Wednesday, March 19, 2014

David Stockman On The Fed Taper

Chart Of The Day

Not exactly a financial chart, but the stunning visual below shows that the war on drugs is responsible for over 50 percent of the federal prison inmates in America. Is the cost of this war outweighing the benefits? Is the U.S. government even winning?

1970's Flashback: Weak Hands Have Been Removed From The Gold Market

During the last secular bull market in gold during the 1970's there was a price correction of 46% from 1974 to 1976. If the $1,180 bottom holds for the most recent correction in gold's current secular bull market, it would mark a 38% decline.

Gold was a U.S. only story during the 1970's run, and American investors quickly threw in the towel after the devastating 46% decline. Gold then rose 700% from the 1976 bottom to its peak in January 1980.

The majority of the secular bull market run of the 1970's occurred in the last 3 months.

While the entire financial world believes the gold bull market has ended, I believe the final stage is still ahead of us. If you want to come on board, prepare yourself for massive volatility and enormous price downdrafts along the way.

How Margin Debt Will Impact The Next U.S. Stock Market Selloff

Tuesday, March 18, 2014

Chinese Stocks Sold Off & Hated: Buying Opportunity Coming

I have been watching the action take place in China's credit markets on a hourly basis like a hungry lion waiting for a feeding.

China has experienced an unprecedented credit boom over the last five years which has put a massive speculative bid under their domestic real estate market. Lost and forgotten during this boom has been their stock market, which has trended downward for more than three years running. While the American stock market has become the darling of the financial universe, still setting new sentiment records as of this week, the Shanghai exchange is triggering the exact opposite emotions as investors have moved from indifference to hatred. The chart below shows the stunning price performance differential since 2011 between the S&P 500 (top) and the Shanghai Composite (bottom).

While I believe both exchanges have the potential to experience price weakness in the near term as the global economy slows and China enters credit turbulence, I am a ready buyer if we are lucky enough to receive a further decline in Chinese share prices. The current price to earnings ratios of Chinese stocks are extraordinarily cheap compared to the bubblicious U.S. stocks and my hope is they get even cheaper.

I believe this century belongs to China, and just as the United States faced bank runs, depressions, credit crisis and real estate busts during the 1900's, China will face the same. Every major market decline should be met with open arms and buying.

Marc Faber spent some time with Bloomberg this week to review the troublesome state of the Chinese economy:

The Coming Changes To U.S. Higher Education

I believe one of the major changes coming over the next decade will be how Americans approach a college education. This change will begin with college students (wisely) taking their first two years of core courses at a local or online school and then taking their major courses at a larger University. When this first step begins to gain traction, combined with someone out there who will revolutionize online learning, more students will begin to move their entire education away from the larger schools.

This will greatly reduce the cost of tuition at the larger universities and crush the interests that currently profit off the college bubble. For the reasons why this paradigm shift is coming, the following brief video walks through the details: