Dangerous New World for Old Strategies
Stock-Markets / Financial Markets 2014 Feb 15, 2014 - 04:07 AM GMTBy: DeepCaster_LLC
“It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so.” Will Rogers
Knowing what “ain’t so” is increasingly important for Investors and Traders Going Forward.
Indeed, going into 2014 perhaps the most important Realization to be made is that certain Grand Investment & Trading Strategies and Assumptions which were profitable in the past (e.g., in 2013) may well not be profitable in 2014 and beyond.
“People are right to fear Paper Money.”Warren Buffet
For one, the ongoing Currency Wars – the Competitive Devaluation (i.e., loss of purchasing power) of Fiat Currencies by Central Banks – will be an increasingly important factor, as Warren Buffet tacitly acknowledges. The Assumption that Fiat Currencies are a Reliable “Store” of wealth will be increasingly questionable.
From a broader perspective than just currencies, consider that developing and intensifying Forces recently reflected in the Economy, Markets, and Interventions make it strongly advisable that Investors and Traders consider shifting their Investing/Trading Strategies, and especially so if their portfolios were profitable in 2013.
Since the Post-Crash (Beta) Rally began in March, 2009, stocks which were excellent Bargain Values by important (Alpha) Metrics (e.g. Price-Earnings, Price-to-Book, & Price to-Cash Flow Ratios) have soared. In other words, with Beta Trends supporting top Alpha Picks, the Alpha Picks have done very well. And Equities indices are still near record Highs.
But Markets are cyclical (in other words, Beta or Primary Trends change). And Major Primary Trend Changes in Key Sectors are Impending.
Indeed, even the best Alpha Picks do not necessarily perform well, and often perform poorly when Beta Turns Against them.
In other words, when Beta does not support Alpha, Beta usually Trumps Alpha.
Moreover, (and this Critical point is often missed) Dominant Beta Trends can be Bullish in some Sectors and Bearish in others. Thus Deepcaster always aims to identify which is Dominant in each Sector.
For example, important Metrics like Inflation must be measured on a Sector by Sector Basis. Financial Assets and Energy Costs have been Inflating since the 2008-2009 Crash. Not so in other Sectors.
Moreover, but when one considers the Overall Rate of inflation, one should use the Real Numbers (cf. Shadowstats.com – Note 2) and not Bogus Official Statistics.
Considering a related example, since March, 2009, Financial Assets (e.g. Stocks) have inflated so much due to Fed Stimulus (QE) that their Values are what Carl Icahn correctly calls a “Mirage”. Too True. And Fed QE has caused considerable Price Inflation which is not reflected in the Bogus Official Numbers. Real U.S. Price Inflation is 9.08% per Shadowstats.com.
The Fed QE created Beta Trend (Inflated Assets Values) not only lifts Great Alpha Picks to New Highs but mediocre ones as well. Un fortunately, it is not sustainable, and has created a Financial Assets Bubble.
A Rising Tide lifts all Boats. But when it ebbs…
As we forecast in 2013, Beta Trends are likely to Massively Change in 2014 in Several Key Sectors. And one Major Trend change reflects the fact that a Major Market Crash in Key Sectors is likely.
Moreover, moving into 2014, we expect such Apparent Trend changes to come more often and with more Volatility. This will necessitate a Change in Strategy for many. For one thing, profits not taken quickly are often profits lost.
For example, on December 31, 2013 the Primary Trend of most Equity Sectors was very Bullish.
But as of the end of January 2014, Many Sectors had turned Bearish.
And February 2014 has thus far brought another Bullish Pulse, and increasing Volatility.
In sum, 2014 and 2015 are likely to dramatically demonstrate once again the Truth of the Adage “Buy and Hold rarely Works Anymore.” Conversely Position Trading in and out with a Multi-week rather than Multi-year Horizon does work, at least for those who wish to make and take profits, before they disappear. See our Recent Profits Taken record below to demonstrate this. (Note 1)
Now Consider certain other Key Mega-Strategy Shift Recommendations.
The U.S., Chinese, and to a somewhat lesser extent, the Eurozone economies are presently (perceived to be) the world’s strongest. But, this apparent strength is “what we know that ain’t so.”
But with nearly $3 Trillion in Vulnerable Shadow Bank Debt and a Commitment to slowing “Bridges to Nowhere” Infrastructure Spending and to increase Domestic Consumption, China is already, and promises to continue to be somewhat less of a Stimulus to Global Economic Growth than it has been.
Couple the foregoing with The Fed’s fulfilling its commitment temporarily (we seriously doubt it will last) to Tapering i.e., less Stimulus, and it is no surprise that Commodity Currency (i.e., Emerging Market) Countries (most of which supply China) and especially the Weakest Peripheral Countries’ Currencies have Crashed lately – cf. Argentina, Turkey and South Africa. But the Key Point is that the Currency Risk is not limited to Emerging Markets but ultimately extends to the Over-indebted USA and Eurozone Currencies too, because, to a degree, the USA’s and Eurozone’s Economies are tied to China’s too.
This is consistent with our forecasts for the $US and Euro, and Major Economies in General.
Considering Equities, after a down January 2014, the Dow and Transports show momentum shifting to the upside thus far in February. Indeed, we have recently forecast the Targets and Duration for this “February Rally.”
But Longer term, This January’s Markets swoon is a harbinger of what is coming. The Underlying Economic/Structural Weakness of the U.S. and Eurozone Economies has begun to rear its Ugly Head. Coupled with a Realization of the Interlinked Nature of virtually all Major Economies (e.g. China’s slowdown effect on the USA and Eurozone), with consequent increased Recent Volatility, Major Trend changes to come in Key Sectors are predictable.
In the process of reconsidering “Old” Strategies, those who have not/do not see Gold as Safe Haven and Profit Opportunity ought to take a second look. Regarding Gold, Gold consumption in China topped 1,000 tonnes last year – growing to 1,176.4 tones with bullion demand soaring 57% – all records.
No surprise then that Gold recently broke through Major Resistance at $1275 and $1300 per ounce– The Chinese and Indians are intensifying buying and taking possession of physical, and that is driving up the price despite ongoing Cartel (Note 3) Price Suppression attempts.
In light of the following Notes from JBGJ, is it true what some claim that Gold would have to clear at least $1350 per ounce to conclusively establish an uptrend? In that connection, it is our view that there are two recent developments which make a continued Launch Up likely sooner than claimed.
We quote JBGJ:
“India’s trade deficit narrows to $9.92 bn on 77% drop in gold imports reports
“‘The trade ministry said it had recommended easing curbs on gold imports, prompted by the brighter trade picture.’
“JBGJ continues to think that the end of India’s gold interdiction will be the big surprise of 2014.”
“China Surprises the Bears. Next, India?”
John Brimelow, Early GJ 02/10/2014
“’Appetite from China has so far surprised on the upside. While historical seasonal patterns imply a slowdown post the Chinese New Year, interest this week seems to suggest otherwise. Volumes on the Shanghai Gold Exchange were very strong yesterday at 31 tonnes and this was corroborated by the demand we saw based on our own flows…
“’This positive surprise from gold’s largest physical market certainly helps and is particularly encouraging considering these higher price levels.’
“It is worth remembering that Chinese demand in this order of magnitude is a new event the global gold market.”
Ibid.
Will we Precious Metal Partisans have to suffer one more Multi-Week Cartel Engineered Takedown, in light of the fact that Gold and Silver Paper Prices are increasingly resistant to ongoing Cartel Takedown Attempts? It is still entirely possible, but increasingly less likely as the days pass.
In our view, the early 2014 Gold Rise is The Harbinger of the Price Explosion to come soon. And since The Big Launch appears to be near, NOW is an excellent buying Opportunity.
The Physical Shortage is just too Critical. And Sonia Ghandi, head of India’s (the World’s 2nd largest Importer) Congress party recently criticized the Indian Governments Persecution of Gold Merchants via Tariffs.
Moreover, Billionaire Eric Sprott recently demonstrated the Central Banks can not successfully continue their Gold Price Suppression Throughout 2014, because they are running out of Sufficient Physical Supplies to meet demand.
The Foregoing are all Key Harbingers of the Gold and Silver Price Explosion to Come soon.
Ultimately, we agree with the Strategy reflected in Neil Collins’s Financial Times Article (01/24/14) “Demand Physical Gold” because one Day Paper Price Manipulation will end “catastrophically.”
Finally, regarding that Most Honest Indicator (and one which should be central to strategic planning going forward), the Crude Oil price, we recently correctly forecast Crude’s Rally back up to $100/bbl.
Strategically speaking, if the February Equities Rally continues in the next very few weeks, we expect Crude to Rally on up beyond $100 perhaps even to $110ish. World Demand is still increasing, and above-ground supplies are tight, and the US has an increasing above-ground Crude and Distillate shortage.
Indeed, unsurprisingly to us, OPEC estimated that World Demand has now risen to 90 Million/bbl/day – a record.
Emblematic of many Trend Changes which we forecast, only the next Episode of The Great Equities Crash will likely serve to deflate Crude Demand, and thus Prices, significantly once again, but only for a while. To Profit and protect, “Old” Strategies and Assumptions, must at the very least be reconsidered.
Best regards,
www.deepcaster.com
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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