The Stock Nirvana Has Been
Broken August 21, 2015
Doug
Wakefield
Is
it possible to have a calm and boring market break down quickly in merely two
trading days? Is it possible that THIS is the start of breaking the “stock
nirvana” illusion?
Let’s
examine the evidence.
All Is Calm…Until It Is Not
Anyone
looking back over the trading days of July and August as of Wednesday would
have seen nothing but the illusion of “control” at the 200 day moving average
of the S&P 500.
Four Horses
As
the markets closed today in the U.S., we can see that the four major equity
market indices have now closed two days in a row under their 200 day moving
averages, declining very sharply.
The Global 200
Does
the evidence reveal, that the US equity declines are isolated, or part of a
much larger global drama?
Who Me…Fear?
After
being pushed to its lowest reading since July 2014 in early August, the VIX
finally roared past every top over the last year today, with the exception of
the one we saw last October.
Near
term, this would argue for a bottom very soon in stocks and a top in the VIX.
However, considering the fact that it has taken so long to break underneath the
200 day moving averages of the four U.S. equity indices shown above, the last
two days appear to be a wake up call to global investors, that September could
prove dramatically different from the illusion of “nirvana” that has been
experienced these last few years.
But Where Are the Bulls?
While
there have been stock bulls and gold bears for 4 years, the following are three
reasons that gold should prove welcoming to those looking for a bull trend.
Anyone
reading, “Gold
is ‘Undervalued’ For First Time in 6 Years, BofAML Says, released on Zero
Hedge on August 18th, will learn the following:
Hedge
Funds just went short for the first time ever. This is a contrarian
signal, when compared with the actions of the commercial hedgers, who were
recently holding their lowest short position since the gold bull started
in 2001.
Lastly,
a survey of managers by Bank of America Merrill Lynch recently revealed that
they believed gold was undervalued for the first time since 2009.
For
over a year now, I have been asking readers to look for the big shift, where
bulls become bears and bears become bulls. While we had equity markets like the
Toronto Stock Exchange top last September, followed by the Dow Transports last
December, it took until July this year to see the S&P Biotech Index and the
NASDAQ Composite reach their all time highs.
Yet,
whether we are looking at the bottoming of gold, or the topping of equities and
junk bond worldwide, the move from boom to busts seems to have lunged forward
this week.
Plan of Action
There
are millions of investors and thousands of advisors, who are still following
“buy and never sell” strategies. We have lived through two 50% declines in the
S&P since 2000, and yet because of Greenspan’s cutting rates to 1% by 2003,
and Bernanke and Yellen following a Zero Interest Rate Policy since December
2008, we find ourselves with no chance that central banks can interest rates
BELOW zero to “stimulate” the global slowdown.
QE
has had trillions to sovereign debt levels, adding an enormous drag to the
world economy, so more QE to remove what little top tiered collateral is left
among dealers, is NOT a solution either. Less cash and blowing the financial
bubbles larger was never a long-term economic solution.
Never
over the last 44 years since the US dollar was removed from the gold exchange
standard in August 1971, has the world been facing such enormous problems
caused by the school of thought, “with enough debt and central planning, we can
kick the problem down the road forever”.
Preparing
for the coming busts is not scaremongering; it is common sense when looking
back over the largest financial experiment in history since 2008.
There
are ways to grow one’s money in the period ahead. But it requires changes and
doing things differently for the bust than were done in the last 4 years of the
boom. It also requires admitting that for most, it was just easier not to
think, and leave the planning and artificial levitation schemes to central
bankers, than to think for yourself and admit that the plan was not sustainable
from the start.
There
are also changes that will come, that are much larger than merely the
investment markets. Phillipp Bagus book, The Tragedy of the Euro,
published in 2010 by the Mises Institute, reminds us of how far we have come
down the road of “central planning”. Clearly, it encompasses far more than
investing.
“The
institutional setup for the European Monetary Union has been and economic
disaster. The Euro is a political project; political interest have brought the
European currency forward…economic arguments launched to disguise the true
agenda behind the Euro have failed to convince the general population of its
advantages.
The
logic for interventions propelled the Eurosystem toward a political unification
under a central state in Brussels. As national states are abolished, the market
place of Europe becomes a new soviet union.” [p129]
I
have thought about Bagus comments often in the last few years. How did we ever
become fooled into thinking that with enough debt and central planning, we were
heading back to “normal”? What has taken place since 2008, is that our world
and markets have become more and more concentrated into fewer and fewer hands.
For those who make no plans or changes for the bust phase, they will only feed
that concentration of power, as we look to central bankers for more
“bailouts”…..which this time, they have told us already, are not coming.
Be a Contrarian, Remember Your History
The
big shift from longs to shorts and shorts to longs took a major leap this week
away from previous trends, and toward future ones. Have you made changes?
Click here to start the next
six months reading the newsletters, reports, and group emails as we move
from the boom to the bust phase.
On a Personal Note
Check out Living2024. It is my personal blog, not business. I wanted to have a place to write stories about where this entire drama seems to be taking us all. Check out my latest post, Optimism Didn’t Help Greeks or Chinese.
Doug
Wakefield
President
Best Minds Inc. a Registered Investment
Advisor
1104
Indian Ridge
Denton,
Texas 76205
Phone
- (940) 591 - 3000
Best Minds, Inc is a registered investment advisor that looks to the best minds in the world of finance and economics to seek a direction for our clients. To be a true advocate to our clients, we have found it necessary to go well beyond the norms in financial planning today. We are avid readers. In our study of the markets, we research general history, financial and economic history, fundamental and technical analysis, and mass and individual psychology