"Every stock market bull out there whether in New York or London
or Mumbai or Beijing is in a drunken myopia of elevated expectations and
deviated denial scrambling and scratching and pleading for assurances that
'it is truly different this time.'"
Writing a missive such as this one has been a labor of love for me since
the mid-1980s when I began to observe how stock market investors behaved at
or near major inflection points�meaning "tops" and
"bottoms." It all began in London, Ontario, in the summer of 1982
when I was in attendance at the annual London Chamber of Commerce Annual
Canada Day barbecue where business types of all persuasions came together to
"try to hustle up some new business," a 1980's version of the 2017
term "networking." Situated near to the bar was a bank of phone
booths with the name "BELL" emblazoned on their roofs, which were
the only forms of communication back then (or as my kids say "WAY back when")
while the men in their penny loafers and corduroy jackets with patched elbows
sipped rye whisky and/or beer (the heavier the better), swapping stories
about the state of the markets, stock and real estate.
In the summer of 1982, interest rates were perched atop the mountainous
aerie of 19% in Canada and I recall how as a young financial advisor I was
chastised by my peers for taking $50,000 of a customer's trading capital and
investing it in Government of Canada bonds maturing in 2001 and paying 16.75%
semi-annually. "Kiss that money goodbye!" was the response I got
for sacrificing a predictable return for the client versus
"trading" where the turnover would generate infinitely more
commissions than those "boring" bonds. At the same time, I was
standing by the cocktail bar at this summer barbecue listening to a real
estate agent lampooning the stock market with remarks like "Nineteenth
month of the downturn for stocks and real estate just keeps chugging
along," as literally a dozen people listened intently. Not to be
outdone, I tried in vain to add my input to the discussion but the moment the
audience discovered my profession, they backed away as if I were carrying
some tropical disease and gravitated to the realtor.
Two months later, in August of 1982, stocks exploded on an 18-year run
that dwarfed any returns seen in the real estate markets in an ascent that
lasted until the summer of 1987, when the scenario seen in 1982 had
completely reversed. I was again standing at the bar (no surprise there) holding
court and describing why stocks were at a "permanently high
plateau" (Irwin Fisher 1929) and why they were still
"undervalued" based upon "price-to-book" or
"price-to-cash-flow" or "price-to-bond-yields" but as I
was droning on and on and on, I chanced upon the smiling face of an elderly
gentleman, smiling up at me adoringly, notebook in hand, while nodding at
everything I was saying. After I had concluded my diatribe, I approached this
nice old chap and asked him his name to which he replied that he "could
not remember" nor could he recall where he lived or why he was there.
When I asked him what he had been writing down during my speech, he said that
every company I had mentioned was going into his portfolio, especially the
one that guaranteed the 19.75% return and could I give him the symbol?
It was that elderly gentleman that prompted me to come up with my
proprietary stock market timing model "The Summer Barbecue
Indicator" where the degree of stock market risk was directly
proportionate to the number of people listening to me at the bar. For the
next nearly 22 years, this indicator has been the most accurate of them all,
not once failing to predict a market top and/or bottom until the summer of
2009 immediately after the sub-prime meltdown when the Western governments
prompted their central banks to support stocks with TARP, FARP, BARK and
Cue-E. Since then, the E-Trade millennials just stare into their iPhones for
the instantaneous "Robo-Advisor" guidance and look at me
disdainfully as they roll their eyes and mutter something about "buying
the effing dip."
Observing stock market participants today in 2017 is reminiscent of that
elderly gentleman back in 1987 complete with convenient memory loss and
rapidly approaching dementia. Because of the shameless creation of massive
quantities of debt around the globe, the dynamic duo of stock and real estate
speculation has become the unintended consequence of unprecedented monetary
inflation where central banks have shorn the last vestiges of respect for the
sanctity of currencies and the nurturing of their respective purchasing
powers. Be it the U.S. or Canada or the European or Asian theatres,
politicians and their deep-rooted awe of the global banking oligarchs have
sacrificed the welfare of the middle classes for the favors and blessing of
the elite banker classes.
The continued survival of these financial behemoths was clearly
prioritized during the 2008 crisis and continues to this day with monetary
inflation doing all in its power to increase the marked-to-market valuations
for all of the collateral which underpins the balance sheets of the banks in
the form of mortgages on property, plant and equipment. Sadly but most
critically, this relentless policy of currency debasement is designed to
underpin the collateral of the global central banks, upon whose balance
sheets rests the future of capitalism and democracy. Karl Marx saw capitalism
as a progressive historical stage that would eventually self-destruct due to
its boom/bust tendencies and disregard for the working classes and be
replaced with socialism, where a more equal distribution of society's wealth
is achieved.
That the global interest rate structure has been suppressed to the
detriment of savers the world over is a clear case of policy being implemented
for the benefit of the elite classes that own the vast majority of the assets
(and all of its attendant debt) at the expense of those that save, the vast
majority of whom constitute the middle classes around the globe and whose
protesting presence in the streets of Paris and London and Tokyo and Buenos
Aires is becoming increasingly common.
With the S&P 500 now in a modest retreat, the financial media is up in
arms over what is rapidly becoming a "global sell-off" but in
reality, the S&P is off a mere 3% from its all-time, Trumpladyte-driven
highs. As the Jim Cramers and Larry Kudlows of the world quietly lament the
demise of the failed Trump healthcare bill, they secretly celebrate the
burgeoning cash position they are now in having dumped a pile of stock into
the Trump rally, the bulk of which was driven by retail investors, which
rhymed perfectly with the acceleration in insider selling. While it is a tad
too early to reflect upon the results of the Summer Barbecue Indicator,
thanks to the wonderment of email and Twitter and Facebook, to call this
latest post-election ramp job anything other than a drunken myopia would be
folly. Stocks are expensive and due for a cattle prod of reality immersion.
On a less aggravating and more optimistic note, silver prices have begun
to perform in line with my expectations from late-2015 when I went
"ALL-IN" on the GDXJ (VanEck Vectors Junior Gold Miners ETF) under
$17 with silver trading under $14. (See chart at top.) I use the
Gold-to-Silver Ratio (GTSR) as my barometer for the precious metals and that
along with the Gold-to-Gold-Miners Ratio provides an extremely clear snapshot
of whether or not gold is being helped along by its baby brother silver and
its cousins, the gold and silver stocks.
As I have written about for more than a few years, when silver outperforms
gold and gold and silver shares outperform both gold and silver, all of the
precious metals planets are in alignment for a major ascent. As this is being
written, silver is advancing 1.81% versus gold's 0.54% and the miners are up
sharply with the HUI (NYSE Arca Gold BUGS Index) ahead 2.7%. These
confirmations are significant in that I am able to get somewhat more
aggressive in my approach to the mid-April seasonality low that I expect to
arrive here shortly. Mind you, I have yet to replace my cherished GDXJ
position that I vacated a few weeks back over $37 so at the current price of
$36.50, I am simply treading water in search of a break in the market. I am
not so sure that I will get that break exactly as I am expecting but I do
believe that the odds favor a late-spring/summer rally in the precious metals
and particularly the miners.
I further hold to the proposition that the junior explorco's, the bulk of
which are found on the TSX Venture Exchange, are going to more-than-surprise
a few folks with the major beneficiaries being the silver names. Silver
remains my number one metal-of-choice for the next six months and with that
as a proviso, I am adding the Global X Silver Miners (Symbol: SIL:US) to the
trading portfolio to the order of a 25% position AND by way of the October
$40 calls. Since the bid-offer spreads are ridiculously wide ("You can
drive a Mack truck between 'em!"), I am going to use the last trade at
$2.74 and will try to bid there on Tuesday morning. Around mid-April, I shall
attempt to add to the position and will also attempt to re-establish the GDXJ
long position of which I am ignominiously absent despite its residence
solidly in the "neutral" position from both an RSI (relative strength
index) and MACD/Histogram perspective.
When I am sitting down late at night with an ice-cold Sarsaparilla (such
having replaced 400-proof Montezuma's Pride since December 31), the most
effective indicator of an impending change in trend is my trusty Rottweiler
Fido. We have all known pets that have been able to forecast weather changes
be it the goldfish that would congregate in one corner of the aquarium or the
cat that would perch on the window sill with an ungodly throat-clearing sound
emanating from the beast as it stared out at the horizon or the parakeet that
would shriek "AWK! Storm coming! AWK!" Well, my wonderful dog has
an uncanny ability to forecast changes not in the weather but in the outlook
for gold and silver prices because every time the two metals begin to sell
off, he hightails it out of my office, down the hallway, out the front door and
under the tool shed where he stays whimpering and shivering for days on end.
Now, the fact that a seven iron is protruding from my office wall and that my
trading monitor is outside the office window smoking and in pieces on the
lawn has absolutely NOTHING to do with canine extrasensory perception or the
like.
Honest. . .
