Every single day the stock market goes up and down and the financial news media talks about that and tries to explain the daily gyration. It is rare though that something so unusual happens in an individual stock or a trend that it dominates the entire news cycle to the point where everyone is talking about it. You saw that in Bitcoin in December 2017 when it went to 20,000 for a few weeks when people on all the TV stations got to talking about it and millions of people piled in using phone apps to buy into the top. And last week we saw the same sort of thing happen in Gamestop (NYSE: GME).
And yesterday it fell over 55%.
But on Monday we also saw silver spike and then give back its gains on Tuesday. I have been investing in silver for a long time and did not make a single trade based on those swings or the news (hype) around them.
Focusing on daily gyrations and the news cycle causes you to miss the big important moves when they happen. Secular turning points in markets often happen slowly that few notice and the media never is on top of them, because they just don’t get attention and can’t, because the masses have no interest in things happening slowly in the markets.
Last year two of my biggest traders where investing in agriculture commodities and in Turkey. I wasn’t able to time the exact bottom in either one, but by investing a small portion of my money in them I was able to buy and hold without getting shaken out. I think something similar is lining up in an asset class that will impact EVERYONE you know and all markets.
First take a look at the DBA ETF, which I still own.
Agriculture commodities made a peak in 2011 around the same time silver did and went into a bear market that lasted for almost ten years. I tried to buy a few times and got out, I think first in 2016 for a few weeks, but after the March stock market crash I bought again with about 1/7th of my money. After the crash soft commodities across the board got cheaper against the US dollar and stock market in their entire history.
I also thought after the March crash that they probably wouldn’t have much downside for a few months so I could buy and see if they could turn up into a bull market with little risk.
To do that this DBA ETF had to go through its 150 and 200-day moving averages. That’s what it takes for something to go from a stage one bottoming phase into a full blown stage two bull market, concepts I explain in my book Strategic Stock Trading.
When a bear market goes on for ten years and bottoms you are looking at an epic secular buy point. I couldn’t time it exactly, but by the end of the spring we could see that it was happening.
You could say in April it was easy to guess that a secular turning point was coming in agriculture commodities. Buying during such times and then holding is how the BIG investment money is made.
A similar turning point now appears to be in the process of being made when it comes to interest rates.
Take a look at the ten year bond yield.
Interest rates made a secular peak in the 1980-1981 period after a period of high inflation in the 1970’s that caused the Federal Reserve Chairman to jame interest rates up to cause the inflation to fade.
From that turning point interest rates went into a bear market for over forty years while bonds went into an epic bull market. This is why investors that put 50% of their money into stocks and 50% in bonds made fortune and why now such a strategy is fraught with trouble.
You see, last year Treasury bond yields made a final low as the Fed reduced the discount rate to near zero and began a massive QE bond buying program. Remember bonds trade opposite to their yields, so when bond yields decline bonds go up.
But those yields have made a double bottom over the past six months and have almost tripled from their low. It’s a slow moving market, but bond yields are now in a secular bull market.
This represents a slow motion turning point that may actually be the single most important thing happening in the financial markets. It’s not a story that is happening fast enough, though, for anyone to pay much attention to it, nor for it to make the news cycle, but it is happening.
It means inflation is coming down the road.
It also means that in time the Federal Reserve will have to announce “yield control” in order to artificially keep Treasury bond yields low. But they won’t be able to control all bond yields, and corporate and junk bonds will decline in value. Bonds as an investment will be useless. That’s why gold and silver are necessary investments in a portfolio for diversification purposes no matter what silver did in the past forty-eight hours.
It also means that there can be a great way to make money putting on a trade on this secular turning point in the bond market. People who bought bonds did just that in the 1980-1981 period, but now those that find a good way to bet against them can position themselves for a big play. It’s not one that will attract the Robinhood types and those that need to feel like they are part of a herd to do anything, because it isn’t a bet that will make you money (or lose) in 24 hours, but one that would take months and perhaps years to really play out. But that is how the big money is made investing.
As for Gamestop and the giant hedge funds that helped to make it go up and made the real money when the masses got stuck, I did a video about that yesterday after the close you can watch here.
-Mike
