PM End of Week Market Commentary - 10/30/2015

davefairtex
By davefairtex on Sat, Oct 31, 2015 - 8:17am

On Friday, gold dropped -3.80 to 1141.70 on moderate volume, and silver fell -0.04 to 15.53 on moderate volume too.  Both metals edged lower in relatively uneventful trading.  Gold found support right at its 50 MA.

On the week, gold fell -22.30 [-1.92%], silver dropped -0.28 [-1.74%], GDX plummeted -9.44%, and GDXJ was down -9.35%.  Platinum fell -1.58%, while palladium dropped -2.56%.  It was a bad week for PM, especially the mining shares, which took it on the chin.

The decisive action in gold this week took place at the time of the FOMC meeting announcement, Wednesday the 28th at 14:00 Eastern.  Prior to that moment, gold had broken above the 200 MA and was looking like it would probably break higher.  After the announcement, there was an initial spike down, followed by two days of long liquidation, as traders decided they didn't want to hang on to their long gold contracts any longer.  By Friday, gold had come to rest on its 50 MA, finding at least some modest support at the 1140 level, down $50 from the peak.

Is the selling over?  Maybe.  The fact that the dollar fell substantially on both Thursday and Friday, and gold continued to fall suggests that gold may not be ready to rebound just yet.

Silver followed pretty much the same track as gold, except that pre-FOMC it managed to break out to new highs, it didn't sell off quite so dramatically, and it seems to have found some support at a previous high of 15.50.  Silver might actually find some buyers relatively soon.

Miners

The miners had by far the worst week - one day down almost 5%, and another 3 days of selling that added up to this week's 9% decline.  Most of the damage happened after the FOMC announcement, but the miners suffered the most of all PM components.  Hopefully all the traders betting on a dovish FOMC announcement have all bailed out by now and the miners can find support on the 50 MA.

The USD

The dollar may have peaked out this week, rising as high as 98 following the FOMC announcement, but then retreating back lower to close down -0.22 [-0.23%] at 97.02.  That's a full point failed rally on the week.

Here's how the dollar fared this week against the DX bundle.  It was a mixed bag.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Swiss Franc USD.CHF 3.43% 3.27% rising rising rising rising ema9 on 2015-10-25 2015-10-30
Swedish Kroner USD.SEK 0.32% 15.74% rising falling rising falling ma50 on 2015-10-22 2015-10-30
Euro USD.EUR 0.08% 14.50% rising rising falling rising ma50 on 2015-10-22 2015-10-30
Canadian Dollar USD.CAD -0.61% 16.98% falling falling rising falling ema9 on 2015-10-30 2015-10-30
Japanese Yen USD.JPY -0.70% 10.30% falling falling falling falling ema9 on 2015-10-30 2015-10-30
Pound Sterling USD.GBP -0.93% 3.45% falling falling falling rising ema9 on 2015-10-30 2015-10-30

US Equities/SPX

The mover higher in SPX slowed dramatically, with the index rising only +4.21 [+0.20%] to 2079.36, almost printing a doji on the weekly chart.  Really, there were 4 down days this week, with the only rally on the day of the FOMC announcement.

I hate to be always looking for a top in SPX, but it definitely looks to be slowing down now.  VIX rose +0.61 to 15.07 on the week.  VIX is starting to edge higher; traders are looking to buy insurance.  My computer still is bullish on SPX.  Stubborn computer.

How did that compare to the rest of the world?  With this lackluster performance, the US was at the top of the heap.  Everywhere else, equity markets fell.  Perhaps next week, the US market will follow suit.  The close on Friday wasn't particularly auspicious - traders were selling into the close.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
United States VTI 0.18% 4.64% rising rising rising rising ma200 on 2015-10-30 2015-10-30
Europe IEV -1.19% -2.43% falling falling rising falling ema9 on 2015-10-29 2015-10-30
Eurozone EZU -1.21% 0.63% rising rising rising falling ema9 on 2015-10-28 2015-10-30
Developed Asia VPL -2.07% -1.72% falling rising rising rising ema9 on 2015-10-29 2015-10-30
Latin America ILF -2.31% -34.27% falling falling falling rising ma50 on 2015-10-30 2015-10-30
Emerging Asia GMF -3.30% -7.36% falling rising falling rising ema9 on 2015-10-28 2015-10-30

Gold in Other Currencies

Gold fell in every currency except the Ruble, which had a bad week vs the USD.  Gold in XDR was off -23.60, a relatively substantial decline.


 

Rates & Commodities

Bonds (TLT) fell -0.34, falling briefly below the 50 MA on Thursday; perhaps the bond uptrend is coming to a close.  Bonds might be saved by an equity market correction; otherwise, that move on Thursday looked ominous.

The CRB (commodity index) recovered somewhat, bouncing back up +0.98%, and is now back above its 9 EMA, although below the 50.  Commodities still don't look very strong.

WTIC may have put in a low this week, rising +1.66 [+3.71%] to 46.39, after first hitting a low of 42.58 on Tuesday.  Oil is back above its 50 MA - I'm not sure we're off to the races just yet, but it did mark a strong swing low on Wednesday, and the plunge down to test the previous low at 38 seems to be off the table now.

My computer is now long oil, although its a bit tentative about the call.

Physical Supply Indicators

* Premiums in Shanghai are now at +4.30 over COMEX, down vs last week.

* The GLD ETF tonnage on hand fell -3.28 tons, with 692.26 tons remaining

* I can't tell if gold is in backwardation - it was the last trading day of the contract month.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on Oct 30th) of 1141.20 and silver 15.51.

 PHYS 9.38 -0.60% to NAV [down]
 PSLV 6.01 +0.62% to NAV [up]
 CEF 11.14 -9.47% to NAV [up]
 GTU 40.89 -2.08% to NAV [up]

ETF premiums were mostly up.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows about a 0.5% premium for silver, but none for gold.

* HAA big bar premiums are slightly higher for gold [2.33% for 100 oz bars in NYC], and higher for silver [4.04% for 1000 oz bars in NYC].  Silver Eagle premiums dropped once more [20.57% in NYC].

Futures Positioning

The COT report covered trading through Oct 27th, when gold closed at 1166.80 and silver 15.86.

Gold commercials increased their short positions slightly, up +3.8k.  Managed money bailed out of both shorts and longs, losing 6.3k shorts and 8.5k longs, leaving the net position relatively unchanged.  Note the reporting period did not cover the FOMC announcement on Wednesday.

In silver, commercials added 1.4k shorts, sold 1.1k longs - only a small change to an already massively net short position for the commercials.  Managed Money added 2.2k longs and covered 3.1k shorts, placing them at the highest net long position in many years.  Managed Money has placed a very large bet on higher silver prices, and commercials have an equally-sized net short bet.  Usually, managed money is wrong, and their panicked selling after the short-term highs generally causes large moves lower.  This time, for some reason, they are hanging tough.  I believe this is why silver is outperforming gold, and hasn't sunk lower than 15.50

Moving Average Trends [9 EMA, 50 MA, 200 MA]

You can see that the shares dramatically underperformed the metals this week; losses were large.  Among the metals, gold's chart is the weakest; according to stockcharts gold remains above the 50, but my calculations show it below.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum COMEX.Platinum -1.38% -20.84% falling falling falling rising ema9 on 2015-10-29 2015-10-30
Gold COMEX.Gold -1.90% -4.79% falling falling falling rising ma50 on 2015-10-30 2015-10-30
Silver COMEX.Silver -2.00% -5.54% falling falling falling rising ema9 on 2015-10-29 2015-10-30
Senior Miners GDX -8.23% -22.30% falling falling falling rising ema9 on 2015-10-26 2015-10-30
Silver Miners SIL -8.47% -23.45% falling falling falling rising ema9 on 2015-10-26 2015-10-30
Junior Miners GDXJ -9.39% -21.26% falling falling falling rising ma50 on 2015-10-29 2015-10-30

Gold Manipulation Report

Anyone watching at the time of the FOMC announcement saw the big gold spike lower at the moment of the announcement.  Gold lost $7 in one downspike, while silver was hit much harder - four spikes lower for a total loss of 0.32.   Interestingly, in spite of getting off apparently easier, gold went on to sell off for two more days, while silver managed to avoid losing nearly as much, and may have stopped falling at this point.

For silver, I suspect this was just the commercials trying to "urge the market lower" because of their massive short position, as seen in the COT report for the week.  It would be disagreeable for them to have silver break higher.  My guess this is a battle between commercials and managed money, with managed money hanging tough for a change instead of bailing out.  We'll be better able to judge success or failure by the end of next week.

Summary

The FOMC announcement was the key driver for prices in PM this week; after FOMC all of PM sold off, with the miners taking the majority of the damage.

The gold/silver ratio fell slightly this week, losing -0.13 to 73.49, and looks more or less neutral.   The GDX:$GOLD suffered a big loss and is starting to look bearish, while GDXJ:GDX rose slightly but remains bearish.

The COT reports are showing increased bearish positioning by the commercials, while managed money is largely hanging tough in their net long position.  If managed money decides to bail out of their silver position now, the drop could be substantial - on top of what we've already experienced.  Let's hope that doesn't happen.

Gold and silver big-bar physical shortage indicators are modestly higher; in the west, ETF premiums were mostly higher, and GLD tonnage fell.  In the east, premiums in Shanghai are down slightly.   Big bar premiums at HAA are have risen, while silver coin premiums have dropped.

FOMC gave the commercials the advantage in picking direction for PM.  Momentum is now down.  Oil has probably reversed direction - that should help silver to some degree.  Still, its a time to be careful out there.  When momentum is heading lower, it will only reverse when the buyers appear at COMEX; the market won't necessarily pay attention to some RSI value, or some support level, or some moving average that I happened to circle on a chart.  Ultimately it is best wait for the market to show clear signs before jumping in.  Perhaps next week's Nonfarm Payrolls report will hold the key.

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14 Comments

davefairtex's picture
davefairtex
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KWN - description of the "wash and rinse cycle"

This description, stripped of the trigger words, admirably describes the commercial participants and their role of buying low (covering short) and selling high (entering short) at the bottoms and tops of each mini-cycle, as seen in the COT reports I also follow.  And, dare I say it, every other item I've ever seen on a chart.  They all have this feature - periodic cyclical highs and lows.

http://kingworldnews.com/andrew-maguire-10-31-15/

He starts in with the description of the market at around 11:10.  He describes who the "commercials" are, and how they basically short the tops and cover at the lows of each cycle.  Not mentioned is whether or not it is a good idea it is to follow what they do.  Likely, being a trader, that's what he does, but of course he doesn't say that.  Bad politics to say that at KWN.

"When the bullion banks sell, I sell too."  Eric King would love hearing that.  But if you are going to trade, and you want to make money trading GC contracts, it makes a great deal of sense.  Buy low, sell high.  There's no other way.

The fun kicker is that he claims this regime will end soon - that the cosy arrangement the bullion banks have is about to end, and that other trading banks are entering long in anticipation of this event.  Does this mean there are no more cycles?  He doesn't say.  Presumably gold shoots the moon and everyone gets rich.

Good news for us longer term gold owners, if true.  Then again, Andrew has predicted a large number of things which have yet to come to pass.

Anyhow - its a view from "the other side of the hill" - which as it turns out, once stripped of hyperbole, is actually the same side of the hill after all.

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rubearish10
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Avoid KWN

No offense but KWN and his cast are all Gold roaches and I'd avoid even the slightest notion of listening let alone believing anything you hear from those guys. Once in a while they get Art, Rick or Naomi which can sometimes be  logical, constructive and worthy but all the others can go F&#@k Off!

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HughK
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NASDAQ 20 year chart

Hi Dave and all,

I was wondering if you or anyone would care to comment on the NASDAQ 20 year chart.  I enjoyed Adam's article on the limits of the internet bubble 3.0, and I was wondering what we can take away from this 20 year view:

In a similar post yesterday, I pointed out that the last time we had a lower high that's visible on this scale was in May of 2008, aside from some small blips in July of 2010 and October of 2011.  If we break 5200 then the last two months may end up being just a small blip too, but if we go back down below 5000, do people think that it's a pretty clear sign of a broken NASDAQ bull?

The other thing that struck me from this view was the difference between the NASDAQ and the S&P 500. Here's the S&P in the same 20 year time frame:

The most obvious difference is that while the S&P climbed to new highs in 2000, it doesn't compare to the sharp peak and precipitous decline of the NASDAQ bubble.  Also, the S&P has only had one lower high since 2009 on this time frame, in July 2010.  Even the correction of 2011 didn't result in a lower high for the S&P on this scale.

I always enjoy, and learn a lot, from your PM commentary but one thing I have noticed is that it tends to focus on a fairly short-term time scale in many cases.  How would a technical analyst read these longer-term charts?  I'd love to hear your non-TA thoughts on such charts as well.

Thanks,

Hugh

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dryam2000
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Re: KWN
rubearish10 wrote:

No offense but KWN and his cast are all Gold roaches and I'd avoid even the slightest notion of listening let alone believing anything you hear from those guys. Once in a while they get Art, Rick or Naomi which can sometimes be  logical, constructive and worthy but all the others can go F&#@k Off!

+1000

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HughK
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Follow up - 75% fall for NASDAQ in 2000-'02; 50% fall in '08-'09

Another difference between the NASDAQ and the S&P is that the NASDAQ lost ~75% of its peak value from the peak on Feb. of 2000 to the bottom in the fall of 2002, while the S&P lost ~50%.

In 2007-2009, the NASDAQ lost ~50% of its value, whereas the S&P also lost ~50%.

Since the bottom in 2009, the NASDAQ has grown around 370% whereas the S&P has grown by about 285%.

I realize that past performance is not indicative of future results, but is it fair to say that Tech Bubble 3.0 has more in common with the original tech bubble in terms of overvaluations, or at least to say that the NASDAQ is even more bubble-icious than the S&P?

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What he said

HughK said:

I always enjoy, and learn a lot, from your PM commentary but one thing I have noticed is that it tends to focus on a fairly short-term time scale in many cases.  How would a technical analyst read these longer-term charts?  I'd love to hear your non-TA thoughts on such charts as well.

If you hold my hand and speak slowly, I can follow what you say, otherwise I'm lost.  I too look at the long term charts with a puzzled look on my face thinking, "There's got to be something I need to know here."  Thanks for your help!

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KWN

I think Bill Fleckenstein (sometimes on KWN), knows what he is doing. You need to subscribe, or see him on Real Vision though. 

P.S. He doesn't think the gold price is manipulated.......

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KWN

I really enjoyed this interview for some reason.  I was listening to someone who basically is trading paper GC contracts in order to make money for his subscribers, and yet he worked really, really hard to stick to the goldbug script about how horrible this particular wash/rinse cycle is, how physical buying will triumph, all of it.

And in almost the next breath, you hear King extol just how skilful Andrew was in making money for his subs; of course, the only possible way he makes money is to sell when they sell, and buy when they buy.  Any other trade loses money.  And by following them in and out, he effectively reinforces the control over the market they have through his trades.  But they both work really hard to avoid saying exactly that.

Thing is, its a decent trading plan. I watch the commercials too.  When they go short, I get very nervous.  They don't always win, but they win often enough that I'd be an idiot not to take what they do into account.

They are short now.  We can rail about how evil it all is and become angry and throw rocks - or we can pay attention and use the information to our advantage.  Or if you are the KWN guest, you can do both.

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davefairtex
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daily commentary

Heh.  So Hugh, if I'm to write a daily commentary, I'm pretty much required to focus on the shorter term trends.  A focus on the long term trend would mean I'd say, every day, "gosh, we're still in a downtrend."  Pretty much the same freaking thing every day for the past 4 years.

And then, once the trend changed, I'd then say "wow, now we're in an uptrend."  Again, for years into the future.  Every day, same thing.  "Uptrend!"

Every now and then I post a monthly chart.  Then, its pretty clear: that's a downtrend - and has been for a while.  Price has a lot of work to do to change that.  As always, its a process.

As for SPX and its longer term trend - until we make new highs, I believe the 6-year uptrend has been violated and the more likely next direction is down.  I'm looking for a short entry point.  I haven't seen one yet, but I'm only going to stop looking for that entry point if we make a new high.

I try not to worry overmuch about whether or not we make a new high - about what it means in some larger sense.  I used to worry about it, but I found out that worry wasn't helping me at all.  Now I let the market take care of itself, and just "follow the rules as I know them."

How bubbly is bubbly these days?  I let Hussman tell me.  He does all the math to figure out what the expected market return is over the next 10 years based on historical performance.  Hint: its not good.  Close to flat.  And that assumes you are emotionally able to hold during the two 40% corrections we will probably have during the intervening period - again if history is any guide.  [And if you are a normal person, you'll sell after a 20-40% loss, miss most of the rebound, and only re-enter once things have mostly recovered]

His methodology has done a very good job of predicting actual returns over the last 15 years.  I sorted through his methodology and it makes good sense to me.  So...we're basically at the 2000 peak, or the 2008 peak and have been for a few years now.  Will it get peak-ier?  Could be.  Will it drop from here?  Could be.  But in 10 years, it will probably be about where it is now.  According to Hussman.

Since this means you get to hold through two 40% corrections in order to make basically no money at all, you might ask yourself, "why on earth would I put myself through all that angst to get 0% return?"  That's the Hussman viewpoint.  If you want long term, he's your man.  If I were a long term investor, and I only allowed myself to trade (say) once every four years, Hussman is the man I'd be listening to right now.

http://hussmanfunds.com/wmc/wmc151026.htm

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HughK
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Thanks, Dave

Thanks, Dave.  I appreciate the explanation. I'm still a neophyte when it comes to understanding markets and so thanks also for the gentle reminder about why your commentary focuses on the time scales that it does.

I will check out Hussman's site.  I have read a few of his articles on Financial Sense, and I'll take a deeper look at his work.  

I believe that he doesn't really consider energy in his analysis so I would guess that the ten year picture is likely to be down for stocks as opposed to flat, but that's just my broad belief about peak oil coming through.  I thought that in 2010 & 2011 when I first started digging into peak oil as well; at that point did not imagine that the markets could grow like they have. At that time, I was focused mainly on three things in terms of the big picture: high sovereign debt burdens, peak oil, and climate change (and other environmental limits)

Since then I have become aware of lot of other dynamics including:

-the very slow nature of these chronic maladies: This has been the most important realization for me, I think.  I used to have some sort of abstract and unexamined belief that things would contract on a predictable and regular timescale, or that the tipping point was just over the horizon.  Now I think that the negative effects of peak oil will take much longer to play out, although I still see some potential sharp gaps downward as we hit various tipping points. Ditto for the financial system, and also, on a much bigger timescale, climate change. So, maybe I have to change my approach to preparation to "better to be 5 or 10 years early than a day late."

-the continued reality of of economic expansion: We've been expanding since Newcomen figured out how to make a machine that could pump water out of coal mines and that was powered by coal.  While they have been overhyped, social media, cloud computing, streaming services, biotech, and some other industries are still participating in this expansion.  Some of the growth in markets that we have seen in the last 5 years has been real, even if much of it has been inflated.  

-the power of non-con monetary policy to inflate asset prices: I didn't realize that QE would be used to the extent that it has been or that it could prop up markets the way it has.  I also didn't appreciate how markets could grow simply on the basis of inflation.  Although, one question I have about this is why didn't stocks do well from 66 to 82 if markets tend to do well in inflation?  I get that stagnation is part of the origin of the term stagflation, but why didn't markets respond to the inflationary part of stagflation?

-the inflation v. deflation question, with most peak oilers leaning towards the view that energy limits will be inflationary but people like Tverberg saying that they're deflationary.  The ka-poom dynamic seems like a plausible way to address this.

In 2011 and 2012, I naively thought that an understanding of peak oil would give me some sort of advantage in terms of investing.  This still MAY be true in the longer term, but I made some assumptions that some things would pan out in my favor on a shorter time scale. Now I see that having some good solid big picture information not shared by most participants in markets doesn't make my investments (or trades) as special, or as profitable, as I thought it would.  

The good thing is somehow I have managed not to lose money, if measured by realized gain/loss, but I haven't really made much in the last four years either, and I have become a lot more thrifty and saved a lot more than I used to as well. And, if I were to sell some of the investments I have made now - or convinced family members to make - then we would definitely realize losses.  :)

So, I will look at Hussman's work, but at the same time try stay cognizant of the chronic drags that that we face as a civilization, some of which he may not appreciate.  

Thanks again for all of your work, data, and willingness to bear with our questions, Dave.

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Hugh K Very REFRESHING

Many thanks for sharing your personal thinking journey with us.  This sure helps me as I've been almost ready to throw in the towel.  Why read anymore?  We know enough how the Big Picture is rigged, from Griffin, Prins, James Dale Davidson's The AGE of DECEPTION, PP.com-ers, and many, many others, Rickards, Schiff, Maloney, etc.

Is it that we want to see even the smallest ways we are being screwed? Or, maybe this answer might be helpful:

"After Full Lives Together, More Older Couples are Divorcing," by Abby Ellin in NYTimes, Sunday, Personal Business.  

Couples need a lot of space between them to survive, especially after retirement.  Otherwise they grate on each others nerves, etc., possibly leading to divorce. (Women initiate 60% of the time)  SO, PP.com is a great way for many to have something ELSE to do with their time. Thus, many thanks to Chris, Adam and the PP community--never a dull moment, and for SAVING marriages!!

Or, maybe we think we can really preserve our small wealth by continuing to debate the issues here?

Nothing like REthinking our biases.  Ken

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davefairtex
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same ground

A lot of what you say sounds familiar in terms of your journey.  Market doesn't care about peak oil, or how smart you are - it pretty much does what it wants in the short term.  Hussman said in his recent column:

Valuations are the central driver of long-term investment returns, while market returns over shorter portions of the market cycle are primarily driven by the preference of investors to seek or avoid risk.

Translated: "earnings only matter long term; risk-on or risk-off drives things short term."

I also think energy won't matter for a long time.  And then something will happen, and it will matter a whole lot.  It will be all anyone talks about.  Kind of like ebola; nobody cares, and then everyone cares, all at once.

Regarding the 70s inflation:

There was big-time "normal credit inflation" during the 70s, credit owned by normal people, spent into the normal economy, and that drove normal-goods prices higher, including property.  It also drove wages higher too - we had actual wage-push inflation.  This was before globalization made it so you are competing with some guy in India for the same job.

What we have now is asset inflation, brought about by money pumped into banks who spend their money on assets, not on normal-goods.  No wage-push inflation because of globalization, and those bankers don't buy normal goods, so no normal-goods inflation either.

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davefairtex wrote: A lot of
davefairtex wrote:

A lot of what you say sounds familiar in terms of your journey.  Market doesn't care about peak oil, or how smart you are - it pretty much does what it wants in the short term.  Hussman said in his recent column:

Valuations are the central driver of long-term investment returns, while market returns over shorter portions of the market cycle are primarily driven by the preference of investors to seek or avoid risk.

Translated: "earnings only matter long term; risk-on or risk-off drives things short term."

I also think energy won't matter for a long time.  And then something will happen, and it will matter a whole lot.  It will be all anyone talks about.  Kind of like ebola; nobody cares, and then everyone cares, all at once.

Regarding the 70s inflation:

There was big-time "normal credit inflation" during the 70s, credit owned by normal people, spent into the normal economy, and that drove normal-goods prices higher, including property.  It also drove wages higher too - we had actual wage-push inflation.  This was before globalization made it so you are competing with some guy in India for the same job.

What we have now is asset inflation, brought about by money pumped into banks who spend their money on assets, not on normal-goods.  No wage-push inflation because of globalization, and those bankers don't buy normal goods, so no normal-goods inflation either.

If median household wage has not increased since 1972, then even somewhat moderate inflation is very troubling.   That it is very hard for a nuclear family to survive without both parents working should inform on the decrease in standard of living that then reflects in the broader culture as apathy, violence in all forms and  and endemic criminality.  

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HughK
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2009 New Yorker article on Armstrong and cycles

The Secret Cycle

As I read it, it's neither adulatory nor a hatchet job. It definitely has some interesting parts, including a condensed overview of how cycle theories have been used in finance.

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