Market Participants – How Can’t You See This?

Please Read: I’ve highlighted the significant bits.

kong and rickards

Jim Rickards – Markets Are Experiencing Cognitive Dissonance

Cognitive dissonance is a psychological term to describe a situation where perception and reality are out of sync.

It’s similar to what most people refer to as “denial.” The patient sees things one way, but the reality is different. Of course, it’s just a matter of time before reality prevails and the patient is jolted back to reality. This process can be fast or slow, easy or painful, but the important thing to bear in mind is reality always wins.

Something like cognitive dissonance is going on in markets right now. Markets have been temporarily euphoric over Trump’s tax, regulatory and spending policies. Those policies are important to business and credit cycles and economic growth.

The perception is that happy days are here again. The new Trump administration is expected to pour trillions of dollars of stimulus spending and tax cuts into the economy. Immediately after the Nov. 8 election, investors took a quick look at Trump’s policies and decided they liked what they saw.

Trump wants lower taxes, less regulation and higher infrastructure spending. Corporate profits and consumer spending benefit from lower taxes. Banks and pharmaceutical companies benefit from less regulation. Construction firms and defense contractors benefit from infrastructure spending. There seemed to be something for everyone, and the stock market took off like a Roman candle.

And indeed, the major stock indexes hit one record closing after another. The Dow topped 20,000 this week before pulling back. The dollar has been trading near a 14-year high, although it’s slipped in recent days. Gold was moving mostly sideways until it broke out again over the past few days.

Bank stocks went vertical in expectations of wider net interest margins (from Fed rate hikes) and less regulation (from Dodd-Frank reform). Happy days, indeed.

Reality is another matter. I’ve been warning my readers lately that the Trump trade is levitating in thin air and is ready for a fall. Now that reality could be beginning to sink in.

It’s far from clear how much of the Trump economic agenda will see the light of day. Congress wants to offset tax cuts in one area with tax increases in another so they are “revenue neutral.” That takes away the stimulus. Less regulation for banks won’t help the economy if bankers lead us into another financial meltdown like 2008.

Infrastructure spending will increase the debt-to-GDP ratio past the already high level of 105%, putting the U.S. closer to a sovereign debt crisis like Greece. As I wrote Tuesday, many believe a 60% debt-to-GDP ratio retards growth. That’s the standard the ECB uses for members of the Eurozone. Scholars Ken Rogoff and Carmen Reinhart put the figure at 90%.

Again, the U.S. debt-to-GDP ratio is currently at 105%, as stated, and heading higher. Under any standard, the U.S. is at the point where more debt produces less growth rather than more. This is one more reason why the Trump infrastructure spending plan will not produce the hoped for growth. And if infrastructure is funded privately, you’ll need tools and user fees to pay the bondholders, which is just another form of tax increase.

There’s almost no way Trump’s policies can supply the stimulus the market is pricing in. The Dow Jones index peaked on Jan. 26, 2017, one day after cracking the mythical 20,000 mark. It’s now trading around 19,900. The downhill trend may continue and get steeper soon.

Productivity has stalled out in recent months. Economists are not sure why. It could be due to lack of investment by business, or that workers are not being trained in useful skills, or that everyone is spending too much time on social media. Whatever the cause, productivity is flat.

Fourth-quarter GDP came in at 1.9%, below expectations — the final chapter on the worst year of U.S. growth since 2011 when the economy was still healing from the global financial crisis. The strong dollar is a major headwind to growth, along with flat labor force participation and weak productivity growth.

Growth in a major economy is simply the sum of increases in the labor force plus increases in productivity. Think about it. How many people are working and what is the output per worker? That’s it; that’s all there is. The reality is that the workforce is not growing.

Labor force participation is near 40-year lows and is expected to decline further for demographic reasons. Birthrates have never been this low since the Great Depression. The U.S. used to get a labor force lift from immigration, but that might dry up because of Trump’s policies. We’ll have to wait and see.

A flat labor force plus flat productivity equals a flat economy, or almost zero nominal growth. That’s reality.

kong and rickards

                                                        How will this situation be resolved?

Either growth will rebound based on “animal spirits” and the Trump stimulus working better than expected or markets will collapse once they realize the growth is not coming. By “collapse,” I mean a violent stock market correction, a falling dollar and major rallies in bonds and gold. We expect the latter.

Financial crises are not mainly about the business cycle. They’re about investor psychology, sudden shocks and the instability of the financial system. Right now investors are skittish, numerous shocks are waiting to happen and the system is highly unstable due to overleverage and nontransparency.

Despite Trump’s best efforts and positive policies, a collapse could happen any day unless radical steps are taken to prevent it — such as breaking up big banks and banning derivatives. I’ve been warning about this for a while, but now mainstream economists see the danger too. Nobel Prize winner Robert Shiller, for example, sees a stock market crash coming that could be worse than 1929 or 2000. I hope he’s wrong.

The problem with a financial panic is that panicked investors don’t care if the president is a Democrat or a Republican; they just want their money back. The same dynamic applies to natural disasters like tsunamis and earthquakes.

Once the disaster starts, the dynamics have a life of their own and don’t care if the victims are liberals or conservatives. Everyone gets hurt just the same. I’m not hoping for it, but this is a lesson Trump may learn the hard way.

Above I said collapse means a violent stock market correction, a falling dollar and major rallies in bonds and gold. I expect the latter. The long-term trends favor gold if U.S. growth continues disappoint.

The strong dollar story can’t last, so it won’t. The Trump administration has clearly signaled that the day of the strong dollar is over. When you see a coordinated attack on the dollar from the White House, the Treasury and the Fed, you can bet the dollar will weaken. That means a higher dollar price for gold.

The dollar may get one last boost from a Fed rate hike in March, but after that, even the Fed will acknowledge that they got it wrong again and start another easing cycle with happy talk and forward guidance.

For now, investors should not stand in front of a moving train. Keep cash ready and be prepared to move into gold, bonds and the euro. In fact, it’s not too soon to leg into those positions now.

Instead of watching the tape or short-term trends, my advice is to stay focused on the long-term trends. That’s how you’ll make the most money and preserve wealth in adversity.

kong and rickards

 
                                             – Source, James Rickards via the Daily Reckoning
                                                                            Who is James Rickards?

Don’t Panic – There Is Time To Prepare

These things take time so…let’s just take a minute and re group.

The entire blog / financial community at large is pretty much sitting at a stand still, with a couple of “ridiculous” factors and circumstances in play. Get a load of this….March 15th is not only the DAY the debt ceiling “freeze” does exactly that – but ALSO the day the Fed is widely expected to raise interest rates?? Can you wrap your head around that? Can you?

The dichotomy here is unprecedented. I see the debt ceiling biz being completely and totally “blacked out” in the main stream media, as it could very likely lead to government shutdown, as well as some pretty “snappy headlines out there” when the world at large is again reminded….The United States is again 100% flat broke.

I would assume “the powers that be” will keep things lofty moving into the 15th, then regardless of an interest rate hike or not….you’d have to expect our “long-awaited sell off / correction” to start, which will likely take us well past May ( as I also feel that SELL IN MAY will be in effect this year ).

In a broad sense I’d be looking to put some protection in place…start raising cash for a much better time and place to “jump back in”.

There is very likely one more  push higher later this year ( and it could very well be a whopper ) so maybe July/Aug would be a great time to grab that cash…..and put it back to use moving into the fall.

EUR longs looking good. NUGT pissing me off.

Forex_Kong

              Forex_Kong

Dow Jones – Over 2000 Points Above 200 SMA

I can’t bear to watch.

See the green area on RSI – How long it’s been overbought? See the distance DOWN to the red line ( 200 Moving Average ) See the “rolling hills” of the MACD ( useless indicator anyway ) as price on the chart is so much higher…yet the near term “rolling hill” so much lower than the previous. Divergence baby – Huge divergence.

Even a correction down to the 50 MA will wipe any and all profits that anyone “envisions” prior to actually realizing them – and pushing the sell button.

This is the blow off top. How long she goes? Who cares! Just be sure to get out alive.

 

Dow Jones – 2000 Over 200 SMA

Bitcoin Now – Same Price As 1 Oz. Gold

Anyone else find this absolutely amazing / hard to even comprehend?

From some article:

“” The Digital currency bitcoin jumped to a record high above $1,200 last Friday, as investors speculated the first bitcoin exchange-traded fund (ETF) to be issued in the United States is set to receive regulatory approval.

Traditional financial players have largely shunned the web-based “crytpocurrency,” viewing it as too volatile, complicated and risky, and doubting its inherent value.

 But bitcoin, invented in 2008, performed better than any other currency in every year since 2010 apart from 2014, when it was the worst-performing currency, and has added almost a quarter to its value so far this year. “”
Bitcoin Now As Valuable As Gold

Bitcoin Now As Valuable As Gold

Another indication of just how stretched / ridiculous things have gotten when a digital crypto-currencies “perceived value” has matched / surpassed the price of gold.
You don’t think this thing is just a tad over extended? 

Kong Buys NUGT – 9.00

Don’t try this at home as I will not be responsible. Ya hear me??

My feelings on Gold don’t manifest as “a short term trade” as I like this point in time  “in general”.

In for a few up at 12 ( whoah!  wack wack / ouch! ) then a bunch at 11’sh  now a shwack at 9?

It’s called “averaging in” my love….small orders over time. Trust me my sweets. I know what I’m doing.

Yes I had a wonderful time in Cabo too, and yes babe…you can start planning the next trip.

Oh that gold trade? All good –  nothing for you to worry yourself about just now.

 

Forex_Kong_Bored

 

 

 

Trading With Bazookas – Pea Shooters Get Smashed

So it all comes down to Trump’s speech tonight….as market participant stand like fat deer in the headlights..

Gold still the same. EUR/USD up nicely but still more or less the same, and the beast of all beasts NUGT takes the world for a diving lesson. Boom…talk about a stop run. These things don’t happen unless the big boys are making their moves. They can push price a couple bucks in a couple of hours without batting an eye….all the while your piddly 200 shares with a .50 cent stop get’s gobbled up. Multiply that by a couple 100,000 ( or million ) and you start to better understand just how difficult it is to “trade” with a “pea shooter”…when those on the other side of your trade carry billion dollar bazookas.

Forex_Kong_Bazooka

          Forex_Kong_Bazooka

You really don’t have much of a chance.

I find it incredibly ironic that the Trumpster is calling for some 54 billion more spending on Defence, and 1 Trillion on infrastructure when the country is already 100% flat busted / broke / bankrupt. As suggested by a few of the brightest minds in the comment section here at Kong –  sounds like the ol debt ceiling with just get raised, then raised again…then again. Where does the money come from?

Sounds like more money printing to me..but I thought the economy is expanding and there is now talk of the rate hike cycle beginning? Not.

QE will happen in ‘Merica again.

The printing presses can never stop printing.

Sell Your Stocks – The Holiday Is Over

I used to go  on and on about it, but with The Fed printing confetti each and everyday for the past 8 years – it didn’t really matter. The United States is 100% totally broke / Greece style / Flat out busted.

You guys remember that thing called “the debt ceiling”? Well……March 15th – Here we go again…only this time it’s different.

March 15th is the day that the “debt ceiling holiday” that Obama and Boehner put together right before the last election in October of 2015 expires.

The debt ceiling will freeze in at $20 trillion.  It will then be law.  It will be a hard stop.  The Treasury will have roughly $200 billion in cash. The U.S is burning cash at a $75 billion a month rate.

By summer, they will be out of cash. Totally out of cash.

The holiday is over.

You think I’m joking about this….you don’t take this seriously, and you bury your head in the sand –  I won’t be very happy.

Gold up = Fear = USD and U.S Stocks down HARD.

http://www.usdebtclock.org

 

 

You Are So Smart – Kong A Fool For Asking

You gotta love it.

Thousands of visitors per day and I don’t get a single comment / opinion / view on the recent “Trump and the U.S Dollar” post. Not a single one. All the while dorks with nothing better to do,  actually take the time to comment / call me out – insinuating that I’m NOT in Cabo ( actually now at the all inclusive Barcelo in San Jose Del Cabo ) and that for whatever reason…..I’m lying about it. Again you gotta love it.

american gorilla

                                                                            American Gorilla

Every red blooded American has a view on Trump ( good or bad ) as I see them here…flocking to the televisions like bands of hypno-rats…arguing about the colour of his tie and wether or not Melania has fake breasts. Deep man. Deep.

I find it absolutely fascinating that people who likely consider themselves pretty damn smart, have absolutely no clue how the value of the world’s most widely held / reserve currency might affect their investments / lives / future. No clue.

What’s that Kong? You bashing my U.S Dollar? Fork you dude….that’s ‘Merica you talkin ’bout! My American Dollar! Mine ya’ll! Mine!

purchasing-power-of-dollar-chart-2015

Go stuff yourself. This is a currency trading blog people. Check yer ego’s and hand guns at the door please.

In any case….perhaps some casual reading over the weekend.

http://www.zerohedge.com/article/history-worlds-reserve-currency-ancient-greece-today

https://www.thebalance.com/what-is-a-reserve-currency-1978926

http://www.telegraph.co.uk/finance/comment/liamhalligan/10978178/The-dollars-70-year-dominance-is-coming-to-an-end.html

I am “officially” on holidays.

 

Gold Futures – Up 15 Bucks Overnight

Gold is up another 15 Dollars overnight so……one can only assume you’ve missed that train.

Like I’ve always said….I’d much rather be early than late, as chasing trades can make your head spin.

The future is looking very bright for gold as “global uncertainty” escalates and “global appetite for risk” wanes. Unfortunately you just can’t have it both ways…unless of course you decide to pick up gold as a hedge ( meaning you purchase an asset that is set to move higher while holding on to assets moving lower ) and hang on to those dividend payers during the long and arduous drawdown coming soon to a theatre near you. I did this once.

I will never do it again.

Kong Is Golden

Kong Is Golden

As a relatively young trader / investor type…I can’t bear the thought of having my money tied up so tight I can’t breathe. Can’t move. Can’t sleep or eat just watching the value of my assets going down, down, down, down further….then down some more. I think we all know this feeling to a certain degree. It can certainly make sense for people a tad older than I as moving theses assets around / pulling apart portfolios and rebuilding again is a bit of a pain but….at least in my view – nothing compared to 3 straight down days -300 on Dow……trapped like a rat, then contemplation of either selling at a loss or holding on for an even larger loss.

Fear and greed baby…..that’s all there is too it. Ride that train in either direction…just don’t miss your stop.

All current trades looking golden. EUR right on. USD falling. Gold on the move.