Saturday, February 18, 2012

Jim Rickards Discusses The Currency Wars

Jim Rickards, who released one the best books of the year in 2011 titled "Currency Wars," spoke with Chris Martensen this week about the recent actions of central banks around the world.


Weekend Gold: Eric Sprott & 1980 Review

Canadian news interview with billionaire Eric Sprott discussing his outlook on precious metals.



Next up, a look at Gold in 1980 (peak of the last bubble) vs. today. With the media officially calling an end to the gold "bubble" back in December, this video helps put some perspective on where we are in the current market cycle.

Thursday, February 16, 2012

Chanos: How China Could Fail the World

Stock Market Sentiment: We Can Only Go Higher

To begin the year I provided an analysis in 2012 Outlook: United States Stock Market on why I felt the stock market was overvalued looking at fundamentals such as price to earnings and corporate margin readings.

Today I want to take a look at another factor that is equally important to determining both short and long term price directions: Sentiment.  For an in depth discussion on why sentiment is important you can review 2012 Real Estate Outlook: The Fall (2006 - 2011).

This past week Barron's headlined the market euphoria by gracing its cover with "DOW 15,000."


The article goes on to say that, "even by conservative measures the DOW could top 15,000 within two years.  DOW 17,000 is a 50 - 50 bet."  As a reminder, here is the cover of Barron's back in March of 2009 when the market was touching bottom:


Looking at newsletter writers across the spectrum is an excellent gauge on market psychology.  The chart below shows that the number of newsletter writers turning bullish on the market has surged with the recent stock market move higher.  You will notice on the graph that these writers had an extremely bearish outlook on the future direction of the market at the recent market bottom back in September.


Elliott Wave, one of my favorite newsletters that studies the sentiment readings in the market, put up a graph this week showing a composite of four major sentiment indicators:

-CBOE Put/Call Ratio
- Market Vane's Bullish Consensus
-Investor Intelligence % Bulls
- AAII % Bulls

By combining all four together they saw that the market is at a bullish level only reached twice in the last 5 years.  The first was at the all time DOW peak back in late 2007, and the second was at the end of the QE2 market surge back in late 2010.

Both times the markets were drunk on euphoria and both times the markets soon turned downward.

RBC's sentiment index includes 3 of these 4 indicators plus a few more. The following is the composition of their RBCCM index:

The graph below shows where this index currently stands, moving toward the higher range of the optimistic extreme:


The darling stock today receiving all the headlines is Apple.  It recently rocketed through the 500 mark and moved upward toward the stratosphere touching over 525.  Bloomberg interviewed 57 of the top stock analysts this week regarding the future direction of Apple's price.

56 out of 57 analysts said to buy it today.


Is the DOW going to 15,000?  Maybe. Is Apple going to 800? Maybe.  Every newsletter, stock analyst, and media outlet will tell you that this is coming.  No one asks why all these analysts all wanted to sell stocks when they were 20% lower back in September.

I like to buy things when no one wants them, which means right now I do not want to own stocks.  For those that are more experienced in the market, short term extremely high sentiment provides a strong shorting opportunity in the market, meaning you can make money if stocks move lower.

I'll leave you with a quote from Richard Russell's newsletter this week.  Russell has been writing for over 50 years and is considered the godfather of investment newsletters:

“The worst kind of market is a market that goes down on good news. As I write, optimism is in the air, and the Dow is down 95 points. Dow 10,000 continues to be the great psychological barrier and my work suggests that that Dow 10,000 will be tested in the next few months. Therefore the operative word is caution. Keep the word caution in you conscious unconscious mind.”

Nigel Farage Interview With RT News

Tuesday, February 14, 2012

How Is Money Created To Buy Flowers & Chocolate?

I am heading to the mountains this afternoon for a romantic evening with my lady, so I won't be able to provide you the details on my personal excitement of Apple's stock crossing over 500 this week.


I will leave you with the details on something I think is a little more important.  In order to understand how and why money is moving around the world on a daily basis, it is important to first understand what money is and how it is created, something that 99% of investors do not take the time to do before investing their hard earned capital.  So for Valentine's Day I'll leave you with a 10 minute romantic movie you can watch this evening with your special someone that explains this simple but important topic.

 

Not enough love?  Okay, Okay, let's take a quick look at a few fun charts before I get in the car.

We'll start off with who the bond market will soon be targeting now that we have completed the next Greek bailout.  The following shows Portugal's steady rising government debt to GDP ratio.  As austerity is put in place it will shrink the size of their GDP creating the vicious cycle discussed in 2012 Outlook: Global Butterfly Effect.


Next up we have another beautiful graph showing Japan's government debt to GDP, their private debt to GDP, and their total (combined) debt to GDP.  At over 220%, their government debt to GDP ratio is currently the worst in the world.   For much more on Japan see 2012 Outlook: Japan's Debt Crisis and Shorting Japanese Government Bonds: Trade Of The Century.


Finally we look at the final two pieces of the sovereign debt crisis, the UK and the United States (total public and private debt to GDP ratios).  No one knows which of the big 3 (Japan, UK, US) the bond market will turn on first, but we do know it is only a matter of time for all 3 ticking time bombs.


In terms of total debt to GDP in comparison to Japan (500%), the UK (450%) and the United States (350%), where does Greece currently stand?

Under 300%.  Yes, that Greece.


Anyone kind enough to lend money to bankrupt Japan, UK, or United States at close to 0% interest?  Now that is love for your country.

Monday, February 13, 2012

Greek Passes Spending Cuts: Athens Burns

As part of the deal to send the next tranche of bailout funds to Greece they must pass "austerity" measures, which means spending cuts.  Their politicians approved the most recent round of cuts last night that included a minimum wage reduction and 15,000 jobs cut.  The net result will be a shrinking of their economy (shrinking GDP), while they take on additional bailout debt to make the current debt payments.  Make sense?


Nope, but the banks will be saved (will not be forced to take write downs) while the people suffer.  More and more people in Athens are beginning to understand this, and they took to the streets to show their support by burning banks and buildings across the city.


These pictures will be coming soon to every country that is dependent on debt in order to survive.  It will begin with Portugal, Italy, and Spain.  Then move to Japan, the UK, and the United States.  Our country currently runs a ponzi scheme with its debt financing and when it ends, as they always do, Americans will have the opportunity to view a skyline filled with smoke and flames.