Why Now Is the Best Time to Buy Gold in a While

By Justin Spittler

Bank stocks are slumping. Wells Fargo (WFC), the largest U.S. bank, has fallen 11% this year. JPMorgan Chase (JPM), the second largest, has fallen 14%. Bank of America (BAC), the third largest, has plunged 21%. And those are just the household names.

The Standard & Poor’s 500 Financials Index, which tracks 87 large U.S. financial stocks, has dropped 12% this year. For comparison, the S&P 500 has dropped 8%. On Monday, Bloomberg Business reported that financial stocks are off to their worst start in years.

The Standard & Poor’s 500 Financials Index has tumbled 11 percent in 2016, putting it on track for its worst month in more than four years. More than $360 billion of market value has been wiped out of financial companies in January, more than all but one month since data began in 1990.

The performance of banks says a lot about the health of an economy..…

Banks make money by loaning money to businesses and real estate buyers. The more good loans a bank makes, the more interest paid to the bank. But when an economy is doing badly, demand for loans falls. Also, when an economy is doing badly, some borrowers don’t pay loans back in full. This increases the cost of bad loans…which is one of a bank’s biggest expenses. This eats away profits from the bottom line.

When the economy slows, people cut back on extra expenses like vacations. People shop less. There are fewer dollars around at the end of each month, so less money ends up in the bank…giving the bank less money to loan out. Since banks “touch” almost every aspect of the economy, bad performance by banks is often an early sign that the economy is turning down.

While bank stocks are down big, bank profits are still solid..…

JPMorgan Chase’s profits jumped 10% from the prior year...Bank of America’s rose 9%...and Wells Fargo’s were flat. You’d expect to see much worse results in an industry where stocks are breaking down. This likely means investors are expecting bank profits to shrink soon. Markets tend to “price-in” things before they happen.

Bloomberg Business reports:

Commercial and industrial loans have flat lined in recent weeks after steadily climbing throughout 2015…Growth in such loans offers investors an idea of potential interest income, as C&I loans typically produce more revenue for banks than parking funds in cash or Treasuries.

Bloomberg Business also explained that banks are bracing for losses on oil loans.

Bigger picture uncertainties are weighing on the group, not least of which is how wounds at energy companies will bleed into this sector. Bank of America, Citigroup Inc., JPMorgan and Wells Fargo have set aside more than $2.5 billion to cover souring energy loans and will add to that if oil prices remain low.

If you’ve been reading the Dispatch, you know the oil industry is in crisis mode..…

The price of oil has plunged 70% since June 2014. Yesterday, oil closed at $32. Energy consulting company Wood Mackenzie estimates $1.5 trillion worth of oil projects in North America can’t make money even at $50 oil. With oil at $32 today, the value of money-losing projects has likely climbed above $2 trillion.

Many oil companies are struggling to pay back loans. Credit rating agency Fitch expects 11% of U.S. energy bonds to default this year. That would be the highest default rate for the energy sector since 1999. This is bad news for banks that have loaned money to oil companies.

Moving along, if you’ve been reading Crisis Investing, you know the “opening up” of Cuba is a huge investment opportunity..…

Nick Giambruno, editor of Crisis Investing, expects to make a lot of money investing in Cuba. Nick specializes in buying high-quality assets made cheap by crisis. According to Nick, a crisis is the only time you can be sure to get assets at bargain prices.

Cuba has been in a slow-motion crisis for decades. In short, its Communist government has wrecked the economy. And the United States’ ban on trade with Cuba killed any chance at economic growth. However, after decades of isolating Cuba, the U.S. government recently changed its policy. It reopened an embassy in Cuba in August. And last week, the U.S. took another promising step toward Cuba.

Here’s the New York Times:

The Obama administration announced Tuesday that it was removing major impediments to contact between the United States and Cuba by lifting restrictions on American financing of exports to the island nation and relaxing limits on the shipping of an array of products, from tractors to art supplies.

The revised rules that will take effect on Wednesday will allow United States banks to provide direct financing for the export of any product other than agricultural commodities, still walled off under the trade embargo.

Nick notes that American companies are pushing to do business in Cuba. He says the “cat’s out of the bag,” and Cuba will soon open up.

Cuba has over 2,000 miles of pristine coastline and the potential to be a top tourist destination. When the embargo ends, the U.S. government estimates 12 million Americans will visit Cuba within the first year.

There’s no denying it. If Cuba ever opens up, there’s potential to make a fortune. Doug Casey has long been interested in the investment potential of Cuba, and I couldn’t agree more that there is huge opportunity there.

You can learn how Nick is playing the “opening up” of Cuba by taking a risk-free trial of Crisis Investing. It’s an investment Americans can easily buy with a standard brokerage account…and it yields 9.3%.

Our friend Tom Dyson just came back from a trip to Cuba..…

If you don’t know Tom, he's founder of Palm Beach Research Group, a publishing company dedicated to helping readers get a little bit richer every day. Since he launched The Palm Beach Letter in 2011, it has built a reputation as one of the world’s most respected investment advisories. You can check it out here.

Tom was in Cuba looking for investment opportunities. Here’s his take…

There are billions of dollars just waiting to flood into Cuba the moment their economy opens. There’s a whole industry poised to invest in Cuba: Cuban people living in Florida and other parts of America...the big hotel chains...the big real estate companies.

Tom says it’s not easy for Americans to invest in Cuba yet…but the potential is huge.

It’s a beautiful island with amazing beaches. Cuba could also be a huge cruise ship destination. It could end up looking like Cancun.

Chart of the Day

Gold has climbed to a three month high. Yesterday, the price of gold closed at $1,125 an ounce, its highest level since November. Gold is also up 6.1% since the start of the year. U.S. stocks are down 8% in the same period.
Today’s chart shows that gold is “carving out a bottom”.  On Monday, we explained why “carved out bottoms” are important. An asset carves out a bottom when it stops falling…forms a bottom for a period of time…then starts climbing higher. A stock that’s carving out a bottom should hold above a certain price for a period of time. This is a key signal that buyers are stepping in at this price, giving it a floor.

Buying an asset that has carved out a bottom is much less risky than buying an asset that’s trending down. As you likely know, gold has been in a downtrend since 2011. However, since November, gold has stopped going down. It has held above $1,050. This is a clue that gold prices are heading higher.

Casey readers know we own gold because it preserves wealth over the long term. We try not to get caught up in its daily price movements. However, gold is at a potential “turning point” today. If you’ve been meaning to buy gold, now’s a good time.

The article Why Now Is the Best Time to Buy Gold in a While was originally published at caseyresearch.com.

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This Unique Oil Stock is Offering A Huge Dividend Yield

By Justin Spittler

One of Casey Research's biggest calls this year is paying off.....…
In early August, E.B. Tucker, editor of The Casey Report, told subscribers how to profit from the world’s oversupply of oil. If you read financial newspapers for more than a week, you’ll notice that global oil production is near record highs. Last year, global oil output reached its highest level in at least twenty five years, according to the U.S. Energy Information Administration (EIA).

High oil prices were a big reason for the surge in production. Between 2011 and mid 2014, the price of oil hovered around $90/barrel. But oil peaked at $106 last June, and it’s been falling ever since. Today, a barrel of oil goes for about $45. Even though the price of oil has been cut in half, global oil production is still near all time highs. The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 12 oil producing nations, is still pumping a record amount of oil. And it plans to increase production next year. In the U.S., oil supplies are still about 100 million barrels above their five year average.

E.B. explains why some countries have no choice but to keep pumping oil.....

Oil is the foundation of many countries’ economies. Take Venezuela, for example. Venezuela produces over 2.5 million barrels per day (BPD) of oil. Oil exports make up half of the country’s economic output. The country is so dependent on oil that cutting production would be economic suicide. This is happening across the globe. Giant state run oil companies continue to pump because it’s the only way for these countries to make money. This is why global oil production has not fallen even though the price of oil has been cut in half. In many areas, production has actually increased.

The extra oil has weighed on oil prices......
Weak oil prices have hammered virtually all oil companies…including the biggest oil companies on the planet. Profits for ExxonMobil (XOM), the largest U.S. oil company, fell 52% during the second quarter due to weak oil prices. Its stock is now down 24% since oil peaked last summer. Chevron (CVX), America’s second biggest oil company, earned its lowest profit in twelve years during the second quarter. Its stock price is down 34% since last summer’s peak. The entire industry is struggling. XOP, an ETF that holds the largest oil explorers and producers, has dropped 52% over the same period.

But oil tanker companies are making more money than they have in seven years...…
Unlike oil producers, oil tanker companies don’t need high oil prices to make big profits. That’s because they make money based on how much oil they move. Their revenues aren’t directly tied to the price of oil.
On Monday, Bloomberg Business explained why oil tankers are making the most money they’ve made in years. The world’s biggest crude oil tankers earned more than $100,000 a day for the first time since 2008. Ships hauling two million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.

Casey Research’s favorite oil tanker company is cashing in on higher shipping rates...…
On August 13, E.B. Tucker told readers of The Casey Report about a company called Euronav (EURN).
According to E.B., Euronav is the best oil tanker company in the world. The company has one of the newest and largest fleets on the planet. Euronav’s sales more than doubled during the first half of the year.

The company’s EBITDA (earnings before taxes, interest, and accounting charges) quadrupled. And because Euronav’s policy is to pay out at least 80% of its profits as dividends, the company doubled its dividend payment last quarter.

Investors who acted on E.B.’s recommendation have already pocketed a 5% quarterly dividend. Based on its last two dividends, Euronav is paying an annualized yield of 12%. That’s not bad considering 10 Treasuries pay just 2.07% right now. Euronav’s stock is up big too. It has gained 15% in the past month alone...while the S&P just gained 1%.

E.B. thinks Euronav is just getting started.....

Euronav’s stock price has rocketed in recent weeks, but it’s going to go much higher. Euronav is a great business and the economics of shipping oil are improving. The market hasn’t fully caught on to how good things are in the industry right now. Shipping rates are ripping higher, but the supply of ships can’t keep up with demand. The largest supertankers can carry 2 million barrels of oil at a time. They measure three football fields long. These ships take years to build and cost about $100 million each. Shipping rates should stay high as the world works through this huge oil glut.

It’s a great time to own shipping companies. And Euronav is the best of the bunch. Euronav has shot up since E.B. recommended it, but the buying window hasn’t closed. In fact, Euronav is still below E.B.’s “buy under” price of $17.50. You can learn more about Euronav by taking The Casey Report for a risk free spin today. You’ll also learn about E.B.’s other top investment ideas, including a unique way to profit from the “digital revolution” in money. Click here to get started.

The article This Unique Oil Stock is Offering A Huge Dividend Yield was originally published at caseyresearch.com.

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Commodities Market Summary for Week Ending April 18th - Crude Oil, Gold, Silver, Coffee and more!

We've asked our trading partner Michael Seery of Seery Futures to give our readers a weekly recap of the Futures market. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.

Michael frequently appears on multiple business networks including Bloomberg news, Fox Business, CNBC Worldwide, CNN Business, and Bloomberg TV. He is also a guest on First Business, which is a national and internationally syndicated business show.

Gold futures in the June contract are trading below their 20 day but above their 100 day moving average telling you that the trend currently is mixed as prices are still trading near two year lows and if this commodity could talk it would bark in my opinion as it is becoming a tremendous dog in recent months trading lower by $40 in Tuesday’s trade settling last Friday at 1,319 and going out this Thursday afternoon at 1,295 finishing down about $25 for the trading week. If prices break 1,277 I would be recommending a short position putting your stop above the 10 day high with the possibility of prices heading towards major support at 1,240 and then maybe the possibility of lower prices as it seems that nothing can make gold prices go up not even the fact of the Ukrainian crisis & the recent stock market choppiness as demand for gold at this current time is very weak with very little interest as well. Markets go up due to the fact that money flows come into that commodity and all the money flow is going into stocks at the current time as complacency has set in as nobody seems to care about gold or see any reason to own it at this time, however in my opinion I do believe worldwide problems will come back and I do think losses in gold are limited so I would look for a better trending market & sit on the sidelines unless 1,277 is broken on a closing basis.
TREND: LOWER
CHART STRUCTURE: EXCELLENT

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Silver futures in the July contract are trading below their 20 and 100 day moving average telling you that the trend has turned bearish as prices are settling right near three month lows going out last Friday at 19.80 finishing this shortened holiday week at 19.60 finishing lower by about $.20 while at the current time there’s just very little interest in the silver market which is very surprising. There is major support at $19 which has been tested many times in the last 6 months but fails every single time and if you read any of my previous blogs I keep stating if you have deep pockets and a longer term horizon I do think silver prices are cheap, however if you are a trader that becomes a different situation as the trend now has turned lower and if you’re looking to get short this market I would sell at today’s price of 19.60 placing my stop loss above the 10 day high of 20.40 risking around $800 per contract as volatility in silver is extremely low at this time and I don’t expect that to last much longer as silver historically is one the most volatile commodities.
TREND: LOWER
CHART STRUCTURE: EXCELLENT

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Crude oil futures are trading far above their 20 and 100 day moving average hitting new 1 year highs trading up over $1.00 for the trading week trading at 103.35 a barrel in the June contract as the chart looks bullish in my opinion when prices broke 102 a barrel which was the breakout to the upside placing my stop below the 10 day low which now is 100 risking around 300 points or $1,600 per contract if your trading the crude oil mini. The chart structure in crude oil is starting to improve as we enter the strong demand season as crude oil & unleaded gasoline as both headed higher in my opinion, however make sure that you do have a proper risk management system in place minimizing your risk in case the trend does change. Generally speaking when the stock market sells off that generally puts pressure on crude oil prices however this market has been resilient lately because of the Ukrainian situation and the fact that we are entering the strong demand season of summer where drivers are out on the road increasing demand.
TREND: HIGHER
CHART STRUCTURE: IMPROVING

Coffee futures have had a wild trading week dropping 2000 points on Tuesday and Wednesday combined only to rally 1500 points this Thursday afternoon finishing at 201.20 a pound and I’m still recommending if you have deep pockets to get long the coffee market as there is a high probability in my opinion that prices could get up to 2.50 – 2.70 as coffee prices have been much higher historically & with severe drought conditions existing in central Brazil I don’t think the bull market is quite over. Harvest is just several weeks away in central Brazil so we will start to get a better figure on how many bags will be produced as prices are trading far above their 20 & 100 day moving average as this is been one of the best bull markets of 2014 so continue to buy dips in my opinion as long as prices stay above 166.
TREND: HIGHER
CHART STRUCTURE: AWFUL

Sugar futures finished down 26 points at 16.66 in the May contract as prices are trading below their 20 & 100 day moving average still consolidating in recent weeks with really no trend in sight so I’m advising traders to sit on the sidelines and look at another market that is currently trading, however there is major support at 16.50 & if that level is broken the bearish trend will be intact ,however this market is choppy at the given time. Many of the commodity markets are in strong trends however sugar has been choppy so avoid this market at this time and look for another commodity that is trending because choppiness makes it difficult to make money
TREND: LOWER
CHART STRUCTURE: EXCELLENT

Soybean futures in the July contract rallied another $.50 to close around 15.02 a bushel settling right near session highs and if you’ve been reading my previous blogs I am extremely bullish the old crop soybeans due to the fact that there’s very little supply on hand and I do think there’s a high probability that soybean prices will hit all-time highs in the next month or 2 due to the fact that the carryover level is extremely low and demand especially from China is extremely high. I’m a technical trader but I do look at some of the fundamentals once in a while but this market is trading far above its 20 and 100 day moving average and I hope you been listening because I do think prices will move higher despite the fact that we have now rallied sharply in recent days as I think it’s just the beginning and with a short weekend because of the Good Friday holiday I think the shorts are in trouble next week as we will see sharply higher prices once again and if you need some help positioning your portfolio in the soybeans please feel free to give me a call anytime as I’m happy to help you as I do think this trend is getting stronger and stronger on a daily basis and a top has not been formed in my opinion.
TREND: HIGHER
CHART STRUCTURE: SOLID

Cotton futures for the July contract are trading right at its 20 but above its 100 day moving average settling last Friday at 90.45 while going out on this short trading week due to the fact of Easter Sunday closing today at 92.34 up around 190 points for the trading week as prices have been consolidating in recent weeks with very little trend at the current time. I’m not recommending any type of position in cotton as the trend has been going sideways and as a commodity trader I need to find the strongest trends and go in that direction so just keep an eye on cotton prices at the current time as I do think higher prices are ahead but the problem is China could be releasing some of the excess reserves putting pressure here in the short term so this is a mixed bag in my opinion so look for another market
TREND: SIDEWAYS
CHART STRUCTURE: EXCELLENT

Orange juice futures in the May contract settled at 164.75 as dry conditions in Brazil continue to put upward pressure on prices and I’ve been recommending buying orange juice futures contracts for quite some time and I do believe prices are headed up to the 180 – 200 level as greening disease here in the United States is going to lower U.S production as this problem could exist for several more years as the chart structure on the daily chart remains outstanding so if you have not entered this market look for a possible dip to get long while placing your stop at the 10 day low which is around 153 risking around $1,700 per contract from today’s price. The trend in orange juice has been higher for the last 6 months as this has been one of the strongest trends in my opinion so keep an eye on this as a gallon of orange juice at the grocery store currently cost around $6.25 a gallon which is very high but could go much higher as I’ve been talking about in recent weeks.
TREND: HIGHER
CHART STRUCTURE: EXCELLENT

Corn futures finished down for the 2nd straight trading session near session lows this Thursday afternoon finishing down over $.04 in the December contract for the trading week which is considered the new crop which will be harvested this October closing at 4.97 a bushel hitting a 2 week low & if you have been following my recommendations over the last several months I have been long the corn market but on Wednesday I exited as I have become neutral as I think corn prices are going lower but I’m not recommending a short position but rather sit on the sidelines and wait for a better chart pattern to develop. I have been bullish corn prices for so long however this market may have had an exhaustion spike top at 5.17 after the supply demand report as prices look weak as I do think farmers will start to plant rapidly which should put pressure here in the short term but I do not believe that a bear market has started and I do think that prices could head back down to the 4.80 level as the month of April and early May generally are bearish corn prices due to the fact that there really won’t be any weather problems developing until the month of June or July.

Corn futures are trading right after 20 day moving average and still above their 100 day moving average telling you that the trend now is mixed so look for a better trending market such as July soybeans because as a trader the easiest way to make money is getting involved in a market that is trending higher by 4 out of 5 days or trending lower 4 out of 5 days while this market currently is becoming choppy so avoid and move on especially if you took my original recommendation at 4.60 bushel as this was a very good trade it just took a long time to develop.
TREND: MIXED
CHART STRUCTURE: EXCELLENT

The 5 year notes finished lower for the 4th straight trading session this week as the stock market sky rocketed to the upside sending bond yields higher with the five-year note to close around 1.73% & I’ve been recommending a short position in the bond market for months and I still think it will be one of the best trades to develop over the course of time as inflation looks like it’s starting to come back as the commodity markets certainly have rallied sharply off their lows and we might be in a bullish commodity cycle at this time which will put pressure on bond futures which means the interest rates rise.

If you’re a long term investor I would continue to sell the five year notes as the Federal Reserve is starting to taper back the purchase of the five year note and that is also can put pressure on this market, however prices have rallied in the recent months due to the fact that volatility is come back into the S&P and I might have been a tad early but this but this a very long term trade which I’m telling investors to stay in for several years as this should be part of a balanced portfolio because you will look back in a couple years and say why didn’t I take advantage of interest rates at 1.73% and not act accordingly because when prices get to extreme highs and the extreme lows sometimes those are the best opportunities and right now yields are not at historical lows but they are very close and eventually in my opinion will rally and if you construct your proposal correctly limiting your risk and maximizing your reward over the course of time the bond market in my opinion is the place to be in the year 2014. The five-year note is trading below its 20 and 100 day moving average which tells you that the short term trend is lower and I constantly recommend investors in the five-year note to sell strength not weakness taking advantage of up days.
TREND: LOWER
CHART STRUCTURE: EXCELLENT

Cocoa futures in New York rallied 46 points at 3020 in the July contract and currently I am sitting on the sidelines in this market but if prices do break 3047 which was the contract high I would be recommending to buy a futures contract placing a stop below the 10 day low 2962 risking around 1,600 per contract as the chart structure remains outstanding so be patient for a possible breakout in tomorrow’s trading session as the soft commodities certainly have bullish trends. Cocoa prices are trading above their 20 and 100 day moving average and I still think higher prices are ahead but this market has been choppy with a very tight consolidation over the last 3 months so if prices do break out look for a sharp move to the upside. My theory states that the longer a consolidation the stronger the breakout so keep a close eye on this market. TREND: HIGHER
CHART STRUCTURE: EXCELLENT

Live cattle futures in the June contract are trading below their 20 day but above their 100 day moving average stating that the trend is mixed however in the short term the trend has turned bearish as prices have hit 7 weeks lows finishing at 134.35 a pound down about 200 points for the trading week. If you are looking to get short this market I would sell at today’s prices while placing my stop loss at the 10 day high of 136.35 risking around $800 dollars per contract but at the present time I am sitting on the sidelines.
TREND: LOWER
CHART STRUCTURE: EXCELLENT

Feeder cattle futures in the May contract are trading below their 20 day but still above its 100 day moving average telling you that the trend is mixed finishing lower by about 200 points at 178.10 a pound. I have been recommending a long position in feeder cattle for many weeks however this market looks to have stalled up at the 180 area and if you took my advice on this trade place your stop loss at the 10 day low of 177.50 risking around $300 per contract as the chart structure has become extremely tight in recent weeks as volatility remains low despite record high prices. I would not be going short this market until prices broke 176 to the downside placing my stop above all time high prices of 180.50 risking around 2,200 if that breakout occurs.
TREND: SIDEWAYS
CHART STRUCTURE: EXCELLENT

Natural gas futures in the June contract finished up 18 points hitting a 6 week high closing at 4.74 with outstanding chart structure as I am now recommending a long position in this contract placing my stop loss below the 10 day low which stands at 4.44 risking around 30 points or $750 per contract as the trend has now turned higher once again and the risk reward situation is highly in your favor as we enter the demand season of summer. Natural gas prices have been in a bull market for quite some time and if you read some of my previous blogs several months back when prices were in the low $3 I was recommending if you have deep pockets and a longer term horizon to buy natural gas as prices were extremely cheap due to the fact of large supplies, however we had an extremely cold winter which reduced supplies dramatically and I do think natural gas prices will be sharply higher from today’s level in the next year as prices have bottomed out in my opinion. As a trader I focus on today and tomorrow only so when I can buy the natural gas contract with a risk of $600 I automatically take that trade even if I don’t believe in it as I do think a true breakout has occurred. Natural gas prices are trading above their 20 and 100 day moving average for the 1st time in several weeks telling you that the trend has changed to the upside after we consolidated in the month March after the big run up in early winter as prices seem to be resuming back up to the upside so play this market to the upside in my opinion.
TREND: HIGHER
CHART STRUCTURE: OUTSTANDING

Lean hog futures for the June contract finished this Friday in Chicago up about 100 points to close at 125.00 a pound finishing higher by nearly 500 points for the trading week. If you have been following any my previous blogs this was one of the best trades I recommended in 2014 as prices skyrocketed in the month of March, however at the current time volatility is extremely high so I’m not participating in the hog market as I’m not sure where prices are headed at the current time. Hog futures in the June contract are trading barely above its 20 day but sharply higher than its 100 day moving average with a shortage of supplies as the fundamentals are very strong in this market; however I’m looking at other markets that currently have stronger trends as I’m not sure where prices are headed.
TREND: MIXED
CHART STRUCTURE: AWFUL

Double Bottom and Double Tops: This indicator is one of my favorite patterns that signals a trend reversal because its considered to be one of the most reliable and is commonly used by many technicians. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long term trend reversals. Their also can be triple bottoms and triple tops which are in my opinion an excellent indicator that predicts bottoms and tops at a relatively high rate and if you look at some of the daily charts you will see some double and triple tops and bottoms. If you are using any indicator such as these make sure you place a stop loss to try and minimize your monetary loss because indicators do not work a 100 % percent of the time so you still need solid money management technique to cut loses.

What do I mean when I talk about chart structure and why do I think it is so important when deciding to enter or exit a trade? I define chart structure as a slow and grinding up or down trend with low volatility and no chart gaps. Many of the great trends that develop have very good chart structure with many low percentage daily moves over a course of at least 4 weeks thus allowing you to enter a market and allowing you to place a stop loss with will be relatively close due to small moves thus reducing risk. Charts that have violent up and down swings are not considered to have solid chart structure but markets that continue to trend like the current soybean complex allowing for you to place close stops as it continues to fall dramatically. I always like to place my stops at 10 day highs or 10 day lows and if the charts have a tight pattern that will allow the trader to minimize risk which is what trading is all about and if the chart has big swings your stop will be further away allowing the possibility of larger monetary loses.


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And the Band Plays On

By Dennis Miller 

Quantitative Easing (QE) is no longer a surprise, but the fact that it's continued for so long is. Like many Miller’s Money readers, I believe the government cannot continue to pay its bills by having the Federal Reserve buy debt with newly created money forever. This has gone on much longer than I'd have ever dreamed possible.

Unemployment numbers dropped in December and the Federal Reserve tapered their money creation from $85 billion to $75 billion per month. Why did the unemployment rate drop? Primarily because people whose benefits have expired are no longer considered unemployed. The government classifies them as merely discouraged, but the fact remains that they don't have jobs.

So, what is the problem? Let's start with the magnitude of money creation. Tim Price sums it up well in an article on Sovereign Man:

"Last year, the U.S. Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed's balance sheet had grown to $800 billion. Under its current QE program (which may or may not get tapered according to the Fed's current intentions), the Fed is printing $1 trillion a year.

To put it another way, the Fed is printing roughly 100 years' worth of money every 12 months. (Now that's inflation.)"

As Doug Casey likes to remind us: Just because something is inevitable, does not mean it is imminent. Well, sooner or later imminent and inevitable are going to meet. Interest rates are depressed because the Federal Reserve is holding our debt. Eventually those creditors outside the Federal Reserve will demand much higher interest rates.

Currently, 30 year Treasuries are paying 3.59%. If interest rates rose by 2%—still below what was considered "normal" a decade ago—the interest cost to our government would jump by 30% or more. It's hard to imagine the huge budget cuts or tax increases it would take to pay for that.

In the meantime, investors are caught between the proverbial rock and hard place. We cannot invest in long- or medium-term, "safe," fixed income investments because they are no longer safe. They could easily destroy your buying power through inflation.

At the same time, the stock market is not trading on fundamentals. It is on thin ice. Just how thin is that ice? Take a look at what happened when the Federal Reserve stopped propping up the economy with money printing.

Each time they stopped with their stimulus the market dropped. In the summer of 2013, Bernanke made his famous "taper" remark and the market reacted negatively, immediately. The Fed has had to introduce more money into the system to stop the slide.

Investors who need yield know they have virtually no place else to go but the stock market. Most realize it is a huge bubble; they only hope to get out ahead of everyone else when the time comes. And we can't hold cash; inflation would clobber us. So, we've been forced into the market to protect and grow our nest eggs.
It reminds me of playing musical chairs as a kid. The piano player would slow down the tempo. We would all grab the back of a chair and get ready to sit. No one wanted to be the one left standing.

Today the band is playing the "Limbo Rock." Investors are in limbo, knowing the music will stop eventually. We're all going to have to grab a chair quickly—and the stakes are much higher now.

The chart below on margin debt comes courtesy of my friend and colleague at Casey Research, Bud Conrad.

Investors now have a dangerous amount of money invested on margin—meaning they borrowed money from their brokers to buy even more stock. There are strict margin requirements on how much one can borrow as a percentage of their holdings. If the stock price drops, the investor receives a margin call from his broker. That has to take place quickly under SEC requirements. The broker can also sell the holding at market to bring the client's account back into compliance.

Record margin debt, coupled with the thought of traders using computers to read the trend and automatically place orders in fractions of a second, paints an uneasy picture. The unemotional computers will not only sell their holdings, they may well initiate short sales to drive the market down even further.

As the lyrics from the "Limbo Rock" ask, "How low can you go?" When the market limbos down, it will likely be faster and further than we've imagined.

Why is 2014 different? I've been taking stock of 2013 as I prepare our tax filings. Our portfolio did very well last year, thanks in great measure to the analysts at Casey Research. With our Bulletproof Income strategy in place, I am very comfortable with our plans going forward.

At the same time, I am as jittery as a 9-year-old walking slowly around a circle of chairs, knowing that sooner or later the music will stop. The music has played for years now and we are in the game, whether we like it or not. Pundits have gone from saying "this is the year" to more tempered remarks like "this can't go on forever." They place their bets on inevitable, but hedge them on imminent.

What can we do? One of the mantras behind our Bulletproof Income strategy is: "Avoid catastrophic losses." Doug Casey has warned us that in a drastic correction most everyone gets hurt, so our goal is to minimize that damage and its impact on our retirement plans.

Here are a few things you can do to protect yourself.

• Diversify. Not all sectors rise and fall at the same speed. Optimal diversification requires more than just various stock picks across various sectors. Limit your overall stock market exposure according to your age. You don't have to be all in the market. There are still other ways to earn good, safe returns. International diversification will give you an added margin of safety, too, not only from a market downturn but also from inflation.
• Apply strict position limits. No more than 5% of your overall portfolio should be in any single investment. When I look at the record margin debt, I wonder how so many investors can go hog wild on a single investment. Planning for retirement demands a more measured approach.
• Set trailing stop losses. If you set trailing stop losses on your positions at no more than 20%, the most you could lose on any single trade is 1% of your overall portfolio. The beauty of trailing stops is the maximum loss seldom happens. As the stock rises the trailing stop rises with it, which will lock in some additional profits.
• Monitor regularly. As part of my regular annual review, I go over each one of my stop-loss positions. I use an online trading platform to keep track of them. Depending on the stock, you may want to place a stop-loss sell order or use an alert service that will notify you if the stock drops below your set point. Other investors prefer to use a third party for notification.
  
  So, why do I check my stop losses? My particular trading platform accepts the orders "GTC," meaning "good 'til cancelled." But GTC really means "Good for 60 days and then you have to re-enter the notification." Just read the small print.
  
  Also, sometimes stop losses need adjusting. As a stock gets closer to the projected target price, you may want to reduce the trailing stop loss to 15%, or maybe even 10%, to lock in more profits.

We all want to enjoy our retirement years and have some fun. I sleep well knowing we have several good circuit breakers in place. We may get stopped out of several positions and stuck temporarily holding more cash than we'd like. But that means we've avoided catastrophic loss and have cash to take advantage of the real bargains that are bound to appear.

And so the band plays on as baby boomers and retirees continue to limbo.

From the very first issue of Money Forever our goal—my mission­­—has been to help those who truly want to take control of their retirement finances. I want our subscribers to have more wealth, a better understanding of how to create a Bulletproof portfolio, and confidence their money will last throughout retirement.

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The article And the Band Plays On was originally published at Millers Money