the market, but it means everything if you want to invest now and hold something for a few years.
The best times to invest have been when the cyclically adjusted P/E ratio is 10 or below. Right now it is close to 23, and at levels that have eventually led to big market declines in the past.
The cyclically adjusted P/E is 20% above its mean regression level.
What is funny is that no one cares. No one on CNBC is talking about the fact that stocks as a whole in the United States are overvalued. They never say that if you want to invest in bargain markets then look overseas.
They just say the market is going up, because of money printing and hot earnings reports.
And for now valuations don't matter. The reality is people don't really invest in the stock market, they just throw their money at it.
Even though this chart is for "advisors" very few investment advisors or money managers actually base their investment decisions on market valuations, because they can't. If they get out, because the market is expensive and then it keeps going up then their clients will take their money away from them. So they'll lose their job.
That's why they will keep investing in the market and keep holding and keep coming up with new rationalizations to do so. In 2009 they talked about cheap valuations and were right. Now they just talk about money printing.
It's a fun party. There is no sign that it is over. But one day it will be. The current bull market though can go on for another year or two, but when it ends we'll have to be very careful when it comes to stocks.
We have seen gold put on a nice bounce since it crashed last month. Gold prices have rallied from about 1350 an ounce to 1500 an ounce in just the past few weeks.
In fact gold has now rallied enough to take back about 1/3 of the losses it has made since its last peak in October.
However, I do not think you should chase this rally and buy gold JUST YET.
Normally after a big crash like this and such a fast bounce a market will lose momentum. It is simply unreasonable to expect gold to continue to rise at the rate it has in the past two weeks.
Over the short-term odds are that gold prices will lose momentum here and make a top. That doesn't mean though I think they are going to crash again.
In my view gold is going to begin a sideways consolidation phase to build a healthy base to launch a real sustainable rally and new bull market off of.
I rather wait to see it happen and show me that I am right then buy right now. In fact I think this is a bad spot to be buying gold at.
A safer one should come in a few weeks. Don't chase markets, let markets come to you.
On Friday the US government reported that new jobs were created last month. Obama and the Democrats claimed that was proof that the President's policies are working while CNBC cheared the news as evidence that you MUST buy stocks and that Benjamin Bernanke is a genius.
In reality even though new jobs were indeed created they were not enough to have a meaningful impact on the economy, because the new number of jobs being created is no higher than population growth.
As the NY Times reports:
The share of American adults with jobs has barely changed since 2010, hovering between 58.2 percent and 58.7 percent. This employment-to-population ratio stood at 58.6 percent in April. That is about four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs. In other words, the United States economy is not getting any closer to recreating the jobs lost during the recession.
This lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined – not because more people are working, but because more people have stopped looking for work.
The share of adults looking for work peaked at 6.4 percent of the population in 2010. It fell to 4.7 percent in April. But recall that over the same period, the share of adults with jobs did not change. What grew instead is the share of adults no longer counted as part of the labor force.
So in other words the drop in the unemployment rate is a statistical fragment, but when it comes to the real economy and real people's lives nothing has improved in the last three years.
But the stock market is going up and there is no sign that the bull market is over. You can thank the Fed's money printing operations for that.
When it comes to tracking investor sentiment I mostly use the Investors Intelligence Survey, but the American Association of Individual Investors(AAII) also polls smaller players to see how they feel about the stock market.
This week according to the AAII poll the number of investors bullish on the stock market has gone back above 30%, after dropping below 25% a few weeks ago.
Here is a chart from bespokeinvest.com:
This chart means that even though the market has been rallying people have not been getting overly bullish on the stock market and a lot of caution over the market still exists.
From a contrarian standpoint that is good for the stock market, because investors tend to get wildly bullish at market tops and they are more cautious than bullish as a whole now.
If you are new to this website I show you what I am really doing in my main investment account. I call this an "open portfolio" and you can find all of the recent trades and all of the positions in it by going here.
Most newsletters list a "model portfolio" with a list of stock recommendations.
They don't really tell you when they buy or sell though or what they are really doing.
I do - right here on this website. I post updates when I buy or sell something.
I use Google finance to keep track of these positions and update the csv spreadsheet files that it generates for me and put them on the site. You can go to the top navbar where it says Open Portfolio to download them.
I just put a 16k deposit in this account and 2k deposit to make up for the dividends my positions have generated recently(google finance doesn't keep track of dividends for you).
I am now about 75% invested and 25% in cash.
I hope to make another deposit this month. I did not do a single trade last month. The last one I did was buying a few Greek stocks at the end of March, which have all done well.
I believe that metals and mining stocks are going to stabilize this month and form a base to launch a real new bull market off of so I am trying to make some deposits in my account with the intention of using them to buy in new metals and mining positions in a few weeks.
Someone passed on to me a fascinating post made on Businessinsider.com.
It cites a 75-year old ongoing Harvard study of people to discover what leads to a happy and healthy life.
The post says:The project, which began in 1938, has followed 268 Harvard undergraduate men for 75 years, measuring an astonishing range of psychological, anthropological, and physical traits—from personality type to IQ to drinking habits to family relationships to “hanging length of his scrotum”—in an effort to determine what factors contribute most strongly to human flourishing.
Recently, George Vaillant, who directed the study for more than three decades, published Triumphs of Experience, a summation of the insights the study has yielded. Among them: “Alcoholism is a disorder of great destructive power.” Alcoholism was the main cause of divorce between the Grant Study men and their wives; it was strongly correlated with neurosis and depression (which tended to follow alcohol abuse, rather than precede it); and—together with associated cigarette smoking—it was the single greatest contributor to their early morbidity and death.
The Atlantic did a full story on the study several years ago.
Here are some quotes:
Vaillant, who had then been following them for a quarter century, had identified seven major factors that predict healthy aging, both physically and psychologically.
Employing mature adaptations was one. The others were education, stable marriage, not smoking, not abusing alcohol, some exercise, and healthy weight. Of the 106 Harvard men who had five or six of these factors in their favor at age 50, half ended up at 80 as what Vaillant called “happy-well” and only 7.5 percent as “sad-sick.” Meanwhile, of the men who had three or fewer of the health factors at age 50, none ended up “happy-well” at 80. Even if they had been in adequate physical shape at 50, the men who had three or fewer protective factors were three times as likely to be dead at 80 as those with four or more factors.
What factors don’t matter? Vaillant identified some surprises. Cholesterol levels at age 50 have nothing to do with health in old age. While social ease correlates highly with good psychosocial adjustment in college and early adulthood, its significance diminishes over time. The predictive importance of childhood temperament also diminishes over time: shy, anxious kids tend to do poorly in young adulthood, but by age 70, are just as likely as the outgoing kids to be “happy-well.” Vaillant sums up: “If you follow lives long enough, the risk factors for healthy life adjustment change. There is an age to watch your cholesterol and an age to ignore it.”
It is really worth reading this Atlantic article in its entirety. You can find it here.
A wonderful speech about corruption in the United States: from Washington DC and Wall Street, including the entire financial/banking system.
This video is being posted only for educational purposes and to have this important viewpoint as public record.
From the event at the Philadelphia Fed on April 17th, 2013 (04/17/2013) conference segment "Fixing the Banking System for Good" .
GDP Reports Reveals A Dead Economy As Every Wal-Mart Serves 14,000 People On Food Stamps - Mike Swanson (04/29/2013)
On Friday the United States government released its preliminary 1st quarter GDP report for the first three months of 2013. It showed that the economy grew at a rate of 2.5%, which was almost a full percentage point below what economists were predicting and a rate that is not fast enough to cause real employment to grow as it isn't much faster than the rate of population growth.
The Obama tax hikes had an impact on the economy as personal incomes fell by $109 billion in the first quarter after rising by $262 billion in the fourth quarter of 2012. Apparently a lot of people realized capital gains at the end of last year in fear that this year taxes will go up even more on them - realizing those gains fudged the fourth quarter income levels up.
The "recovery" is still going on at half the growth rate of a normal one. The policies of the Federal Reserve and President Obama have failed at creating a real recovery. Obama's stimulus programs have proven to be a rathole while the Fed money printing operations have rescued wall street while devastating those that rely on a fixed income or are trying to make a little bit of money off of CD's and other safe investments.
According to the Wall Street Journal, "The Joint Economic Committee reports that if the economy had grown at the typical pace coming out of recession, at this stage GDP would be closer to $17.4 trillion. This $1.4 trillion growth deficit is roughly the size of the combined annual production of Michigan, Ohio and Pennsylvania in 2011."
Here is the thing - in the fourth quarter of 2012 GDP growth came in at 0.40% so in the past six months the economy has been growing at the rate of 1.45% annual GDP growth.
This is a dead economy - one that is not shrinking, but one that is not growing fast enough to help the middle class or case new jobs to be created either.
That doesn't mean anything for the stock market though. Stocks have gone up in the past few months despite the weak economic news. Fed money printing works its magic and bull markets don't come to a real end until every potential buyer gets sucked into them. Then the bull cycle ends and a bear one begins. The individual investor is starting to get back into the market and there is no sign that the bull market is over.
Of course all of this benefits Wall Street.
As for the middle class, half of it is surviving and doing well while the other half is falling into a cycle unemployment, falling income, and entitlements.
I expect the economy will stay like this for the next year or two. I don't see any reason to think there will be any big changes. The zombie economy will keep walking ahead until one day interest rates begin to go up once the size of the national debt starts to finally spook foreign investors.
The GDP report reveals that the US government crossed the 100% debt to GDP level for the first time.
There are so many people on food stamps now that on average every Wal-Mart services 14,000 people on food stamps:
I just did this podcast with Dave Skarica of addictedtoprofits.net.
In this podcast Dave and I talked about the recent moves in the gold market and mining stocks.
You can also download the mp3 audio file for this interview on your computer by clicking here WITH A RIGHT BUTTON CLICK and selecting SAVE FILE AS from the drop down menu.
If you have an itunes, ipod, or rss reader you can subscribe to the podcast by clicking here.
NBG is the biggest bank in Greece and a stock I have been watching for the past few months as it has the potential to be another Bank of Ireland - a bank stock that crashed when Ireland went under and is now trading around $9 a share. NBG is still in the process of raising money to refinance itself and now appears to be one step closer to reaching that goal.
ECB regulators had blocked its merger with Eurobank Ergasias, which was about to go bankrupt and be taken over by the Greek government, but now they have allowed it to go through. The stock of NBG rallied sharply yesterday as they took this decision as evidence that regulators are confident that NBG will be able to raise its money. Greek Pireaus bank has already raised the money it needs so NBG, really now the NBG-Euroebank combination, is all that is left to recapitalize the banks in Greece. The news helped not only NBG, but all Greek stocks.
NBG is up sharply on this news. I don't really like to chase stocks and am already 90% invested in the market so am going to wait to see if it consolidates a bit before I buy it. Also there is still high risk in it - if it still doesn't complete its financing it will go under, but these developments are encouraging.
Silver and gold stocks have also jumped up sharply in the past few days, but I am still of the mind that it will take weeks of back and forth base building after their crash before they will go up in a sustainable rally. So I am willing to a wait a bit before I buy any of them. After most crashes like this it takes 8 weeks of base building before a market begins a sustainable rally.
According to today's Investors Intelligence survey the number of investors that say they are bullish on the market when polled has dropped to 44.3%. This is the lowest number of bulls they have found in the market all year and is a retreat from the highs of 54.7% they found in February.
The number of people that are bearish though has dropped too to a level of 19.6%.
If the bulls aren't becoming bears than what are they doing?
They are expecting a correction, with the percentage of people saying they are looking for one now at 36.10% - which is the largest number of people looking for a correction in this survey since the last week of November in 2012.
Ok, so why is this important?
Normally at market peaks you get a huge number of bullish respondents and in bear markets a lot of time people stay bullish during declines.
All it has taken is a quick drop off the highs to shake a lot of bullish sentiment out of the US stock market.
I take this as evidence that the stock market is not on the verge of some huge correction or crash right now. If the market is going to have one this year, and usually it does have at least one 10% correction every year, it would have to first be preceded by weeks of sideways action to form a top.
There is just no sign that we are on the verge of a big drop now, and from a contrarian standpoint when everyone starts looking for something it usually doesn't happen...
This is not a market to be scared of. It's not one to be excited about either though since valuations for US stocks are high and the S&P 500 has already been going up now for four years. Trading is one thing, but if you want to invest its much easier in the long run to do so in market at the start of new bull markets or after they have crashed.
I don't think the US stock market has huge downside or upside now. Instead I just think its going to do very little the rest of the year.
Gold and silver provides a more compelling investment entry point now than the S&P 500 and DOW do despite what you may hear on CNBC or see on the cover of this week's Barrons:
Courtesy of Bloomberg Television
Paul on whether he's concerned about the drop in gold:
"I am concerned about the erraticness of the dollar. The dollar is up, the dollar is down. We print a lot of dollars. The dollar gets devalued. That is really the concern. If people think the gold price up and down is a reflection of something wrong with gold, no, I say it is something wrong with the dollar. People have been expressing concerns over the past couple of months about gold, but compared to what? Compared to where gold went from when the Fed took over where it was $20 per ounce compared to what has happened in the past?...I remember in the 1970's when they finally allow people to own gold and it went from $35 to $200 rather rapidly, and then it lost 50%. Then it went up to $800. To compare a couple of months or a couple of weeks and forget about a bull market in gold price in relationship to the dollar for 12 years. I would say the comparison is not an authentic comparison. What you have to look at is the inflation. Inflation is an increased supply of money. Since 2008 they have quadrupled the supply of Federal Reserve credit and are buying $85 billion per month of treasury bills. At the same time last week they bought $60 billion. That is the inflation. That is the distortion of the market and that's why we're not getting economic growth."
On whether we're seeing the opposite of inflation right now:
"It depends on how you define it. Inflation is when you increase the supply of money. Bond prices go up. Stocks are going up. Housing prices are starting to go back up again. Education costs are going up, but the gross distortion is the effect that the inflation of the money does on the price of money and interest rates and how it causes economic problems and why you don't get economic growth. You have to look at the malinvestment and destruction that occurs when you mess around with the price of money. It's not just the CPI because the CPI is not reliable. The government fudges that as well. They change the way they measure it. Free-market economists say it is going up about 8%. A lot of deception going on out there. I was just talking to someone on getting social security, they're not happy with the purchasing power of the dollar and you can't tell me there is no inflation."
On what the real value of gold is:
"No one knows it other than what is happening at that moment. The Supply and demand of gold is very important. That is why it is money, because gold is used elsewhere and it is commodity. The supply and money of paper is the culprit. That is the one that is causing all the trouble. People ignore the supply and demand of paper. Yes, paper goes up and goes down, but look at the long term purchasing power of the dollar. It has been devastating. At the rate they are printing the money, you will see a continual devastation of the value of the dollar. You will not see economic growth until you liquidate the debt and liquidate the malinvestment out there. Sure, you will see housing go up again, but you will see more bubble formation because prices go up does not mean there is economic growth. We are a long way from the correction, mainly because they ignore the definition of inflation and ignore the need to liquidate debt and the need to liquidate and get rid of all the malinvestment. One good comparison is look at the price of stocks and gold. Although in the past couple of weeks it has changed a bit. The price of the stock market has crashed, because you used to be able to buy the Dow with 44 ounces of gold. Now it is under 10 ounces of gold. It will probably go a lot lower."
"I think the way gold is acting it acts like a market does. You get ahead of itself, there has to be a correction. The amazing thing is not the correction, the amazing thing is the biggest bull market of the century when one commodity went up for 12 years straight. You cannot ignore that. To say, well there has to be an adjustment because prices are subjectively decided by many factors so you cannot predict exactly where the money will go. Unfortunately right now the money that the Fed creates goes into reserves, further distorting the markets and pumping up prices of bonds, further building a bubble that will burst because our economic growth is not there and we are in every bit as much trouble of Europe and Greece. Someday there will be a lack of confidence in our dollar and you will see the correction in the paper a lot more severe than you see the correction in the dollar-gold ratio."
"To tell you the truth, it's little bit too complicated. If I can't put it in my pocket, I have some reservations about that. But it has been designed in the free market. If it is a means of exchange, it would not ever be illegal. You shouldn't regulate it in the free market, but I do not think it fits the definition of money, which has been around for 6000 years. People want to see something they can know what it is, they can define it, touch it and put in their pocket. If you do not have a computer and someone running the computer and calculations, you don't have it. I am not a big supporter of that, but I am not opposed to it. I admit, I do not fully understand what is going on with it."
On whether the Boston marathon tragedy is an opportunity to fix immigration:
"There is always an opportunity because there is a need for it, but I do not think they will solve any problems at all because they are too big and complicated and very much involved with economics. I don't think you can deal with immigration unless you deal with the welfare state. It is an incentive for people not to work. It is an incentive for others to come and get free services. Also, I think it is more important that we look at our work permit, letting people come in and work, and put aside the idea of how we will give automatic citizenship. That becomes a political football because everyone is lining up. Who is going to get the vote? One side says that we are going to get all the votes -- we want them all to be legalized. I think you have to deal with the economic policy and really open up the opportunities for people to come back and forth and to work, but not to insist everyone will become a citizen because I do not think that will work under these circumstances."
On how Republicans will win the next election if there is no solidarity:
"I think the solidarity is the same problem in Republican and Democratic parties. It's ongoing. There's always factions. Of course, I want to unify everyone in the belief and the cause of liberty. Sound money, balanced budget, the constitution. So yes, there's a good way to unify them, but unity for the sake of unity makes no sense whatever. The old guard are losing their way. The party is getting smaller. It is splintered. They will have to face up to the fact that if they talk about limited government and personal liberties, they have to believe in it and do something about it because the young people will not be fooled. If this continues, the party will become smaller."
On whether Rand Paul will run for president in 2016:
"You'll have to ask him. I have no idea what he wants to do."
Someone sent me a great article by Bill Fleckenstein on gold. To read the whole article click here.
He makes an interesting point, claiming that the first half of the secular bull market when gold rose from 300 to 1900 was all about people fearing the consequences of Fed money printing and that the next half of the secular bull market will be about those actual consequences coming true.
Some quotes from it:
The first big question to consider is, Does this slide have predictive value? Does it tell us anything about the future?
I don't believe it does.
The 1987 stock market crash (which was similar to the Friday-Monday panic selling) certainly had none. It was about poor fundamentals and people not adjusting to them because of portfolio insurance, which detonated like a bomb. Yet the market break didn't "tell" us anything.
The gold market itself has experienced similar declines in the past, which have predicted nothing. in 1976, gold dropped from a high of $198 to $105 an ounce, a decline of about 40%. Interestingly enough, the last three days of that decline saw the market drop about 12% (similar to the amount lost during trading on Friday and Monday).
However, that collapse was a giant head-fake. Within about a year gold was back to its previous high (that would be $1,900 in today's environment), and over the course of the next four years it traded up over eightfold from those lows, even as our Federal Reserve (under Paul Volcker) was trying to do the right thing in the end. (And when it was pursuing the wrong policies, prior to Volcker's appointment, that was kid stuff compared with what the Fed and the rest of the world's central banks are doing today.)
What we just witnessed in the gold market, in my opinion, was a panic liquidation that has no predictive value and which occurred in the teeth of the most wildly gold-friendly fundamentals the world has ever seen. Unfortunately, this is a lesson of markets sometimes being perverse and doing whatever they want to.
In hindsight, I believe the leg up in the gold market, which ended in September 2011 at $1,900, was about people reacting to central bank actions and the positive price response in the gold market brought in lots of people simply because the price was rising.
Since then, the chart pattern and the market's reaction to news have been negative, culminating in the giant smash we had on Monday. I believe this drubbing marks the end of the last couple of years of bear-market action in gold, and the next leg up will be a function of people recognizing that all this central bank lunacy has erroneous negative consequences.
'The best thing we can do is go on with our daily routine,' said Nurse Ratched
Said differently, the increase in the gold price from $300 to $1,900 was about central bank actions, and the next leg will be about the consequences of those actions. This is because, so far, people have believed there have been, and will be, no consequences, but that is totally untrue. Rising gold prices will silence most of the naysayers, but how fast they may convert into buyers remains to be seen.
For full article click here.
To listen to this interview download this mp3 file by clickhing here.
Or go to their website and stream it by clicking here.
Edward S. Herman (co-author with Noam Chomsky of "Manufacturing Consent'): All the problems of the propaganda media model we talked about in the book have grown worse; new media like Real News show potential but need funding for more investigative journalism.
In the mainstream media a person can rise up and become a "public intellectual" if they praise government power and Wall Street. So for instance the two most famous "economists" of today are Paul Krugman and Steve Liesman of CNBC who do nothing but act as supplicants to the Federal Reserve. So when Liesman ever asks Bernanke questions he always gives him a softball question:
You will never see a reporter ask a critical question of Bernanke - not a reporter from CNBC - not one allowed in the press room, because they know if they ask one they will never be allowed back in the room or will be fired by their editor or media owner.
The real problem with the media today though is that investigative reporting is disappearing with the falling profits in newspapers and reduction in their staffs. The TV doesn't do it. Most Internet sites don't either, because they seek out hits and work to be a part of the instant news cycle.... so deep research and critical thinking is vanishing in the media and being replaced by the reporting of the rumor of the moment.
I already own RNO. But I'm watching it today, because I'm very curious to see what it does now.
RNO is a coal company paying a 12.90% dividend trading with a P/E around 10. What is interesting to me now is that while gold and silver crashed and commodities came under heavy pressure RNO just sat there.
It didn't drop at all.
Take a look at its chart:
Coal stocks as a group did drop with other commodities over the course of the last week. See how the KOL ETF, which I have a position in too, dipped:
Despite the dip in coal stocks and commodities RNO did not drop a bit. Usually when a stock holds up when its sector drops it does well going forward.
So I'm curious to see what happens now with RNO.
One of my best positions has been VIP - Russia's largest telecom company. There is no doubt about it, because I'm up over 37% since I bought it back in August of last year.
Today VIP announced that it is going to give its shareholders some extra grub. Today it announced that it is going to give all of its shareholders an extra 79 cents per share dividend and reaffirmed guidance on its annual 80 cents per share dividend. All I can say is yes! That's a 22% overall dividend for 2013!
Now the lesson I want to tell you is not that I am some genius who knew this was going to happen. Actually I feel lucky today. The lesson is that sometimes it really does pay to hold.
With the recent turmoil in the markets many are telling themselves that they will never hold another stock again - that for now on they will just trade.
In reality the important thing isn't to buy and hold, but when you buy. If you buy at a low price than you can hold. VIP has had its ups and downs, but they haven't ever bothered me, because I have bought at a low level:
I believe gold stocks are at a similar low level now. We should be able to look back a year from now and see the crash in gold stocks as a similar low level buy point that VIP was at last August.
April 18 (Bloomberg) -- Anskar Belke, chairman of macroeconomics, University of Duisburg-Essen, talks with Bloomberg's Mark Barton about an alternative to gold reserve sales for Cyprus. He speaks on Bloomberg Television's "Countdown."
I just did this podcast after the close with Dave Skarica of addictedtoprofits.net.
In it we talked about today's drop in gold stocks and gold and how to navigate it.
You can also download the mp3 audio file for this interview on your computer by clicking here WITH A RIGHT BUTTON CLICK and selecting SAVE FILE AS from the drop down menu.
If you have an itunes, ipod, or rss reader you can subscribe to the podcast by clicking here.
Jim Rogers, chairman of Rogers Holdings, talks about global commodity markets and investment strategy. Rogers also discusses the outlook for the U.S. dollar. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)
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