Balloons in Search of Needles

By John Mauldin

I love waterfalls. I’ve seen some of the world’s best, and they always have an impact. The big ones leave me awestruck at nature’s power. It was about 20 years ago that I did a boat trip on the upper Zambezi, ending at Victoria Falls. Such a placid river, full of game and hippopotamuses (and the occasional croc); and then you begin to hear the roar of the falls from miles away.

Unbelievably majestic. From there the Zambezi River turns into a whitewater rafting dream, offering numerous class 5 thrills. Of course, you wouldn’t want to run them without a serious professional at the helm. When you’re looking at an 8 foot high wall of water in front of you that you are going to have to go up (because it’s in the way); well, let’s just say it’s a rush.

If there were rapids like this in the United States, it’s doubtful professional outfits could get enough liability insurance to make a business of running them. In Zimbabwe we just signed a piece of paper. Our guides swore nobody had ever been lost – well, except for a few people who disobeyed the rules and leaped in the water in the calm sections because it was 100° out. That’s where the crocs are.

They promised we wouldn’t run into any in the rapids, which was good. More than a few of us got dumped in the water trying to run the rapids, but they had teams of kayakers who got you out quickly. The canyon below the falls is unbelievable, and below that is the even more impressive Bakota Gorge.

And yes, you then had to walk to the top of the canyon up a switchback trail to get home. I would do it all over again in a heartbeat, but I would spend at least three months training for the hike out. That was most definitely not in the full-disclosure-of-risks one-page piece of paper.

It would be hard to miss an analogy to the stock market. Everything’s peaceful and calm, you’re drinking some fabulous wine, eating some fantastic fresh game and fish, looking at all the beautiful animals as you drift easily with the current. Anybody can steer the boat in a bull market. Until the rapids hit and the bottom falls out.

As an aside, while the large waterfalls are majestic and awe-inspiring, the smaller ones are more hypnotic. I love the sound of falling water. I could listen for hours. The one place I don’t like to see waterfalls is on stock charts. Those leave me awestruck at the market’s power. They do have the power to focus the mind, however, especially when we own the shares that just went over the falls.

The US stock market is having the most turbulent year we’ve seen in a while.  It’s not terrible by historical standards, but we have a full quarter to go. And next week it’ll be October, a month in which the stock market has run into trouble before. With all that in mind, this week I want to take a look at where stocks stand and maybe offer a thought or two about the events that could bring us to the next waterfall.

Not Niagara Falls Yet
Here is how the waterfall looks so far this year. Barely a 10% move peak to trough, and it lasted for just a few days. We see a lot of jostling, followed by the harrowing plunge in August, and then a partial (less than halfway) recovery. Where do we go from here?

Let’s start with the macro view. Back in July I showed you some research that I did with Ed Easterling of Crestmont Research. This was before the China sell-off accelerated into the headlines, so it is very interesting to read again in hindsight. (See “It’s Not Over Till the Fat Lady Goes on a P/E Diet”).

Our view is that we are still in a secular bear market, and have been since the 2000 Tech Wreck. You may find that view surprising, since the benchmarks have roughly tripled since the 2009 low. Our analysis looks at price/earnings ratios to identify when bull and bear markets begin or end. P/E multiples were close to 50 in year 2000. In order for that bear market to end, they needed to drop into the very low double digit or single-digit range, which has been the signal for the end of every long term secular bear cycle for over 100 years. That hasn’t happened during the intervening 15 years.

Can a secular bear market last 15 years? Yes. Some have lasted even longer, like 1966-1981 and 1901-1920. So this one isn’t unprecedented. And please note that the long-term secular cycles can have cyclical movements inside them. Again, we see secular cycles in terms of valuation and the shorter cyclical cycles in terms of price. (Unless this time is different) long-term secular bear market cycles will always end in a period of low valuations.

Currently, P/E ratios (or any other valuation metric you want to use) are not low enough to provide the boost that typically starts a new bull market. They were closer in 2009 than today, but have never dipped into the area that would mark the end of the bear market and the onset of the new bull. We’re still riding the same bear.

What’s taking so long? Our best guess is that stocks were so richly valued at the 2000 peak that it is taking the better part of a generation to work off that excess. In order for this bear to end – and the new bull cycle to begin – valuations need to tumble. That can happen only if prices drop considerably or earnings rise without pulling prices higher.

Obviously, there can be many trading opportunities within a secular bull or bear cycle, but Ed’s research says we have three long-term options from here.

1. If P/E ratios decline toward 10 or below, we will be near the end of this secular bear. A new bull cycle should follow.
2. If P/E ratios stay near where they are, we will be in what Ed calls “secular hibernation.” This would mean a lot of sideways price movement, with dividends having to deliver the lion’s share of stock market returns.
3. If P/E/ ratios rise further, we will go back into the kind of “secular bubble” that created the Tech Wreck. I recall those years vividly, and I would rather not relive them.

Now, combine this market situation with what appears to be a global economic slowdown. China is a big factor, but not the only one. The entire developed world is in slow-growth mode. At some point it will likely dip into recession territory. Canada is already there. I don’t think they will be alone for long. Japan and Europe are weak.

I think the next true move to lower valuations will be a cyclical bear market combined with a recession. Can the stock market hold on to today’s valuations in a recession? Nothing is impossible, but I wouldn’t bet the farm on it, either. I can’t find an example of stock prices and valuations staying in place in the midst of a recession. Prices can fall slowly or they can fall fast, but I feel confident they will do one or the other.

Speaking of Bubbles
Our old friend Robert Shiller popped up last week in a Financial Times interview. Shiller is the father of CAPE, the cyclically adjusted price/earnings multiple, which looks back ten years to account for earnings cyclicality. He is also a Yale professor and a Nobel economics laureate.

Shiller’s CAPE has been saying for several years that stocks are seriously overvalued. In his FT interview, Shiller dropped the “B” word: It looks to me a bit like a bubble again, with essentially a tripling of stock prices since 2009 in just six years and at the same time people losing confidence in the valuation of the market.

When will the bubble burst? Shiller is less helpful there. He said the recent bout of volatility “shows that people are thinking something, worried thoughts. It suggests to me that many people are re-evaluating their exposure to the stock market. I’m not being very helpful about market timing, but I can easily see aftershocks coming.

Now, if you aren’t very confident about timing, it’s arguably better not to use words like bubble and aftershock. You can be sure the media and analysts will jump all over them, just as I’m doing right now.
In any case, Ed Easterling and Bob Shiller reach similar conclusions (though for different reasons). Neither sees a very bullish future, though both are unsure about timing. So when will we know the end is nigh? Sadly, we probably won’t, unless we begin to see signs that a recession is building in the United States.

Balloons in Search of Needles
As the old proverb goes, no one rings a bell at the top. The same applies at the bottom. Let’s imagine the stock market as a whole bunch of balloons. One or two can pop loudly and everyone will jump and then laugh it off. You now have deflated debris hanging from your string. Eventually, enough balloons will pop that the weight of the debris overwhelms the remaining balloons’ ability to keep the string aloft. Then your whole bunch falls down.

The last balloon to pop wasn’t any bigger or smaller than the others; it just happened to be last. In like manner, some kind of catalyst sets off every market collapse. It is usually something that would be survivable by itself. The plunge occurs because of all the previous balloons that bit the dust, but pundits and the media always like to point the finger at the most recent event.

So, if Easterling and Shiller are right, balloons are popping and making investors nervous, but there’s not enough damage yet to drag down the whole bundle. What are some candidates for the last balloon? A Chinese “hard landing” is probably the biggest, most obvious balloon right now. And actually, China is big enough for multiple balloons. Their stock market downturn produced one pop already. Beijing’s currency adjustment may have been another one.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best selling author, and Chairman of Mauldin Economics – please click here.

The article Thoughts from the Frontline: Balloons in Search of Needles was originally published at mauldineconomics.com.

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New Video: Kinder Morgan CEO "Sell Off in Stock Price Has Been Completely Indiscriminate"

Kinder Morgan CEO Steve Kean has released a video pitching KMI shares at an all to low price. Kean points out that those low prices are unreasonable due to the fee based nature of Kinder Morgans businesses. Kean points to numerous facts including the likelihood that new Kinder Morgan projects will not be cancelled during a period when the competition is seeing future projects being cancelled at an alarming rate.

Kean believes that the sell off in its stock price this year has been completely indiscriminate, which is creating a buying opportunity for investors. And insiders are backing up his opinion with their own money. Kinder Morgan has very little exposure to commodity prices as its cash flow is locked up while its growth is actually primarily driven by demand for inexpensive natural gas. That's why he remains confident that the company's current dividend is safe and so is the plan to grow the payout by 10% per year through 2020.

Watch the video below.



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The Bull Market is Over

By Justin Spittler

Stocks had a horrible day Tuesday. The S&P 500 lost 1.23%. The Dow Jones Industrial Average lost 1.09%. Indices around the world also fell. The Euro Stoxx 600, which tracks 600 of Europe’s biggest companies, lost 3.12%. Germany’s DAX lost 3.80%. Japan’s Nikkei 225 lost 1.96%.

Casey Report readers know this is part of our “script”…..

The S&P 500 plunged into its first correction since 2011 on August 23. A correction is when an index falls 10% or more from its last high. In total, the S&P 500 plunged 11% in 6 days. In the latest issue of The Casey Report, E.B. Tucker told his readers that this big drop marked the end of the 6 year bull market in U.S. stocks. He wrote: We believe the era of asset prices soaring on a wave of easy credit is over. Last month’s major stock market decline is the start of a very tough time for stocks and the economy.

This bull market is unraveling because it was built on easy money. E.B. explains how the Federal Reserve’s easy money policy has propped up the price of almost everything. The Fed’s easy money policy has lifted the price of just about every asset over the past six years. Cars, luxury watches, art, boats…just about everything that’s for sale costs more than it did a couple years ago. That’s especially true of the stock market.

The Fed cut its key interest rate to effectively zero during the last financial crisis. And it’s kept it there ever since. Low interest rates were supposed to boost the economy. But they’ve also pushed up the price of stocks and encouraged reckless borrowing, as E.B. explains: By making enormous amounts of credit available, the Fed stoked the economy, stocks, and the housing market. Stocks tripled from their 2009 lows. Average U.S. home prices climbed 50% from their previous lows. Companies with poor credit ratings borrowed record amounts of money...far more than they did before the 2008 crisis.

E.B. went on to explain how high stock and home prices were masking a huge problem: In 2015, the total net worth of American households reached $85 trillion, an all-time high. On the surface, things look good. But the long period of low interest rates has created an extremely dangerous situation. By taking interest rates to zero and holding them there for nearly seven years and counting, the Fed has created bad investments and reckless speculation on an epic scale. Not billions...but trillions.

The crash last month pushed U.S. stocks below an important long-term trend line…..

E.B. explains why this is such a big deal: A long term trend line shows the general direction the market is heading. Many professional traders use it to separate normal market gyrations from something bigger. Think of it as a “line in the sand.” As you can see from the chart below, there have been a few “normal” selloffs since 2011. On Friday, August 21, however, the S&P dropped below its long term trend line for the first time in about four years.

  
U.S. stocks rebounded after last month’s crash…..

But E.B. told his readers the rebound was only temporary. He said the market was in the middle of a “dead cat bounce.” E.B. thinks U.S stocks will keep falling, in part because they’re so expensive.

Right now, the S&P’s CAPE ratio is 24.6, about 48% more expensive than its average since 1881.

The S&P has only been more expensive a handful of times since 1881. That includes the years around the 1929, 2000, and 2007 market peaks.

CAPE is a popular valuation metric. It’s the price to earnings (P/E) ratio with one adjustment. Instead of using one year of earnings, it uses earnings from the past 10 years. This smooths out the effects of booms and recessions and provides a useful, long term view of the market.

The chart below shows that the market eventually collapsed after the high CAPE periods around the 1929, 2000 and 2007 market peaks:

  
The Fed’s easy money policies have fueled a reckless debt binge...

And debt acts like dynamite when a financial crisis hits. We’re in a very fragile situation. E.B. thinks last month’s brutal selloff in U.S. stocks was just the beginning. Things are likely to get much worse from here. But they don’t have to get worse for you. E.B. can be your “personal guide” as this 6-year bull market continues to unravel. He’s recently shown readers how to profit from crashing oil prices and the digital revolution in money. You can read all about E.B.’s favorite investing opportunities every month in The Casey Report.

Right now we’ll send you a FREE 30-day subscription to The Casey Report when you order Going Global 2015…one of the most important books we’ve ever published. Going Global shows you how to move your wealth outside the “blast radius” of any financial crisis.

We usually sell Going Global for $99. But we’re virtually giving away a very limited number of hard copies. All we ask is that you pay $4.95 to cover our processing costs.

Why are we practically giving away so much of our best research? Because we hope that after trying what is essentially a free sample of some of our best and most valuable work, you’ll want to do business with us again.

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The article The Bull Market is Over was originally published at caseyresearch.com.

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Should You Worry That the Stock Market Just Formed a “Death Cross”?

By Justin Spittler

The world economy appears to be stalling. Yesterday we got news that South Korea’s exports dropped 14.7% since last August, their largest decline since the financial crisis. It’s far worse than the 5.9% drop economists were expecting.

South Korea’s exports are important because they’re considered a “canary in the coalmine” for the global economy. South Korea is a major exporter to the largest economies in the world including China, the US, and Japan. South Korea also releases its export numbers much earlier than other major countries. That’s why a bad reading for South Korean exports is often the first sign that the global economy is in trouble.

The ugly news slammed stocks around the world. Chinese stocks dropped 1.3%, Japanese stocks dropped 3.8% and the major indexes in Germany, the United Kingdom, France, and Spain all lost at least 2%.

These big drops came one day after the worst month for global stocks in over three years..…

Regular Casey readers know last month’s selloff hit every major stock market on the planet. China’s Shanghai index lost 12%. Japan’s Nikkei lost 7.4% and Europe’s STOXX 600 lost 8.5%.

The MSCI All-  Index, a broad measure of the global stock market, fell 6.8%. Its worst month since 2012. US stocks also fell hard. The S&P 500 lost 6.3% in August. And the Dow Jones Industrial Average fell 6.6%. It was the Dow’s worst month since May 2010, and its worst August in 17 years.

Bearish signs are popping up everywhere..…

Last month’s crash dropped the S&P 500 below an important long term trend line. A long term trend line shows the general direction the market is heading. Many professional traders use it to separate normal market gyrations from something bigger. Think of it as a “line in the sand.”

The market is constantly going up and down. But as long as we’re above the long term trend line, the dominant trend is still “up.” But when a selloff knocks the stock market below its long term trend line, it’s a sign the trend might be changing from up to down.

As you can see from the chart below, there have been a few “normal” selloffs since 2011. On Friday, however, the S&P dropped below its long-term trend line for the first time in about 4 years.

The broken trend line isn’t the only bearish sign we see right now.....

US stocks are also very expensive. Robert Shiller is an economics professor at Yale University and a widely respected market observer. Shiller is best known for creating the CAPE (Cyclically Adjusted Price Earnings) ratio. It’s a cousin of the popular price to earnings (P/E) ratio.

The P/E ratio divides the price of an index or stock by its earnings per share (EPS) for the past year. A high ratio means stocks are expensive. A low ratio means stocks are cheap.

The CAPE ratio is the price/earnings ratio with one adjustment. Instead of using just one year of earnings, it incorporates earnings from the past 10 years. This smooths out the effects of booms and recessions and gives us a useful long term view of a stock or market.

Right now, the S&P’s CAPE ratio is 24.6…about 48% more expensive than its average since 1881.

  
US stocks have only been more expensive a handful of times..…

Shiller explained why he’s worried in a recent New York Times op-ed: The average CAPE ratio between 1881 and 2015 in the United States is 17; in July, it reached 27. Levels higher than that have occurred very few times, including the years surrounding the stock market peaks of 1929, 2000 and 2007. In all three of these instances, the stock market eventually collapsed.

For the S&P’s CAPE ratio to decline to its historical average, the S&P would have to drop to around 1,300. That would be a disastrous 34% plunge from today’s prices. To be clear, this doesn’t mean a crash is imminent. Like any metric, the CAPE ratio isn’t perfect. CAPE is helpful for spotting long-term trends, but it can’t “time” the market.

But the high CAPE ratio is one more reason you should be extra cautious about investing in US stocks right now.

It also means you should take steps to prepare..…

As we write on Tuesday afternoon, stock markets around the world are in a free fall. The S&P 500 dropped another 3% today. On top of that, the current bull market in US stocks is now one of the longest in history. It’s already two years longer than the average bull market since World War II.

And as we’ve explained, according to the CAPE ratio, US stocks are overpriced. We can’t tell you for sure when the next financial crisis will hit. No one can.

But we do urge you to prepare. What’s happening right now shows how fragile the markets are. You shouldn’t ignore the mounting evidence that our financial markets just aren’t healthy. We lay out every step you should take to prepare for the next financial crisis in our book, Going Global 2015.

This important book shows you how to get your wealth out of harm’s way and profit from the next financial disaster. It’s must-read material for anyone who’s serious about “crisis-proofing” their wealth. Right now, we’ll send it to you for practically nothing…we just ask that you pay $4.95 to cover processing costs. Click here to claim your copy.

The article Should You Worry That the Stock Market Just Formed a “Death Cross”? was originally published at caseyresearch.com.

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Mike Seerys Weekly Recap of the Crude Oil, Natural Gas, Gold, Silver, Dollar and Coffee Markets

The fed showed it's lack of confidence in the economy by keeping rates unchanged and traders made it clear how they feel about it. So who better to have than our trading partner Mike Seery back to give our readers a recap of this weeks trading and help us put together a plan for the upcoming week. 

Crude oil futures in the October contract settled last Friday in New York at 44.63 a barrel while currently trading at 46.40 up nearly $2 for the trading week as the short term trend seems to be gaining traction to the upside.

I’m currently sitting on the sidelines in this market as prices are trading above their 20 but below their 100 day moving average telling you that the trend is mixed as a bullish API report on Wednesday sent prices up sharply as it looks to me that prices want to go higher but the risk is too high at the current time to enter into a position. The U.S dollar was sharply lower this week as that supported the precious metals and the energy sector as prices are still consolidating last month’s rally from $38/$49 as volatility is relatively high at the current time.

The Federal Reserve announced yesterday that they will not raise interest rates helping push up many commodities here in the short term, but the problem with oil at the current time is the fact that we have massive worldwide supplies which have sent prices sharply lower in 2015 but that’s already reflected into the price, but wait for better chart structure to develop as it might take a couple more weeks so keep a close eye on this market.
Trend: Mixed
Chart Structure: Improving

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Natural gas futures in the October contract are trading below their 20 and 100 telling you that the trend is to the downside as I’m now recommending a short position at 2.63 while placing your stop loss above the 10 day high which currently stands at 2.80 risking $1,700 per contract plus slippage and commission.

The chart structure will not improve for another 6 days so you’re going to have to accept the risk as prices are down about 6 points for the trading week as the energy sector is lower this Friday afternoon. Natural gas prices bottomed out around the 263 level on over a dozen occasions only to rally every single time but this time we broke major support and that’s why I am taking a short position as I think the risk/reward is in your favor but I would like to see a little better chart structure as we had a false rally earlier in the week to the upside and that’s why the stop loss is relatively high.

If the risk is too high for your trading account take advantage of any price rally therefore lowering monetary risk as who knows how low prices go as huge supplies continue to put pressure on this market coupled with mild weather conditions therefore decreasing demand here in the United States so stay short in my opinion as this is a major breakdown in price technically speaking.
Trend: Lower
Chart Structure: Solid

Gold futures in the December contract are sharply higher this Friday in New York trading up $20 at 1,137 an ounce after settling last Friday at 1,103 reacting to the Federal Reserve yesterday not raising interest rates sending gold sharply higher with high volatility. Gold is trading above its 20 day but still below its 100 day moving average telling you that the trend is mixed as I’ve been sitting on the sidelines for quite some time as this trend is extremely choppy as I’m advising investors to avoid this market at the current time and wait for better chart structure before entering.

I was recommending a silver trade getting stopped out a couple of days back as the precious metals as a whole have rallied as it looks like the Federal Reserve is very hesitant to raise interest rates which is bullish commodity markets at least here in the short term, but the true breakout in gold is above 1,170 but look at other markets that are beginning to trend with less risk.

The U.S dollar has been down 150 points in the last three days which has been very supportive to the precious metals as money is coming out of the S&P 500 and into gold but time will tell us if this trend is for real.
Trend: Mixed
Chart Structure: Poor

Silver futures in the December contract settled last Friday in New York at 14.50 an ounce while currently trading at 15.25 up $.75 this week reacting to the Federal Reserve not raising interest rates sending silver prices sharply higher. I was recommending a short position in silver from around 14.70 getting stopped out in Wednesdays trade around 14.95 as prices are now trading above their 20 day but still below their 100 day moving average telling you that the trend is mixed so sit on the sidelines and look at other markets that are beginning to trend.

The chart structure in silver at the time of the recommendation was outstanding, however currently the chart structure is poor with high risk as the true breakout does not occur until prices break 15.77 as silver may have bottomed in the short term.

Many of the commodity markets have been choppy in recent weeks as I was stopped out of many of my trade recommendations as my only two positions at current time are short coffee and cattle as I will wait and be patient as sometimes not trading is the best thing to do.
Trend: Mixed
Chart Structure: Poor

The dollar index futures in the December contract are trading below their 20 & 100 day average telling you that the trend is to the downside reacting negatively to the Federal Reserve’s decision not to raise interest rates sending the dollar down over 100 points for the trading week.

I’m currently sitting on the sidelines waiting for a breakout above 96.63 to occur before entering a bullish position but it looks to me that prices look to retest last month’s low of around 93 but the chart structure is poor at the current time so avoid this market as the risk is too high in my opinion.

I have not traded the currencies in quite some time but when I do see excellent chart structure coupled with a solid risk/reward situation I will trade the currency market but at this point the chart structure does not meet my criteria so find another market that is trending.
Trend: Lower
Chart Structure: Poor

Coffee futures in the December contract are trading below their 20 and 100 day moving average telling you that the trend is bearish in the short term after settling in New York last Friday at 116.55 while currently trading at 118.25 in a very nonvolatile trading week. I am currently recommending a short position and if you took that recommendation continue to place your stop loss above the 10 day high which currently stands at 122.50 as the chart structure is outstanding at the current time while the risk/reward is in your favor in my opinion.

Coffee prices continue their bearish trend as traders are concerned that Brazil will continue to sell reserves due to the fact that of the Brazilian Real weakness versus the U.S dollar, but only time will tell to see if this comes to fruition. I’m a trend follower and the trend is to the downside as I think volatility will start to increase as coffee historically speaking is one of most volatile commodities in the world but at this point remains very dormant.

As I talked about in yesterday’s blog anytime you can risk three or four points in coffee you must take that trade as I think that’s a special situation that does not happen very often over the course of the year due to the fact that volatility is usually much higher than it is presently.
Trend: Lower
Chart Structure: Outstanding

Mike has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. Get more of Mike's calls on this Weeks Commodity Markets


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Trading 201: Position Sizing

By Jared Dillian 

This is going to be the last of the trading lessons for a while. I don’t want to turn this into a trading blog, and there are important macro things to talk about (especially next week). Here’s an imaginary scenario: someone tips you that an acquisition is going to happen. Of course, that would be insider trading, which is illegal—but let’s pretend for the purpose of this exercise that insider trading were legal.

So someone tells you that Company A is going to buy Company B and is going to pay a 100% premium.

Question: how much of your money do you put in Company B? If the answer is anything less than “All of it,” then you are an idiot.

We are talking about a 100% return in one day. Can you do better than that? No. Also, assume that the guy who told you this is 100% reliable. The information is legit. There is no chance that it’s wrong. Rationally, you should put every penny of your money into Company B stock. If you put in any less than 100%, you are behaving irrationally.....Got it?

Scenario 2: you have a vague idea that GE is going to go up. Just a hunch. How much GE should you buy?

Answer: not very much. Maybe it should be the smallest position in your portfolio. At this point in the story, think about your portfolio, or maybe even log into it. My guess is you have some very high-conviction ideas alongside some very low-conviction ideas, and that everything is just about weighted equally.

People do this all the time. They have $100,000 in 10 stocks—$10,000 a stock—regardless of conviction level. This is going to be hard for novice traders to understand. Novice traders pick stocks like I bet on baseball. I might bet against the Royals because Edinson Volquez wears his hat sideways, or I might bet on the Nationals because I am a huge Bryce Harper fan, or I might bet against the Red Sox just because.

Novice traders find it hard to believe that someone can be that sure about a stock. But I meet professional gamblers who are “that sure” about baseball games. I don’t understand how they do it, but they do it. Soros and Druckenmiller were pretty gosh darn sure when they bet against the British pound. Imagine if they had been wrong! But they knew they wouldn’t be.

Winner, Winner, Chicken Dinner

Let’s go back to about 10 years ago when Ben Mezrich wrote Bringing Down The House: The Inside Story of Six MIT Students Who Took Vegas for Millions. That was when the general public got to learn about advantage play in blackjack, that is, counting cards.

How does it work?
In one paragraph, you count cards so you can keep track of face cards (which are good) and low cards (which are bad), so if you know there’s a concentration of face cards left in the shoe, you will have a temporary statistical advantage over the dealer.

And how do you take advantage of that statistical advantage?
Duh, you bet more!

That’s what the card counters in the book did. When the count was high, they were putting in 10, 20, or even 50 times their normal bet. In fact, that’s how most casinos know they’re dealing with a card counter. Average players don’t vary their bet size. They bet the same size all the time. Average traders do too.

If you want to read more on this concept (and I highly recommend that you do), read David Sklansky’s Getting the Best of It.  It’s a gambling book, but most people I know on Wall Street have read it.

Oink

So I’m going to preach what I practice. My highest conviction position is about 80% of my portfolio (using leverage). Now, that’s varying your bet size. Most of my ideas are actually bad. Seriously. I knew a guy at Lehman who said he was wrong 80% of the time. I figured he was lying. The guy made a ton of dough. How could that be true?

If you bet the farm on the 20% of the time you are right, you can do very well. This, I think, is one of the limitations of an investment newsletter. You have these ideas, and they are in a portfolio, but they are not weighted. Some are clearly better than others. And there they all are, line items in the portfolio update, and the good ones look the same as the bad ones.

A word of caution. Novice traders should not, absolutely not, make one position 80% of their portfolio. I do it because I have 16 years of experience. You should not do this any more than you would bet 80% of your money on a baseball game (unless you know a lot about baseball). Novice traders can’t vary their bet size because they don’t know enough to tell which ideas are bad and which ones are a “sure thing.”

It’s a good way to blow yourself up.

But at some point in your investing career, you are going to come across one of those really great ideas, and you will be tempted to weight it as 10% of your portfolio, along with everything else.

Diversification! Screw diversification.

How do billionaires get to be billionaires? Funny, if you look at a list of billionaires, there’s not too many money managers in there. Some. Like Dalio, Tepper, Soros, Jones. But not many. Most billionaires got to be billionaires by starting companies and growing them. In other words, they had 100% of their portfolio in one stock. Their own.

You don’t get to be a billionaire by putting $10,000 in 10 stocks. We all can’t be billionaires. But you don’t have to be a piker.

Jared Dillian

If you enjoyed Jared's article, you can sign up for The 10th Man, a free weekly letter, at mauldineconomics.com.

The article The 10th Man: Trading 201: Position Sizing was originally published at mauldineconomics.com.

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Jim Rogers on Timeless Investing Strategies You Can Use to Profit Today

By Nick Giambruno

Recently I spoke with Jim Rogers about the most important investment lessons he has learned over the years.
Jim is a legendary investor and true international man. He’s always ahead of the game. Jim made a bundle by investing in commodities in the 1990s when they were out of favor with Wall Street. He’s also made large profits investing in crisis markets.

Jim and I spoke about timeless strategies that are truly essential to being a successful investor.
You won’t want to miss this fascinating discussion, which you’ll find below.

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Nick Giambruno: You’ve said that many times throughout history, conventional wisdom gets shattered. What are some widely held beliefs that will be shattered in the next 10 years?

Jim Rogers: That’s a very good question. Well, for one thing, I know bond markets are at all-time highs almost in every country in the world. Interest rates have never been so low. Everybody is convinced that bonds are a good thing to invest in. Otherwise, they wouldn’t be at all time highs.

I’m sure that 10 years from now, we are all going to look back and say, how could people have even been investing in bonds with negative yields? How could that possibly have been happening? But at the moment, everybody assumes it’s okay, and it’s the normal and natural thing to do. Ten years from now, we’re going to look back and say, gosh, how could we ever have done something so foolish?

So one of the things I do is I look to see - when everybody’s convinced that X is correct - I look to see, well maybe X isn’t correct. So when I find unanimity of a view, I look to see, maybe it’s not right. And it usually isn’t right, by the way. I have learned that from experiences and from lots of reading.

Nick: How does an investor deal with being accurate but early?

Jim: Oh, that’s the story of my life. I’ve always been accurate but early. If I’m convinced something is going to happen or if I should make an investment, I have learned that I should wait for awhile, because maybe it is too early. And it usually is too early.

I try to discipline myself to wait longer or to put in orders below the market and let the market come to me. But even then, sometimes I’m still too early.

Nick: How did studying history help you in investing?

Jim: Well, the main thing it taught me was that everything is always changing. If you go back and look at before the First World War, nobody could ever have conceived in 1910 that Germany and Britain would be slaughtering millions of people four years later. Yet it happened.

No matter what we think today, no matter what it is, it is not going to be true in 15 years. I assure you. You pick any year in history, and look at what everybody was convinced was correct and then look 15 years later, and you’d be shocked and astonished. Look at 1920, 15 years later. Look at 1930, 15 years later.

Any year you want to pick - 1900, 1990, 2000. Pick any year and I assure you, 15 years later everything is going to be different. I guess that’s the first thing I learned from the study of history.

Nick: What mistakes do empires always make?

Jim: They get overextended. They think they’re smarter than everybody else. They think they cannot make mistakes, and even if they are making mistakes they are so powerful they think that they can correct the mistakes. And then they become overextended. Usually they become overextended financially, militarily, geopolitically, in every way.

Nick: Is the US repeating those same mistakes?

Jim: Well, the US is the largest debtor nation in the history of the world now, and the debts are going higher and higher. The people in the US think it doesn’t matter that we’ve got all these debts and there’s no problem. People in the US don’t think that it’s a problem that we’ve got troops in over 100 countries around the world. I mean, when Rome got overextended militarily, it paid the price. Spain and many other countries have had this problem. Maybe it’s not a problem. Maybe America can have troops in 200 countries around the world and it won’t matter, but America has certainly gotten itself overextended in many ways.

Nick: Do you think wealth and power will continue to move East?

Jim: Wealth and power are moving East now, and that is going to continue. That’s because of historic reasons. There’s little doubt in my mind that China is going to be the next great country in the world. Most people are still skeptical of that. Most people know something is happening in China. They don’t really quite understand the full historic significance of what is happening in China including many Chinese.

Jim Rogers and Nick Giambruno

Nick: You mentioned in your most recent book, Street Smarts, about the lesson you learned when Nixon closed the gold window in 1971. At the time you were long Japan and short the US, and you just got killed. Can you tell us the lessons you learned from that experience?

Jim: That was a perfect example of what I’m talking about. Even if you have it right, or you think you have it right, something can always come along and change that, especially with politicians.

Politicians play by different rules from the rest of us. They just change the rules. Mr. Nixon just changed the rules because he was having a serious problem, and he thought America was having a serious problem. And when they changed the rules against all logic or against history, something is going to give. If you are on the wrong side, you are the one who is going to give, and I’ve learned that.

Nick: Any other investing lessons you’d like to mention?

Jim: Well, when you see on the front page of the newspaper that there’s a disaster - natural disaster, economic, any kind of a disaster - just pick up the newspaper and think, now wait a minute, everybody’s panicked right now. The blasting headlines are that the world is coming to an end. Stop and think, is the world really coming to an end? Is this industry going to survive? Is this country going to survive? Is this market going to survive? Because normally it is going to survive.

If you can just first stop and have that thought process, then you can think it through. Let’s say that these headlines are wrong. “What should I do?” You are probably going to be a successful investor. Be prepared for the fact that you are probably going to be early. If you can figure out how to spot the exact bottom and the exact turn, please call me.

Nick: This is exactly what Doug Casey and I do in our Crisis Speculator publication (click here for more details). Shifting gears now, you’ve also said that Harvard and other universities could go bankrupt. Why do you think that?

Jim: Well, first of all, some of the American universities have a very, very high cost structure. It’s astonishing.
Let’s pick on Ivy League. I went to an Ivy League school, so I can pick on them a little bit. They have a high cost structure. They think that what they know is correct and that people will always pay higher and higher prices.

To go to Princeton for four years now is probably going to cost you $300,000 in the end when you figure out the tuition, room and board, books, beer, travel, and everything else. It’s extraordinarily expensive to go to these places. Now what Princeton would tell you - and I didn’t go to Princeton but that’s why I’m picking on them - what Princeton would say is, yeah, but it’s better education. But I’m not sure it’s better education.

I know that many of the things that they teach in Ivy League schools these days are absurd and totally wrong. It’s conventional wisdom run amuck, so it’s not necessarily better what you learn at those places. If you go to the right universities, and you learn the wrong things, it’s going to cost you in the end.

Then they say, yes, but it’s a brand, it’s a label that’s good. Sure, it’s a label, it’s a very expensive label, but it’s going to take a lot more than that to make you successful. Just because your grandmother gives you a Cadillac, which is a good brand, it’s not going to make you successful at finding dates, or having a good job or anything else. You have to produce on your own.

Throughout history you've had many institutions that have been world famous and top of the line. They’ve disappeared. It doesn’t mean Harvard can’t too. I didn’t go to Harvard, so I shouldn’t pick on any of these places that I didn’t go to. So we’ll see. I’m skeptical of all of them.

Nick: Why do universities and governments embrace Keynesian economics? Why do they hate Austrian economics?

Jim: That’s a good question. Keynes himself, at the end, didn’t embrace what is now known as Keynesian economics. Keynes would probably be an Austrian now, because at the end of his life, he came to understand that some of the stuff was being misused.

The main reason people like Keynesian economics is because they think they can be powerful. They can change things. “I’m a smart guy. I went to an Ivy League school, therefore I know what’s best.

And if I say it’s best, let’s do it, and it will make things better.” That’s essentially what Keynesianism is now. The market is a lot smarter than all of us, and I wish we would all learn that. It always has been and it always will be.

Nick: Thanks for your time, Jim.

Jim: My pleasure.

Editor’s Note: Jim Rogers told us about the importance of looking past the news that frightens others away. It’s the key to finding deep value investment opportunities that can make you enormous profits. It’s one of the world’s greatest wealth creation secrets.

It’s been used by Warren Buffett, Doug Casey, John Templeton, Baron Rothschild, and many other successful investors. It’s a strategy that you can use too.

It’s exactly these kinds of opportunities we cover in Crisis Speculator. Click here for more details.

The article was originally published at internationalman.com.

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The Most Important Geopolitical Trend of the Next Decade…Here’s How to Profit

By Nick Giambruno

The bloodbath was merciless. In 1842, 16,500 British soldiers and civilians withdrew from Kabul, Afghanistan. Only one would survive. It was the most humiliating military disaster in British history. The death toll sealed Afghanistan’s reputation as “the graveyard of empires.”

It was the desire for control of Central Asia that sucked the British Army into its Afghan disaster. For most of the 1800s, the UK and Russia pushed for power and influence in Central Asia in a competition known as “the Great Game.”

It wasn’t just to score points. The thought of losing India terrified the Brits more than anything else. India had huge economic resources, a plentiful supply of military-aged males, and strategic geography. London treasured India as “the jewel in the crown of the British Empire.”

To the Brits, the expansion of the Russian Empire into Central Asia was a threat to their control of India. Neighboring Afghanistan was their red line. If the Russians could draw Afghanistan into their sphere of influence, they would become an intolerable threat to British India.

So, in 1839, the British Army invaded. They installed a puppet regime in Kabul that would stand as a buffer to Russian influence. Every previous attempt to bring Afghanistan under foreign rule had ended badly. The Afghans are some of the toughest and most stubborn fighters in the world. The British knew that executing their plan wouldn’t be a cakewalk.

After a few years of trying and then failing to impose their will, the Brits threw in the towel. Early in 1842, 16,500 British soldiers and civilians packed up and left Kabul. As they fled through the mountainous trails, Afghan tribal fighters attacked repeatedly.

It added up to an epic massacre…..If the Afghan fighters didn’t kill you, disease and winter weather would.

After just seven days, only one man was still alive. William Brydon was bloody, torn, and exhausted. He was the only one to make it to the nearest British military outpost. That outpost was in Jalalabad, 90 miles away from Kabul. The Afghans let him live so there would be someone to tell the grisly story.

The garrison in Jalalabad lit signal fires to guide other British survivors to safety. After several days, they realized no one was left to see the light. Painter Elizabeth Butler captured the pain and desperation of the moment in her Remnants of an Army, below.

The debacle was a brutal lesson in geopolitics: geography constrains the destiny of nations and empires. Ignore that constraint at your peril. Despite their folly in Afghanistan, the British were generally shrewd players in geopolitics. It was a skill developed from a centuries-long career as an imperial power.

The godfather of geopolitical theory was British strategist Sir Halford Mackinder. Mackinder developed a general theory that connected geography with global power. To this day, planners in the US, Russia, and China study his teachings.

Mackinder argued that dominating the Eurasian landmass - Asia and Europe together - was the key to being the leading global power.

Zbigniew Brzezinski, the renowned American geopolitical strategist, echoes Mackinder on the importance of Eurasia in his book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives: Ever since the continents started interacting politically, some five hundred years ago, Eurasia has been the center of world power.

A power that dominates “Eurasia” would control two of the world’s three most advanced and economically productive regions…rendering the Western Hemisphere and Oceania geopolitically peripheral to the world’s central continent. About 75% of the world’s people live in “Eurasia,” and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. “Eurasia” accounts for about three-fourths of the world’s known energy resources.

A single power that controls the resources of Eurasia would be an unstoppable global superpower. If one couldn’t control all of Eurasia, the next best thing would be to dominate the world’s oceans. Control of the sea lanes means control of international trade and the flow of strategic commodities.

In 1900, the British Empire was near the peak of its strength. It was the world’s undisputed naval power. Its naval bases ringed Eurasia from the North Atlantic to the Mediterranean, from the Persian Gulf to the Indian Ocean, all the way to Hong Kong. This enabled the Brits to project event shaping military power into Eurasia.

Today, the US is far and away the world’s leading naval power. Like the British before them, the Americans have followed the geopolitical strategy of ringing Eurasia with military bases and exploiting its divisions. The aircraft carrier, with its 5,000-person crew, is the central instrument of US naval power. Putting just one of these enormous vessels into operation costs more than $25 billion.

The US Navy has 11 carriers, more than the rest of the world combined. And it’s not just ahead in quantity. The power and technological sophistication of US aircraft carriers are far beyond the capabilities of any competitor. There is simply no military force now or in the foreseeable future that could dispute US control of the high seas.....Soon, though, it may not matter.

That’s because China, Russia, and others are working on an ambitious plan. They seek to make US dominance of the seas unimportant. They’re tying Eurasia together with a web of land-based transport facilities. A constellation of supporting organizations for financial, political, and security cooperation is also in the works. If they’re successful, they’ll wipe away hundreds of years of geopolitical strategic thinking. They’ll make the current US planning paradigm obsolete. They’ll undermine the strategy that the US - and the UK before it - has relied on to dominate geopolitics. It would be the biggest shift in the global power balance since WWII.

It’s a game for the highest stakes…a real-life battle of Risk. The effort and countereffort to integrate Eurasia is the new Great Game. It’s the most important process to watch for the next 10 years. The central project to integrate Eurasia is the New Silk Road.

The World’s Most Ambitious Infrastructure Project

For over a thousand years, the Silk Road, named for the lucrative trade it carried, was the world’s most important land route. At 4,000 miles long, it passed through a chain of empires and civilizations and connected China to Europe. It was the path along which merchant Marco Polo traveled to the Orient. When he returned, he gave Europeans their first contemporary glimpse of China.

Today, China is planning to revive the Silk Road with modern transit corridors. This includes high speed rail lines, modern highways, fiber-optic cables, energy pipelines, seaports, and airports. They will link the Atlantic shores of Europe with the Pacific shores of Asia. It’s an almost unbelievable goal.

If all goes according to plan, it will be a reality by 2025. A train from Beijing would reach London in only two days.

New Silk Road Routes

The New Silk Road is history’s biggest infrastructure project. It aims to completely redraw the world economic map. And, if completed, it has the potential to be the biggest geopolitical game-changer in hundreds of years.

Tying Eurasia together with land routes frees it from dependence on maritime transport. That ends the importance of controlling the high seas. That reshapes the fundamentals of global power…and it’s exactly what the Chinese and Russians want.

In late 2013, Chinese president Xi Jinping announced the New Silk Road. The Chinese government rules by consensus. They’re careful long-term planners. When they make a strategic decision of this magnitude, you know they are totally committed. They have the political will to pull it off. They also have the financial, technological, and physical resources to do it.

The plan is still in the early stages, but important pieces are already falling into place. On November 18 of last year, a train carrying containerized goods left Yiwu, China. It arrived in Madrid, Spain, 21 days later. It was the first shipment across Eurasia on the Yiwu-Madrid route, which is now the longest train route in the world. It’s one of the first components of the New Silk Road.

As ambitious as the New Silk Road is, it’s just one aspect of the integration of Eurasia. In just the past year, a set of interlocking international organizations has emerged. These new linkages are the institutional support for a new political-economic-financial order in Eurasia.

Here are the most prominent organizations…

Asian Infrastructure Investment Bank (AIIB)
China launched the AIIB in 2014 with financing for New Silk Road projects in mind. Its initial capital base is more than $100 billion.

The AIIB would be a Eurasian alternative to the US-dominated International Monetary Fund (IMF) and World Bank. Those institutions have been standing atop the international financial system. China, Russia, and India are the main shareholders and decision makers at the AIIB.

Nearly 60 countries, mostly in Eurasia, have signed up to join the bank. Japan and the US declined to join. Then, the US government embarrassed itself by trying (and failing) to pressure allies the UK, France, and Germany into snubbing the organization.

BRICS and the New Development Bank (NDB)
The BRICS countries - Brazil, Russia, India, China, and South Africa - are all onboard for Eurasian integration. The NDB, like the AIIB, is an international financial institution headquartered in China (but headed by an Indian banker), with $100 billion in capital. Also like the AIIB, the NDB is an alternative to the IMF and World Bank. The BRICS countries established the NDB in July 2015.

The NDB and AIIB will complement, not compete with, each other in financing the integration of Eurasia. The NDB will also finance infrastructure projects in Africa and South America. The NDB will use members’ national currencies, bypassing the US dollar. It won’t depend on US controlled institutions for anything. That reduces the NDB’s exposure to US pressure. The BRICS countries are also exploring building an alternative to SWIFT, an international payments network.

SWIFT is truly integral to the current international financial system. Without it, it’s nearly impossible to transfer money from a bank in country A to a bank in country B. In 2012, the US was able to kick Iran out of SWIFT. That crippled Iran’s ability to trade internationally. It also demonstrated that SWIFT had become a US political weapon. Neutralizing that kind of power is precisely why the BRICS countries want their own international payments system.

Eurasian Economic Union (EEU)
The EEU is a Russian-led trading bloc. It opened for business in January 2015. The EEU provides free movement of goods, services, money, and people through Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. Other countries may join. Trade discussions have started with India, Vietnam, and Iran. The EEU is gradually expanding as countries along the New Silk Road remove barriers to trade. Egypt, Argentina, Brazil, Paraguay, Uruguay, and Venezuela are also in trade talks with the EEU.

Shanghai Cooperation Organization (SCO)
In the military and security realm, there’s the SCO. Current members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. India and Pakistan will join by 2016. Iran is also likely to join in the future.

Putting the Pieces Together

Eurasian integration, and the US attempt to block it, will be the most important story for the next 10 years. This is the new Great Game. Oddly, the US media has barely made a peep about it. Maybe the story of Eurasian integration is just too big and complex to fit into sound bites.

The New Silk Road…the Asian Infrastructure Investment Bank…the BRICS New Development Bank…an alternative SWIFT system…the Eurasian Economic Union…the Shanghai Cooperation Organization…these are the building blocks for a new world. There could be huge profits for investors who position themselves correctly ahead of this monumental trend.

There is an easy way for US investors to tap into this trend. Click here to get the latest issue of Crisis Speculator for all the details.

The article was originally published at internationalman.com.

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ENCORE: Here's a Second Chance to Attend John's LIVE Event

If you missed last weeks event with our trading partner John Carter of Simpler Options you get another chance to catch this free webinar LIVE this Tuesday evening September 15th at 8 p.m. est. [now a replay]

Last weeks event was over prescribed so those that logged in late lost their seat to the those on the waiting list. Don't let that happen again. Please reserve your seat asap and make sure you log in 10 minutes early on Tuesday night so you don't lose it.

 Watch the "500k Proof and Trading Plan" Webinar Replay

Even if you attended last week you might try to get another spot this week as John has added even more examples of how to put these methods to work right away. John is a special trader for sure, and what really sets him apart is his ability to pass on his skills. He has a "knack" for making his trading methods easy to understand so you can put them to work the following trading day.

Watch the new video John has put together to get ready for this class.....Watch it HERE

John became famous for the "Big Trade" he made on Tesla, ticker TSLA in 2014. And in the process changed the way wall street looks at using options for protection and profit. And this weeks webinar will make it clear, it's not an unattainable thing to trade like John. And he will deliver this Tuesday, that's why we are going and that's why we believe you should as well.

Register for live event and secure recording HERE [Now a Replay]

See you Tuesday evening,
Ray C. Parrish
aka the Crude Oil Trader


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

The institutional traders are back from vacation and trading volume is picking up. So who better to have than our trading partner Mike Seery back to give our readers a recap of this weeks trading and help us put together a plan for the upcoming week. 

Crude oil futures in the October contract settled last Friday in New York at 46.05 a barrel while currently trading at 45.20 as this market has been highly volatile as I probably will not be trading crude oil for quite some time as the chart structure is terrible so look at other markets that are beginning to trend with less risk. Prices are currently trading above their 20 day moving average for the first time in months but still below their 100 day average as the trend remains mixed.

Crude oil prices have been following the stock market as when the S&P 500 is sharply lower you can rest assured crude oil prices will be lower and vice versa as everything comes to and as we were short this market from $59 as the trend was our friend for three months before turning on a dime, as this is why you must have an exit strategy as mine is placing a stop at the 10 day high if I am short as never getting out is very dangerous in my opinion. Goldman Sachs cut demand for crude oil sending prices lower this Friday afternoon as experts are calling for lower prices and the possibly of breaking $30 a barrel due to massive oversupply but I will wait for a trend to develop.
Trend: Mixed
Chart Structure: Poor

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Natural gas futures settled in New York at 2.65 last Friday afternoon while currently trading at 2.67 in a very nonvolatile trading week as prices are stuck in an incredibly tight three-week channel looking to breakout one direction and my feeling is to the downside and if prices break 2.63 I’m recommending a short position while placing your stop loss above the 10 day high at 2.73 risking $1,000 per contract plus slippage and commission. Natural gas futures are still trading below their 20 and 100 day moving average as this has been a bearish trend over the last several years due to oversupply issues here in the United States as we are a massive supplier and exporter of natural gas and I don’t think that situation is going to change, so keep a close eye on this market as a breakout is in the cards in my opinion. As a trader you have to look for special situations as my consolidation rule states that a consolidation must be 8 weeks or longer so this does not meet criteria, however the chart structure is outstanding therefore lowering monetary risk as I’m looking forward to getting into this trade either on the short side or possibly even on the long side as the risk/reward is your favor once the breakout occurs but you must be patient.
Trend: Sideways
Chart Structure: Outstanding

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Gold futures in the December contract settled last Friday in New York at 1,121 an ounce while currently trading at 1,106 down about $15 this week trading below its 20 and 100 day moving average near a 3 week low as I’m currently sitting on the sidelines as this market remains choppy with poor chart structure. I still see no reason to own gold currently as the risk/reward is not your favor so look at other markets that are starting to trend such as the silver market which I am currently recommending a short position because the chart structure is outstanding. Gold prices had a significant rally in the month of August bottoming out around 1,080 then rallying to 1,170 which was impressive in my opinion due to short covering and a flight to quality as the stock market has experienced volatility in recent weeks sending money out of stocks and into gold as a safe haven but things have settled down putting short-term pressure on gold. As I’ve talked about in many previous blogs I am a trend follower and I do not like to trade choppy markets because they are extremely difficult in my opinion so avoid this market at the current time and focus on silver.
Trend: Lower
Chart Structure: Poor

Silver futures in the December contract are trading lower by about $.30 this Friday afternoon in New York currently trading at 14.33 an ounce as I’ve been recommending a short position from around 14.70 and if you took that trade place your stop loss above the 10 day high which currently stands at 14.95 as you’re going to have to be patient as that stop loss will not be lower for quite some time. The next major level of support is at the contract low around the $14 mark and I do think that’s a possibility that could be retested in next week’s trade as the chart structure is still very solid at the current time. Silver prices settled last Friday at 14.55 while currently at 14.33 down over $.20 for the trading week as prices have been consolidating the recent downdraft in prices over the last three weeks, but the long-term and short-term trend still remain bearish in my opinion, so continue to play this to the downside while taking advantage of any price rally while maintaining the proper risk management strategy. Silver futures are trading below their 20 and 100 day moving average closing at 3 week low in today’s trade as the commodity markets still looks bearish in my opinion.
Trend: Lower
Chart Structure: Solid

The U.S. dollar index futures in the September contract are trading below their 20 day but still above their 100 day average telling you that the trend is mixed and has remained choppy for the last two weeks as I’m currently sitting on the sidelines waiting for a breakout above 96.63 to occur before entering a bullish position. The dollar settled last Friday at 96.24 while currently trading at 95.50 as investors are awaiting the Federal Reserve’s interest rate decision which will come out next week and will certainly send high volatility into this market so keep a close eye on this trade as we could be involved in next week’s trade. I have not traded the currencies in quite some time but when I do see excellent chart structure coupled with a solid risk/reward situation I will trade the currency market but at this point the chart structure does not meet my criteria so sit on the sidelines and see what the Federal Reserve states, and in my opinion I think they will not raise interest rates at the current time as there is too much uncertainty especially in the stock market.
Trend: Mixed
Chart Structure: Improving

Coffee futures in the December contract are trading below their 20 and 100 day moving average hitting a multi year low while settling in New York last Friday at 119.15 a pound while currently trading at 117.50 down slightly for the week in low volatility. I’m currently sitting on the sidelines kicking myself as we should be entering a short position but the 10 day high is too far away and does not meet my risk/reward criteria, however I’m certainly not recommending any type of bullish position in this market as I do think prices could break 100 in the next month or so as ample supplies worldwide continue to keep a lid on prices. Many of the soft commodities including sugar and cocoa have rallied in recent weeks but has not help support coffee prices at all as this trend remains your friend and certainly the short-term trend is to the downside and if the chart structure does improve I will be recommending a short position which could happen in the next couple of days especially if a price rally occurs. I would imagine that volatility in coffee will start to increase as historically speaking coffee is one of the top five most volatile commodities in the world as this low volatility will not last.
Trend: Lower
Chart Structure: Improving

Mike has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. Get more of Mike's calls on this Weeks Commodity Markets


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