Showing posts with label risk. Show all posts
Showing posts with label risk. Show all posts

Saturday, February 16, 2019

Here We Go - Get Ready for the Breakout Pattern Setup

We are writing this post today with a few forward-looking expectations while attempting to warn traders that some extended rotation is likely to enter the markets over the next 30+ days. If you’ve been following our research, you’ll know that we’ve been calling these move months in advance of other researchers and analysts. Our September 17, 2018 research post highlighting our Adaptive Dynamic Learning predictive modeling system suggested the U.S. stock markets were poised for a massive price rotation followed by a very unique price setup that we are experiencing now.

Currently, the YM (Dow Futures Contracts) are leading the pack on a dramatic upside breakout move. This is likely a result of the US government spending bill that is recently working its way towards approval and the fact that this new spending bill clears the way for at least 8+ months of uninterrupted market optimism (or at least we hope). This 300+ point upside move clearly breaks price highs and puts the U.S. stock market, at least the Dow/Blue-Chips, back into “new high trending mode”. As many of you are likely aware, our Fibonacci price study teaches us that price must ALWAYS seek to establish new price highs or new price lows AT ALL TIMES. Thus, these new price highs are a very strong indication that the upside trend is dominant and should continue for a while.



Additionally, we want to highlight what we believe will be a similar price pattern to 2015/2016 in the U.S. markets – a multiple Price Wedge formation that could ultimately set up another price leg (which we believe will be higher, to the upside, at this time).

In the next article “PART II” pay close attention to the charts and images as we are attempting to clearly illustrate how and why price rotation is about to hit the US markets and why you need to be prepared for this move.

We continue to read that large amounts of capital are sitting on the sidelines or have been pulled from the markets over the past 12+ months. We understand this as the rotation in early 2018 frightened many investors and the continued sideways price action, global market concerns and geopolitical issues have caused international investors to want to protect their investments from risk – thus they move their capital into cash. We get it. But we also believe the next breakout in the U.S. markets will be a great opportunity for skilled traders to identify and prepare for an incredible profit potential no matter which way the market breaks up or down because technical analysis allows us to closely follow the direction of the market.

The amount of capital that is sitting on OUTSIDE the markets, currently, represents a massive amount of resources that could re-enter the markets when traders/investors decide the timing is right. We’ve termed this a “Capital Shift”.

In simple terms, it reflects capital/cash moving from one market to another or from actively invested to cash, then back to actively invested. Our belief is that capital operates in a manner to always protect itself from risk while attempting to identify suitable returns. The best environment for capital is always a relatively safe investment with protective values and a high probability of decent returns. Therefore, this massive amount of capital not being deployed in the global markets will, at some time, re-enter the markets and will likely increase pricing valuations.

How and when will this capital re-enter the markets? What will price activity look like and how will we know when the timing is right for our own strategic deployment of our trading capital? Continue reading to learn why we believe we are only 30~45 days away from an incredible trading setup. You won’t want to miss this one.

Please take a minute to visit The Technical Traders to learn how we can help you find and execute better trade in 2019 and stay ahead of these market moves. We are confident that you will find our Daily Video, Detailed Market Research, Proprietary Research Tools and Detailed Trading Signals will help you make 2019 an incredibly successful year.

Chris Vermeulen
Technical Traders Ltd.


Stock & ETF Trading Signals

Tuesday, August 1, 2017

Could There Be a Reversal Coming to the Major U.S. Markets?

Technically speaking, this week could be very important for the major U.S. equity markets. There is an appearance of a “TOPPING PATTERN” forming. I am now awaiting confirmation by the actions of the equity markets, this week. Expect downward pressure beginning this month of August of 2017.

The Only Chart You Need To See!



There is currently limited upside potential in the SPX relative to potential downside for the months of August, September and the early part of October 2017.

There are signs for the short, intermediate and longer term trends returning for the best six months of trading officially inaugurated in November of 2017! This is the timing framework when ‘The Next Runaway Leg Up In The Stock Market Will Resume.’

In last weeks’ market action as the profit taking rotation out of the high-tech sector rotated into the Dow Industrials, it reflected

a more defensive approach while being invested in “Blue Chips” during which time it achieved a new high. Sector rotation increased especially noticeable in the transports and technology sectors that were leading the markets higher. If they continue lower, more sectors will join the decline. I am expecting a coming pop in the VIX on Aug 4, Aug 23, Sept 11 or 12 and finally Sept 28 or 29. 2017. There was a flight to safety in the Yen as well as a strengthening of the price of Gold, Silver, Bitcoin and WTI Crude Oil.

An Unusual Anomaly

Over the past couple of weeks, there was this unusual Anomaly which occurred, as you can see in the chart below. It now makes me more cautious about our long understanding of “risk interconnectivity”.

How can the equity, gold, silver, crude oil and bitcoin markets ALL go HIGHER together?

Tune in every morning for my video analysis and market forecasts at The Gold & Oil Guy to know where the main ‘asset classes’ are headed tomorrow, this week, and next month.



In short, the major equities trend remains to the upside but its likely to take shape in a slow grinding process with downward pressure starting in August fora couple months.

Be sure to follow my daily pre-market video forecasts and ETF trades by visiting here at The Gold and Oil Guy

Chris Vermeulen


Stock & ETF Trading Signals

Wednesday, May 17, 2017

Top Two Ways to Store Wealth Abroad

Nick Giambruno sits down with Doug Casey to get his take on what his favorite places and ways to store our wealth abroad.

Nick Giambruno: For centuries, wealthy people have used international diversification to protect their savings and themselves from out of control governments. Now, thanks to modern technology, anyone can implement similar strategies. Doug, I’d like to discuss some of the basic ways regular people can internationally diversify their savings. For an American, what’s the difference between having a bank account at Bank of America and having a foreign bank account?

Doug Casey: I’d say there is possibly all the difference in the world. The entire world’s banking system today is shaky, but if you go international, you can find much more solid banks than those that we have here in the US. That’s important, but beyond that, you’ve got to diversify your political risk. And if you have your bank account in a US bank, it’s eligible to being seized by any number of government agencies or by a frivolous lawsuit. So besides finding a more solid bank, by having your liquid assets in a different political jurisdiction you insulate yourself from a lot of other risks as well.

Nick Giambruno: Moving some of your savings abroad also allows you to preempt capital controls (restrictions on moving money out of the country) and the destructive measures that always follow.

Doug Casey: This is a very serious consideration. When the going gets tough, governments never control themselves, but they do try to control their subjects. It’s likely that the US is going to have official capital controls in the future. This means that if you don’t have money outside of the US, it’s going to become very inconvenient and/or very expensive to get money out.

Nick Giambruno: Why do you think the US government would institute capital controls?

Doug Casey: Well, there are about $7 - 8 trillion, nobody knows for sure, outside of the US, and those are like a ticking time bomb. Foreigners don’t have to hold those dollars. Americans have to hold the dollars. If you’re going to trade within the US, you must use US dollars, both legally and practically. Foreigners don’t have to, and at some point they may perceive those dollars as being the hot potatoes they are. And the US government might say that we can’t have Americans investing outside the country, perhaps not even spending a significant amount outside the country, because they are just going to add to this giant pile of dollars. There are all kinds of reasons that they could come up with.

We already have de facto capital controls, quite frankly, even though there’s no law at the moment saying that an American can’t invest abroad or take money out of the country. The problem is because of other US laws, like FATCA, finding a foreign bank or a foreign broker who will accept your account is very hard. Very, very few of them will take American accounts anymore because the laws make it unprofitable, inconvenient, and dangerous, so they don’t bother. So it’s not currently against the law, but it’s already very hard.

Nick Giambruno: What forms of savings are good candidates to take abroad? Gold coins? Foreign real estate?

Doug Casey: Well, you put your finger on exactly the two that I was going to mention. Everybody should own gold coins because they are money in its most basic form—something that a lot of people have forgotten. Gold is the only financial asset that’s not simultaneously somebody else’s liability. 

And if your gold is outside the US, it gives you another degree of insulation should the United States decide that you shouldn’t own it—it’s not a reportable asset currently. If you have $1 million of cash in a bank account abroad, you must report that to the US government every year. If you have $1 million worth of gold coins in a foreign safe deposit box, however, that is not reportable, and that’s a big plus.

So gold is one thing. The second thing, of course is real estate. There are many advantages to foreign real estate. Sometimes it’s vastly cheaper than in the US. Foreign real estate is also not a reportable asset to the US government.

Nick Giambruno: Foreign real estate is a good way to internationally diversify a big chunk of your savings. What are the chances that your home government could confiscate foreign real estate? It’s pretty close to zero.

Doug Casey: I’d say it’s just about zero because they can make you repatriate the cash in your foreign bank account, but what can they make you do with the real estate? Would they tell you to sell it? Well, it’s not likely.

Also, if things go sideways in your country, it’s good to have a second place you can transplant yourself to. And I know that it’s unbelievable for most people to think anything could go wrong in their home country—a lot of Germans thought that in the ’20s, a lot of Russians thought that in the early teens, a lot of Vietnamese thought that in the ’60s, a lot of Cubans thought that in the ’50s. It could happen anywhere.

Nick Giambruno: Besides savings, what else can people diversify? How does a second passport fit into the mix?

Doug Casey: It’s still quite possible—and completely legal—for an American to have a citizenship in a second country, and it offers many advantages. As for opening up foreign bank accounts, if you show them an American passport, they’ll likely tell you to go away. Once again, obtaining a foreign bank or brokerage account is extremely hard for Americans today—that door has been closing for some time and is nearly slammed shut now. But if you show a foreign bank a Paraguayan or a Panamanian or any other passport, they’ll welcome you as a customer.

Nick Giambruno: The police state is metastasizing in the US. Is that a good reason to diversify as well?

Doug Casey: It’s a harbinger, I’m afraid, of what’s to come. The fact is that police forces throughout the US have been militarized. Every little town has a SWAT team, sometimes with armored personnel carriers. All of the Praetorian style agencies on the federal level—the FBI, CIA, NSA, and over a dozen others like them—have become very aggressive. 

Every single day in the US, there are scores of confiscations of people’s bank accounts, and dozens having their doors broken down in the wee hours of the night. The ethos in the US really seems to be changing right before our very eyes, and I think it’s quite disturbing.

You can be accused of almost anything by the government and have your assets seized without due process. Every year there are billions of dollars that are seized by various government entities, including local police departments, who get to keep a percentage of the proceeds, so this is a very corrupting thing.

People forget that when the US was founded there were only three federal crimes, and they are listed in the Constitution: treason, counterfeiting, and piracy. Now it’s estimated there are over 5,000 federal crimes, and that number is constantly increasing. This is very disturbing. There is a book called Three Felonies a Day, which estimates that many or most Americans inadvertently commit three felonies a day. So it’s becoming Kafkaesque.

Nick Giambruno: Thanks, Doug. Until next time.

Doug Casey: Thanks, Nick.

Editor’s Note: The US is nearing the worst financial disaster of our lifetimes. It’s inevitable. And it’s the single biggest threat to your financial future.

Fortunately, you can learn the ultimate strategy for turning the coming crisis into a wealth-building opportunity in this urgent video from New York Times best selling author Doug Casey.

Click Here to Watch it Now





Stock & ETF Trading Signals

Tuesday, May 9, 2017

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See you in the markets,
Ray @ the Crude Oil Trader

P.S. You’ll also gain access to an exciting 10 minute video revealing an easy way to create instant cash flow on a shoestring budget. Get FREE eBook and Watch Video Here

Option and stock investing involves risk and is not suitable for all investors. Only invest money you can afford to lose in stocks and options. Past performance does not guarantee future results. The trade entry and exit prices represent the price of the security at the time the recommendation was made. The trade record does not represent actual investment results. Trade examples are simulated and have certain limitations. Simulated results do not represent actual trading. Since the trades have not been executed, the results may have under or over compensated for the impact, if any, of certain market factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.



Stock & ETF Trading Signals

Monday, December 5, 2016

How to Use the New Market Manipulation to Your Advantage

It's time for another one of Don Kaufman's wildly popular webinars. Don’t miss this live online seminar, How to Use the New Market Manipulation to Your Advantage, with Don Kaufman this Tuesday December 6th. at 8:00 PM New York, 7:00 PM Central or 5:00 PM Pacific.

During this free webinar you will learn:
  • How scarcely used recent additions in market structure have forever changed how we view price movement and volatility.
  • What weekly strategy you can use to take minimal risk and produce astonishing returns surrounding predictable or manipulated movements in any stock, ETF, or index.
  • The one product that has become statistically significant in determining the next market move so whether you're a long term investor, swing trader, or intra-day trader you can get tuned into what's driving today's marketplace.
  • How you can use market efficiency to your advantage in all aspects of your investments, retirement accounts, stock and options trading accounts, futures trading and more.
  • How you can trade up to several times per week without having to continually monitor your positions, "set it and forget it" with this low risk high reward trade.
      Don's Webinars have an attendance limit that we always hit. This one will be no exception.

      Visit Here to Register Now!

      See you Tuesday night!
      Ray C. Parrish
      aka the Crude Oil Trader




Sunday, August 21, 2016

Will The Bubble Pop Regardless if the Fed Never Raises Rates?

The current overall SPX pattern is a broadening top, which is usually a very reliable pattern. The market continues to look as though it wants to go even lower. The momentum shift, which I have been expecting, has been slow to start, however one should be prepared for this occurrence ahead of time. Nevertheless, the large divergences which I have been viewing, in my proprietary oscillators, are most real, and, once the selling starts, the momentum should quickly move to the downside.

The current market is being supported by a lack of sellers more so than aggressive buying. With investors still thinking that there is no other place to store their money, they appear to be content with leaving their money with risk on assets within a market that is pushing to all time highs. This type of mentality usually leads to large losses rather than big gains. There isn’t any real opportunity for growth in the SPX that I can see right now.

Dow Theory: Market Indexes Must Confirm Each Other
The Dow Theory was formulated from a series of Wall Street Journal editorials which were authored by Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected Dow’s beliefs regarding how the stock market behaved and how the market could be used to measure the health of the business environment.

Dow first used his theory to create the Dow Jones Industrial Index and the Dow Jones Rail Index (now Transportation Index), which were originally compiled by Dow for TheWall Street Journal. Dow created these indexes because he felt they were an accurate reflection of the business conditions within the economy, seeing as they covered two major economic segments: industrial and rail (transportation). While these indexes have changed, over the last 100 years, the theory still applies to current market indexes.

Market indexes must confirm one another. In other words, a major reversal from a bull or bear market cannot be signaled unless both indexes (generally the Dow Industrial and Transports Averages) are in agreement. Currently, They are DIVERGING, issuing MAJOR NON-CONFIRMATION HIGH the Dow Jones Industrial average. If one couples this with the volatility index, this is a warning sign and a recipe for disaster.

chart 1


The FEDs’ monetary policy over the last eight years has led to unproductive and reckless corporate behavior. The chart below shows U.S. non financials’ year on year change in net debt versus operating cash flow as measured by earnings before interest, tax, depreciation, and amortization (EBITA).

Chart 2
The growth in operating cash flow peaked five years ago and has turned negative year over year. Net debt has continued to rise, which is not good for companies.

This has never before occurred in the post World War II period. In the cycle preceding the Great Recession, the peaks had been pretty much coincidental. Even during that cycle, they only diverged for two years, and by the time EBITA turned negative, year over year, as it has today, growth in net debt had been declining for over two years. Again, the current 5 year divergence is unprecedented in financial history. Today, most of that debt is used for financial engineering, as opposed to productive investments. In 2012, buybacks and M&A were $1.25 trillion, while all R&D and office equipment spending were $1.55 trillion. As valuations rose, since that time, R&D and office equipment grew by only $250 billion, but financial engineering grew by $750 billion, or three times this!

You can only live on your seed corn for so long. Despite there being no increase in their interest costs while growing their net borrowing by $1.7 trillion, the profit shares of the corporate sector peaked in 2012. The corporate sector, today, is stuck in a vicious cycle of earnings manipulation management, questionable allocation of capital, low productivity, declining margins and growing debt levels.

Conclusion:

In short, I continue to pound on the table to help keep you and fellow investors aware that something bad, financially, is going to take place – huge events like the tech bubble, the housing collapse a few years back, and now national financial instability. Experts saw all these events coming months and, in some cases, years in advance. Big things typically don’t happen fast, but once the momentum changes direction you better be ready for some life changing events and a change in the financial market place.

Follow my analysis in real time, swing trades, and even my long term investment positions so you can survive from the financial storm The Gold & Oil Guy.com



Stock & ETF Trading Signals

Sunday, June 26, 2016

Mike Seery's Weekly Futures Recap - Crude Oil, Gold and U.S. Dollar

It's been a crazy end to the week with the results from the Brexit vote in and that means it is time for a heads up from our trading partner Michael Seery. We've asked him to give our readers a recap of the this weeks futures markets and give us some insight on where he sees these markets headed. Mike has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. 

Crude oil futures
in the August contract settled last Friday in New York at 48.56 a barrel while currently trading at 47.71 down about $1 for the trading week while selling off $2.50 this Friday afternoon. The U.S dollar is up over 200 points putting pressure on oil and the commodity sector as a whole. Crude oil prices are trading below their 20 day but still above their 100 day moving average telling you that the short term trend is mixed as I’m currently sitting on the sidelines looking for a possible short entry in next week’s trade. Crude prices are retesting last week’s low as a possible top has been created as the Brexit situation is spooking many different markets including stock markets around the world as demand could start to wane over the next several months. The commodity markets do not like uncertainty and no one really knows how this Brexit situation will develop, but I always look at risk/reward scenarios as I do think prices may have topped out in the short term so be patient and wait for the entry criteria to come about. If a short position is initiated the risk is around $1,700 which is too much in my opinion so are going to have to be patient and wait for the chart structure to improve so keep a close eye on this market.
Trend: Mixed
Chart Structure: Improving

He has been killing it in 2016, get Chris Vermeulen’s Trading Forecasts & Trade Signals

Gold futures in the August contract settled last Friday in New York at 1,295 an ounce while currently trading at 1,319 up about $25 for the trading week while skyrocketing this afternoon by $55 all due to the Brexit situation which is pouring money back into the precious metals. At present, I'm sitting on the sidelines in the gold market as the chart structure never met my criteria to enter into a bullish position. However, I am recommending a bullish position in the silver market which is also up about $.50 today as I do think the precious metals are headed higher. Gold prices are trading above their 20 and 100 day moving average telling you that short term trend is higher. The commodity markets, in general, are very weak as all of the interest is back into the precious metals which is used as a flight to quality despite the fact that the U.S dollar was up over 200 points this afternoon. Gold prices are trading at a 2 year high as I do think this trend will continue as stock markets around the world are sharply lower as interest in gold certainly has come back like it was in 2011 when prices traded as high as $1,900 an ounce. Negative interest rates around the world continue to support the gold market and that situation is not going to change as the United States Federal Reserve certainly will not be raising rates in 2016 in my opinion.
Trend: Higher
Chart Structure: Poor

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The U.S dollar is sharply higher this Friday afternoon trading at 95.53 up 200 points reacting sharply to the Brexit situation as the UK has exited the EU sending the dollar up 300 points over the last 2 trading sessions. At present, I’m sitting on the sidelines in this market as the chart structure is terrible as I’m advising clients to avoid this market currently as volatility is extremely high, but in my opinion, it certainly does look like the U.S dollar has bottomed in the short term. The dollar is affecting many commodities to the downside as nobody wants to hold money in Europe at this point as a flight to quality is taking place. I think that’s going to stay for several more weeks until the dust settles so look at other markets that are beginning to trend with better chart structure as the 10 day low is $3,000 away which does not meet my criteria to enter into a new bullish position. The U.S dollar is trading above its 20 and 100 day moving average telling you that the short term trend is higher so do not sell this market as that would be counter trend trading which is very dangerous over the course of time in my opinion.
Trend: Higher
Chart Structure: Poor

Get more of Mike Seerys call on commodities this week....Just Visit Here



Stock & ETF Trading Signals

Monday, March 21, 2016

Bursting the Biggest Myths in Trading - Don Kaufman's Next Webinar

Our trading partner Don Kaufman is treating us to a free trading webinar this Tuesday evening March 29th at 8 p.m. est. Don't put off reserving your spot since Don and his team are only opening up this up for 1,000 traders.

Reserve Your Spot Here

During this free webinar Don will cover....
  • How you can give yourself the gift of time without paying extra so you can give your trade as much time as it needs
  • How you can create a trade with zero exposure to volatility so you never have to worry about volatility again 
  • How you can set your limited risk before you put on the trade so you know exactly what you're risking. Making this strategy the safest way to trade. So much for the myth that options are risky.
  • How you can generate big returns from small moves in a stock
  • How you can use this strategy whether you have a $2,000 account or a 6 figure account
There will be a waiting list of traders for this free class so make sure you log in 10 minutes early so you don't lose your spot.

Click Here to Get Your Reserved Seat

See you Tuesday night!
Ray C. Parrish
aka the Crude Oil Trader



Don Kaufman


Sunday, October 11, 2015

The Real Reason for the Refugee Crisis You Won’t Hear About in the Media

By Nick Giambruno

There’s a meme going around that the refugee crisis in Europe (the largest since World War II) is part of a secret plot to subvert the West. I completely understand why the locals in any country wouldn’t be happy about waves of foreigners pouring in. Especially if they’re poor, unskilled, and not likely to assimilate.

It leads to huge problems. Infrastructure gets strained. More people are sucking at the teat of the welfare system. The unwelcome newcomers compete for bottom of the ladder jobs. Things easily turn nasty and then turn violent. But the idea that the refugee crisis in Europe is part of a hidden agenda - rather than a predictable outcome - strikes me as strange. And it’s a notion that conveniently deflects blame away from the people and factors that deserve it.

Interventions Destabilize the Middle East

The civil war in Syria has turned the country into a refugee maker. Syria’s neighbors have reached their physical limit on their ability to absorb refugees. That’s one of the reasons so many are heading to the West. Lebanon has received over 1 million Syrian refugees. That’s an enormous number for a country with a population of only 4 million - a 25% increase. Jordan and Turkey also have millions of Syrian refugees.

They’re saturated.

The number of refugees heading to the West, by contrast, is in the hundreds of thousands. So far. But it’s not just Syria that’s sending refugees. Many more come from Iraq and Afghanistan, two other countries shattered by bungled Western military interventions. Then there are the refugees from Libya. A country the media and political establishment would rather forget because it represents another disastrous military decision. Actually, it’s not just Libyan refugees. It’s refugees from all of Africa who are using Libya as a transit point to reach Europe.

Before his overthrow by NATO, Muammar Gaddafi had an agreement with Italy, which is directly to Libya’s north, across the Mediterranean Sea. Gaddafi agreed to prevent refugees heading for Europe from using Libya as a transit point. It was an arrangement that worked. So it’s no shocker that when NATO helped a coalition of ambitious rebels overthrow the Gaddafi government, the refugee floodgates opened.
When there’s war, there are refugees. It’s a predictable outcome.

It’s like kicking a bees’ nest and being surprised that bees fly out. Nobody should be surprised when that happens. And nobody should be surprised that people are fleeing war zones in Libya, Syria, Iraq, and Afghanistan.

If Western governments didn’t want a refugee crisis, they shouldn’t have been so eager to topple those governments and destabilize those countries. The refugees should camp out in the backyards of the individuals who run those governments. I also have to mention the Saudis. They were very much involved in the Libyan war. They’ve also devoted themselves to ousting the Assad government in Syria, for geopolitical and sectarian reasons.

Then there’s the war in Yemen that the Saudis have sponsored. It’s another mess the media doesn’t discuss often. But it will likely produce even more refugees. The Saudis make no secret about not welcoming refugees, even though the Kingdom is a primary instigator of the wars that are forcing people to flee their homelands. One reason is the Saudis don’t want more people leeching off their welfare system, especially amid budget crunches from lower oil prices.

This brings up another interesting point. For the first time in decades, observers are calling into question the viability of the Saudi currency peg of 3.75 riyals per US dollar. The Saudi government spends a ton of money on welfare to keep its citizens sedated. But with lower oil prices cutting deep into government revenue, there’s less money to spend on welfare. Then there’s the cost of the wars in Yemen and Syria.

There’s a serious crunch in the Saudi budget. They’ve only been able to stay afloat by draining their foreign exchange reserves. That threatens their currency peg. The next clue that there’s trouble is Saudi officials telling the media that the currency peg is fine and there’s nothing to worry about. An official government denial is almost always a sign of the opposite. It’s like the old saying…“believe nothing until it has been officially denied.”

If there were a convenient way to short the Saudi riyal, I would do it in a heartbeat.

Don’t Give the Welfare State a Pass

It’s no coincidence that the refugees are flowing to the countries with the most generous welfare benefits, especially Germany and the Scandinavian nations. If there weren’t so many freebies in these countries, there wouldn’t be so many refugees showing up to collect them.

The whole refugee crisis was easily predictable. It was the foreseeable consequence of shortsighted interventions in the Middle East and the welfare state policies of nearby Europe. Instead of facing facts, blaming it all on a scheme to subvert the West conveniently deflects any responsibility from the authors of the mess.

If the individuals who run Western governments really wanted to solve the refugee problem, they would throttle way back on welfare state policies and then stay out of the Middle East free for all. It’s really as simple as that. But don’t count on the mainstream media to figure this out. They effectively operate as an organ of the State. I bet they’ll keep prescribing more of the same bad medicine that caused this crisis to begin with.

This will help to cover the tracks of the real perpetrators, and it will obscure other real problems. I expect the media to ramp up the “blame the foreigner” sentiment, as it helps the US and EU governments distract the anger of their citizens from the sputtering economy and the shrinking of their civil liberties. From the politicians’ perspective, it’s a win win. But it’s a lose lose for citizens hoping for accountable government.

And this brings up another uncomfortable truth for Americans and Europeans. The way the political and economic winds are blowing, things could get much worse. Central banks around the globe have created the biggest financial bubble in world history. The social and political implications of this bubble bursting are even more dangerous than the financial consequences.

An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse.

One day the shoe could be on the other foot. We could see American and European refugees fleeing to South America or other havens to escape the problems in their home countries. It would be an ironic twist.
Now, this outcome isn’t inevitable. But the chance it will happen isn’t zero, either, and the risk seems to grow each day.

Because of these enormous risks in the financial system, we’ve published a groundbreaking, step by step manual that sets out the three essential measures all Americans should take right now to protect themselves and their families.

These measures are easy and straightforward to implement. You just need to understand what they are and how they keep you safe. New York Times best selling author Doug Casey and his team describe how you can do it all from home. And there’s still time to get it done without extraordinary cost or effort.

Normally, this get it done manual retails for $99. But I believe it’s so important for you to act now to protect yourself and your family that I’ve arranged for anyone who is a resident of the U.S. to get a free copy.

Click here to secure your free copy now.


The article was originally published at internationalman.com.


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Sunday, June 14, 2015

Free Webinar: Small Lot Trading Strategies for Options Traders

John Carter of Simpler Options is back this Tuesday evening June 16th at 8 p.m. with another great free webinar. John's focus this week is on trading strategies that can be used when trading small lots. These trading methods can be used with ANY size account.

Register Here

Here’s what you’ll get out of John's free webinar.....

 * The difference between trading for income vs. growth

 * Why attempt to double your account “before” it goes to zero in 12 months or less

 * How to control risk while being an aggressive trader

 * What Stops to use and when

 * The mindset of an aggressive trader

    and much more....

Get ready for the webinar by watching this great video John put together to give you an idea of what's going to be covered in detail on Tuesday night....Watch "What's Behind the Big Trade"

John's free classes always fill up fast so get your reserved seat now and make sure you log in early so you keep it.

Get Your Reserved Seat Now

See you Tuesday evening,
Ray @ the Crude Oil Trader


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Saturday, May 30, 2015

Weekly Crude Oil, Gold, Silver and Coffee Markets Recap with Mike Seery

Our trading partner Mike Seery is back this week to give our readers a weekly recap of the futures market. He has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures exploded this Friday afternoon in New York trading higher by $2.60 a barrel currently at 60.26 reversing recent losses as yesterday prices hit a 6 week low and traded down to $56.51 rallying $5 since as there are rumors of facilities being shut down due to the Texas and Oklahoma floods but time will tell to see if that’s actually true.

Crude oil futures are now trading above their 20 and 100 day moving average showing high volatility as I’ve been recommending a short position when prices hit a four week low around the $58 level and if you took that trade we are underwater currently so place your stop loss above the 10 day high which remains at 61.75 risking around $1.50 or $750 per mini contract plus slippage and commission from today’s price level.

This is a perfect example of why I use my 2% rule of risk on any given trade because anything can happen on any given day as I did not expect oil prices to trade nearly $3 higher today and this trade has been a loser as the risk was $1,800 or approximately 2% of a 100,000 account balance as you must admit you are wrong sometimes but we are still in this trade and not stopped out yet as Monday could be a different story.

Today’s action in my opinion was massive short covering as prices remained weak before today but we will see if there’s any follow through in Monday’s trade and if you did not take this trade the risk/reward is your favor at the current time so take advantage of price spikes while maintaining the proper stop loss.
Trend: Mixed
Chart Structure: Improving

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Gold futures in the August contract are trading below their 20 and 100 day moving average telling you that the short term trend is to the downside after settling last Friday at 1,205 an ounce currently trading at 1,190 down about $15 this week in a very nonvolatile manner as prices are still trading in a 9 week consolidation. The true breakout to the downside is around the 1,170 level as the U.S dollar remains strong continuing to put pressure on gold in the short term, however the chart structure is poor at the current time but that will improve in next week’s trade as a possible short could be in the cards.

As I talked about in many previous blogs I don’t see any reason to own gold at the current time as the stock market despite today’s selloff still remains very strong and the trend in the U.S dollar remains in a secular bullish trend so be patient and wait for a breakout to occur. I have a theory that states the longer the consolidation more powerful the breakout as the breakout is below 1,170 then I would suggest selling a futures contract placing your stop loss above the 10 day high which could happen in next week’s trade as investors are waiting for the U.S monthly unemployment report which comes out next Friday and certainly should send high volatility and price direction back into this market.
Trend: Lower
Chart Structure: Poor

Silver futures in the July contract are trading below their 20 and 100 day moving average telling you that the trend is mixed after settling last Friday at 17.05 while currently trading at 16.70 an ounce down about $.35 for the trading week hitting a two week low. Silver prices broke out two weeks ago and traded as high as 17.75 hitting a 3 month high, however I did not give any trade recommendation because the chart structure was so poor and the risk was way too high to enter so I’m still sitting on the sidelines at the current time.

The U.S dollar has regained its bullish momentum which is putting pressure on silver prices as the trend is mixed at the current time and I don’t like trading choppy markets as its extremely difficult to trade successfully in my opinion as lower prices look to be ahead in my opinion but I’m not recommending any type of position currently.

Volatility in silver at the current time is relatively mild as silver historically speaking is one of the most volatile commodities as something sure will develop in the coming weeks ahead so keep an eye on this market and wait for a better chart structure to develop lowering monetary risk as that’s the main key to successful trading in my opinion.
Trend: Lower
Chart Structure: Poor

Coffee futures in the July contract settled last Friday in New York at 127 while currently trading at 125 a pound down about 200 points for the trading week as I’m sitting on the sidelines in this market and certainly not recommending any type of bullish position as the trend is to the downside but the chart structure is poor as the 10 day high is too far away & does not meet my criteria to enter into a new trade.

Production estimates in Brazil are expected to be very large and that’s what pushing prices lower as the Brazilian Real remains extremely weak against the U.S dollar which is negative anything that’s grown in the country of Brazil as volatility has slowed down this Memorial shortened holiday trading week but look at other markets with better chart structure.

Coffee prices are trading below its 20 and 100 day moving average as I do think there’s a possibility that prices could trade down to the 105 level over the next 4 to 6 weeks as there’s very little bullish fundamental news to dictate prices to the upside in my opinion except possible short covering at this time.

Many of the soft commodities have been going lower including sugar, orange juice, and coffee in recent weeks as global supplies are just very large and that’s what continuing to pressure prices as I don’t see that situation changing anytime soon or at least until the next growing season.
Trend: Lower
Chart Structure: Poor

Get more of Mike's calls for this week on Corn, Oats, Sugar, Live Cattle and more....Here's this weeks entire article.



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Saturday, May 9, 2015

Mike Seerys Weekly Crude Oil, Gold, Coffee and Corn Markets Recap

Our trading partner Michael Seery is back this week to give our readers a weekly recap of the futures market. Mike has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

Crude oil futures in the June contract are trading below their 20 and 100 day moving average as I have been sitting on the sidelines for the last several months in this market but if have a long futures position I would continue place your stop loss above the 10 day low which stands at 56.00 however in my opinion I think prices have topped out.

Strong demand and a very weak U.S dollar have pushed crude oil prices up from a contract low around $46 a barrel to around $63 in Wednesdays trade which has been a remarkable rally in my opinion but I think this market is overextended so I’m still going to remain sitting on the sidelines waiting for better chart structure to develop as this market will remain volatile for the rest of 2015 in my opinion giving you many trading opportunities.

Many of the commodity markets rallied in recent weeks as the U.S dollar is hitting a 3 month low which has been very supportive, however with record supplies overhanging that should keep a lid on prices at this point in time but I just don’t know where short term prices are headed so I’m looking at other markets that are beginning to trend.
Trend: Higher
Chart Structure: Solid

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Gold futures settled last Friday at 1,174 an ounce while currently trading at 1,185 in a relatively quiet trading week while still trading below its 20 and 100 day moving average continuing its lower to choppy trend as the true breakout does not occur on the upside until 1,225 is broken or on the downside at 1,170 as I remain neutral at the current time.

The chart structure is starting to improve as gold prices have gone sideways for the last six weeks consolidating the recent down move as the U.S dollar is hitting a three month low and has been supporting gold and silver in recent weeks so be patient and keep an eye on this market at the current time. The monthly unemployment came out strong stating that the unemployment rate is 5.4% sending the stock market sharply higher as I’m surprised that gold futures are not lower this afternoon as the interest rates in the United States have been on the rise sending volatility into the commodity markets as I still see no reason to own gold at the current time but currently this market is stuck in a consolidation and in my opinion it’s very difficult to make money when a trend is not in sight.
Trend: Mixed
Chart Structure: Improving

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Coffee futures in the July contract are higher by 300 points this Friday afternoon currently trading at 134.70 a pound after settling last Friday at 134.20 in a very nonvolatile trading week. I have been recommending a short position when prices broke 135 in last week’s trade and if you took that recommendation place your stop loss above the 10 day high which currently stands at 144 risking around 1000 points or $3,800 per contract plus slippage and commission.

The chart structure will improve dramatically next week helping lower monetary risk as prices are still trading below their 20 and 100 day moving average telling you that the trend is to the downside as big production could come out of Brazil which could send prices in my opinion as low as 100 a pound as the Brazilian Real has strengthened against the U.S dollar in recent weeks, but still remains in a long-term bear market which is negative for anything grown in Brazil.

The next level of support is Wednesdays low around 130 as many of the soft commodities were higher this Friday afternoon so continue to play this to the downside in my opinion as I think the risk/reward is in your favor.
Trend: Lower
Chart Structure: Excellent

This Chart Must Be Broken Before a Bear Market Can Be Confirmed

Corn futures in the December contract are trading below their 20 and 100 day moving average after settling last Friday in Chicago at 3.80 a bushel while currently trading at 3.79 down slightly for the trading week as 55% of the crop has already been planted with expectations for this Monday’s crop report as high as 85% as the weather in the Midwestern part of the United States is excellent and especially in the state of Illinois. I have been recommending a short position when corn prices broke 3.95 a bushel and if you took that trade place your stop loss above the 10 day high which currently stands at 3.87 risking around $.8 or $400 from today’s price level plus slippage and commission as the chart structure remains outstanding.

Expectations of this year’s crop are around 13.6 billion bushels which is 500 million bushels less than last year, however carry over levels are very large coupled with a strengthening dollar compared to last year as I still remain bearish especially as the weather remains ideal, however it’s an extremely long growing season as we usually do get some type of weather scare to the upside due to hot and dry weather forecasts, however the trend is your friend and the weather forecasts are bearish.

Traders await next week’s USDA crop report which definitely can send volatility back into this market but weather is the main focus at this time as we head into the hot and dry summer season which can send volatility into this market as we suffered a drought in 2012 sending prices to a record high of around $8.50 so make sure you place the proper amount of contracts while also placing the proper stop loss.
Trend: Lower
Chart Structure: Excellent

Get more of Mikes call on Wheat, soybeans, silver, sugar, cotton and more.....Just Click Here




Wednesday, February 25, 2015

A Math Free Guide to Higher and Safer Returns

By Andrey Dashkov

I can make you instantly richer, and safely, by explaining a finance concept with a story about a dog.

There’s a hole in your pocket you probably don’t know about. You may feel instinctively that something is wrong, but unless you look in the right place, you won’t find the problem. The money you’re losing doesn’t appear in the minus column on your account statements, but you’re losing it nevertheless.

Frustrated? Don’t be. I’m going to tell you where to look and how to stop the drainage.

Volatility is every investor’s worst enemy. Over time, it poisons your returns. Unlike a 2008 style market drop, though, volatility poisons them slowly. There’s no obvious ailment to discuss with friends or hear about on CNBC. You only see it when you compare how much you lost to how much you could have earned—and looking back at your own mistakes is not a pleasant thing to do.

Here's the Replay of Last Nights Free Webinar....."Options and Premium Decay"

So instead let’s imagine two fictional companies: X-Cite, Inc., an amusement park operator with a volatile stock price that adventurous investors love; and Glacial Corp., a dull, defensive sloth of a corporation whose stock returns are consistent but often lower than those of its more glamorous counterpart.

Average return on both companies’ stocks was 5% for the past five years, but Glacial’s was less volatile. Safety is comfortable, but doesn’t higher volatility mean higher potential returns? Sometimes, but not always. When you accept high volatility, your returns might be higher at times, but they also might be lower. In other words, higher volatility generally means greater risk.

Nothing new so far, but the oft-overlooked point is that boring stocks make you richer over time.
The chart below shows each stock’s annual return over a five year period.


At first glance, Glacial Corp. appears to be the loser. It underperformed X-Cite in four out of five years. Both stocks returned 5% on average during these years, and X-Cite was almost always voted the prettiest girl in town. But for Year 3, it would be easy to persuade investors to buy X-Cite stock. Few would give Glacial a second glance.

Hold for the punchline: X-Cite, the stock your broker would have a much easier time selling you (before you read this article), would actually make you poorer. Let me explain.

I won’t get into any supercharged math here. Glacial is better because it makes you richer eventually. After five years, the total return on X-Cite is 25%. Not bad. Glacial? 27%. If you invested $10,000 in both (assuming no brokerage fees or taxes), at the end of Year 5 you would have earned $2,507 on X-Cite or $2,701 on Glacial.

Year-End Account Balance
X-Cite, Inc.
Glacial Corp.
Year 1
$10,500
$10,300
Year 2
$11,550
$11,021
Year 3
$10,164
$10,801
Year 4
$10,875
$11,341
Year 5
$12,507
$12,701
Total return
25%
27%


Where does the extra $194 come from? It comes from lower volatility. Although X-Cite looks like a winner most of the time, it has a higher standard deviation of returns. Note that X-Cite’s stock price dropped 12% in Year 3. The following year it increased 7%, while Glacial Corp.’s stock price only increased 5%—yet Glacial is still worth more from Year 3 onward. Why? X-Cite’s 7% jump is based on the previous year’s low.

But I promised to keep this note math-free, so imagine a person walking a dog instead. The shorter the leash, the less space the dog has to run around. The longer the leash, the more erratic the dog’s path will be. Standard deviation measures how much data tend to scatter around its mean—the path. As we just saw, low standard deviation also pays you money.

I could stop right here and hope that you take this lesson to heart, but I won’t. As much as I love describing finance concepts using clever company names and dogs, I want you to start making money right now.

I said this advice could make you instantly richer, and “instantly” doesn’t mean “maybe sometime in the future.” In the latest issue of Money Forever, we shared an opportunity to invest into a vehicle built to outperform the market by managing volatility. I was extremely excited to present it to our paid subscribers because I knew they’d love to earn more by risking less. Who wouldn’t?

So please pardon my blatant self-promotion. I work in an industry where 80% of the time the market is obsessed with the wrong stock, and the noise drowns out the right idea. I can silence the cacophony for you, though, and show you where to find the right ideas. And that goes beyond our most recent pick, although you do need it in your portfolio. Money Forever’s mission is to make your money last—plain and simple.

We think this pick will go a long way toward doing just that.

You can check it out and access our full portfolio immediately by subscribing risk free to Money Forever.

It’s about the price of Netflix, but unlike Netflix we won’t bother you if you decide to cancel. In fact, we’re so confident that the Money Forever portfolio can help you “earn more by risking less” that we’ll refund 100% of the cost if you decide to cancel within the first three months.

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The article A Math-Free Guide to Higher and Safer Returns was originally published at millersmoney.com.


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Saturday, December 20, 2014

Mike Seerys Weekly Crude Oil Market Recap for Week Ending Friday December 19th

Crude oil futures in the February contract are up $3 this Friday afternoon in New York currently trading at 57.40 after settling last Friday around 58.08 a barrel finishing down nearly $1 for the trading week and traded as low as 53.94 before slightly rallying as oversupply and lack of demand continue to push oil prices to 5 year lows.

If you’re still short this market I would continue to place my stop above the 10 day high which in Monday’s trade will be 64.35 risking around 700 points or $7,000 per contract plus slippage and commission, however the chart structure will improve on a daily basis as the 10 day high will be lowered significantly in the next several days.

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This has been one of the best trends in recent memory as prices have basically collapsed in recent weeks ever since OPEC announced that they will not cut production on Thanksgiving Day which sent prices sharply lower as there is also huge supplies here in the U.S. so who knows how low prices can go as I still highly recommended not to be buying this market so if you are currently not short I would sit on the sidelines and look for a market with better chart structure and less risk.

Crude oil futures are trading far below their 20 and 100 day moving average as consumers around the country are certainly benefiting from lower oil prices at the pump which is also good for the stock market in my opinion as volatility in oil is as high as I’ve ever seen it so be careful as volatility is here to stay.
Trend: Lower
Chart structure: Improving

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Saturday, November 15, 2014

So....Your nervous about trading overnight options trades? Don't be, and here's how!

You've seen us talking about a new Options strategy that John Carter was working on recently...and he is finally sharing it with us.

Video: My Favorite Way to Trade Options on ETFs

This strategy is the "sleep at night as you trade options" strategy. And we ALL need that!

Here's just a taste of what John shows you in this video:

*  Why trading options on ETFs cuts your risk so you can sleep at night

*  How you can profit with ETFs from the unexpected move in the dollar

*  Why you avoid the games high frequency traders play by trading ETFs

*  Why most analysts have the next move in the dollar wrong and how to protect your investments

*  What are some of the markets that will be impacted by the dollars next move

Here's the link to watch the video again

Enjoy the video,
Ray C. Parrish
aka the Crude Oil Trader


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Wednesday, September 10, 2014

Did You Miss Tuesdays Free "Options Trading Made Easy" Webinar?........Don't Worry

Due to an even higher then usual demand for this weeks free webinar we have added a second webinar this Thursday evening. Our trading partner John Carter is now going to make this even easier to understand with another one of his wildly popular free webinars, “How to Beat the Market Makers using Weekly Options”, this Thursday September 11th at 8 p.m. EST .

Do you know, and trade, the ONE vehicle that forces the market makers into losing positions and you into BIG WINNING POSITIONS? You will after this free webinar.

Just Click Here to get your Reserved Space

When: Thursday 9-11 @ 8PM New York time
 Where: ONLINE
 Who: John Carter lead trader/teacher SimplerOptions
 Cost: NOTHING

In this free webinar workshop John shares:

- How to determine the safe levels to take weekly options trades

- The best way to protect yourself and minimize risk while increasing the probability of maximum reward

- How to choose the right stocks for weekly options and which stocks you want to avoid like the plague

- A simple and powerful strategy that you can use whether you’re a beginner or advanced options trader

- How to consistently trade this current market using weekly options

- And much more…

This is a VERY special webinar/workshop where you'll see hands ON the power of weekly options, and the EASE of use they provide to any trader!

Please join John on Thursday....... Just Click Here 

See you on Thursday evening!
Ray C. Parrish
aka The Crude Oil Trader

Make sure to get our free eBook "Understanding Options"....Just Click Here!



Wednesday, August 13, 2014

Low and Expanding Risk Premiums Are the Root of Abrupt Market Losses

By John Mauldin


Risk premiums. I don’t know anyone who seriously maintains that risk premiums are anywhere close to normal. They more closely resemble what we see just before a major bear market kicks in. Which doesn’t mean that they can’t become further compressed. My good friend John Hussman certainly wouldn’t argue for such a state of affairs, and this week for our Outside the Box we let John talk about risk premiums.

Hussman is the founder and manager of the eponymous Hussman Funds, at www.Hussmanfunds.com. Let me offer a few cautionary paragraphs from his letter as a way to set the stage. I particularly want to highlight a quote from Raghuram Rajan, who impressed me with his work and his insights when we spent three days speaking together in Scandinavia a few years ago. At the time he was a professor at the University of Chicago, before he moved on to see if he could help ignite a fire in India.

Raghuram Rajan, the governor of the Reserve Bank of India and among the few economists who foresaw the last financial crisis, warned last week that “some of our macroeconomists are not recognizing the overall build-up of risks. We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost. Investors say ‘we will stay with the trade because central banks are willing to provide easy money and I can see that easy money continuing into the foreseeable future.’ It’s the same old story. They add ‘I will get out before everyone else gets out.’ They put the trades on even though they know what will happen as everyone attempts to exit positions at the same time.”

As a market cycle completes and a bull market gives way to a bear market, you’ll notice an increasing tendency for negative day-to-day news stories to be associated with market “reactions” that seem completely out of proportion. The key to understanding these reactions, as I observed at the 2007 peak, is to recognize that abrupt market weakness is generally the result of low risk premiums being pressed higher. Low and expanding risk premiums are at the root of nearly every abrupt market loss. Day-to-day news stories are merely opportunities for depressed risk premiums to shift up toward more normal levels, but the normalization itself is inevitable, and the spike in risk premiums (decline in prices) need not be proportional or “justifiable” by the news at all. Remember this, because when investors see the market plunging on news items that seem like “nothing,” they’re often tempted to buy into what clearly seems to be an overreaction. We saw this throughout the 2000-2002 plunge as well as the 2007-2009 plunge.

Yesterday evening, another astute market observer in the form of my good friend Steve Cucchiaro, founder of Windhaven, joined a few other friends for an entertaining steak dinner; and then we talked long into the night about life and markets. It is difficult to be “running money” at a time like this. The market is clearly getting stretched, but there is also a serious risk that it will run away for another 10 or 15%. If you are a manager, you need to be gut-checking your discipline and risk strategies. If you’re a client, you need to be asking your manager what his or her risk strategy is. It’s not a matter of risk or no risk but how you handle it.

What is your discipline? What non-emotional strategy instructs you to enter markets and to exit markets? Is it all or nothing, or is it by sector? Are you global? If so, do you have appropriate and different risk premiums embedded in your strategies? Just asking…. John’s piece today should at least get you thinking. That’s what Outside the Box is supposed to do.

It’s an interesting week around the Mauldin house. All the kids were over Sunday, and we grilled steaks and later ended up in the pool, shouting and horsing around, all of us knowing that three of the seven would be off to different parts of the country the next day. I know that’s what adult children do, and as responsible parents we all want our children to be independent, but the occasion did offer a few moments for reflection. Sunday night we just told stories of days past and laughed and tried not to think too much about the future.

A friend of mine just came back from California and Oregon complaining about the heat. Dallas has been rather cool, at least for August. If this weather pattern somehow keeps up (and it won’t), I can see lots of tax refugees streaming into Texas from California.

Tomorrow (Thursday) my mother turns 97, and we will have an ambulance bring her to the apartment, where she wants to have her birthday party. She is bedridden but is absolutely insisting on this party, so my brother and I decided to let her have her way. Which isn’t any different from the way it’s always been. Have a great week.

You’re rich in family and friends analyst,
John Mauldin, Editor
Outside the Box

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Low and Expanding Risk Premiums Are the Root of Abrupt Market Losses

By John P. Hussman, Ph.D.
Through the recurrent bubbles and collapses of recent decades, I’ve often discussed what I call the Iron Law of Finance: Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time.

The past several years of quantitative easing and zero interest rate policy have not bent that Iron Law at all. As prices have advanced, prospective future returns have declined, and the “risk premiums” priced into risky securities have become compressed. Based on the valuation measures most strongly correlated with actual subsequent total returns (and those correlations are near or above 90%), we continue to estimate that the S&P 500 will achieve zero or negative nominal total returns over horizons of 8 years or less, and only about 2% annually over the coming decade. See Ockham’s Razor and The Market Cycle to review some of these measures and the associated arithmetic.

What quantitative easing has done is to exploit the discomfort that investors have with earning nothing on safe investments, making them feel forced to extend their risk profile in search of positive expected returns. The problem is that there is little arithmetic involved in that decision. For example, if a “normal” level of short-term interest rates is 4% and investors expect 3-4 more years of zero interest rate policy, it’s reasonable for stock prices to be valued today at levels that are about 12-16% above historically normal valuations (3-4 years x 4%). The higher prices would in turn be associated with equity returns also being about 4% lower than “normal” over that 3-4 year period. This would be a justified response. One can demonstrate the arithmetic quite simply using any discounted cash flow approach, and it holds for stocks, bonds, and other long-term securities. [Geek's Note: The Dornbusch exchange rate model reflects the same considerations.]

However, if investors are so uncomfortable with zero interest rates on safe investments that they drive security prices far higher than 12-16% above historical valuation norms (and at present, stocks are more than double those norms on the most reliable measures), they’re doing something beyond what’s justified by interest rates. Instead, what happens is that the risk premium – the compensation for bearing uncertainty, volatility, and risk of extreme loss – also becomes compressed. We can quantify the impact that zero interest rates should have on stock valuations, and it would take decades of zero interest rate policy to justify current stock valuations on the basis of low interest rates. What we’re seeing here – make no mistake about it – is not a rational, justified, quantifiable response to lower interest rates, but rather a historic compression of risk premiums across every risky asset class, particularly equities, leveraged loans, and junk bonds.

My impression is that today’s near-absence of risk premiums is both unintentional and poorly appreciated. That is, investors have pushed up prices, but they still expect future returns on risky assets to be positive. Indeed, because all of this yield seeking has driven a persistent uptrend in speculative assets in recent years, investors seem to believe that “QE just makes prices go up” in a way that ensures a permanent future of diagonally escalating prices. Meanwhile, though QE has fostered an enormous speculative misallocation of capital, a recent Fed survey finds that the majority of Americans feel no better off compared with 5 years ago.

We increasingly see carry being confused with expected return. Carry is the difference between the annual yield of a security and money market interest rates. For example, in a world where short-term interest rates are zero, Wall Street acts as if a 2% dividend yield on equities, or a 5% junk bond yield is enough to make these securities appropriate even for investors with short horizons, not factoring in any compensation for risk or likely capital losses. This is the same thinking that contributed to the housing bubble and subsequent collapse. Banks, hedge funds, and other financial players borrowed massively to accumulate subprime mortgage-backed securities, attempting to “leverage the spread” between the higher yielding and increasingly risky mortgage debt and the lower yield that they paid to depositors and other funding sources.

We shudder at how much risk is being delivered – knowingly or not – to investors who plan to retire even a year from now. Barron’s published an article on target-term funds last month with this gem (italics mine): “JPMorgan's 2015 target-term fund has a 42% equity allocation, below that of its peers. Its fund holds emerging-market equity and debt, junk bonds, and commodities.”

On the subject of junk debt, in the first two quarters of 2014, European high yield bond issuance outstripped U.S. issuance for the first time in history, with 77% of the total represented by Greece, Ireland, Italy, Portugal, and Spain. This issuance has been enabled by the “reach for yield” provoked by zero interest rate policy. The discomfort of investors with zero interest rates allows weak borrowers – in the words of the Financial Times – “to harness strong investor demand.” Meanwhile, Bloomberg reports that pension funds, squeezed for sources of safe return, have been abandoning their investment grade policies to invest in higher yielding junk bonds. Rather than thinking in terms of valuation and risk, they are focused on the carry they hope to earn because the default environment seems "benign" at the moment. This is just the housing bubble replicated in a different class of securities. It will end badly.




Raghuram Rajan, the governor of the Reserve Bank of India and among the few economists who foresaw the last financial crisis, warned last week that "some of our macroeconomists are not recognizing the overall build-up of risks. We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost. Investors say 'we will stay with the trade because central banks are willing to provide easy money and I can see that easy money continuing into the foreseeable future.' It's the same old story. They add 'I will get out before everyone else gets out.' They put the trades on even though they know what will happen as everyone attempts to exit positions at the same time."

While we’re already observing cracks in market internals in the form of breakdowns in small cap stocks, high yield bond prices, market breadth, and other areas, it’s not clear yet whether the risk preferences of investors have shifted durably. As we saw in multiple early sell offs and recoveries near the 2007, 2000, and 1929 bull market peaks (the only peaks that rival the present one), the “buy the dip” mentality can introduce periodic recovery attempts even in markets that are quite precarious from a full cycle perspective. Still, it's helpful to be aware of how compressed risk premiums unwind. They rarely do so in one fell swoop, but they also rarely do so gradually and diagonally. Compressed risk premiums normalize in spikes.

As a market cycle completes and a bull market gives way to a bear market, you’ll notice an increasing tendency for negative day-to-day news stories to be associated with market “reactions” that seem completely out of proportion. The key to understanding these reactions, as I observed at the 2007 peak, is to recognize that abrupt market weakness is generally the result of low risk premiums being pressed higher. Low and expanding risk premiums are at the root of nearly every abrupt market loss. Day-to-day news stories are merely opportunities for depressed risk premiums to shift up toward more normal levels, but the normalization itself is inevitable, and the spike in risk premiums (decline in prices) need not be proportional or “justifiable” by the news at all. Remember this because when investors see the market plunging on news items that seem like “nothing,” they’re often tempted to buy into what clearly seems to be an overreaction. We saw this throughout the 2000-2002 plunge as well as the 2007-2009 plunge.

As I’ve frequently observed, the strongest expected market return/risk profile is associated with a material retreat in valuations that is then joined by an early improvement across a wide range of market internals. These opportunities occur in every market cycle, and we have no doubt that we will observe them over the completion of the present cycle and in those that follow. In contrast, when risk premiums are historically compressed and showing early signs of normalizing even moderately, a great deal of downside damage is likely to follow. Some of it will be on virtually no news at all, because that normalization is baked in the cake, and is independent of interest rates. All that’s required is for investors to begin to remember that risky securities actually involve risk. In that environment, selling begets selling.

Remember: this outcome is baked in the cake because prices are already elevated and risk premiums are already compressed. Every episode of compressed risk premiums in history has been followed by a series of spikes that restore them to normal levels. It may be possible for monetary policy to drag the process out by helping to punctuate the sell offs with renewed speculation, but there’s no way to defer this process permanently. Nor would the effort be constructive, because the only thing that compressed risk premiums do is to misallocate scarce savings to unproductive uses, allowing weak borrowers to harness strong demand. We don’t believe that risk has been permanently removed from risky assets. The belief that it has is itself the greatest risk that investors face here.

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