Category Archives: Sentiment-Psychology

Ritholtz on Gold

By Biiwii

I linked Barry Ritholtz’s gold bug swipe along with other items in an Around the Web post.  Anything linked (or republished from guests for that matter) on this site is to be taken as 100% their view, not mine.  You, the reader are tasked with using your own brain to consider, discount or ignore any of it as you see fit.

What do I think of Ritholtz’s view on gold, personally?  I think ole’ Barry is picking some easy, low hanging fruit to use up virtual ink over at Bloomberg, per his contract (real or implied).  I mean really, gold did not react to Greece and he takes that as a negative for the metal?

The fact that gold did not do what legions of promoters and fear mongering pitch men insist it is supposed to do is a positive, not a negative.  It brings us closer to the resolution of the bear market as opposed to delaying it with fear mongering promotions (ref. last summer’s Russia-Ukraine-Ebola triple play of unsound ‘fundamentals’).

Gold Shrugs Off Armageddon

“I thought gold was an investor’s best friend during Armageddon.”

Really Barry, I think that you have gotten caught up in a personal ‘back and forth’ with the more unsavory of the gold bug “community”, as Daddy Gold Bug Jim Sinclair calls it.  You are using the same cartoons in reverse that the worst of the “community” uses when it tries to stir fear and greed in naive cult members followers.

As those of us who actually care about reality (as opposed to media-driven hype) have tried to point out repeatedly over the years, gold is not about Armageddon (Bird Flu, Ebola, Cyprus, Greece, war, death, destruction or any of that crap).  Gold is simply a marker, a barometer showing the state of confidence in the financial system and its managers (Central Banks) at any given time.

“Further reducing enthusiasm for gold is the gradual improvement of the U.S. economy. Despite forecasts of imminent collapse, the major economic data — including employment, wages, spending, housing, autos and consumer sentiment — have all trended higher over the last five years. Tales of an impending depression were greatly exaggerated.”

I could not agree with you more, Barry.  Back in 2012 we began gauging big breakdowns in the technical case for precious metals and by January of 2013 we (well, NFTRH) cross referenced the ratio of Palladium (cyclical) to Gold (counter cyclical) with a ‘channel check’ of the Semiconductor Equipment industry to put forward a view that an economic bounce – beginning in manufacturing and later to spread out to the services sectors – was likely to come.

I am a gold bug.  I saw the “improvement of the U.S. economy” when it was appropriate to see it, ahead of time.  When you obsess on the other kind of gold bug, the media star with the Armageddon-like predictions and inflammatory ‘analysis’, or Kool-Aid drinking hate mailers, you do a disservice to your readership because you only present the other side of something that is not real to begin with.  You in essence stand up a Straw Man and periodically set fire to him, really to no one’s benefit.

“Regardless, gold seems to [be… jeez msm, edit much?] going nowhere fast. Feel free to send me an e-mail explaining how wrong and stupid I am. I have an archive of all the messages warning me that gold would teach me a lesson in humility. “You’ll see” these e-mails smugly assure me, “your comeuppance will be here any day now.” My plan was to respond to each on its fifth-year anniversary with a chart showing the performance of gold versus all other asset classes and the details of how much money has been lost.”

Gold is going to be relevant again when confidence wanes and the current boom cycle starts to show its age and reveal its unsound origins.  Until then, gold is a dumb rock that people can hold as insurance and nothing more.  That is all it ever was, anyway.  But that does not sell in the mainstream media to mainstream people.  Cartoon-like depictions of half insane Luddites clinging to that dumb rock do.  Media stars lampooning those Luddites do too.

Hype in the “Community” is Always Punished

By Biiwii

IKN has been pointing out the stupidity of some Apple Watch gold consumption hype and most recently, the non-flight to quality amidst Greece blah blah blah… He is at least as sensitive as I am to this stuff.  More so, maybe.

While I have personally tried to tone down the criticism of the cartoons in the gold “community”, I find it difficult with one writer in particular leading the naive into the GDX (with its “drop dead gorgeous bull wedge”), into the Indian Wedding and China demand stories and as a topping on the cartoonish cake, the ‘US jobs will drive inflation so make like the smart money and BUY GOLD before the big institutions do!’ garbage.

I get irritated by this stuff.  Some people call me sanctimonious (while cherry picking and misinterpreting a chart I put up) and I call myself judgmental, for sure.  That is not really a great trait to have, but at least I know who and how I am.  Speaking for the defense, this is mostly applied when I think that people are being misled to their potential harm by stuff that they are reading and assuming is authoritative.

News flash:  Nobody writing on the internet in general and the financial media in particular, is authoritative.  Present company included.

Last year at this time Ukraine, Russia and eventually Ebola were stoking up.  NFTRH kept a constant warning in force that the rally in the precious metals complex was happening for the wrong reasons (i.e. trade it, but don’t bite on the b/s).  Right out front beating the bull drum were some of these entities about which I am highly critical today.  The result for last summer’s unsuspecting true believers?  New freaking lows in gold, silver and the miners.

It was interesting because last summer NFTRH experienced a temporary net decline in subscribership.  I thought it was just a typical summer drop off, but I also could just feel certain gold aficionados in the base getting fed up with me.  You can always sense when gold bugs start dropping off.  It tends to happen when I don’t tell them enough of what they want to hear.

This summer (so far, anyway) there has been no drop off and indeed there has been a slight increase in net subscribership.  The only way I can explain it is that we have been fully prepared every step of the way for the bearish things happening to gold, silver and the average* miner.  That along with the fact that we have been bullishly managing markets that have deserved to be managed, unlike the precious metals to this point.

In other words this summer I am not being punished for being negative because precious metals prices are not running upward, making charlatans with nicer things to say look like gurus.  People are valuing what is, as opposed to what they ideally might want to be.  Oh and also I think that the last several years have been a process of winnowing the real hard ass gold bugs out of the base and leaving a group of well rounded market participants.  I like that.

This is not a ‘trash the precious metals’ post.  Changes are coming, but first you need to be intact, have several macro fundmental and technical indicators cross referenced and in line and be prepared to be brave when the sheep (funny how the most dogmatic “community” on earth calls regular people “sheeple”, isn’t it?) are being sheared.

* I am fully aware that there are standout exceptions, which is why I currently hold 3 junior gold stocks (alongside a short against NUGT).

All Greek to Me

By Biiwii

And it’s all Greek to the financial media as well.  MarketWatch‘s lead:

headline

US stocks were in need of a correction of some sort and on Friday at mid-day we had an NFTRH update showing the degrading state of US stocks (including the Dow rising hard to test a breakdown while leadership indexes signaled short-term bearish).  The Greek Debt Theater is a good accelerant, but that is all it is.

I’ll just ask you to remember that these inflammatory news events never but never have lasting impact.  They may be a trigger event, but they are not the reason for anything other than temporary emotional turmoil.  The media love that stuff because the media have to print something eye catching every day.

The US market is not bearish at this time*, but it was in need of getting bonked.  Well, bonk – either mini or maxi – in progress.

* Subject to change, as is everything in the macro markets.

Market Sentiment

By Biiwii

A snapshot of the latest data courtesy of Sentimentrader.com shows that Dumb Money had recently gotten the willies big time, while Smart Money firmed up.  Then a post-FOMC feel good fest unsurprisingly whipped up.  This has not yet brought the short-term sentiment indicators back to a contrarian bearish stance.

Short-term, Dumb Money got spooked and has been rebounding a bit with the markets, while Smart Money does the opposite.  This is not a bearish configuration.

smart.dumb.st

Long-term is a different story as Dumb Money has been trending higher with the markets throughout the post-2008 cycle.  So there is a supportive short-term condition for the market but an ongoing long-term bearish one.

smart.dumb.lt

Here is the aggregate of various sentiment indicators.  The red box shows what a really bearish setup looks like.  Still nowhere near that.

indicators

Sentiment indicators like all others, need to be considered as part of an overall view.  They are conditions, not directors.

MSM’s Greece Hysterics

By Biiwii

Ah of course, the plunge in gold and silver had to be due to something.

au.ag

Turns out the one subject I have been studiously ignoring above all others is revving up in the MSM this morning.

headline
MarketWatch

When you look at these events in a certain way, hilarity wells up within.  At least it does with me.  I mean, the predictability and sameness of it all is just funny.  On and on though the various cycles and events we are supposed to get all worked up about.  It’s just funny every time.

Big Drop Imminent!

By Biiwii

See, the headline says so…

headline

Click the graphic for Mark Hulbert’s reasoning.

“The odds of a big drop in U.S. equities are high and increasing.”

Okay, but if this bull market has been one thing, it has been a rule breaker.  Hulbert cites waning participation as a bearish factor.  In the past we have noted record margin debt, record low cash, now stretched valuations (even by conventional analytical standards) and a cavalcade of other data that would imply a coming correction or bear market.

Every time it looks a little dicey, MarketWatch and friends trip over themselves to put up headlines like the above and this series of little mini-resets sustains the bull.  It’s a FrankenMarket for sure, and on this cycle the juice is coming from the MSM as every little blip is micro managed (although the sentiment trend on the big picture is that ‘dumb money’ data aggregates are climbing steadily higher) and market sentiment gets dinged just enough to keep the bear case at bay.

But the trend marches toward over bullish on the big picture and that will eventually end the bull or usher in a real – as opposed to blip style – correction.

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.

Management

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.

This is How Markets Go

By Biiwii

I have noted winning trades on the site because there have been a lot of them over the last several months, and it’s fun.  Then there is the Biotech company (BCLI) I decided not to take profits on and rode it back down.  All profit given back because I like the story.  Not cool.

Then there is this exercise, where after noting the positive Semiconductor Equipment sector Book-to-Bill ratio for March and two equipment companies exceeding expectations and rising hard, a 3rd was extrapolated (in my mind, anyway) to have the same potential from a similar ‘not bullish’ looking pattern.  I bought AMAT on Friday for this reason and this morning got summarily whacked by the news of an aborted merger.

Trading and investing are funny endeavors.  Sometimes you feel like you are smarter than you are and other times you feel like you are stupider than you are.  Today is option 2.  But like Goaltenders and Cornerbacks, people trading the markets have to have short memories.  So I am stupid today.  Tomorrow, hopefully not so much.

lrcx

Chinese Stock Market: Trade Like a Pro in 1 Min!

By Biiwii

I don’t know how literal this is, but by way of SoberLook’s excellent daily email service of macro signposts, here is a look at a street vendor quick-teaching kids how to read trend lines and trade like Buffett.  I don’t think Buffett uses trend lines but I do think this is a shoe shine boy moment for the Chinese stock market, to one degree or another.

tradinglesson

History is Fact, Part 1

By Biiwii

In writing this post I came to realize that its subject matter is too expansive for any single post.  So consider this an introduction to a series of posts that I’ll probably do in the coming months, as facts come to the fore and lend themselves to historical analysis.  Two examples are presented below.

You might not be the type who needs or cares to subscribe to commercial market commentary/advice/trading/management services, but one thing we all can do is work through the freely available stuff calling itself ‘analysis’ flying around out there at warp speed and cull what is based on facts or honestly produced analytical work from the other garbage that is all too often based on ego, bias or agenda.

Most weeks you are able to download a time-delayed version of Bob Hoye’s Pivotal Events newsletter right here at Biiwii.com.  While Bob has certainly got his opinions and biases (as we all do, let’s be honest), he is the most historically learned commentator I have read.  I enjoy the old and not so old news article quotes from bubbles that culminated in 1873, 1929, 2000 and 2007.  Reading Bob’s history lessons is like hitting a ‘Refresh’ button on personal perspective each time.

This is not a promo of Hoye’s service and Institutional Advisors are not even aware of this post.  Hoye is simply one of several influences on my own market management methods, and probably a reason the words “patience” and “perspective” show up so often in my own writing.  It is vital to keep frames of reference and perspective at all times, no matter how long things that we view each day with our own two eyes take to play out as noisy short-term components of a longer-term process.

It used to be easy to skim Bloomberg or MarketWatch (or in the old days when people actually knew it existed, Thestreet.com) and pick out ‘bubble head’ headlines during bull markets, but the current phase is complicated by the fact that these services, especially MarketWatch, seem to ‘day trade’ the news based on what is happening on any given day or over night action.

Taking the likes of MarketWatch seriously can induce a whipsaw like you read about (literally) to an investor’s frontal lobe.  I know for a fact that there are some sharp commentators there (as I have interacted with some of them elsewhere and found them to be very forthright and intelligent) but there are dullards as well and more than the actual writers, I think it is the editorial staff that is responsible for selecting and presenting content each day and creating a noise level that can literally scream ‘Market Crash Imminent!’ one day and ‘Here’s Why You Need to be Fully Invested in US Stocks’ the next.  It’s like a sick joke.

Moving on, let’s use a few pictures to illustrate some historical facts.  From a post yesterday (Looking for Your MoM?), the S&P 500 is happily climbing despite a gathering of economic data that has gone negative by MoM change as it did in the last two recessions.  The facts are that this condition actualized the implied risk to equity investors in both previous examples but on this occasion has not yet done so.

I have marked up @dv_dend‘s graphic to better illustrate how in 2000 the market topped out and began to turn down as a group of economic indicators turned down and how in 2007 the market began to turn down before the indicators went negative.  Then… the whole ball of wax nearly collapsed.  The current cycle sees the economic indicators in a danger zone and the stock market – which should have topped – has not.  That (the stock market intact, technically) is a fact and it needs to be respected every bit as much as the implied risk to today’s confident bulls.  Hence, NFTRH, while working this market happily and gainfully, continues to advise the only rational orientation for this circumstance; when in doubt the default is CASH, not heavy long and not heavy short… CASH.

mom

Another picture comes from China.  We have charted FXI and its parent FXT for years in NFTRH, and over the last several months followed its progress in attacking and surmounting long-term resistance.  We have assigned targets and I have had the pleasure of having a subscriber tell me he is getting nervous about his profits in FXI (after buying in the 41’s based on NFTRH’s charting) and would like to know a good selling point.  It was advised that rational measured targets are being registered now and that profit is good… consider taking some of it…

fxi

…because history is littered with examples like this.

silver

The ‘We Are Here’ reference was from NFTRH 318, which introduced the above chart to talk about a historical precedent in Silver for the current stock market mania and the potential that the October 2014 market correction was just a pause to refresh prior to a manic blow off.  Here the post loops right back to the first graphic above.

For perspective and reference, here is the excerpt from NFTRH 318, dated November 23, 2014 that accompanied the above historical Silver chart:

“Just a month ago market players were barely recovering from their knee jerk puke fest kicked off by a negative projection by one semiconductor company and a pig pile of media hype that was something to behold.  We called it hype then and conveniently enough, there is the SOX at a new recovery high.

So two momos (BTK & SOX) are bullish and threatening accelerating upside.

And yet nothing about the market is healthy.  Nothing about silver and commodities in general was healthy in early 2011 either.  I find myself using the silver example repeatedly in discussing the US stock market, so let’s dial in its bull market blow off.

Understand that human behavior does not change, however it does tend to herd and gravitate to whatever is giving the good feelings. 

Let me ask you, in early 2011 what was the average silver bug’s sentiment profile?  Sure, there had been a 5 buck setback in the silver price in late 2010 and early 2011.  What did that serve to do?  It fueled the final phase of the bull by taking out some of the already embedded over bullish sentiment and clearing the pipes for a massive blow off amidst hysteria about $100, $200 an ounce silver and touting about how the Silver-Gold ratio still had a long way to climb.

In short, it killed silver; but not before silver killed a hell of a lot of shorts.”

History is a ‘probabilities and perspective’ guide… always.  It is also fact.  It is a time in history now to play what the market gives, sure.  But it is also a time to manage risk and default to cash.

Tilting at Golden Windmills

By Biiwii

dq.windmillsThere is a writer we’ll call Don Quixote who is tilting at something that no longer really exists… the evil gold promoters that used to be taken seriously by innocents to the tune of near total destruction of their portfolios.

Don once went on about the gold cult and I even highlighted his post because I had been going about the gold cult as well.  The cult-like aspect of the gold “community” (← a dead giveaway) was real, and the group-think that the 2001-2011 bull market fostered was very strong and really damaging to those who did not question its tenets until it was too late.

Continue reading Tilting at Golden Windmills