Timing & trends

The world of investing as we have known it – is over

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Posted by Lance Roberts of Streettalk Live

on Monday, 11 March 2013 08:50

Portfolio Management Must Change

I am out of town this weekend for our annual Spring Break family reunion and skiing extravaganza. These events are becoming much more fun as all of the kids are getting older and more independent. There is lots of eating, drinking, laughing and great conversation to be had. Most importantly, however, is simply the time to reconnect with family.

Therefore, this week’s missive is by Bill Hester from Hussman Funds which touches on something that is very important to me. The world of investing as we have known it – is over. The historical principles of valuation metrics, allocation, portfolio weighting and risk management are no longer valid in many ways.

The rise of electronic trading, algorithms, dark pools, exchange traded funds (ETFs), and high frequency trading has irrevocably changed the landscape of investing. When combined with continued central bank interventions, which artificially inflate asset prices and suppresses yields skewing historical valuation metrics, the advantage has clearly been shifted away from individuals to those that control the money and information flows.

However, it is the illusion of success that keeps individuals in the game.  When markets rise and their portfolios increase in value – they become overly confident believing their current success is based on their skill.  However, this illusion is quickly dashed when the next cyclical bear market occurs. 

For investors, the rules of the game have clearly changed. Unfortunately, not for the better. No longer due the rules of fundamental investing apply.  Today, it is simply the understanding of price momentum, trends and money flows.

The “rise of the machines” have not only changed the way we MUST think about investing – but also about the expectations of returns from allocation models.  Bill does a great job of explaining this.

>> Read More. Download This Weeks Issue Here.


Timing & trends

Hoye: Critical Minds - Massive Corrections & Asset Bubbles

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Posted by Bob Hoye: Institutional Advisors

on Saturday, 09 March 2013 07:29


"Gold Goes Into a Death Cross" "Civilized people don't buy gold."

– Financial Times, February 20

– Charles Munger, Berkshire Hathaway, CNBC, May 4, 2012

If policymakers were civil in serving the public interest rather than ambitious, we would not seek the protection of buying gold.

"After a series of failed business ventures, Kwon Eui Moon decided to get rich in a more traditional way in South Korea by taking out a mortgage in 2002 and waiting for house prices to soar."

– Bloomberg, February 20

It did not happen.

"There are widening divisions among Federal Reserve officials about the value of its efforts to reduce unemployment."

– The New York Times, February 21

"Investors in asset-backed securities are seeking relief from record-low yields by snapping up riskier securities tied to jewelry loans and cars parked at dealership parking lots."

– Bloomberg, February 20

"Bernanke minimized concerns that easy monetary policies has spawned economically-risky asset bubbles."

– Bloomberg, February 22

One problem is that Bernanke still thinks that throwing more credit at a post-bubble credit contraction will make it go away. Another is that too many interventionist economists still think that "inflation" is raising consumer prices. Stocks and lower- grade bonds soaring to dangerous levels, accompanied by massive credit expansion, does not register as inflation.

The classic definition is "an inordinate expansion of credit". It works for inflation in both tangible and financial asset prices.

In the 1600s, Amsterdam was the world's financial and commercial capital. The term "easy" credit dates to then, and the Dutch had a practical term for its consequent disasters – "diseased credit".





The following is part of Pivotal Events that was published for our subscribers February 28, 2013.


"What we have here is an attempt to communicate,"

Of course, this is a modification of the classic line by the "Captain" (Strother Martin) in the movie Cool Hand Luke and it refers to Bernanke's testimony, this week. And his public utterances seem to be instructional, behind which have always been the intense desire that financial markets follow the textbook touts – puhlease!

In the movie, Luke (Paul Newman) responds to the Captain's abuse with "I wish you would stop being so good to me, Cap'n."

And this is what most critical minds would hope for – that central bankers would stop abusing financial markets with shopworn theories. But then, according to the academics is that their deliberate currency speculation does not force prices up. It is the public's "expectations of inflation" that forces prices up.

As reported by CNBC recently, the Great Man exclaimed, "My inflation record is the best of any Federal Reserve chairman in the post-war period."

He has been part of the interventionist bandwagon for a long time – initially as an academic and with the Fed since 2002. Our view continues that the Fed has been accommodating since it opened its doors in January 1914. Needless to say, but this has never curbed great speculative moves, nor prevented the consequent phases of forced liquidation. De-leveraging as it is now called has not been the result of Fed policy change, but due to Mother Nature and Mister Margin overwhelming the benighted desires of the central bankers who happen to be on shift when a speculation becomes excessive.

As we like to observe. The job description of central bankers has been corrupted to the point where it includes trying to get the speculative accounts "out of line". The job description of the margin clerk is quite the opposite and that is to "get the accounts in line!".

In Tuesday's testimony Bernanke boasted "We know when to stop accommodation". Sure, and bulls will always know when it is time to sell.


Base metals (GYX) tried to break above resistance at the 406 level, made it to 404 at the first of the month and dropped to support at the 380 level.

Since April a year ago, the trading range has been between 406 and 350. The recent high was accompanied by considerable enthusiasms about "inflation". And 406 was the best that could be achieved. Often March can see seasonal strength and it will be interesting to see how prices behave.

The dollar is approaching an overbought condition at 81.9.

Last week we noted that if agricultural prices (GKX) slipped below 439 it would indicate further weakness. The low on Tuesday was 433, which extends the decline that began last summer at the high of 533.

The action is moderately oversold.

Crude oil has declined from 98.24 late in January to 91.92 on Tuesday. As noted last week there is minor support at this level.

With this, the CRB has declined to support at 292. It is somewhat oversold at the daily RSI of 30.

Screen shot 2013-03-09 at 6.20.21 AM

Commodities could become stable to firm for some weeks. However, considering the desperate attempt at currency depreciation, the real issue is that they have not been soaring "to the moon".

Commodities and other hard assets as well as financial assets all played their key roles in building a great bubble. This completed in 2007 when the dynamics of a classic financial mania climaxed. The feature of five previous post-bubble contractions has been a financial crash () and economic collapse () followed by a weak business cycle () and rebounding financial markets () .

Inflation bulls may be perplexed and disappointed that the "juice" from reckless policymakers has not been driving commodities, or even gold and silver. Central bankers may propose but the markets dispose and over the past year the market decided that the big play will be in lower-grade bonds – around the world. This has been bubbled to a dangerous condition, with the problem likely to be "discovered" around mid-year.

Gold and silver rallied into September's news that the Fed and the ECB were going to aggressively buy lower-grade bonds. These continued up and the "juice" did not go into precious metals.

The first global business expansion is maturing and as it rolls over commodities will weaken. The completion of the great bubble included the CRB soaring from 182 in 2001 to 474 in June 2008. The Crash took it down to 200 in March 2009. We still think that the high of 370 in April 2011 was a cyclical peak. The subsequent low was 266 in mid 2012 and the rebound spiked up to 321 in September.

Essentially, since November the CRB has been trading between 291 and the high of 305 at the first of February. Yesterday's 292 is testing the low and with the RSI at 30 the action is moderately oversold.


A few weeks ago we noted some research studies with titles "Five Compelling Reasons to Sell Gold". One service's convictions topped this with "Twelve Reasons".

The mood is grim and it is appropriate to move from anecdote to measured sentiment. The following chart updates the one in our "Precious Metals Report" of February 15th. Quite simply, sentiment is now more, repeat more, bearish than at the depths of the 2008 Crash.

Screen shot 2013-03-09 at 6.20.09 AM

The February 15th "Special" noted that it could take a couple of weeks to clear the problems in the gold sector.

Are we there yet?

Let's review how far we have come since the halcyon days of last September and with the fateful April-May of 2011.

In the spring of 2011 the Daily RSI on the silver/gold ratio soared to 92 when we noted that that level of speculation had last occurred at the sensational blow-off in January 1980. We noted that the action was dangerous.

Going into the dismal low of May 2012 the monthly RSI registered the worst oversold in twenty years.

With the rush up to September, the Daily RSI reached 84 when we again noted dangerous conditions.

It seems that these speculative thrusts were mainly discounting the evils of central banking. Particularly so for the surge into September, which was inspired by the ECB and the FED proclamations about reckless buying of lower-grade bonds.

The old story about "inflation" and gold has not been working. Gold and silver bugs may have had their last hurrah and could be looking for a new mantra.

Mother Nature seems to be providing it with the distinctive turn to the gold sector trending opposite to the orthodox sector. This is one of the features of a post-bubble contraction and it could run for many years. There will be cyclical swings with golds underperforming during business expansions and doing well on the recessions.

A transition to the gold sector "doing well" seems to be developing.

On the nearer-term, stability in the CRB could help as could stability in the dollar.

Beyond dismal sentiment numbers, relative valuations are at lows. The HUI/Gold has dropped from 62 in 2006 to 22. This compares to the low of 23 a year ago in May. The Daily RSI is as at 24, which was also reached then.

Since the crash into 2001 gold stocks have soared relative to the general stock market. HUI/SPX climbed from 0.026 to 0.56 (no typo) last September. The low last May was 0.28 at a weekly RSI of 30. Now the low today has been 0.23, with an RSI of only 22.

Clearly, the excesses of the speculative surges to May 2011 and to September 2012 are being fully offset. This is also a massive correction of the fabulous outperformance of golds relative to the big stock market.

The ChartWorks is watching for the trading opportunity and investors could continue accumulation.

Screen shot 2013-03-09 at 6.19.59 AM

Link to January 12, 2013 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:



E-MAIL bhoye.institutionaladvisors@telus.net

WEBSITE: www.institutionaladvisors.com


Timing & trends

Biggest Wealth On Planet Now Entering Gold & Silver Markets

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Posted by Rick Rule via King World News

on Friday, 08 March 2013 08:52

1350384518Today one of the wealthiest people in the financial world spoke with King World News about the shocking things that he witnessed at PDAC, and how the biggest money on the planet is now looking to get into the gold and silver sector.  Regarding PDAC he stated, “What was of interest to me was the level of panic present at the place.”  Rule also let KWN readers know invest to make fortunes right now in the gold and silver markets.

Here is what Rick Rule, who is the CEO of Sprott USA, had to say about creating great wealth:  “The opportunities that are in front of me are so fantastic that it’s hard to focus.  I am still interested in the developmental stage juniors, the ones that are financially accretive.  I am also focused on explaining to investors that the pullback in bullion prices, never mind the bullion related equities, is a sale.”

.....Rick Rule continues HERE


Timing & trends

88 Yr Old Russell: History Made Yesterday

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Posted by Richard Russell - Dow Theory Letters

on Thursday, 07 March 2013 08:49

“Yesterday history was made when the Dow rose to a new record high and finally confirmed the prior record high put in by the Transports.  The question now becomes -- what do we have here, a weird kind of bear market or a new bull market?”

“The honest answer is that in all my years of studying and dealing with the markets, I've never seen anything like the action since the 2009 bottom.  As a practice study, I rethought the whole 1920s series as if I was reconstructing the events of 1929.  Suppose, after the September, 1929 record high in the Dow, the Rails had turned up from the crash lows and had also risen to a new record high?  

Then suppose the Dow had followed, and the Dow had risen to a new all-time high?  Such action would have been puzzling, but what would analysts have called it?  My guess is that analysts would have simply called it “confusing and unprecedented.” 

And I'm going to do the same thing today.  The collapse of 2008-09 was labeled a bear market by everybody.  The bull market of 1980 to 2007 was obviously a huge bull market which lasted 27 years.  Following a 27-year bull market, we might have expected a bear market lasting one-third to two-thirds as long as the preceding bull market.  

A bear market lasting one-third (nine years) in duration as long as the 1980-2007 bull market would be expected to carry into at least 2016.  Thus, on a timing basis I have to think that all the stock market action since 2007 was one continuous and erratic bear market.

Question -- OK, Russell, then what about the record highs recorded by both the Dow and the Transports? 

Answer -- My only answer to this is that both D-J Averages produced something never seen before, namely new highs during a post-crash upward correction.  My explanation of this unprecedented situation is that the advance to new highs was a direct result of never-before-seen manipulation by the Federal Reserve.  

The Fed was able to engineer new post-crash highs in both D-J Averages.  But I doubt if the Fed will be able to engineer a coming new era of prosperity in America.  Thus, it will be an example of where the stock market will not be predicting the nation's economic future.

As a matter of fact, I believe this stock market is predicting a very mixed and confusing economic future for the US.  As far as I can see, the Fed will be pumping in QE-to infinity for as long as it can get away with it.  The only thing that might halt the Fed is rebukes from voting members based on it's outrageous 3 trillion dollar balance sheet.  We're in uncharted territory in my opinion, and I expect to see a number of events in both the stock market and the economy which will be both surprising and upsetting.

One technical observation -- With the breakout and confirmation by the Industrials, this places tremendous psychological pressure on the 13.108 million shorts that are now positioned on the NYSE.  As a result, we should see irregular spates of short covering or buying panics, depending on the fears and psyches of the short sellers.  This makes shorting stocks in this market a risky game.

My view for the future -- erratic market action along with a disappointing US economy.  Incidentally, I don't know if you noticed, but some of the heavily shorted stocks surged yesterday, due, in part, to frantic and fear-filled short covering.

Item -- Since the 2007 bull market high, 18 D-J Industrial stocks are now higher than they were in 2007 and 12 are lower.

Gold and particularly gold mining stocks are being bad-mouthed unmercifully.  It's almost as though we're witnessing a veritable bandwagon of gold nay-sayers.  I suspect that some of this is a matter of “sour grapes” on the part of those who missed out on the tremendous 12-year bull market in gold.  And so it goes, to the gold pessimists goes a belated, sour grapes sneer.

Could this be the gold bottom?  Based on RSI gold is oversold.  The histograms on MACD are turning up.  And we have a little up-pointing formation in March.  Could it be a bottom?  It would require gold hitting 1620 for a major reversal.  Gold above 1600 would be impressive!

KWN RR Gold chart 3-7-2013

Ed Note: Two very valuable articles from the Godfather of Newsletter writers: 

Subscribe to Richards Daily Newsletter HERE

About Richard Russell

Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics --plus Russell's widely-followed comments and observations and stock market philosophy.

In 1989 Russell took over Julian Snyder's well-known advisory service, "International Moneyline", a service which Mr. Synder ran from Switzerland. Then, in 1998 Russell took over the Zweig Forecast from famed market analyst, Martin Zweig. Russell has written articles and been quoted in such publications as Bloomberg magazine, Barron's, Time, Newsweek, Money Magazine, the Wall Street Journal, the New York Times, Reuters, and others. Subscribers to Dow Theory Letters number over 12,000, hailing from all 50 states and dozens of overseas counties.

A native New Yorker (born in 1924) Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12th Air Force during World War II.

One of the favorite features of the Letter is Russell's daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell's opinions. But Russell always defers to his PTI. Says Russell, "The PTI is a lot smarter than I am. It's a great ego-deflator, as far as I'm concerned, and I've learned never to fight it."

Letters are published and mailed every three weeks. We offer a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

IMPORTANT: As an added plus for subscribers, the latest Primary Trend Index (PTI) figure for the day will be posted on our web site -- posting will take place a few hours after the close of the market. Also included will be Russell's comments and observations on the day's action along with critical market data. Each subscriber will be issued a private user name and password for entrance to the members area of the website.

Investors Intelligence is the organization that monitors almost ALL market letters and then releases their widely-followed "percentage of bullish or bearish advisory services." This is what Investors Intelligence says about Richard Russell's Dow Theory Letters: "Richard Russell is by far the most interesting writer of all the services we get." Feb. 19, 1999.

Below are two of the most widely read articles published by Dow Theory Letters over the past 40 years. Request for these pieces have been received from dozens of organizations. Click on the titles to read the articles.

"Rich Man, Poor Man (The Power of Compounding)"

"The Perfect Business"



Timing & trends

MORGAN STANLEY: The Gold Bull Market Isn't Over

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Posted by Matthew Boesler via Peter Grandich

on Wednesday, 06 March 2013 00:10

"And The Reasons To Own It Are 'Evolving'

A notable feature of the investment landscape over the past few months has been the 12 percent drop in the price of gold since September.

During that time, we've heard some incredibly bearish calls on gold from strategists at Goldman Sachs and Credit Suisse, among other shops. Rising real interest rates are said to be the death knell for gold.

Morgan Stanley, which for a while has touted gold as its number-one investment idea in the commodity space, isn't ready to throw in the towel just yet.

In fact, according to the bank's Chief Metals Economist, Peter Richardson, "The reasons for owning gold may be evolving."

......read more, view chart HERE



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