Risk Behind Buffett…

By Biiwii

Thanks to reader Mary, an excellent article at Forbes by John Tobey…

The Risk Behind Buffett’s Advice

I found it interesting for several reasons.  One is the use of log scale charts and their value in viewing percentage based prices over very long (a Century in this case) periods.  I use mostly linear charts because I usually deal in 1 week to 10 year time frames.  But Mr. Tobey’s assertion that long-term investors should be interested in percentage performance is a good one.

Secondly, adjustments are made to the market (in this case, the Dow) for ‘inflation’ and ‘deflation’ using the CPI as the denominator.  CPI is noisy (e.g. faulty) on shorter time frames (it is not inflation, it is inflation’s effects), but over a century it is what it is after inflation and deflation have long since shaken out into the picture.

Here is his chart of the adjusted Dow.  But read the article.  It’s quick and to the point.


NFTRH on the Right Track

By Biiwii

aliceI try to be me and part of being me is in not making definitive statements to people as if I am something higher than they are in the investment world.  I am not.  I am just someone with the time and inclination to work hard enough to put the markets directly into my veins, mainline style.  I am seeing things very clearly now, which is different from having all the answers ahead of time.

But NFTRH nailed the US dollar rally and subsequent correction and the associated macro trade setups (Europe, Japan, etc.) before the herds got on that momo play, and had several NFTRH+ trades pan out (GOOGL, REMX, LIT, SIMO, SLCA, CSCO, INTC, a previous SPY short, etc.) with the odd clunker (hello SCIF and a few others along the way) thrown in for good measure.

We have generally been in alignment with markets every step of the way from the September 2008 launch.  This despite never having predicted a thing.  It is plan and adjust, tweak and clarify.  Gurus are false prophets.  We mortals have to do the work so that when we are pointed in the wrong direction we can get right, promptly.

I have come to find that there are lots of very smart people doing quality work within the conventional financial services industry.  But these very educated and very smart people tend to follow breadcrumbs, interpreting and extrapolating things in a linear, business school influenced fashion.  Things are not linear.

“I can’t go back to yesterday because I was a different person then.”  –Alice

“Gary, Before NFTRH I used to feel a bit like Agent Starling in Buffalo Bill’s basement after the lights went out. Thanks for turning on the lights.” –John M 11.24.14

I barely veil my displeasure with the mainstream media’s easy sound bites and the independent guys and not so independent guys trying to pitch easy answers to people for a fee.  Some of them trade so frequently I wonder if the big bucks are made pandering to casino patrons, gamblers and relatively soulless traders.  Can’t do that.  I can’t interact with people who have no grounding or interest in any sort of education; the blinking green and red lights brigade.

Yet, since I began NFTRH and was told to dumb it down for max subscribership, I have actually gone the other way.  Not that NFTRH is more complicated than when it began (I continually strive for clarity in writing) but it sure as hell is a lot more involved, comprehensive and focused.  If subscribers are not willing to do some work in the form of consideration of various aspects of the material at least, it likely will not work for them.

So I do sometimes wonder if maybe the service is not paint-by-numbers enough for the mainstream.  Yet yesterday I got an email that included the sentiment below and got jogged back out of that mindset.  NFTRH won’t change (other than to continually improve).  We’ll do the work that has to be done.  Period.  The markets are more complex than ever and so real market analysis has to be more involved than ever.

nftrh341“Hi Gary, Thank you for all the hard work and great analysis — I’m loving my subscription!”  –VG (a newer subscriber of nearly 2 months)

As we continue to successfully work the interim little pictures, when the big picture shifts and NFTRH is among the few who got there with integrity and capital intact, I’ll have more to say on the matter.

[edit] NFTRH 341 out now…


Giving Gold and Silver Bulls a Bad Name…

By Steve Saville

The sort of analysis that gives gold and silver bulls a bad name

A recent Mineweb article warrants a brief discussion. The article contains several illogical statements, which is not surprising considering the author. For example, this is from the second paragraph: “…the fact remains that any entity with sufficient capital behind it can usually move any market in the direction that suits it…” Large financial institutions and hedge funds undoubtedly wish that this were true, but in the real world these entities ‘come a cropper’ when they take big positions that aren’t fundamentally justified. However, I’ll ignore the other flaws and zoom in on the Ted Butler assertion that constitutes the core of the article. I’m referring to the assertion that banking behemoth JP Morgan (JPM) has managed to accumulate a 350M-oz hoard of physical silver while simultaneously causing the silver price to trend downward via the selling of futures contracts. It’s analysis like this that gives gold and silver bulls a bad name, because anyone with knowledge of how markets work will immediately see that it is complete nonsense.

Selling commodity futures and simultaneously buying the physical commodity cannot cause a downward trend in the commodity price, assuming that the amount sold via the futures market is equivalent to the amount bought in the spot market. Price-wise, the only effect would be to boost the spot price of the commodity relative to the price for delivery at some future time. Selling more via the futures market than is bought in the spot market could temporarily push the price downward, but the operative word here is “temporarily” since every short-sale must subsequently be closed out with a purchase. In any case, I get the impression from the above-linked article that JPM has supposedly managed to bring about a downward trend in the silver price while remaining net ‘flat’. This is not possible.

I don’t know how much physical silver is owned by JPM or what JPM’s net exposure to silver is*, and I couldn’t care less. I certainly see no good reason to comb through documents trying to find the answer because the answer is totally irrelevant to the investment case for silver. The investment case for silver is determined partly by silver’s market value relative to the market values of gold and the industrial metals, and partly by the same macro-economic fundamentals that are important for gold. Right now, silver has reasonable relative value and neutral fundamentals, with the fundamentals looking set to improve during the second half of this year.

I’m ‘long’ physical silver, despite, not because of, the ‘analyses’ of some of the most outspoken silver bulls.

*Neither does Ted Butler nor anyone else who isn’t a senior manager at JPM

Silver Had Better do the Heavy Lifting

By Biiwii

The precious metals are wobbling at this moment.  Here is the live view as of 9:00 US Eastern.  Gold is making a negative move in pre-US open.  The drop below April’s low must be reversed quickly or it’s the Ignominy Express once again.  On the plus side, silver still thinks it can it thinks it can…



Not completely unrelated, I am leaning toward a possible economic bounce scenario as Uncle Buck settles into Support #1.  ISM is coming at 10:00.  Thoughts on this @ NFTRH.

We noted in an NFTRH update on Monday that this week was full of data and combined with FOMC, was likely to be very volatile.  Check.

Let’s see how the dust has settled at 4:01 US Eastern.

[edit] ISM just out with a flat 51.5%, but a notable bump in exports (ref. USD correction)

A Bullish Argument Turns Out to Be Wrong

By Biiwii

Often the mainstream media serve up almost insultingly lame stock market commentary (bullish and bearish).  But Mark Hulbert, writing at MarketWatch highlights some data from Ned Davis Research that debunks the talk about all that cash on the sidelines just waiting to buy stocks.  You hear that one in every bull market; how hated the market is and how an army of sidelined Nervous Nellies will finally buy in and propel the market higher still.

Opinion: A bullish argument for stocks turns out to be wrong

For reference, WSJ had an article that was presented as supportive of stocks because bull markets only end when the last hold out and the remainder of all that sidelined cash is sucked in…

More Americans Are Out of the Market Than In It

So NDR went scouting for the cash pile.  From Hulbert…

Davis looked for this cash in four areas. In each case, current levels are some of the lowest in history:

  • Money market funds. This is the most obvious place where cash would be stored. But as a share of the total market cap of the entire stock market, current money market fund assets are very low by historical standards: 11.3%. Before the 2007 market top, the lowest this share got was 12.7%. Davis calculates that the current percentage is in the historical zone associated with annualized stock market returns of only 0.4%.
  • Households’ free liquidity. Davis next focused on non-equity liquid assets, net of liabilities. As a percentage of the stock market’s total market cap, this free liquidity stands at 39.8%. That’s not only lower than what was registered at the 2007 top, it’s the lowest in 60 years with only one exception: the top of the Internet bubble. According to Davis, the current percentage is in the historical zone associated with minus 0.2% annualized returns.
  • M2 money supply. Davis expanded his net even more broadly. As a percentage of total market cap, however, M2 money supply also is lower than at any time since the 1920s — again with just one exception: the top of the Internet bubble. It’s currently in the historical zone associated with 0.8% annualized returns.
  • Credit balances in brokerage accounts. There was $285.6 billion of such balances at the end of March, which certainly looks like a big number. But Davis reminds us that there also is a record amount of margin debt in those same brokerage accounts — $476.4 billion. The net number is the lowest in history, according to Davis.

Final word from Hulbert…

What, then, are the 52% of households who are not in the stock market doing with their spare cash? One obvious answer is that many of them don’t have any spare cash. As Davis reminds us, “real median household income has plunged since around 2000.”

The bottom line? The data on sideline cash paint a far different picture than the headlines would otherwise lead you to believe. Far from supporting the bulls, that data actually back the bears.

Europe’s Risk ‘ON’

By Biiwii

Equity version of a ‘credit spread’ indicates risk still ‘ON’

That is not to say you should buy Europe right now, as the previous post made clear.  But in looking at some charts I found Euro unhedged Spain to be in a bullish pattern vs. Euro unhedged Germany.  So comparing apples to apples (not that I would buy anything Euro unhedged any time soon) it appears that risk is still ‘ON’ over there.  Look… that’s a cute little pattern targeting the SMA 200 or so.


To de-complicate things, let’s also check out IBEX vs. DAX…


After a correction Europe will be interesting again.

Momo Be Nimble, Momo Be Quick

By Biiwii

The market is punishing stock market momentum traders left and right.  The ones that momo’d the trend late, which by definition is most of them.  Biotech, Small Caps and across the pond, the Euro markets are getting dinged for jumping on a story and pushing it too far.  Europe markets hit NFTRH‘s targets (ex. EURO STOXX 50 to 3800) and over threw them a bit before keeling over.

Here’s the Wisdom Tree Euro hedged European stock market ETF.  For me, HEDJ is of interest again down the road a bit (we were on it before the momo’s in Q4 2014).  First it must finish correcting and the Euro bounce must fail.


Not so coincidentally the unhedged EZU is okay.  We had noted that the Euro hedged trade was over but that maybe Euro unhedged might be okay.  Well, if the Euro tops out the two could reverse roles again.


Obama’s 2nd Term…

By Tom McClellan

Obama’s 2nd Term Much Like 1st for Stock Market

Presidential Cycle Pattern for 2nd Terms
April 30, 2015

We are now in the second term of President Obama’s term in office.  While the Presidential Cycle Pattern shows similarities among all presidential terms in the stock market’s behavior, it is poorly appreciated how the 2nd term is often different from the first in its character.

Continue reading Obama’s 2nd Term…

If Liquidity is Your Sword, Keep Swinging

By Michael Ashton

I am not one of those people who believe that if the Fed is dramatically easing, you simply must own equities. I must admit, charts like the one below (source: Bloomberg), showing the S&P versus the monetary base, seem awfully persuasive.

monbaseequalsstocks Continue reading If Liquidity is Your Sword, Keep Swinging

The Power of Context

By Elliott Wave International

Biotech stocks: A real-life example of Elliott-wave forecasting at several degrees of trend

Since joining Elliott Wave International in 1993, the editor of our Trader’s Classroom, Jeffrey Kennedy, has traveled to at least a dozen countries, teaching seminars to some of the best professional and individual traders.

Through April 28, you have a free chance to learn Jeffrey’s trading “tips and tricks” during our free Trader Education Week, an event for traders who want to improve. Every day through April 28, we are releasing Jeffrey’s training videos, full of valuable insights.

Here’s a clip from one of the video lessons now available, where Jeffrey looks at charts of a biotech stock to show you how to use Elliott wave analysis on several degrees of trend. Enjoy!

Watch the rest of this lesson now, free, as part of our Trader Education Week

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This article was syndicated by Elliott Wave International and was originally published under the headline The Power of Context. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Gold, Ideals & Management

By Biiwii

49erGiven its ancient history as money and jewelry, its religious connotations, the fact that it is both beautiful and laborious to dig out of the ground, process and store, gold is an asset that promotes strong and often emotional views and so it is the perfect central figure for this thought exercise.

I want to be careful in criticizing fellow market participants because as a lowly human myself, I am subject to the same pitfalls as anyone else.  But being an advocate of the sound reasons for owning gold, even through a violent bear market, I have learned a lot over the last few years about how many market participants think.  That includes myself, which I will address first.


I have learned that I am able to compartmentalize my ideals, biases and beliefs in service to simply being in alignment with what is going on in the greater financial sphere (e.g. the bubble in governmental credit/debt as a stimulant for asset market appreciation), regardless of whether or not I agree with its origins or believe in its sustainability.  I have only firmed on the idea that I am a manager as opposed to promoter of my most closely held beliefs.  Inflationary monetary policy is working exactly (I would assume) as officials have intended as the right assets, equities, have been rising on this cycle.

As part of that management and compartmentalization process, I have kept the idea that gold is long-term and eternal monetary insurance and not an asset to game or speculate upon.  This view is unchanged from when Biiwii.com and NFTRH warned about the speculative blow offs most notably in silver, but soon to follow, also in gold.  I state clearly that I for one had no idea how bad the ensuing reaction would eventually become (and made no predictions thereof), but also as a manager I did not need to know.  Part of management is discipline and the tools of discipline are parameters and indicators.

So I have been able to function well with the idea that gold is insurance and in this phase a payout from insurance has not been needed.  It’s a concept everybody is familiar with; you pay your Homeowners’ insurance every year and hope that those premiums remain dead money.  That is a healthy way to view gold.  When the effects of official financial wrongdoing do crop up again, you suddenly place value on that insurance premium.  It’s not rocket science.  These concepts are as old as the hills but they are critical to adhering to healthy behaviors within the gold market.

Promotion of Ideology

Which leads to the unhealthy stuff.  Even back when when I was bullish not only on gold’s value proposition, but also its price, I used to try to include words about value and long-term reasons for holding gold.  That is because even in the first phase of its bull market being a gold bull was akin to being at war (an ideological one).  In a war you get killed if you are not 100% buttoned down in your defensive postures.

Defensive posture in this case was the above noted view of the actual metal as insurance, a long-term holding of value, which fluctuates over various market price cycles and investor confidence cycles.  Another defensive posture is to tune out wrong-headed ideas long-since proven to be illegitimate, like buying oil and copper and silver and gold and other ‘natural resources’ as protection against the evils of inflation.  Finally, the most defensive posture possible is probably the most difficult to attain; remembering and respecting but not being controlled by your beliefs.

I have watched certain entities not change their tune when it comes to using the usual hooks to pull in readers, followers, subscribers, customers, etc. (i.e. humans).  Apparently there are tried and true methods that work on the maximum number of marks, that is, people.  These usually involve establishing an easy to understand narrative, promoting it through thick and thin and when things get rough, accenting its ‘us against them’ and/or ‘you are one of the few who really understand’ components.

What it actually is though, is b/s.  Fear, greed and even religion and political agenda can be used as tools for tending the gold herd.  Recently we noted one entity going on about “so much money” it has made in ‘resources’ (seen the CRB lately?) and how in-the-know investors are going to get rich in the coming Asteroids and Nanotech booms; after the next big run up in resources, of course.  This garbage, which I’ll not identify (it was posted at Biiwii, readers may recall) here was actually packaged in a mocked up interview/infomercial with a commodity and resources guru of prominence.  NFTRH has had several subscribers over the years note to me that they were refugees from this entity.

A more personal instance happened last week.  I often selectively reproduce posts at various LinkedIn groups that I feel are relevant to the groups’ agendas.  A Biiwii ‘guest’ post about governmental debt expansion was sent to a group formed to talk about Austrian Economics.  “What does this have to do with Austrian economics?” responded one disgruntled member.  Apparently, to the letter of the law he is expecting an inflationary ‘Crack Up Boom’ and any talk of a deflationary debt unwind simply will not do.  <insert here obligatory joke about ‘Crack’ use>.

I moved on from the group-thinking group.  Like the political war of cartoons that will array in the United States over the next 1.5 years, it seems all too many supposed investors are aligned to their caricatures and speech balloons.  And the real pros who work the crowd know this all too well.  They also know that gold, with ancient historical, religious and ‘good vs. evil’ mythologies all rolled up into it, is well suited for the old ‘Heart Strings’ play.

Friends Like These?  Tune Them Out

You don’t need friends in this realm.  You need your own two feet and you need to stand on them.  Your ‘friends’ are often trying to sell you something, or sell you on something.  I am trying to sell you something too.  With this simple post I am trying to sell you on deprogramming and understanding all aspects of your investor-self.  With NFTRH I am trying to sell you on letting me do the work of deprogramming, managing and macro positioning.  But there is only one thing that people really need in the investment world and it is internal confidence born of education and perspective; their own perspective, not confidence bought or consumed from someone else.

goldGetting back to gold, I would be wary of those telling you how bearish or bullish gold is and realize that gold as a monetary ‘asset’, just is.  It just was when it was rising from 600 to 1900 and it just was when it was dropping from 1900 to 1100.  It is the value assignment toward insurance during a time of high investor confidence that changed.  Gold did not change.

The best part is that when you have your ‘insurance vs. speculation’ or ‘value vs. asset price’ ducks in a row then you can go forth and speculate – in any market, including the gold sector – to ‘make some coin’ as casino patrons like to say.  But the bedrock idea is to understand what is value and what is price speculation.  That takes management, not only of assets, but also of one’s own psych profile.  Only an individual can manage her own psych profile and ideology.