Monday, March 27, 2017

This reminds me too much of what happened in 1972 to 1974

This is the start of at least a 5 percent correction, and perhaps something far worse than that over time. I take this very seriously. This is not just a one off circumstance in the equities market. This has something that has happened across all over the universe of capital markets. I think there's something to the downside that could become quite serious and one should be very careful. If we stop at 5 percent.... Let us hope it's merely a 5-7 percent correction and nothing more than that.

We've been saying that we expect a 5 to 10 percent correction. We've been saying that for weeks now. At the end of bull markets, earnings always look great. Earnings don't look bad until you've gone somewhere into an economic downturn. Earnings lag by at least a quarter, and usually by a half, so you're going to get the best earnings right at the peak of economic activity.


Wednesday, March 22, 2017

Bear markets are ugly and depressing

STOCK PRICES ARE DOWN MARKEDLY AND UNIVERSALLY as every market of the ten markets comprising our International Index has fallen with five of the ten having fallen by more than 1% and with two markets…. Japan’s and Brazil’s… have fallen by more than 2%. Allow us to be quite blunt here and acknowledge that something “broke” in the markets across the board yesterday, and we said in an interview earlier today with CNBC Europe, it is not just that stocks broke to the downside, but that precious metals “broke” to the upside along with bonds, and that the base metals broke to the downside following equities. The psychology of the market has taken a very real and very severe beating and we fear, of a sudden, that something more than a mere long-awaited correction has fallen upon our shoulders.

We would like very much to believe that all we are about to see is the normal… the standard… the again, much-awaited 5-7% correction in equity prices that shall be that proverbial “pause that refreshes.” We would like to believe that imperatively for as we have said before, “Bears don’t eat.” That is, bear markets are ugly; bear markets are depressing; bear markets weigh heavily upon the nation’s and the individual’s psyche and so we want to believe that this shall be something less than the beginning of a bear market and shall indeed by nothing more than the first day or two of a correction. This we truly want to believe, but we fear otherwise.

Time of course only shall tell what is happening or is about to happen. Trend lines cast back months rather than weeks can still hold. The market may reach such severely over-sold levels and may reach them so quickly as to render the market given to a rally. We may see the CNN Fear & Greed Index rush downward toward 15 and turn higher. We may see the clouds part and the sun come out again… but again we fear otherwise.

In our own retirement account yesterday we took very  real action to protect ourselves on the downside, for we stepped in early in the session and bought Japanese equities via the Wisdom Tree ETF, DXJ, but within an hour, with the market moving quickly against us, we cast it overboard, taking a small loss in the process. Then as prices continued to deteriorate we actually ventured to the short side of the market, buying bearish derivatives and by 1:00 in the afternoon, doubling those positions and carrying them “home” through the close of trading. This is the first time in a very, very long while we have actually gone short of equities, but it is our intention to become even shorter of them, hoping to sell a bounce that might develop intra-day.

Finally, always remember this, that as our old friend Doug Kass reminds us, ‘Risk happens fast.” Perhaps the FBI’s investigation shall stop at Mr. Manafort and maybe even Gen. Flynn and perhaps it shall not go any further. But for the umpteenth time here this morning, we fear otherwise. Discretion being the far better part of trading/investing valor, it is time to take some money off the table. 



via zh

Bullish Japanese stocks but hedged against the Yen

We are bullish of Japanese shares and have an initial position in place long of the Japanese stocks via ETFs here in the US, but we wish only to be long of those ETFs that hedge away our exposure to a weaker Japanese Yen.

Our preferred position then is in DXJ:Wisdom Tree’s currency hedged Japanese ETF. Further, it is our intention to add to this position but not until such time as the “spot” Nikkei closes “materially” above 16,600. 

Tuesday, March 21, 2017

Gold miners vs Physical

No one shall be surprised to read that we have not changed our thesis on gold at this point for we remain bullish of gold in EUR and Yen denominated terms as we have for the past several years, noting once again that gold in EUR terms leads the way higher and is up 9.6% year-to-date while gold in US dollar terms is up 9.2%. 

Gold in Yen denominated terms is lagging behind the other two prices thus far this year as capital seems intent upon moving out of Europe and to other venues, with Japan being a prime venue thus far, perhaps simply because of the geographical separation of Japan from the political problems attendant to Europe presently and thus keeping the Yen “bid” vs. the EUR. However, we shall suggest that that Gold/Yen’s three year out-performance vs. gold in US dollar terms… unchanged vs. -7.5%… does “trump” the year-to-date figures.

As gold has risen in all currency terms in the course of the past several days there is some very real concern that gold mining shares have seriously under-performed. We share that concern for historically the mining shares are leaders to the upside and to the down, thus when we are bullish of gold but see the mining shares lag behind we become openly concerned that something is amiss. 

Nonetheless, the political confusion that does seem to reign at the moment in Europe generally as elections loom in the Netherlands and France does tend to keep us viewing gold positively.