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Value Investor's 12 Favorite Stock Picks PDF Print E-mail
Written by Business Insider   
Friday, 18 July 2014 06:44

leon-cooperman-5Value investor Leon Cooperman, the founder of Omega Advisors, gave his favorite stock picks at the CNBC/Institutional Investor Delivering Alpha conference.

As a value investor, Cooperman says he tries to buy stocks with more growth. 

"Buying something at the right price is half the game," he said.

To see Leon's 12 picks go HERE

 
Good Deed of the Day PDF Print E-mail
Written by Peter Grandich   
Thursday, 17 July 2014 16:10

The greatest satisfaction I get from my work with professional athletes is knowing the good work so many do but goes unreported (but when they mess up its news all over).


Today, thanks to Brian Carroll of the Philadelphia Union (and Ken Akselsen, the Chapel Leader of the Philadelphia Union and who I'm  honored to work with in the Athletes in Action Ministry), for graciously responding to my request to visit a young boy in the hospital. It was truly a good deed!


You can have a similar good feeling by making any size donation to help little Joey and his family here. Please send me an email if you donated so I can include you in my prayers for blessings to all those who helped bring some joy to a very real-life challenge.


We may have other Union players visit in the coming weeks and also some Phillies baseball players. Heck if this happens, I may have to stop disliking Philly fans and teams (I said maybe-lol).

 
Bob Hoye: "Fed Dream Team?" PDF Print E-mail
Written by Bob Hoye - Institutional Advisors   
Thursday, 17 July 2014 11:02

hoye17

....read more HERE

 
Jurisdiction – So you think your gold is safe outside the country? PDF Print E-mail
Written by Julian D. W. Phillips: Gold Forecaster   
Thursday, 17 July 2014 06:38

Without looking at the facts and issues involved one would think that the U.S. can reach into any land outside its borders [except Russia] and impose its tax will and political will on others. The cases against the Swiss banks, UBS, Credit Suisse and other banks together with the fine on BNP Parisbas and the banning of its use of the dollar for a year with potentially other foreign banks facing the same punishment, gives rise to this viewpoint.

But this is not the real case at all. Jurisdiction still dominates internationally. But as we have seen in each of these cases, U.S. Jurisdiction applies to U.S. citizens anywhere, U.S. corporations [even overseas branches of these it seems], subsidiaries of foreign companies based in the U.S. and assets of U.S. citizens held overseas. Let’s look at these instances more closely:

Microsoft

Microsoft is challenging the authority of federal prosecutors to force the giant technology company to hand over a customer’s email stored in a data centerin Ireland. The objection is believed to be the first time a corporation has challenged a domestic search warrant seeking digital information overseas. The case has attracted the concern of privacy groups and major United States technology companies, which are already under pressure from foreign governments worried that the personal data of their citizens is not adequately protected in the data centers of American companies. Verizon filed a brief on recently, echoing Microsoft’s objections, and more corporations are expected to join. The Electronic Frontier Foundation is working on a brief supporting Microsoft. European officials have expressed alarm. Jurisdictional confrontations are on the rise.

In a court filing made public, Microsoft said that if the judicial order to surrender the email stored abroad is upheld, it “would violate international law and treaties, and reduce the privacy protection of everyone on the planet.” The search warrant was granted by a federal magistrate judge in New York last December, as part of a criminal inquiry. Neither the identity nor the nationality of the customer has been revealed. The company objected, saying that because the customer’s emails were stored in Dublin, they were beyond the reach of a domestic search warrant. But Microsoft lost that round two months ago, and this week is beginning its push for a reversal in Federal District Court in New York.

While a U.S. court is making the rulings on these we are witnessing a facet of U.S. foreign policy. It is therefore surprising that a judge should be ruling on this and not the government. In a criminal proceeding, the debate plays out in public court filings from the outset. Judge Francis, in his order, wrote that the Electronic Communications Privacy Act, passed in 1986, created an in-between category intended at the time to protect people from indiscriminate data gathering that subpoenas might allow of online communications. The result, he wrote, is “a hybrid: part search warrant and part subpoena,” and applied to information held in Microsoft’s data center overseas. Privacy experts are concerned that the judge’s order, if it stands, will open the gate to unchecked investigations in the digital world, of anyone, anywhere. United States search warrants do not have extraterritorial reach, you would think, but may well have.

Jurisdiction over U.S. citizen’s assets overseas

At the moment this may seem like a local U.S. matter and that the U.S. should have the right to go into any country to impose U.S. laws on U.S. citizens, and even subsidiaries of foreign companies resident in the U.S. More importantly the U.S. government certainly does have the Jurisdiction over its own citizen’s assets held overseas. I can hear you saying, “No they can’t, particularly if there is no current requirement to report them”. Unfortunately, such regulations can and do, change in a heartbeat, if government feels that it is in its interests to do so. We are in no doubt that should the U.S. government deem it in the national interests to do so, they will require the reporting of all U.S. citizens’ assets held overseas.

Foreign Banks with U.S. subsidiaries

Recently, we have seen U.S. interests overflow into other Jurisdictions, such as the tapping of Angela Merkel’s phone. We have seen the French Bank BNP Parisbas have to pay nearly $9 billion for contravening U.S. foreign policy on South Sudan and Iran. The subsidiary of the French bank in the U.S. has to pay the bill, not the head office in France. But more importantly, the U.S. punishment has crossed international Jurisdictions through banning the French bank from dealing in the dollar for a year, from 2015. This affects all branches of the BNP Paribas. And therein lays the rub.

Controlling who uses the U.S. dollar

The U.S. is setting a precedent of controlling the use of its national currency across the world. The U.S. Dollar has reigned as the only reserve currency for decades and is the international payment currency because of its liquidity and its acceptance by nations the world over. This was because it was treated as a non-national currency in this regard. The moment politics enters the picture and affects its use, it disqualifies itself as such a currency and spurs its users to take action to use other means of payment as well as to object loudly. The fear is that once the precedent has been set it is extended wherever that the U.S. feels it should. We have no doubt that this will affect payments of U.S. dollars for all aspects of international trade including oil payments.

As a matter of prudent reaction nations have to either remove this power or reduce it and quickly, because it may well interfere in all aspects of international trade. It is only natural that foreign governments, institutions and individuals take action to stop such policies. While all U.S. dollar payments have to go through New York at present, there is no way of avoiding the use of such power except by using another currency to effect payments.

Alternative Currencies

At this point we now see the European reaction to this overreach of interests, with a U.S. intelligence officer being expelled from Germany and the French going to Brussels to the E.U. headquarters to talk of way to find alternative currencies to do business in instead of the U.S. dollar.

We are certain the China has foreseen this happening and is why it has planned over many years to ensure that the Yuan becomes a global reserve currency available for all aspects of Chinese trade, both imports and exports. The matter is now urgent. The setting up an alternative to the I.M.F., based in Shanghai, this week [with $100 billion] is another step in that direction.

We expect that they have also planned to demand Yuan payments for Chinese goods from U.S. companies eventually, should it be in Chinese interests to do so. This will expose the weaknesses inherent in structuring U.S. international business solely in the U.S. dollar. Unless the U.S. believes that nothing foreigners can do to avoid the dollar, their current course of action is setting the foundation for a breakdown of the current global monetary system.

If a departure from the dollar is possible, then such a potential threat to the U.S. would be rather like cracking a crystal vase. No matter how much glue is used to put it back together again, will restore its value. The dollar needs its global hegemony for it to retain the power it has at present. Any break in this hegemony will hurt the dollar very badly and force a multi currency monetary system on the world. The damage to the credibility and value of the dollar internationally will be extensive.

How this affects Gold and U.S. citizens holding it overseas

So how does this affect gold, you are asking?

When the U.S. decides it is in the national interests to harness gold to enable it to face the day when the dollar is not the sole global reserve currency, it will exercise the same overreach on U.S. citizen’s gold held outside the U.S. as we are seeing now.

Firstly the reporting requirements under FATCA will be extended to include gold. Probably simultaneously, it will instruct all Custodians of gold it can reach, to retain the gold in their charge and cease dealing in it. Likely clients/shareholders will be given the option of receiving cash at the going market rate on a particular day.

Custodians they can reach will include, banks, vaults, gold dealers, anybody holding or dealing in gold for their citizens.

Thereafter to discourage gold dealing in that jurisdiction we would expect gold dealing to be halted. This would account for approximately 90% of the gold inside the jurisdiction. The gold owned by U.S. citizens held offshore may well be substantial. All that is needed for the government to acquire that is for them to be instructed to repatriate it. In nearly all cases, foreign Custodians of U.S. owned gold do not have effective protections for their clients to prevent this gold from being repatriated in a manner that would not harm the gold’s owners. As far as we can gather none of these foreign gold Custodians [storage systems] even pretend to guard against confiscation.

We expect that subsequent to the actions against storage systems/custodians, a “Confiscation Order” will be issued inside the U.S. on gold [it could later be extended to silver?]. This will apply to all U.S. citizens owning gold, wherever it is held. Please note that the order will be against allU.S. citizens owning gold. They will therefore have to repatriate the gold - the government will not chase it!

This day will come, not because of internal financial matters [such as increasing the money supply] but to allow it to exercise a dominant role in international finance, when the dollar’s role is waning and being challenged. We agree with those that gold will not be appropriated by the U.S. government for the same reasons it was in 1933 [money supply and the protection of the banking system], but we believe it will be appropriated by the government for external reasons. The prime reason will be to ensure it holds sufficient gold to face the storms that will inevitably come when the dollar loses its role as the sole global reserve currency. Without it the dollar could crumble quickly. That day now seems to be closing in on us fast. Because we are seeing the beginnings of this now, you have to act soon, or suffer the consequences.

 

The confiscating authority [for instance, the U.S.] won’t have to tackle Swiss, German or French governments at all. The principles established in punishing U.S. subsidiaries of foreign banks or U.S. corporations with overseas activities will be brought to bear on their citizens, at home. They did this in 1933 when they confiscated gold then. They simply threatened their citizens at home with fines or imprisonment. This acts as a wonderful discoverer of U.S. owned gold and will ensure repatriation of such gold, unless the owner has taken certain steps to protect himself, not just his gold! [Please contact us for information on the only way that is effective]

What of other currencies and their citizen’s gold?

What has not been factored in, when considering this subject, is the extent to which other developed world currencies are reliant on the U.S. dollar to continue to keep its role as the sole global reserve currency. The dollar is the trunk of most global currencies which are the branches. Few of them can stand alone or apart from the dollar. We have seen the damage to their global competitiveness when they do.

From this we gather that if the U.S. deems it necessary to confiscate its citizen’s gold, the bulk of them will. The first to do so will be those that run Current Account Deficit. Then, their need for gold to reinforce the international credibility of their currencies will source whatever gold they can. This brings the confiscation of gold onto the horizon in many countries. As we look forward we see the scene of the world changing fast on many fronts, particularly on the monetary scene. The coming realities are disturbing.

Let’s face it in 2014 the U.S. foreign political and financial policies are becoming much more aggressive and dominating, particularly where its citizens and foreign corporations with U.S. branches are concerned. And this will only get worse. The reactions in finding alternative currencies will resurrect gold’s role in the international monetary system as well as bring the prospect of gold’s confiscation much closer.

We are on the brink of the Yuan becoming a global reserve currency, a fact we can see clearly now in the near future. From 2015 onwards the turmoil in the global economy, the monetary system and the change in the balance of world power will be on us. Waiting until it is here without careful planning now is simply asking for trouble.

Hold your gold in such a way that governments and banks can’t seize it!

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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.  Julian D. W. Phillips makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Julian D. W. Phillips only and are subject to change without notice. Julian D. W. Phillips assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage which you may incur as a result of the use and existence of the information, provided within this Report.

 
Stock Markets Versus Gold PDF Print E-mail
Written by Ian A. Gordon - The Long Wave Analyst   
Thursday, 17 July 2014 06:25

Are the general stock markets and precious metals and precious metals equities about to experience a reversal in fortunes? Based upon current evidence, I think so.

Buy on extreme weakness, sell on extreme strength. This is one of the fundamental laws of speculation, but one that is very difficult for most of us to act upon. Why? Because most of us have difficulty in being out of step with a crowd and the investment crowd is generally most bullish in times that markets are displaying extreme strength and most bearish at times when markets are experiencing extreme weakness.

At this time, the general stock market is a position of extreme strength and gold and gold stocks are displaying extreme weakness. The S & P 500 has been bullish since March 2009 and since that bear market low the Index has increased in value by 200%. Gold and gold stocks have been in a bear market since September 2011, when the price of gold peaked at $1,920.00 (U.S.) per ounce and the HUI Gold Bugs Index reached a record high of 638.59 points. Gold is currently priced at about $1,320.00 (U.S.) per ounce down a little more than 30% from $1,920.00 (U.S.) per ounce and the current value of the HUI (Gold Bugs Index) is close to 240, which is down a whopping 62.50% from that existing record high level of 638.59.

Investment market prices are driven by the bullishness or bearishness of the investment crowd. The longer and further that prices move in a certain direction the more bullish or bearish are market participants. Rising prices bring an increasing number of participants to that particular market, whereas falling prices contribute to a reduction in the number of investors. The bigger the moves in either direction the more investors are drawn in or driven out of the market. On the bullish side in a market that has been ongoing several years and risen multiple times in value, almost all investors are buying the market. A bear market that has been ongoing for several years and has experienced huge price losses sees the opposite; virtually all investors have fled the market. As the saying goes and it is important that we not forget this, "Mood follows Price," and not the other way around.

Stock markets have now experienced more than 5 years of bullishness and prices have risen to record levels. I have calculated since the onset of the bull market in March 2009 that the DJIA has made an average daily gain of 5.44 points. The market low has long since been forgotten. As for the precious metals and their related mining stocks, the opposite is true; these markets have experienced a vicious bear and virtually all investors have given up on them. The market highs made in 2011 have long since been forgotten.

What this means is after long term and major price moves in either direction, the market will turn in the opposite direction. It only requires a modicum of selling to turn the bull bearish, because everyone who wants to buy into the market is already invested and there is no one left to buy. Another thing that adds to selling pressure at major price peaks is margin debt. Once prices turn down the margin clerks issue margin calls. These calls are generally answered by sell instructions, rather than the alternative which is to put up more margin; this of course increases selling (see margin debt chart P. 4). Conversely, after a long and significant bear market a small amount of buying can re-ignite the bull market, because there are few sellers left to counter the buyers.

1

 

U.S. Stock Markets

The fact that U.S. stock prices have been bullish since March 2009 and since then have increased in value by at least 200% means that we are a point of extreme bullishness where investors have thrown all caution to the wind. The latest Elliott Wave Financial Forecast, July 3, 2014, cites several examples of this extreme level of bullishness which are now pervading the stock market. Allow me to quote directly from this excellent publication to which I subscribe.

"Nothing exhilarates the bulls at a peak in stock prices like forecasts calling for magnificent new gains in the future. In 1999 and 2000, books such as Dow 36,000 andDow 100,000 rolled off of the presses. June 2014 brought predictions for 'The Greatest Bull Market in 85 years' (CNBC, 6/8/14), 'Dow 20,000' (NASDAQ. COM, 6/18/14) and this headline from Yahoo Finance:

"Why Dow 44,000 Is Coming"

"The story features a report predicting another ten years of outsized returns, to the tune of 10.5% per year, thus the Dow target. Bloomberg and the Financial Post featured the same scoop. The Wall Street Journal reported that 'money managers and analysts are beginning to talk about a melt-up, a sudden double digit percentage rise.' It notes that this is a concern to some because 'melt-ups can lead to melt-downs,' but other headlines state that investors are now literally afraid to be out of the market. 'Few Want to Risk Taking Profits, Missing Gains,' says a June 23 USA Today headline. So, it's now 'risky to take profits! 'Moves by central banks around the world make it costly not to be involved in stocks,' explains a representative financial expert. Another article features a 'super bull' who is 'confident that global markets are facing a five-year bull environment, as massive liquidity injections from central banks will start to do the trick.' Start?’ In a similar vein, an article in the Saturday, July 5, 2014, Globe and Mail headlined "All Aboard: This Rally Is Built to Last," is based upon the premise that since most stocks are participating in the upward stock market price move, the bull market will continue- “Individual stock pickers can be more optimistic on the prospects for smaller-cap, attractively valued stocks for as long as the trend of more stocks joining the party lasts."

Stock buy backs in the first quarter of 2014 reached a total value of $159 billion (U.S.), which was the second highest quarterly amount on record. The record was $172 billion (U.S.) which was attained in the third quarter of 2007, which was just before the Dow's peak in October and the start of the bear market into March 2009. "As we have noted all these figures dwarf those of the late 1990s, when companies were also borrowing to pay for purchases of their own shares, just as they are now. At that time the Elliott Wave Theorist argued that this practice might pump buying power into the market initially, but it would damage company balance sheets and become a 'vast hidden source of margin debt' that would have 'an opposite effect in a downtrend.' This proved to be the case during the two great bear markets in 2001 (2000)-2 and 2008 (2007)-9, which produced long rosters of firms that gobbled up their own shares 'only to run mortally short of cash'. According to a December 2008 article from ChiefExecutive.net, 'The Buyback Bust?,' 'the practice dulled the 'luster of buybacks.' Of course that was near the end of the last bear phase. The opposite extreme is surely at hand now because, in addition to record levels, 'companies purchasing their own shares represent the single biggest category of stock buyers today.'" Elliott Wave Financial Forecast, July 3, 2014.

Margin debt, which is a measure of confidence in the stock market, is at record highs; at least it was until a couple of months ago. It is interesting to note that margin debt turned down before the market in 2000 and 2007 and that margin debt this year peaked in February and has since been reduced. Is the current downturn in margin debt from record levels signaling a new bear market as it has done in previous times?

2

U.S. IPOs (Initial Public Offerings) for the first half of 2014 are experiencing their biggest premium since 2000; you know what followed. On June 30, 2014, the Wall Street Journal reported that so far this year there have been 20 merger deals valued at more than $10 billion (U.S.), which is the largest since the first half of 2007 and you know what followed.

Cycles are also suggesting that the peak in stock prices is near and is more than likely to occur sometime in 2014. W. D. Gann, the great cycle proponent and highly successful trader, wrote that the number 7 was a tragic number. I referenced this number and other Gann numbers in my work 'This Is It’ (available on the website in the Special Editions section), which was published in 2007 and accurately forecast the stock bear market and the banking crisis. There are two different number 7s associated with the stock market this year. The first is that in numerology terms the year 2014 is equal to seven, 2+0+1+4=7. The second is that the year 2014 is 7 years beyond the previous bull market peak in 2007. That bull market peak was itself 7 years beyond the 2000 bull market price peak. The two bear market lows 2002 and 2009 were also 7 years apart. Below I show a stylized version of the bull and bear markets since great autumn stock bull market ended in 2000. Note the beautiful symmetry, which is an important feature of cycle analysis. Each bear market lasts approximately 2 years. The bull market 2002 to 2007 lasted 5 years and the current bull market is well into its fifth year. The numbers 2 and 5 are Fibonacci numbers and these numbers are used extensively in technical analysis and in particular in Elliott Wave analysis.

Gann also drew high importance to the number 49, (7 X7), which he stated was the jubilee number and a number that signifies important market price turns. The year 2015, next year, just so happens to be 49 years from 1966, which was the year in which spring and the spring stock bull market ended in the current long wave cycle. Thus, in the unlikely event that stock markets do not reach their bull market price peaks this year, they will almost certainly do that next year.

"What are Fibonacci numbers? They are an incredible set of numbers that seem to rule markets, both in terms of distance and price moves and timing, and rule physics and art (and nature) throughout the universe."

"The Fibonacci number sequence starts with the number one and then when it adds to itself it produces the next Fib number which would be 2(1+1), then if we take that resultant number and add it to the previous Fib number in the sequence, it produces the next Fib number, which would be 3 (2+1), then the next number is 3 + the previous number in this sequence which was 2 resulting in 5 (3 +2), then 8 (5+3), then 13 (8 + 5), then 21 (13 + 8), etc...., which gets us the sequence 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, etc..."

What is incredibly unique about this sequence is the two component numbers, when divided by their combined result, will approximate at the low end, and otherwise equal either .382 or .618. The ratio .618 is known as phi. For example, for the Fibonacci number 21, its two components are 13 and 8. If we divide 13 into 21, 13/21 = .618 and 8/21= .382. The larger the numbers the more precise they come to .382 and .618." Robert McHugh. (Note the symmetry)

If you want to study this further I would suggest you read Tony Plummer's excellent book, The Psychology of Technical Analysis.

3

One other thing to note is what Dr. Robert McHugh calls the 'Jaws of Death' or the megaphone pattern may be complete. "The industrials have essentially reached the upper boundary of the Jaws of Death pattern, the top for Grand Super cycle degree wave(111) up. It suggests the Industrials could rally toward 17,000ish (they did, closing at 17, 068 on July 3, 2014) at the conclusion of wave c-up and e-up, but by reaching a high of 16,588.25 on December 31, 2013, it is close enough for pattern completion. The decline since December 31, 2013 may suggest the pattern is finished and the coming economic ice age has started." McHugh's Market Forecast & Trading Report, Thursday, July 3, 2014, P. 30.

So there we are, there is a large amount of evidence which suggests the stock bull market is either finished or close to a finish. The bear market that follows will be one for the ages. It will make the bear markets of 2000- 2002 and 2007-2009 appear like minor glitches. I am sticking to my Dow 1,000 target. What that means is an 'Economic Ice Age', which just so happens to be the title of Dr. McHugh's recently published book.

In an opposite mode to the very bearish outlook for stock markets, developing evidence suggests that precious metals and in particular gold and gold stocks have completed a bear market low (See Gold Versus Silver, Economic Winter, June 17, 2014) and have already begun a major bull market.

The bearishness in this domain is palpable. The junior sector has been decimated and investor participation in the sector is virtually non-existent. "After all, who needs gold when stock markets are at record high values?”

In such a bearish environment most of the sellers are long gone and now all that it will take is some tentative buying to push prices slowly higher. There are indications that is now occurring. Many gold stocks' prices have already moved significantly off their lows. In the junior sector such movement is very limited. That is to be expected, money flows to the juniors only as confidence in the bullish outlook for gold and the gold stock miners builds. That process has further to go, before junior miners begin to attract money. In the meantime many of them are building large basing patterns that foretell significant price moves to the upside.

If you have not already done so, I would urge you to read the recently written 'Gold Versus Silver' in our Economic Winter publications. In this edition, I show that when the debt bubble bursts, as it surely will, and deflation is the result, the run to gold and gold stocks, including the junior exploration companies will turn into a stampede. We are very close to this catastrophic period in the long wave cycle. The recent reports of major banking problems in Portugal and Austria may be the precursors.

Bullish consensus, measured by Market Vane, for gold has moved off an extreme low of 33% recorded in the week of December 3, 2013. This the lowest level recorded since 2001 when the price of gold was hardly $300 (U.S.) per ounce. That in itself is an indication of how dispirited gold investors have become. All previous bullish consensus lows since 2001 were above 50%, even following times of fairly significant corrections to the gold price. For a contrarian that extreme low is a bullish 'buy' signal. Since that low the Consensus moved to 53% in the week of March 18, 2014. After that a small correction took the consensus down into the low 40s%. From there the bullish consensus has again risen to the low 50s%.

As for the price of gold, it made a double bottom in June and December 2013 at $1,192 (U.S.) and $1,195 (U.S.) per ounce based on the London PM fix. In technical analysis, double price bottoms are important indicators of a price reversal. As I write, the gold price closed today, Friday, June 11th. at $1,337.84 (U.S.) per ounce, that is an increase of $143.00 (U.S.) per ounce or 12% since that late December low.

Meanwhile, the HUI (Gold Bugs Index) reached its low of $190.08 in late December 2013 and then moved up to $258.27 In the middle of March 2014. from that point the Indexdropped to a low of $203.50 on May 28th, 2014. Since then the Index has again moved higher and closed Friday July 11, 2014 at $247.22. From a technical standpoint prices have made a higher low than the December $190.08 low; it would be very constructive if prices could close meaningfully above the high of $258.27. This would convincingly demonstrate that the bearish trend consisting of lower high prices and lower low prices had changed in favour of a renewed bullish trend on the basis that HUI prices would be making higher high prices and higher low prices, which is confirmation of a bullish trend

4

I have often drawn your attention to the Dow/Gold ratio. I consider this to be one of the most important relative measures of two competing investment themes. Yes, stocks and gold are always in competition with one another, at least over the longer term. That competition for investment money is apparent within the long wave seasons. When stocks are in favour with investors, as in spring and autumn, gold is not; when stocks are out of favour with investors as in summer and winter, gold is always the investment of choice. This can be seen by the highs and lows that the ratio achieves, typically at the end of the long wave seasons. In spring, which heralds the rebirth of the economy, stocks rise in sync with the growing economy. In the current long wave cycle spring (1949-1966), the DJIA increased in value from 161 points to 995 points and the Dow/Gold ratio peaked at 28.26. Summer (1966-1980/82) is always the inflationary season in the cycle and stocks are out of favour, whereas gold is purchased as an inflation hedge. The price of gold increased from $35.00 (U.S.) per ounce at the beginning of summer and reached $850.00 (U.S.) per ounce at summer's end in 1980, dropping the ratio to 1 to 1. Autumn (1980/82-2000) is always the speculative season in the cycle, and in this season, stock markets always make enormous price gains (4th. Cycle autumn-DJIA 777 points-11,750 points). The price of gold on the other hand experienced a bear market. During the long wave autumn of the current long wave cycle the gold price dropped from the summer ending $850.00 (U.S.) per ounce to $252.00 (U.S.) at the end of autumn. The Dow/Gold ratio as a result of the huge stock bull market and the major gold price bear market reached a record high of 43.85 in July 1999. That high signaled the end of autumn and the onset of winter, which is the most bearish season for stocks and the most bullish for gold.

5

I have on several occasions discussed why it is that stock prices have not adhered to the typical pattern of a winter stock bear market. In past long wave winter bear markets, while they have been devastating for stock prices, they have taken a relatively short time to run their course. For example, in the previous long wave winter, the DJIA reached the autumn stock bull market peak of 381.17 points on September 3, 1929 and the winter bear market was complete by July 8, 1932 at 41.22 points, which amounted to a little less than a 90% loss in price. Suffice to say, the present long wave winter bear market, which technically commenced in 2000 has been manipulated and controlled by the authorities and in particular the Federal Reserve. As discussed earlier that control is about to end and the ensuing bear market will overwhelm all attempts to forestall the natural process of a winter bear market.

This ongoing unscrupulous interference in the natural process of the stock market has contributed to a distortion in the Dow/Gold ratio in favour of the Dow.

It is evident that this perversion of the ratio occurred following the counter trend rally into August 2012 when the ratio reached a level of 8.26 following the ratio low of 5.78 in August 2011. Following that rally into August 2012, the ratio should have turned down to make a lower low than 5.78 if it had been following normal bear market price action, which until then had been a series of lower highs and lower lows. That was not to be.

6

Those of us who are in the gold camp can take solace in knowing that ultimately this ratio is going to fall to a minimum of 1 to 1. As I see it, however that ratio will drop to something significantly lower than that. I have long maintained the ratio will reach 1 to .0.25 or Dow 1,000 and the price of gold $4,000 (U.S.) per ounce. In other words, 1 gold sovereign (1/4 of an ounce) will buy the Dow Jones Industrial Average.

There is an old trader’s rule that reads-"If a stock in a bear market hasn't made a new low in four months, it has probably seen its low for the cycle. Conversely in a bull market, if a stock hasn't made a new high in four months, it has probably seen its high for the cycle." The price of both the HUI and Gold have not made new lows in four months, thus according to the rule they have likely made their lows for the cycle and are now in a cyclical bullish phase. On the other hand, the general stock markets continue to make new highs, thus we can't use the four month rule to determine whether stock markets have turned bearish.

arirx

These are just a few examples of Gold, the HUI and some producing gold companies that have not made a new low in four months. There are some juniors that I have quickly analyzed which are in the same situation, these include Almaden up 43.5%, Brazil Resources up 100%, Dynasty Metals and Mining up 230%, Premier Gold up 148%, Terraco Gold up 135%.

Using this traders 'yardstick' we can conclude that the price low has already been reached for gold and for gold equities and that we are now at the start of a new bull run, which should ultimately take prices to record highs.

Although the price of gold has not made a new low in the past 4 months, it requires less than a 10% drop in the price from current levels to make a new low price. Can this happen? Of course it can, the price of gold has always been manipulated during fiat currency eras. Eventually, however, the desire to own gold and transact in gold, effectively destroys any official attempts to force paper currency as the medium of exchange. (Review John Law's and the Assignat paper currency schemes in France about which we have written extensively).

When prices turn from bearish to bullish, the turn fails to be recognized by the majority of investors because they remain a part of the bearish crowd. It is for this reason that at the beginning of a new bull market prices rise slowly. Any set back to the price advance brings selling from frightened investors, who think that they may have jumped in early and that the bear market is actually still in vogue. Hence the saying, "all bull markets climb a wall of worry." That is true during the initial stages of the bull market, but near its climatic conclusion the only 'worry' that remains is 'how can I get more'?

So for stocks at this time, the question you are all asking is "how can I get more?" Well, you can borrow through margin to leverage yourself. However, you are already doing that. You and many others are margined to the hilt and have collectively taken margin debt to record levels. But what's the worry? Everybody is just so bullish. There's talk about the bull market lasting another ten years and the Dow reaching 44,000. "Wow, that's more than a double from here, just think how rich we are all going to be."

"Gold? Are you crazy, you can't make money in that rubbish; just look at what happened to the price yesterday, down 32 bucks and down another 12 today. It's a loser and I'd much rather be in with the winners and that's why I am in stocks and making lots of money. Gold is only for gold bugs and most of them have been crushed, ha, ha, ha."

Written By: Ian Gordon

This information is not intended to be investment advice. Members of the Longwave Group may acquire, hold or sell securities referred to in this document. The companies referred to herein may pay a fee to be listed on the Longwave Group website or referred to in this publication. See the disclosure under the heading “Disclaimer” on this page for further important information.

Ian A. Gordon, The Long Wave Analyst, www.longwavegroup.com

 

Disclaimer : This information is made available by Long Wave Analytics Inc. for information purposes only. This information is not intended to be and should not to be construed as investment advice, and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific reader. All readers must obtain expert investment advice before making an investment. Readers must understand that statements regarding future prospects may not be achieved. This information should not be construed as an offer to sell, or solicitation for, or an offer to buy, any securities. The opinions and conclusions contained herein are those of Long Wave Analytics Inc. as of the date hereof and are subject to change without notice. Long Wave Analytics Inc. has made every effort to ensure that the contents have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, Long Wave Analytics Inc. makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein, and accepts no liability whatsoever for any loss arising from any use of or reliance on this information. Long Wave Analytics Inc. is under no obligation to update or keep current the information contained herein. The information presented may not be discussed or reproduced without prior written consent. Long Wave Analytics Inc., its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein. In addition, the companies referred to herein may pay a fee to Long Wave Analytics Inc. to be listed on www.longwavegroup.com. Copyright © Long Wave Analytics Inc. 2014. All rights reserved.

”Those who cannot remember the past are condemned to repeat it”. Santayana

 

 
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Mark Leibovit
23 July 2014 ~ Michael Campbell's Commentary Service

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