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Wednesday, September 1, 2010

CAN THE MARKETS CRASH?

In a word, not a chance in hell.

Folks we've had three real crashes in the last 100 years. The odds of a 4th crash following right on the heels of the 3rd is minuscule.

In the fall of `08 the financial system needed to roll over 700 billion in debt. Unfortunately the credit markets were imploding at that time which made it virtually impossible to refinance that debt. Many of the big banks were on the verge of going under. That was the trigger for the crash we saw in the fall of `08. 

Those conditions don't exist at this time and they aren't going to exist anytime again in the near future. Governments the world over turned on the printing presses and made sure that scenario will never happen again.

Granted it's human nature to experience an event like that and then be constantly looking around every corner for the next one, but it simply isn't going to happen again. All these calls for a crash are either simply people who have no understanding of what causes a crash or people trying to shock and awe wide eyed bears into buying their bearishly biased newsletter service.

When the bear does return, and he will return eventually (he may have already), it will be because the economy is sinking back into recession. Those kind of bear markets are slow grinding affairs that creep lower interspersed with violent bear market rallies as governments throw unbelievable amounts of liquidity at the markets and economy in a futile attempt to halt the bear.

Not only that but one can expect the government to change the rules as we go along. At some point we can expect bans on short sales, more bailouts, more stimulus, etc. etc. It is the kind of environment that is a traders nightmare, especially if you are on the short side. In order to make money you will have to time the counter trend rally tops almost exactly and be prepared to cover on a slight break to new lows before the next violent rally takes off.


Moves to new lows will continuously fail to follow thru only to explode higher in the next counter trend rally. In other words not only a bulls nightmare but a bears too.

Now do you see why I have no desire to get tangled up in the stock market? This just isn't the kind of environment conducive to making any consistent profits and it's very likely both bulls and bears alike are going to lose lots and lots of money.

The easy money and big money will be made by just riding the gold bull. It is the only secular bull market left and very soon an event is going to happen that will transform this mild mannered bull into a rampaging monster.

Subs know what I'm talking about :)

147 comments:

  1. gary, when you say there wont be a crash .. do you mean soon , or in the next 2,3 or 5 years. it seems to me that we are destined to crash again ... same issues as 2006 ... too much money in the system, at too low rates will eventually find its way into the system, and create bubbles, which eventually will pop

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  2. Bull Market SomewhereSeptember 1, 2010 at 6:31 AM

    Gary, I understand and see your point on pm bull. But how about china and india consumer stocks and anything related to the growth of this new global power. Agriculture, industrial metals, oil are essential and growth will be phenomenal selling to China and India what they need. Thanks!

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  3. This kind of bubble will be an inflation bubble. When oil spikes far enough it will tip the economy back into recession and like I said those kind of bear markets just grind lower as the economy slowly sinks into the recession.

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  4. The globe is going to be locked in an on again off again recession. That will depress demand in virtually everything except precious metals. Certaily the rest of the commodity index will benefit from increased liquidity but that will not bring back basic demand fundamentals.

    Without all cyclinders firing I just have no desire to invest in any sector other than PM.

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  5. Yes, agree. The US stock market from now on will resemble the Nikkei in its current post-bubble era.

    Anon #1, the only potential bubble left is in commodities, and especially in PMs.

    Leveraged things like RE are dead. In Japan you can get a mortgage at 1.5% interest (if you qualify) and the RE market is down 70-80%.

    Unfortunately, China is driven by a credit bubble and government led mal-investment. It may churn on longer than expected like many bubbles, but watch out below.

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  6. Gary,

    Marc Faber has a point that the stock mkt will continue to go up (less than commodities and gold) as the govt continue to print. Who cares as long as the common people will feel rich and spend. No other way.

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  7. How do you define a crash? The market drops X% in a day. Where X is maybe 20% like in 987. But we did not have such a daily event during the 2008 downturn evet. It was a more protracted affair.

    But if you look at the Nikkei it cycled down as much as 30-40% over a number of months during the 1990s when the rest of the world was in a bull market. It then lost more than 50% over periods in the 2000s when it synchronized with the global bear market.

    The S&P lost 50% from Aug 08 to Mar 09, so it took several months to have this devastation.

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  8. I would qualify 50% in a couple of months as a crash :)

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  9. I think Faber is wrong unless you expect elevated recognized inflation in the CPI at least akin to the 1970s and this is unlikely without labor cost pressures and the new way of measuring CPI.

    Unless Shalom Bernanke loses it completely and willfully decides to create a mega-Argentina then they will not allow this to happen because it would herald the end of the "bond bubble" and create incredible economic devastation, especially in the all-important US housing market. It would probably be a good cleansing event but Keynesian socialists don't like that.

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  10. Frank, Anon1 here (Peter) .. yea, thats today, but the situation is as follows, low interest rates and tons of money, will eventually gather some velocity. Banks ( too big to fail ) and every GSE( or Govt. Enterprises now ) who are backstopped by the fed, and have no downside risk, will eventually start taking outsized risks, and we will see the same thing happen all over again. its starting already ... Home Tax Credit, which people are using to buy homes and are using as the deposit, and which will be revived ... oil like gary says has gone from 40$ to 70$ on no demand. the only thing which can be different from what i have seen are the derivatives ... if those arent still being used as much as they were, then perhaps a doomsday scenario can be avoided .. if we are back into the CDS and CDOs , then all bets are off the table. IMHO.

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  11. OMG the G-train is squashing bears left and right.

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  12. But the low interest rates are primarily essential for RE. Sure, the politicians might blabber about small business, but the bad assets are mostly linked to RE and that's what they have to prevent further deterioration. But I don't think RE will gain any velocity as you put it. At best it supports some markets with decent intrinsic demand like the DC area.

    In Japan the easy money just fueled the carry trade and drove the JPY down, which they viewed as beneficial for exports. And the carry trade fueled bubbles in the ROW.

    The US easy money will fuel PM and possibly commodity bubbles.

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  13. G,
    It's starting to look like your bottom call on the GDP revision was right on the money. Do you think we've seen the bottom?

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  14. Well we do now have a swing low and the bottom did come on day 40 so it's starting to look that way.

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  15. If you're a bear you should enjoy today's action since this type of price action typically occurs during bear markets.

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  16. To the anon who asked:
    Are you still long stocks? Shorts are getting mashed like taters. Nice hold, if so.

    Yes, but I lightened up unfortunately. I don't like to take drawdowns, so sold a chunk on the reversal back down the day after the big up day I had predicted. Still about 65% long, so a nice day! There are just too many bears around for me to go flat. I am out on a break below 1040 that last more than a day.

    My reverse troll comment is just that when everybody is cocky it's usually time for a dip. "Just when you think you can read the market like a book, they revoke your library card."

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  17. Shorts getting crammed again as the G-Train rolls on down the tracks. I know, TK made a bundle today with his 260 short positions.

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  18. Dips in stocks will be bought for several days at least. It's gonna be ugly for those on the wrong side.

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  19. Justin,
    This is the kind of action that hapens at cycle bottoms whether or not the marekt is in bear mode. If it is in bear mode the rally will be much sharper and knock out all the bears for a loss. If we are still in bull mode then after the initial surge the rally will calm down and climb a wall of worry until it makes new highs.

    If you are a bear and short be prepared to cover if the August highs are taken out as that would confirm the trend change and the odds would then favor a test of the April highs and maybe even new highs.

    I keep telling people to wait for confirmation before shorting. It costs one very little to be sure but the cost of being early and wrong are staggering.

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  20. Gary is right. For the first time in many months I'm entirely flat after cashing out the gains, just looking to put on the GLD, PHYS, and SGOL etfs, but I find myself hesitating. I sure hope the G-Train doesn't leave the station without me!

    I better put 1/4 on right here, just to keep me focused.

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  21. Looking at the TLT. Effective duration 15.91. Coupon 4.4%, average yield 3.53%. As of Aug 30.

    If stocks continue to rally, if the action is like today in the bond market, greed may take over driving a major loss for those holding bonds. For those newbies to bonds a 15.91 duration implies that if the yield goes up 1%, the portfolio will drop about 16%. 2% and we get 30% or so, etc…

    More so the character of the current bond market seems to suggest that those at the top are running back into the stock market. Bonds are designed to be held to maturity, in that view bond drops should not correlate with stock surges if those people are in it. I would expect a return to at least 4.5% if the stock market takes off, as greed takes over. In other words, it is my belief that there is an overweight of traders in bonds right now, opposed to passive money holders. I could be wrong about 4.5%, it could be 5%. This is not tradable advice towards a price target, except to say that being long bonds at this point seems foolish if the stock market decides to take off again. Of course shorting is problematic as the FED may intervene at any point.

    My thoughts, I don't care how bad something is. Bad, really bad, or horrible, all imply don't go there.

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  22. I think we can assume the dollar's daily cycle has now topped. The question is has the intermediate cycle also topped? I think it probably has and we will complete the last two conditions for the start of the move down into the yearly cycle low within the month.

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  23. That line of thinking applies on the long side to gold as well, I could just wait for a real gold breakout and reap slightly smaller gains than being worried about buying the latest dip in gold and not having a confirmed breakout to back up my basis for being long.

    But getting back to the bear case I already know where that starts to break down for me so I'm not that worried about it. And in general I hope this rally gets even bigger today, because the faster these bear rallies flame out the more likely we start breaking important technical levels. Bear rallies like this are just shorts covering.

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  24. This blog kicks ass!

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  25. What you talkin about, Gary?

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  26. You best be covering yourself, Justin. I call these "more to come" days, and it ain't good for the shorts.

    And I wouldn't call this rally a "flame out" by a long shot. Cover before it's too late!

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  27. Re crashes look at the Nikkei Jun 1993 to Jun 1994. Is that a crash?

    Gary predicts something like April 1996 to Sep 1998 when the Nikkei went from 22.5k to 13.5k with many false bouncebacks on the way down. The final stage of the downturn was influenced by an "exogenous event", namely the Asian crisis. Of course, easy Japanese money was behind the Asian crisis.

    I guess our "exogenous event" could be Bernanke-fueled commodity prices that are blamed for a downturn in the next few years.

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  28. Actually it's a completely different ball game comparing shorting to buying dips in bull markets. If you short too early and the market rallies to new highs you will get margin calls and potentially ruin your portfolio.

    Also the mathematics of the short side don't require one to catch the exact top to make great money.

    However passing up a buying opportunnity in a bull market is extremely costly in terms of lost opportunity. For instance if one had bought at the bottom (HUI 430) and exited at let's say 650 ( a realistic target) They would gain 51%.
    If however they had to have confirmation before buying and waiting till the HUI broke out to new highs at 520 then they would make 25%.

    I think we can all agree that is a huge difference in opportunity lost.

    It just makes no sense trying to be early in a bear and a huge amount of sense buying dips in a bull. It's really just simple math.

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  29. What had looked like a bullish crawl for $USD along the 50dsma looks less so this morning.

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  30. Busting higher at 11 am does not qualify as a flame-out.

    Look at the beautiful S&P charts. QE2 must be right around the corner? Don't try to make sense of it, just make the money.

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  31. Yes I had serious doubts that one would play out. It was getting way too late in the dollar's daily cycle for an upside move of any significance.

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  32. How many times must I tell you fools, never, never, never take the other side of the G-mans trades.

    Working on 4 out of 4. And when the dollar tanks it will be 5 out of 5 ;)

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  33. Unlike Justin and the bears, DG has this trade "by the tits", so to speak.

    Step aside, the G-Train is chugging down the tracks.

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  34. The figures you just threw up were completely arbitrary to support your case. If the HUI would rally higher and higher the gap between the person who buys at 430 and the one who buys at 520 would grow smaller and smaller. So in essence it's the same situation on both sides, it's just that in bear markets your gains are capped at 100% unless you use leverage.

    My purpose in investing is to make money, whether it becomes great money or not depends on how the market behaves, of which I have no control over. Even if you think you were smart and only shorted the breakdown at 1040, another big rally could crush someone on leverage just like it would if they shorted now and got caught in a rally. So the bottom line is just you have to know your risk tolerance at whatever level you are trading at.

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  35. I think we can assume the dollar's daily cycle has now topped.

    Do you think that means oil has finally hit bottom Gary?

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  36. Best to work on an exit strategy to limit your losses instead of trying to educate Gary.

    Next stop, catastrophic losses or a new career.

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  37. Looks like the money is flowing into the general market from pms :-(

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  38. Even if the HUI were to rally to 850 (the T1 target) the difference is 97% vs. 63%.

    That's still very much worth buying the dop for. And on the long side you need an increasingly unlikely event to shrink the spread. Aka a nonstop rally of over 100%.

    On the bull side your outperformace comes immediately. In bear markets your under performance comes very slowly.

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  39. John,
    Porbably yes but I certainly wouldn't recommend anyone trade or invest in oil. The fundamentals in the oil market are impaired and it's only being supported by a weak currency.

    Anon,
    Yes that will happen briefly at a market cycle bottom as everyone jumps on board the bottoming process. It will just be temporary.

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  40. 1081 next stop/pause on the SPX.

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  41. Once TK gets bullish on Gold and starts complementing Gary, I get an uneasy feeling of a short term top coming. Watched this action for 2 years. But if he wants to short it, then the bottom is near.

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  42. Yes, Justin, of course you have to know your risk tolerance, so we agree that stops are essential for what you and I do. But you also want to stack the odds in your favor. Losing 1% 6 times in a row is no fun, even though each one is small. I am struck that you ignore sentiment. Charts look bad at every bottom. I assume they looked bad to you in March of '09. Did you short then, or hold shorts you had placed earlier? I asked this once before and you didn't answer. I went long then because everyone I n the world was bearish. I use charts but why force yourself to use only one tool? You may love hammers but sometimes you need a screwdriver. You may even be able to put a screw in using a hammer---it's just not the best way to do it. This is am tough game. Why eliminate time-tested data (And I really would love to know if you were short in 3/09, and if not why not as everything was pointed down?)

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  43. Gary, not only do we insist on you providing daily cycles for golds, but we'd love to have hourly ones too:)
    Frank

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  44. Busting out to new highs= more to come.

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  45. DG -
    Although you took off some of your longs, phenomenal call on Thursday. I believe you had called for rally by Tue...we got one Friday and now today. Great call! I reentered a small position yesterday, so am good! :) Only wish, I had a bigger position on - but then again, had the market taken out 1040...
    Gary: Nice call on the bottom on GDP.

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  46. Very large SonS day today so far. Maybe the chop continues...

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  47. Ross, I am now planning to sell most of my longs today for two reasons: 1. the large SonS day and 2. the very low equity put/call ratio (.46 as I write) I just don;t have a feel for it right now and never feel I need to play. I am NOT expecting a decline---I just feel a little lost. Hopefully things will get clear again at which point I will post. They may go up; they may go down. I just tend not to flip coins for serious money (I like the game so I still trade but the position size drops by about 80%). As manic as this thing has been i suspect it'll just be a week or two before we get overdone in one direction or another. If I had to guess I'd say "up" with lots of volatility. I'd rather sell on an up 250 day!

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  48. hey everyone,

    I saw the same pattern of a high SoS yesterday in the morning but wehn the day ended the SoS went to zero.

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  49. Yes the end of day is the only figure that means anything.

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  50. I was long stocks all of 2009 and early 2010, I think I took some shorts two times during that period but obviously that didn't work so I didn't keep doing that. I made some huge gains on a number of different stocks, including miners I bought in late 2008.

    Basically since April and May I've played very little on the long side and instead I'm building positions to take advantage of the dollar cyclical bull market and a trend change in the general market. Once gold competes it's either a breakout, or another pullback to a real low (more likely) I'll probably be back on that bandwagon as well.

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  51. Yes, I will probably wait on some, but the PCR won't change and the dumb money is buying lots of calls and very few puts. The low AAII number and II number are intermediate term signals with often huge volatility between here and there. (I bet the SonS number sticks---let's see---but I trade in the after-market so get to see the SonS post before selling).

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  52. I would also add after this kind of move it would be pretty unlikely that we will violate the 1039 low for a while.

    My guess is we are going to test the August highs. If that test succeeds then we will have a confirmed trend change and the April highs will be in jeopardy.

    Conituned market weakness just does not line up well with the dollar due to move down into a yearly and 3 year cycle low.

    That is a very big consideration for why I'm very reluctant to call a bear market yet.

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  53. sold TNA
    +2.80

    holding BLK

    Thursdays are typically down days.

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  54. We are going to CRASH!
    and the S&P is going to 950!

    (Can I borrow some money from somebody so I can buy some puts?)

    :-)

    --TZguy

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  55. Justin: How did you go long in early 2009? Didn't you get stopped out in March with your tight stops? And then how did you know to get back in March with all the charts pointed down? I must be missing something in your methodology.

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  56. Hi Gary.

    Can you please use tonight's update to make a overview of the three main cycles (daily and intermidiate)?

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  57. I mean TWO , not three :)

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  58. Who says I have tight stops? I use stops, but obviously you have to give positions room. Stocks were so crushed in early 2009 you could buy anything and it went up big. I even made a few hundred percent on some mortgage lenders that came back from the dead. The trend changed back in early 2009, just like it is possibly doing now. The trend in the dollar changed in 2008 but most people won't see that until it goes over 90.

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  59. You can find detailed explanations for cycles in the terminology document.

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  60. In order for the trend in the dollar to change we would need to see a fundamental shift in monetary policy. That has not happened. Until it does the secular bear market will continue.

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  61. Interesting that the biggest QE we've done so far has resulted in a higher low in the dollar. Another reason I use charts instead of theories to identify trends.

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  62. Justin: So you held from SPX 950 to SPX 650. Boy I'll say no tight stops! When would you have gotten out had we not bottomed in March? You mentioned you always know your risk. Almost 30% seems like a lot to me. Oh well, I guess I won't quite be able to understand your approach

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  63. I am not sure there will be a crash in the next x years. What I am sure of, is that the market structure has changed to the point in the last 4 years that crashes are much more likely now. 100 years of data is worthless. Yes, it is different this time.

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  64. Gold is not the only secular bull market left as Gary states. Bonds for one are still in a secular bull market until proven otherwise.

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  65. The market bears learned the hard way in July that these cycles work. Then the gold bears had to learn their lesson, also the hard way. Now the bears are getting the same lesson again. (apparently they weren't able to learn the first time).

    I guess you will have to learn the hard way too. The dollar IS going to drop down into a yearly cycle low and then it IS going to drop into a 3 year cycle low. My guess is that the 3 year cycle low will break below the 08 low.

    At that bottom everyone will become convinced the dollar is going to collapse (it won't of course).

    These counter trend rallies that we've seen are neccessary to convince everyone the bear has ended then the dollar can roll over again as the fundamentals overwhelm the technicals.

    It's one of the hazards of trying to invest based solely on price action. You get run over at major turning points and you get fooled by technical counter trend moves.

    Funny how you can see a violent stock market rally as a bear market counter trend move, yet you can't see the violent dollar rallies for what they really are, counter trend rallies in an ongoing secular bear market.

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  66. Josh,

    Times are not different. Human nature never changes and ultimately it is human nature that controls markets.


    Anon,
    I would state that the bond bull has expired already. In order to prove it hasn't the 10 AND 30 year bonds would have to break above the Bernanke high. They have a ways to go before that happens.

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  67. So how much room is Justin giving to his stock short position? Sure looks like he's getting squashed to me. :)

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  68. Justin should cover right here and save himself some money to re-short at much higher prices, which appear highly likely.

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  69. The dollar experienced plenty of counter trend rallies during it's last bull market in the 90s, just like it is doing now. You're just failing to acknowledge the trend change so your analysis gives you another low, but if the trend has changed we will not violate the 2008 low.

    My guess is you will have to learn the hard way once the dollar breaks over 90 and you have to acknowledge the trend change.

    DG: I basically sat and watch the stock market collapse after I got stopped out of positions in the fall of 2008, I steadily got back in in early 2009, but I was very steady after seeing all the carnage.

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  70. The only positions I was able to hold into 2009 were miners since they had already completed their lows.

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  71. So where is approximate stopout level in stocks?

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  72. Hey Gary,

    I agree with your take on the stock market, but wouldn't you agree that this would mostly concern the US markets? Like the second biggest economy, the Japanese economy, has been grinding down for twenty years while the rest of the world markets had a party, couldn't that come true for the biggest economy too? In other words, wouldn't you say there could be more than just one bull left? Besides the precious metals, what about frontier markets for example (they could run even while the US grinds down); also, there are commodities like agriculture and natural gas that haven't had their run yet. On a buy low, sell high basis they could have an ok run over the next few years. In other words, wouldn't it be wise in your opinion to not put all eggs in one basket but still diversify between PMs, some depressed commodities, and frontier and emerging markets? Many emerging market and frontier market charts don't look that different from PM charts.
    I look forward to hearing your opinion.
    Thx
    Basil

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  73. Gary,

    You wrote: "Funny how you can see a violent stock market rally as a bear market counter trend move, yet you can't see the violent dollar rallies for what they really are, counter trend rallies in an ongoing secular bear market."

    I don't believe you can look at currency markets in the same way that you look at the stock market. The dollar index is just an index inverse to several other fiat currencies. For the dollar to have an explosive rally, most of the other currencies in the index must have sharp declines. And vice versa.

    So I don't believe we can say that a violent rally in the dollar indicates the dollar is in a bear market and the rally is just a bear market rally, like we can say of the stock market. Currencies are a completely different animal than the stock market. It's an apples to oranges comparison.

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  74. Basil,
    With the most of the west going to be in the grip of an on again off again recession for many years I seriously doubt emerging markets are going to flourish. The decoupling mtyh is just that... a myth.

    Other than maybe agriculture everything else has impaired fundamentals. So no I want no part of enery, especially nat gas.

    Perhaps one could diversify a bit into Ag but the bubble when it comes will be in gold. Any Tom, Dick or Harry can buy gold. (And we need Tom, Dick and Harry to buy for the bubble to form).

    But very few people know or will be willing to learn how to buy Ag futures.

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  75. PC,
    But the humans that trade them are still governed by the same ole emotions no matter what market they participate in :)

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  76. Gary,

    You wrote: "I would state that the bond bull has expired already. In order to prove it hasn't the 10 AND 30 year bonds would have to break above the Bernanke high. They have a ways to go before that happens."

    And to that I say "huh??"

    How can you make the assumption that the bond bull is dead by saying that until it makes a new high we have to assume the last high was THE high??

    If you use that logic, then it must go the other way too, eh? So the dollar bear is dead because the dollar has not gone beneath the November low.

    Seems you can't argue it both ways. Either the bond bull is alive AND the dollar bear is still alive, OR the bond bull is dead--new bear market for bonds--AND the dollar bear is dead--new bull market for the dollar.

    If you use a set of rules to determine long term bull or bear, don't those same rules need to be applied consistently across all markets?

    (Your bond bull is dead logic could also have been applied to the gold market a month ago, hasn't broken to new highs, so the bull is dead, but we see how that's turning out. :-)

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  77. Gary,

    But my point about currency markets is that they trade against each other. So a bull market in one is a bear in the other and vice versa.

    Stocks are different because they display different price action depending on whether they are in a long term bull or bear.

    Currencies cannot do this because one currency's bull is another currency's bear and vice versa.

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  78. How the Stock Market and Economy Really Work
    Mises Daily: Wednesday, September 01, 2010 by Kel Kelly

    SUMMARY-------
    Summary
    The most important economic and financial indicator in today's inflationary world is money supply. Trying to anticipate stock-market and GDP movements by analyzing traditional economic and financial indicators can lead to incorrect forecasts. To rely on these "fundamentals" is to largely ignore the specific economic forces that most significantly affect those same fundamentals — most notably the changes in the money supply. Therefore, following monetary indicators would be the best insight into future stock prices and GDP growth.

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  79. Pc,
    The reason I'm willing to consider the bond bull dead is 1. The bull has lasted 30 years. That is about as long as a bond bull ever lasts and 2. I think Bernanke forced the top when he tried to artificially depress rates.

    The only reason bonds are rallying right now is for the very same reason they did in 09. Bernanke stated he's going to buy bonds. But that is artifical demand and artificial demand can't keep markets propped up for very long.

    In order to attempt to hold the bond market up the Fed will have to print money. The act of creating too much supply will weaken the dollar (what has been happening the last 3 months). As the dollar weakens bond holders will sell for fear of holding debt in a depreciating currency.

    There really is no magic wand. The laws of economics apply to governments just like you and me whether or not they have a printing press.

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  80. Bonds don't have a ways to go to make new highs either, just 5% or so. You're right his logic is flawed if he calls the bond bull dead but not the dollar bear. He's letting his personal bias get in the way.

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  81. BTW has anyone noticed what is happening to the dollar? That's right after a weak attempt to clear the declining 50 DMA it has fallen violently away. We now have a weekly swing high in the making on the dollar index. One of the first signs that an intermediate cycle has topped.

    Once 80 is broken we will be able to shut the door on this dollar debate.

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  82. Hi gary,

    you showed a chart showing how the dollar and gold move in opposite directions..

    If dollar is moving down violently today, why is gold down too?

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  83. Justin-
    His personal bias is not getting in the way anymore than your personal bias to ignore the fundamentals. In the short term price can move away from fundamentals because of human nature. (but sooner or later the fundamentals matter. Price cannot change economic theory)

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  84. I went over in last nights report what to expect from gold in the short term.

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  85. Gary,

    You are of the opinion that the secular bull market in bonds is over because you do not believe that yields will not get that low again which is fine. But in your post you make it sound like it is already a proven fact. Sorry but we will have to wait and see won't we since the jury is still out. Secondly the bond market is not just the 10 and 30 year. So even if the 10 and 30 year have peaked does not mean that other areas of the bond market have. In fact my bond funds have all within the last week hit all-time highs. I am sure that you will agree with most of what I said.

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  86. Daniel your fundamentals are flawed if the dollar's trend has changed no matter how consensus that opinion might be. That's why I trade off price action and not theories or opinions.

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  87. Well price action should be telling you something about stocks today as well, that they're going higher.

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  88. Justin-
    yes IF the dollar's trend has changed! We shall see.

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  89. The dollar is down, the stock market is up big, silver is slightly positive and the silver miners are mostly down. Gary, would this be an indication that silver is more of an anti-risk bet than an economic/currency bet?

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  90. I went over what I expected to happen in the short term in last night's report. So far it's just about right on track.

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  91. Get ready to ramp up stocks the last 20 minutes of the session!

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  92. Do any of you guys use bullionvault.com for buying gold/silver. It seems to be a safe option, but wanted to double check. Thanks.

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  93. BOING! More to come tomorrow! :)

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  94. SIL, though it is printing a reversal candle, is trading green and has broken above the previous highs printed during its short life on strong volume. FWIW.

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  95. you can buy physical from Scotiabank. http://www.scotiamocatta.com/

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  96. also a reversal candle on GDXJ and it looks like a bull flag forming on SLW. peter

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  97. Well, I'm out at the close. If we rally it's fine with me if someone else makes some money off my sales. It was a great trade that has now been banked. The next extreme will offer another opportunity, and if I develop some confidence in the direction of this damn thing I will hold it for more distance, but for now it looks like a mess to me (lots of conflicting signals). Good luck everybody else. I like having lots of cash so I can move when the time seems right. I am now about 20% long.

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  98. If stock market is not going to crash soon, then why do you think it would underperform gold? After all, today was a good example of a "hopium" rally: everything is up except gold and gold miners...

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  99. Do you think gold and miners can only rally if the stock market is dropping?

    Before you answer you might want to look at the 2000-2007 period and the 2009 to 2010 period.

    I'm confident the trend of the Dow:gold ratio will continue generally down until we hit a 1:1 ratio sometime in the future.

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  100. I am also expecting dow:gold at 1 - just didn't read your post carefully enough...
    Now I see that you're expecting not a quick crash but a slow grind down of the stock market... this agrees with my view.
    I tried to plot inflation-adjusted $SPX (or, as a variant, $SPX in $USD dollars, i.e. $SPX*$USD). This plot clearly shows a downtrend started in 2000, and when we can expect the next leg down (it should first touch the upper boundary of a down channel, which didn't happen yet...).

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  101. Instead of $SPX*$USD, one can plot $SPX:FDPIX
    http://stockcharts.com/h-sc/ui?s=$SPX:FDPIX&p=D&yr=2&mn=0&dy=0&id=p70342406333

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  102. (not addressed to you, Gary)

    Bear in mind $GOLD and $HUI (esp. $HUI) are probing a huge line of resistance from beneath. Selloffs are to be expected at those levels, particularly as volume is nothing special at the moment. One bullish expectation would be for price to crawl or form a bull flag beneath resistance before making another attempt to break out. Heavy volume on a selloff would be a concern for those trading this move, imo.

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  103. SPY SoS has disappeared as of 5 PM EST. We have a little more time before the final SoS numbers are in but I bet this won't change.

    Did dumb money sell into the bounce to smart money? Or did smart money play it safe until end of day once it was clear the bounce was durable?

    Gary, I really like your toolkit of cycles, sentiment and money flows (and *measured* use of technical analysis). Nice work on this blog.

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  104. Tim Knight:

    "Today was my worst trading day ever, measured in dollar terms.

    I came into the day not just fully short, but margined to about 135%. Virtually every one of my positions was in the red..."

    For those of you who accuse TK of cherry-picking and obfuscating his results... he's about as honest as he could be here.

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  105. Here is a picture of $SPX*$USD (plotted as $SPX:FDPIX) downtrend channel since 2000. As you can see, there should be one more leg up (maybe, in the beginning of 2011, as a result of Ben's QE2 announcement and the dollar debasement):

    http://www.flickr.com/photos/53576901@N06/4949064739/

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  106. "For those of you who accuse TK of cherry-picking and obfuscating his results... he's about as honest as he could be here."

    Finally he admits to getting creamed. Rest assured, you have no idea how bad it really is. He has had similar days (at least) a few times in the last few weeks. How can a "professional" get so totally molested? Simple, he's not real.

    Don't you think he could make one single post earlier in the day, when he posts 8x/minute whenever stocks are down .5%?

    Wake up, fool.

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  107. And since stocks were up 3% on average, and he says he's at 135% total buying power, he's down 4.05% by my calculations.

    Nobody loses 4%+ in a summer trading session without very unpredictable or news driven outliers. It's asinine to say the least, especially after a string of such losses.

    I hope you keep loving TK. Then I'll get your money too! :)

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  108. RusBear,
    That's a good observation. The channel seems to be good for picking the top and bottom of long trends. How do you use it for intermediate term?

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  109. Gary-UK.

    It is always such fun to see Gary with his crystal ball out. he conveniently forgets we had a 'flash crash' very recently, and there is no reason on earth why we won't have another at any time.

    Why he doesn't just put up a page that just says one thing, the same, all the time, it would save everyone so much trouble.

    It would say...

    don't trade stocks, buy gold.

    A broken record if ever I heard one, and so very biased to his own preference.

    Not really sure why I bother reading him, perhaps I should stop!

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  110. If you had been reading the nightly reports you would know I was expecting some kind of crash back in late March and April becuase the level of protective put buying had dried up. When that happens there is no safety net under the market and it often leads to the kind of crash type scenario we saw in May.

    You might want to think twice before you stick your foot in your mouth next time.

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  111. "Wake up, fool...

    I hope you keep loving TK. Then I'll get your money too! :)"

    I am 100% long the PM's. I am up %12 in one month, and thousands of percentage points up over the course of the bull market.

    So I don't love TK. At all. I am simply pointing out that he is being honest.

    Oh, and I can buy and sell you. Just so you know.

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  112. Gary-UK you just got slapped down man.

    LMAO

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  113. The thing about TK is that his perma bear bias will not allow him to recognize the trend change and he will continue to short the rally all the way up and end up losing everything he made the last several months and then some.

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  114. Gary UK:

    "It would say...

    don't trade stocks, buy gold.

    A broken record if ever I heard one, and so very biased to his own preference."

    That's called consistency, genius.

    "Not really sure why I bother reading him, perhaps I should stop!"

    Perhaps you should.

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  115. dowgoldratio,
    Didn't really try to use it for an intermediate term... just was looking into a big picture :)
    Here is a historical $SPX*$USD since 1983, which clearly shows how the uptrend upper boundary was broken in 1995:

    http://www.flickr.com/photos/53576901@N06/4949155441/

    When a new downtrend started in 2000, it first tested the old uptrend in 2003, and then finally broke it in 2008. Then it did rebound from a bottom of old uptrend channel in 2009 (actually, there are two slightly different uptrends, depending on how to plot it; I prefer to use the steeper one).

    I am expecting one more leg up (probably, after a short leg down), which should touch the upper bound of a downtrend channel.

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  116. Gary_UK threatening to stop reading sound like a pretty hollow threat, as it has never been apparent he reads all that closely in the first place.

    His bravado on this blog is certainly at odds with the garden-variety permabear seeking to reinforce his confirmation bias he represents elsewhere.

    http://disqus.com/gary_uk/

    Today's posts smacks a bit of what the psychologists would call fear-aggression. Not a serious fellow.

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  117. It's not quite that simple. It should be:

    BUY SILVER
    PAY ATTN TO SENTIMENT AND CYCLES
    DON'T SWEAT THE DRAWDOWNS

    That's really the whole story.

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  118. Gary UK: Yes, by all means stop reading Gary's stuff---because that would mean you'd also stop posting, which I would heartily welcome.

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  119. Funny -

    You are a cycle guy. Refute Dent's cycles analysis today:

    In past Decennial Cycles, the actual bottom has almost always coincided more strongly with the 4-Year
    Cycle, as in 1962, 1970, 1982, 1990, 2002, and currently 2010. That is why we have been expecting
    the greatest crash and most clear bottom to occur into late 2010, even if a near retest or slight new
    low occurs between mid- to late 2012 on the Decennial Cycle. But to see a major or near-major bottom,
    we would need to see a 1987-like crash by October to December. Given that the stock market is so
    divorced from the clearly slowing economic reality and our leading indicators, this could still occur,
    with targets as low as 3,418 to 6,432.

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  120. LOL that one is easy. The 4 year cycle that should have come in 06 was extended to March 08.

    None of the markers for a four year cycle were present at the 06 bottom.

    Bernanke then aborted the left translated cycle that began in March of 08 so the 4 year cycle had to be rephased to March 09 as the single longest 4 year cycle in history. The next 4 year cycle low should be due in late 2012 as I expect this extremely long cycle to be followed by a slightly short cycle. Similar to what happened when the 1990 cycle shortened a bit after the long 82 to 87 cycle.

    You are going to have to do your research a little better than that my friend. You apparently don't even know what to look for at a 4 year cycle low.

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  121. 3 real crashes?

    What do you determine a crash to be?

    I would say the 1929 market was a crash.

    After a year break, the market began another crash in 1930 - down 44% by 1931

    The 40% drop from 37-38 is not a crash?

    How about the 25% crash from March 62 to Jun 62? I bet the folks invested those three months would beg to differ with you.

    What about the 25% drop in 7 months in 1966? That just a pullback?

    Would the near 33% drop in 1974 not register on your crash-o-meter?

    Then we had the 2000 and 2008 crashes.

    So based on my definition of a crash - I would argue there have been plenty throughout history

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  122. Well neither do you my friend since most of your work is eerily similar to Tim Woods and Jason from SentimentTrader..... (like the advance deline chart you posted on teh 18th which he posted on teh 3rd of August.

    I don't "watch" cycles too closely, I admit. Just wanted your take on it. It seems cycles are left to the interpreters analysis, like most technical stuff. For two people, you and him, to see different cycles proves that point.

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  123. Gary:
    Regarding your comment above, what do you look for in a 4 year cycle low? And what sources do you suggest for all your cycle stuff? btw...
    Nice call on the
    dollar crawl @ the 50 day MA breaking down, not up.

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  124. Ah - I found your definition in the many posts....

    50% in a few months eh?

    Why is that the magic number?

    SO if we drop to 541 in the SP from 1060 in the next few months, we can all be thankful because we still have not crashed. We are only down 49%

    It all makes sense now.

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  125. Jason is by far the leading expert in the world on sentiment and I get all my sentiment data from sentimentrader.com.

    I do tend to read cycles roughly the same as Tim Woods. I think he is probably the best cycles guy in the business. Where we differ is he is a deflaionist and I'm in the inflation camp so he will tend to see things with a deflationists eye whereas I see them the other way.

    Tim has basically kept people off the gold bull because of his deflationist bias whereas I have been steadfast in the inflation camp and have recommended holding positions in gold.

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  126. Anon1'
    Instead of putting an exact definition on what is and isn't a crash I'll just borrow a phrase from Potter Stewart. "I'll know it when I see it"

    IMO there is a difference between a bear market and a crash which is what happened in 29, 87 and 08.

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  127. More from Dent:

    If we do not see a major crash by December, we will look for a bounce into 2011. Such a bounce would
    be likely to cause the market to reach a slight new high, at 11,300 to 11,800, well into 2011, which
    would be followed by a larger crash and bottom sometime in 2012.

    If so, this would be the first time in
    six decades that the Decennial Cycle bottom did not occur on the 4-Year Cycle. That would be more in
    line with composite intermediate cycles from Richard Mogey, whom we respect, at the Foundation of
    Cycles, as we alluded to in the August issue.

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  128. Bottom line -

    You better hope your analysis based on the 4 year cycle being off two years because the left translated lunar set up on the 32 hour daily low interspersed with the 16 day cycle coming up of the failed coil on the inverse head and shoulders while while RSI is point up....... (pretty much what your explanation sounded like to me) :)

    you better hope that overcomes the 60 years of cycle data being put out by Ned Davis Research

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  129. "50% in a few months eh?

    Why is that the magic number?"

    Are you still looking for the definition of a potato again? lol

    Liked the discussion though! Brings out some thoughts.

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  130. Gary how do you follow Tim Wood closely yet you don't know his name is Tim Wood and not Tim Woods?

    Anon1: Where did you get that Dent stuff? I've been reading that pragcap.com website you referred to the other day too, didn't know about it before but I like the site.

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  131. Cycles analysis appears to be useless to me if it goes against the trend. For instance if the dollar fails to make a new low and instead makes a new high, the cycle on the dollar becomes right translated instead of left translated. So preparing for a new low in the dollar based on cycles gets you nowhere if it's going against the trend.

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  132. Keys -

    You make my point. I am not the one defining a crash. Gary happened to base his whole writing on the idea another crash so quickly in time to the last one is impossible because we have only had 3 in the past 100 years. That begs the question, what is a crash in his book?

    I would argue 1929 crashed, then rallied 50% in 1930, and crashed again quickly by 44% in 1931 and continued the slow grid lower for a few more years.

    I would also argue a 25% drop in 3 months in 1962 sure felt like a crash to many. A 25% drop in the same time frame now would put us well below the 950 Gary recently said "not so fast" about.

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  133. I'm not sure why my cycles analysis better be right. I'm not invested in or trading the stock market. It is irrelevant to me what happens to the stock market.

    I don't read Tims stuff anymore but when I did I considered him to be the best cycles guy out there.

    And if you will re-read the post you will see that the main reason I don't think we will see another crash anytime soon is that we don't have a catalyst to trigger a crash. We aren't terribly extended above the mean like in 29 or 87. We aren't in a bubble like we were in 29. The market isn't extrememly overvalued like it was in 87 and we have no impending credit market implosion like we had in 08.

    Whe the bear returns I think it will be becasue the economy is sinking back into recession and that should just develop into another grinding bear market similar to 2000-2002.

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  134. As I said I liked the discussion.

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  135. Just thoughts, not a belief.

    I do wonder if another credit implosion is on its way, US gov debt to be more precise. The major potential is the US dollar. Lots of reasons to why the dollar will fall..yada yadda.., but if the dollar were to go into free-fall, It may have the opposite expected affect on stocks. Free-fall may cause a lack of confidence in the US in general, and its stock market, which is the leader of all stock markets. Etc…..If the Fed and the gov lose credibility in our current economy, then what? Quick crash, or grind down?

    Not really a finished thought, more of a notion.

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  136. Keys, not sure if you saw the video with Peter Schiff and Gerald Cellenta ... its called Overdose.
    There seems to be a fear that the next crash could come because of the USD. To quote, if we lose the confidence on the USD by foreign lenders, then there will be a dramatic decline in the dollar, a dramatic increase in the interest rate , significant increase in inflation, leading to a very very deep recession felt around the world ... possibly even a depression.

    Interesting video. 3 parter
    http://www.youtube.com/user/SchiffReport#p/a/f/2/_17ck3Vti8A

    Peter

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  137. Thanks Peter,

    I hadn't seen it, but I will take a look.

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  138. Peter, Keys,

    We have to keep in mind that creditors' fear of a weak USD is at least partially balanced by their fear of loosing massive sums on their large UST holdings. A dollar dump would translate to a bond crash. And yet the pressure of unsuportable debt remains - the amount and nature of the debt issued to date is unrealistic and creditors MUST eventually take a haircut. There are two scenarios: 1) creditors, CBs and governments negotiate and agree to prop the market with liquidity, devaluing debtor's currencies BUT at a slow pace and only as much as necessary - this supports the USD and USTs and keeps the price of commodities from skyrocketing (though they will rise). On the other hand, creditors continue to be paid and all debts are settled properly. Or 2) agreement is unlikely and creditors try to beat each other to the market to dump their USTs, causing a collapse and leaving many with huge holes in their asset books. The 'winners' try to move their money into commodties and cause a worldwide spike.

    Scenario 2 is the likeliest IMO although there is precedent for no.1 - Bretton Woods and other agreements HAVE taken place and held. A disorderly process doesn't really have any winners since commodities would skyrocket, causing huge problems for everyone. And lots of creditors would lose massive amounts.

    I continue to believe that 'they' will try to walk a fine inflationary line that will try to maintain an orderly devaluation.

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  139. "Oh, and I can buy and sell you. Just so you know."

    LMAO! Somehow I doubt this, as only a clown would say something so stupid.

    Just make sure your checks keep cashing, or there's gonna be problems. Bring it all next time! :)

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  140. OMG, stocks are up nicely in after hours trading.

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  141. Sounds like what you are suggesting is very close to a "prisoner's dilemma problem". Collectively, the best solution is to slowly grind down, but there is a temptation for one party to break the agreement and set out on its own, which would cause a universal run for the doors.

    An orderly devaluation makes sense, opposed to your alternative. But this assumes that creditors continually take it on the chin, when the US continues to benefit from new injections of USD stimulus. The soft landing approach seems logical and probably desirable, but this employs a degree of over looked arrogance on the part of all governments involved. They believe they have the solution and know how to fix it. Unless one believes that world wide depressions are on purpose, that Japan really wanted a lost decade, the omnipotent power of the Fed seems limited as well as other central banks.

    If there were ever a time, where the central banks would lose control this is it. Ben and the rest of the world solved the financial crisis, with printing more money. They managed the slow down in housing with more money. Those that say QE1 had no effect, you must remember the intentions of the money. GM was saved for now(the piece of sh*t should have tanked), the bank system was saved, and the housing market stopped its free fall. Every goal that Ben set out was achieved by printing money. Unemployment was never really looked at btw. So now cocky, the solution is to print more, but my concern is that despite the desire to have a slow demise, things get out of control and the market finally comes back and corrects this massive distortion of reality quicker than any central bank can control.

    I agree, I think anyways, that most parties will agree to a slow demise to avoid a shock. My concern deals with the ability of central banks to control the demise. The only way I can see that happen is if the central banks purposely hold the world in a state of depression for a long time, to counter act their debasement USD policies. Which means real inflation close to zero. Monetary inflation is offset with people to freaking poor to buy anything. Of course this causes massive bubbles, and the system that we have needs inflation in order to survive. Which gives the world citizen’s the choice of prison’s to be raped at.

    The only other approach to save us, might be what the US did when it stole gold and immediately devalued the currency. Basically, state one day….”Screw it, nobody is getting paid, F-you, your getting paid 50c on the dollar, take it or leave it.” Rip the bandage off right away, and start over with a solid economic plan. I doubt this though. The US is too fat and lazy and f-ing dumb for the most part, and even now have no clue to what it going on. My new novel that I will write will be “How PC killed the USA”. The fact is that the US should fall, it has lost everything that it once was, hard-working and innovative. Even the brilliant one’s found it easier to be criminals than to develop true productive growth.

    Investment wise though…stocks suck(investment term used by all the big hedge funds)…bonds suck more…and only gold and pm’s make any sense…tie that in with Gary’s wit and the 10 year chart, and we have a solid old turkey investment.

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  142. RusBear, cool chart

    keep it coming ;)

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  143. Ladies and gentlemen,

    We will continue to buy dips in stocks for the next several days at a minimum. Any midmorning, brief pullback should be bought with impunity.

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  144. Dollar down and stocks up, again?

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  145. low tax n Keys .. how about this scenario ... US adds over 100B$ to its debt each year in interest payments. I think I read somewhere that 60% of the debt held was short term. So, when that debt comes due what will happen ? Tey will monetize it, correct ? At some point, maybe ratings agencies ( if they arent owned by the US Govt ) says, whoa, this is Greece all over again ( or Spain, Portugal , Ireland ) and they lower credit worthiness of the US ... what happens then ?

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