Mass Psychology Moves Markets
Mass Psychology Moves Markets by David Schectman for Miles Franklin
Mass psychology moves markets. And the masses are influenced by Wall Street and financial advisors, neither of whom give a rip about gold and silver.
As for the big hedge funds, most buy and sell based on the trend in motion. And for stocks, it has been nothing but up until recently. However, now the trend has reversed and it’s going down for equities and up for precious metals.
Wall Street is still bullish, for the most part. Therefore, so will be the majority of retail buyers. I get a strong sense of this by listening to input from my daughter and her daughter, both of whom have IRAs that are pretty substantial. And of course from Backwoods Jack. All he talks about is how Donald Trump and how his greatness will singlehandedly move the stock market. I know he has done some really good things (and some not so good), but it seems a bit naive to believe that he, by himself, will have more influence on the price of stocks than the all of the building headwinds: the Fed’s rising interest rates; a dollar that has probably topped out; a trade war; a slowing economy; and the falling stock markets in Europe and China; plus gridlock in Washington D.C. He can’t overcome all of this by himself. If he can pull that one off, that will be his greatest accomplishment.
The problem we in the precious metals market face is a loss of credibility. We are as guilty of being optimists over the last seven years, as metals fell, as Wall Street will be for their perpetual bullishness, as the stock market continues its way down.
There is always data to back our views. There is always data to back virtually any view. Harry Dent has data to show why gold would fall to $750 or even $400. Dent was wrong. He was always wrong, but he had a huge following. I wonder what his reasoning will be when gold keeps marching back up?
In the end, markets go through cycles, they go up and they go down and then back up again. Only the duration and timing change, not the moves. We will all be right part of the time. The rest of the time? Not so much. However, and I want to emphasize this point, for the last few years we were one of the few in our industry who pounded on the table with regularity that buying gold and silver is NOT an investment. It is a financial insurance policy. Profit is NOT the reason to buy PHYSICAL metals although in the up portion of the cycle, it will reward the owners handsomely. If you wish to sell off your insurance policy, that is up to you, but never forget why you bought it in the first place.
Gold and silver had a great December. So what’s next? Well, according to our friend Jeff Clark, The Bear Is Now In Charge (of the stock market). See this article below.
Typically, the longer a bull market runs the bigger the correction. The same is true for the bear market – that follows. Gold and silver hit all-time highs during the 2000 – 2011 period, fueled by two major bear markets in equities. When investors can’t make money in stocks and there are problems in the economy they usually move toward the safety of gold and silver. That is where we now stand.
Wall Street is optimistic, as usual. You will hear all the arguments why the stock market is strong, and you should hold on and even buy more. It is unlikely that we are anywhere near a bottom. I have suggested that my daughter move her stock portfolio into a money market fund. I hope she listens. This does not look anything like your “typical” 20% correction. The bull market lasted too long and rose too much to only correct by 20%. 50% feels about right, if not more. That would put the DOW around 17,000. It could revert all the way back to where it started in 2008, around 8,000.
Why do I believe that a “typical” 20% correction is too conservative for the stock market now? Because it rose too high. A 20% correction on a 100% increase is one thing, but a 20% correction on a 300% increase is another. As an example, gold rose from $275 to $1,900, over an 11-year period. By the time it was through falling, it was down to $1,060. It lost roughly half. It should work about the same way for stocks too, which have started correcting from a seven-year bull market. As for silver, it dropped by nearly 75%, not 50%. And that’s why it is so undervalued now, and so very cheap. Now, silver is starting to catch up and is outperforming gold (use the silver/gold ratio to follow this).
I believe in 2019 the Fed will reverse course and start cutting interest rates. That will weaken the dollar, so we will have a falling dollar and a falling stock market and that is the recipe for the gold and silver bull market that has recently come out of hibernation.
The Daily Cut
Bill: Before the Fed raised interest rates recently, the president was tweeting that it’s “incredible” that the Powell Fed was “even considering another interest rate hike.” And a lot of his supporters seemed to be warming to the idea of keeping rates lower for even longer.
You’ve basically got the president of the United States saying, “I’m going to do what I have to do to keep stocks going up.” He staked his presidency on the success of the U.S. stock market. Despite the turmoil, that may keep the whole show going for a while longer.
Chris: If Trump manages to keep interest rates low in the long run… and Powell turns into another Bernanke or Greenspan… could we see a blow-off top before stocks head south for good?
Bill: Anything is possible. People are funny. They do funny things. And markets have funny blow-offs from time to time. The indicator I watch the closest is the price of stocks in gold terms. Gold is real money. So you keep track of what stocks are worth in terms of gold.
As we’ve been saying in our daily e-letter, the Diary, you want to invest in stocks when you can buy the 30 Dow stocks for less than 5 ounces of gold. You sell stocks, and move back to gold, when the ratio goes to 15 or above.
With the Dow now selling for about 18 ounces of gold… it’s time to be in gold, not stocks.
Chris: What practical advice do you have for readers who are thinking about how to position their portfolios as we head into 2019?
Bill: In 2018, we saw something very interesting. Being in cash has been about the best thing you could do. That was according to a study by Deutsche Bank. They looked at asset price performance in 2018 and found that cash beat 89% of other assets for the year in U.S. dollar terms.
So, make sure you’re holding plenty of cash. I expect it to continue to do well versus stocks. I would also have some of that cash in gold. Gold has the advantage over the dollar in that it’s a great way to hedge against currency debasement… something that’s worth doing these days.
Chris: How much cash and gold should folks have? Is there a good rule of thumb?
Bill: It’s down to personal choice. But I would say the longer you have until you need to spend your money, the better off you are staying in gold throughout this period – which is very dangerous, difficult, and uncertain.
If you have a shorter time frame in mind, then dollar cash is preferable. You can use this to pick up bargains in a bear market.
Chris: Before you go, I have to ask you about the most volatile asset in 2018 – cryptocurrencies.
Bill: I have a son who is interested in cryptocurrencies. And we own some in our family wealth portfolio – although it’s not a significant amount.
Cryptos are a mystery to me… as they are to just about everybody else. In 2017, I suggested to readers that they dip a toe in the crypto market to figure out what they were and how they worked. I even made a video about trying to buy bitcoin.
I come at this from a theoretical point of view. Cryptocurrencies ought to work. There’s got to be a cheaper, faster, better way to transmit information – and money is fundamentally information – than by giving people physical pieces of paper. And the banking system is not exactly a system people have a high degree of trust in. Who wants to be trapped in a bank account, for instance, that gets whacked with a negative interest rate?
So theoretically, some form of cryptocurrency ought to exist… ought to succeed… and ought to replace other kinds of currency. But there are so many cryptocurrencies right now, who can know which one will be the winner?
My advice is to dabble in cryptos for now. But don’t take it too seriously. Most of the coins out there now are going to go to zero. Cryptos are intellectually fascinating. But they’re not anything you want to put a lot of your money into in my view. At least not yet.
Chris: As we’ve been covering here at the Cut, central banks are floating the idea that they should issue their own versions of bitcoin. What do you think about this? Will there come a day when the world’s money system is run through purely digital – even purely crypto – channels?
Bill: I think that’s coming – yes. It’s too juicy a plum for the feds to resist.
Governments always control money. And they always control the military. With control over those two things you can control people. You can keep them in line. You can make sure they pay their taxes and generally do what you tell them to do.
In a world of digital money that’s under their direct control – with no more input from private banks – the feds will gain a new advantage in keeping track of people. Also, with 100% control over the money system, they’ll be able to do so much more regulating through the financial channels without going to Congress and asking for new laws.
The suggestion put forward by International Monetary Fund director Christine Lagarde is for people to be able to bank directly with the central bank using some form of purely digital currency.
If we all have accounts with central banks, central bankers can control us. They can tell us what to spend… and when to spend. They can fix our interest rates directly. They can fix our mortgage rates directly. They can directly deduct taxes from our accounts. They can also easily lock us out of the system.
Fall out of line, and you may find your spending and earning “privileges” suspended. In a world where all money is crypto-fiat money… and all banking services government-run… it will be possible for the feds to financially assassinate you with a keyboard stroke.
Chris: Thanks, Bill. That’s all we have time for today. Talk to you tomorrow.
Bill: You’re welcome.
RERUn: Gold Will Rally 22% In 2019, Outperform Everything
Guest(s): E.B. Tucker Director, Metalla Royalty & Streaming
2019 will see the start of a new bull cycle for gold and push the metal up to $1,500 an ounce, said E.B. Tucker, director of Metalla Royalty & Streaming.
“To make big money in this market, you have to see the cycles. Nothing changes. We’ve had three big cycles in gold since 2000 and we’re about to have another one,” Tucker told Kitco News.
Tucker said that the next cycle peak could reach $1,900 an ounce, but that won’t happen next year.
“We’re calling for $1,500 next year, that’s a 22% increase in the price of gold, it’ll be one of the best performing markets in a very, very volatile year for equities,” he said. (show less)
Most odd and good to see. Gold has risen to $1282.30 (up $4) in Access Market trading, another new recent high in that regard. Silver has put on another 4 cents. A dessert treat to finish the year.
2018 has come to an end with gold continuing its relentless move higher and has done so with little fanfare. 2018 deadbeat silver has finally been released from the dungeon and is on the move, also very quietly. It has risen five days in a row without much mainstream financial market attention.
If there ever was a year for gold and silver to explode, it ought to be 2019. Both precious metals are rising out of sustained bases which technically can support much higher prices. Both are artificially cheap and so undervalued compared to other assets, especially silver. The dollar has completed a sizeable top and is falling. The 10 yr. T Note, on the other hand, has completed a massive bottom and its price has soared since early November.
The precious metals fear trade surfaced recently. Odds are very high that what we saw is only the beginning of that trade … bringing massive physical demand for gold and silver. Bill Murphy
The Coming “Business Inversion” Will Be Great for Commodities
As I mentioned earlier, it’s not just the market action in gold financings telling me commodities are set to take off.
We compiled a unique indicator: comparing dividends paid by the stocks making up the S&P 500 to the value of commodities, as measured by the CRB Index.
The idea is simple: when business cycles are expanding, corporate profits rise, and dividends grow. Commodities tend to suffer in these periods, so my ratio declines. I call this my “business inversion” indicator, and it shows we’re positioned for a major run in commodities.
You can clearly see the declining pattern during business expansion periods (white bars) in the chart below, labeled with red arrows.