It’s absolutely amazing how easy it is, to allow the mainstream media to influence your trading.
We see the headlines, we hear the talking heads go on and on… and a part of us just “defaults” to accepting the daily banter as “the way it is” or……just assuming these people must know right? They’re on T.V. and I’m just sitting here in my trailer.
I also advocate doing as much research as you can and formulating your own investment views, and perhaps even more importantly – sticking to the basics!
How about the age-old principle of SUPPLY and DEMAND!? Remember that one? It’s a good one!
Let’s take OIL as an example.
Oil Around 45 Bucks = Low
You know….oil – the single most important commodity on Earth (or a least to the degree that puny humans have based their entire global economy on it). One would really never have to question it’s “demand” and from what we all are led to believe – the supply shouldn’t really be in question either.
Then factor in global population growth and any number of other horrible / consumer related facts and figures and there you have it.
Long term demand (in today’s day and age) will easily counter this short-term oversupply, as humans will consume this sludge until the last possible drop has been squeezed from this planet.
The support area is very near, so you start doing a bit of research NOW, and keep the price of oil on your daily trades / watch list.
Everyone needs to take this “shot across the bow” and the “survival of said shot” – to count their lucky stars. Talk about complacent eh? Damn! I bet a whole lotta folks just got 100% cleaned out!
I don’t mean YOU….I mean the market, and it’s participants “in general”. Everyone still not willing to accept how “flimsy” and “phony” things truly are. How soon we forget.
Gone are the company buy backs…..now the Fed “tightening not loosening” monetary policy, guidance for 2019 all pointing down ( these are the companies you invest in TELLING YOU – we aren’t gonna hit the mark in 2019) and then of course….the “incredibly significant” trade war / tensions building with China.
These stocks don’t exist in a bubble right?
There is nowhere to hid when the “entire planet” (or at least those institutions with large enough positions to affect markets) turn from buy to sell . NOTHING survives.
So hey…..this time around we catch a break.This time.
The Fed meetings get underway tomorrow. This is everything now.
The idea of interest rates climbing higher is the absolute foundation for this sell off. You get it right? You realize how leveraged to the freakin balls these big trading houses / investment firms / wall st. gangsters are? Another basis point higher, and that nice new house out in the Hampton’s you’ve double mortgaged and now taken additional loans against gonna be the banks soon. You don’t own shit.
So here’s how it goes down.
Fed holds out and doesn’t make the hike = markets are back off to the races for a final shot to the highs. USD tanks / final roll over / another fantastic short entry – post fed. Gold and commods final bottom. Crypto as well.
Fed makes hike ( as it’s already priced in fok……look at the slide ) but TALKs down the next few = markets are back off to the races for a final shot to the highs. USD tanks / final roll over / another fantastic short entry – post fed. Gold and commods final bottom. Crypto as well.
There it is.
You’ve got one more shot at the highs, before May of 2019 and it’s time to get down in your bunker.
Buy water and gas…..buy crypto / silver n gold, and consider moving inland.
There’s more than a little problem up north, and it’s coming a lot sooner than 2030.
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.
I laugh out loud this morning….as Im sure you´ve seen my last two posts – encouraging you to get short USD.
Talk about timed to perfection. USD is getting hammered on ¨no real news¨ and look at that…..U.S Equities falling pretty hard too. Again I wonder about all those blow hard ¨dollar longs¨struggling to understand how I keep making this look easy.
The trade is ¨short USD¨…….the reasons are many.
Timing has been key here these past months as you´ve recently seen me come out of hiding to bang down the first trade in weeks – if not months.
So…..if you’ve only got a view of oh…let’s say just a small portion of the market ( maybe a couple of blue chips, gold) and perhaps the U.S Dollar “against” your own local currency well…..one might suggest adding a couple more “market indicators” to the pile.
I know you may find this incredibly hard to believe, maybe even IMPOSSIBLE to believe but….The U.S Dollar “spike” here in the wake of Brexit market madness will soon provide one of the greatest “short opportunities” of our time ( slight exaggeration perhaps ).
While you’re all drooling over the massive moves “upward” against both the EUR and GBP ( no kidding right? As the vast majority of traders got “wacked” by Brexit ) The U.S Dollar “continues to sink” against its arch rival ( or at times good buddy ) the Japanese Yen (JPY).
The two are now almost at par.
Now….for those with near term memory loss – do you remember the continued explanation here at Kong with respect to money flows on this planet? The safe havens / funding currencies such as JPY going absolutely “parabolic” during times of “risk aversion”? The money that comes “flooding back” to these this currency as large-scale “carry trades” are wound down? Well……if you think the U.S Dollar is strong right now……why is it getting its ass kicked by the Yen? Why is USD losing all support / falling like a rock against JPY?
That’s what I call JPY stength. That’s what I call “risk off”.
The U.S Dollar will soon follow….providing for large scale gains SHORT USD against any number of currencies.
I will again be waiting for a daily “swing high” in USD ( likely within the next 3-4 days tops ) for another joyous ride “back on the big short” – USD.
Aside from the currencies, nearly every other thing I track / read / research suggests that this may not only be a strong area for “correction” – but the start of something much larger.
There has rarely ( if ever ) been a time in history when as many separate indicators / charts / graphs and info has been “this skewed” to suggest such divergence and risk of serious “downside action in global appetite for risk”.
Considering the current geopolitical backdrop and with U.S Equities still “clinging” to the highs, personally – I don’t see a blow off top scenario. To whatever degree that retail investors have “taken the bait” over the past 7 months….I believe they are “already in”.
The situation with Ukraine really only being the tip of the iceberg now as Putin’s “Gazprom” now announces “massive oil deal with China” again…bypassing the U.S Dollar in trade.These are tremendous blows to the U.S system, and make clear The U.S “true intension” in Eastern Europe.
They must save the U.S Dollar as world reserve currency – and will stage a war to do so.
The Nikkei rolled over a couple of days ago, USD looks set to plunge along with equities, and the entire currency market has more or less moved “risk off”, with USD/JPY “not breaking out”, falling back into range and expected to fall further.
The real-time trades in currencies, gold and silver as well U.S Equities, weekly reporting and daily commentary can be found at the members site: Forex Trading With Kong.
A very large “gap up” here in the wee hours Sunday night before markets really kick off, and the U.S Dollar continues to surge higher against the E.U currencies.
One can’t imagine a single USD bear left on the planet.
Exactly as it should be…. before the thing tanks.
It’s amazing to me how public perception continues to view USD’s recent surge as “some indication” of a stronger U.S Economy.
How on Earth can The U.S Governement ( as well the crooks at The Fed – a private held bank ) handle the enormous contribution to the “serviceable debt load” ( remember The U.S is “officially broke”, with a continued rise in the “allowable debt ceiling” now just a given ) brought about by a stronger U.S Dollar?
It’s impossible. The Fed mandate is to “kill USD” at whatever costs, as to keep these balls in the air as long as they possibly can.
A strong U.S Dollar “kills” the U.S economy! As exports tank, and the amount/value of outstanding sovereign debt balloons “past” the balloon we already know to be.
Find me an “economist” who can make the arguement that “a strong U.S Dollar is good for America” and I’ll eat my hat.
A strong U.S Dollar represents everything the U.S Gov and The Federal Reserve fear most so….I encourage you to start looking for signs of reversal – as opposed to getting to excited.