Why Junior Gold Mining Stocks Are Our Favorite Speculations

By Laurynas Vegys, Research Analyst

Despite last week’s pullback, the precious metals market is off to an impressive start in 2014. Gold is up 10.6%, silver 4.3%, and the PHLX Gold/Silver (XAU) 17.1%. Gold, in particular, had a great February, rising above $1,300 for the first time since November 7, 2013. This has led to some very handsome gains in our Casey International Speculator portfolio, with a few of our recommendations already logging triple digit gains from their recent bottoms.

Why Junior Gold Mining Stocks Are Our Favorite Speculations

One of Doug Casey’s mantras is that one should buy gold for prudence, and gold stocks for profit. These are very different kinds of asset deployment. In other words, don’t think of gold as an investment, but as wealth protection. It’s the only highly liquid financial asset that is not simultaneously someone else’s obligation; it’s value you can liquidate and use to secure your needs. Possessing it is prudent.

Gold stocks are for speculation because they offer leverage to gold. This is actually true of all mining stocks, but the phenomenon is especially strong in the highly volatile precious metals. Most typical “be happy you beat inflation” returns simply can’t hold a candle to stocks that achieved 10 bagger status (1,000% gains). In previous bubbles—some even generated 100 fold returns. And we may see such returns again.

It’s Not Too Late to Make a Fortune

Here’s a look at our top three year to date gainers.

What’s especially remarkable is that all three of these stocks shot up much more than gold itself, on essentially no company specific news. This is dramatic proof of just how much leverage the right mining stocks can offer to movements in the underlying commodity—gold, in this case. Two of the stocks above are on our list of potential 10 baggers, by the way.

So have you missed the boat? Is it too late to buy?

Looking at the chart, two bullish factors jump out immediately:

• Gold stocks have just now started to move up from a similar level in 2008.

• Gold stocks remain severely undervalued compared to the gold price. A simple reversion to the mean implies a tremendous upside move.

Now consider the following data that point to a positive shift in the gold market.

1. After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other ETFs.

2. Hedge funds and other large speculators more than doubled their bets on higher gold prices this year.

3. Increase in M&A—for example, hostile bids from Osisko and HudBay Minerals to buy big assets.

4. Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector.

5. Gold companies’ hedging of future production—usually a sign of insecurity among the miners—shrunk to the lowest level in 11 years.

6. China continues to consume record amounts of gold and officially overtook India as the world’s largest buyer of gold in 2013.

7. Large players in the gold futures market that were short have switched to being long.

8. Central banks continue to be net buyers.

To top it off, there’s been no fallout (yet) from the unprecedented currency dilution undertaken since 2008—and we don’t believe in free lunches. The gold mania train has not yet left the station, but the engine is running and the conductor has the whistle in his mouth. This means…..

Any correction ahead is a potential last-chance buying opportunity before the final mania phase of this bull cycle takes our stock to new highs, well above previous interim peaks.

In spite of the good start to 2014, most of our 10 bagger gold stocks are still on the deep discount rack. And you can get all of them with a risk free, 3 month trial subscription to our monthly advisory focused on junior mining stocks, the Casey International Speculator.

If you sign up today, you can still get instant access to two special reports detailing which stocks are most likely to gain big this year: Louis James’ 10 Bagger List for 2014 and 7 Must Own Stocks for 2014.
Test drive the International Speculator for 3 months with a full money back guarantee, and if it’s not everything you expected, just cancel for a prompt, courteous refund of every penny you paid.

Click Here to Get Started Now

I hope you will take advantage of this opportunity in front of us—while shares are still relatively cheap.

The article Junior Mining Stocks to Beat Previous Highs was originally published at Casey Research

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China’s Minsky Moment?

By John Mauldin

In speeches and presentations since the end of last year, I have been saying that I think the biggest macro problem in the world today is China. China has run up a huge debt, and the payments are coming due. They seem to be proactive, but will it be enough? How much risk do they pose for the global system?

This week as I travel to Cafayate I have asked my young associate Worth Wray to write up his research and our conversations on China. Worth has lived in China; and with his (and my) access to people with their fingers on the pulse of China, he has come up with some valuable insights. The hard part for him was to keep it in a single letter. China is a such a huge topic that writing about it can easily yield a tome.

I am lucky to have enticed Worth to come to work with me. He is extraordinarily talented and insightful as an economist, has the boundless energy of youth (which means he seemingly doesn’t sleep), and spent the last five years deep in one of the best training grounds that a young analyst could have. He brings his own extensive Rolodex to our organization. In the not too distant future, we plan to start writing a joint letter on portfolio design and construction, translating the macro insights we have into real world portfolios that can inform your own investing. Lots of I’s to dot and T’s to cross, but we are making progress.

I am delighted to be able to bring a talent like Worth to your attention. So let’s let him talk China to us and see where it takes us. [Note: as I do the final edits here in Cafayate, I see that Worth did an outstanding job of bringing the data together and making the story understandable. You want to take the time to read this!]

A Front Row Seat
By Worth Wray

Before I teamed up with John last July, I worked as the portfolio strategist for an $18 billion money manager in Houston, TX that, among its other businesses, co-managed (with an elite team of investors from the university endowment world) one of the largest registered funds of funds in the United States.

For a bright-eyed kid from South Louisiana, it was a life changing experience. I had a front-row seat for every investment decision in a multi-billion-dollar portfolio for almost five years; and along with my colleagues and mentors in Texas, North Carolina, New York, Shanghai, and Singapore, I had the chance to meet and interact with a long list of the most sought-after hedge fund, private equity, and venture capital teams. I often found myself in the same room with honest-to-god legends like Kyle Bass, John Paulson, JC Flowers, and Ken Griffin … and I forged lasting some friendships with their portfolio managers and analysts.

As you can imagine, the information flow was addictive. I spent thousands of hours poring over manager letters from six continents, doing my best to connect the global macro dots ahead of the markets and coming up with question after question for everyone who would return my calls. That experience plugged me in to an enduring network of truly independent thinkers, forced me to see the world from an entirely different perspective, and put me in an ideal position to figure out what it takes to navigate the unprecedented (not to say strange) investment challenges posed by a “Code Red” world.

Sometimes, combing through a mountain of manager letters felt like reading the newspaper years in advance. I remember watching with amazement as a free-thinking global macro investor named Mark Hart made a fortune for his investors by shorting US subprime mortgages and then shifted his focus to what he argued would be the next shoe to drop – a series of sovereign defaults across the Eurozone.

Mark explained how the launch of a common currency had allowed historically riskier borrowers like Portugal, Ireland, Italy, Spain, and France to issue sovereign debt for the same borrowing cost as Germany did… without any kind of fiscal union to justify the common rates. The resulting debt splurge led to a big increase in fiscal debts, drove an unwarranted rise in unit labor costs across the southern Eurozone, and essentially activated a ticking time bomb at the very foundations of the euro system. It seemed obvious that rates would eventually diverge to reflect the relative credit risks of the borrowers, but the market didn’t seem to care until it got very bad news from Athens. We all know what happened next.

Just as Mark and his team at Corriente Advisors had predicted, spreads blew out in Greece, then in Ireland, then in Portugal, then in Spain… and it now appears that Italy and France are veering toward a similar fate. When the euro crisis finally broke out, my colleagues and I were waiting for it, because Mark had already walked us through his playbook for a multi-act global debt drama.

Instead of blowing up in spectacular fashion, the Eurozone crisis has taken far longer to resolve than a lot of investors and economists expected (Mark, John, and myself included); but the euro’s survival thus far has been largely the result of extensive Realpolitik and an increasingly hollow narrative from Mario Draghi and the ECB laying claim to the wherewithal to “do whatever it takes” to preserve the single-currency system. Meanwhile, as Corriente understood, the likelihood of major defaults across the Eurozone rises every day that the ECB does the bare minimum to resist France’s and Italy’s slide toward deflation. It’s not over until the fat lady sings.

The point I am trying to make is that Mark saw the fundamental imbalances behind the global financial crisis in time to launch a dedicated fund in 2006, and he saw the root causes of the ongoing European debt crisis in time to launch a dedicated fund in 2007… precisely because he thinks of the global economy as one interconnected system peppered with a series of unstable and still unresolved debt bubbles. Mark is one of the most forward-thinking investors I have ever met and one of the best in recent decades at spotting the big imbalances that spell T-R-O-U-B-L-E.

I can’t tell you if he will be right about the next phase of the global debt drama. Predicting the actions and reactions of elected and unelected officials is next to impossible in a Code Red world, but some people have an eye for fundamental imbalances. And since Mark has been largely right in identifying the major debt bubbles that have plagued the world since 2007, John and I can’t comfortably ignore his warning.

As Carmen Reinhart and Kenneth Rogoff argued in their still-authoritative history of financial boom and bust over the past eight hundred years, “When an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are.”

The Bubble That Is China

Following his prescient calls on the subprime debacle and the European debt crisis, Mark identified in 2010 another source of instability that he warned could shake the global economy. And it took me by surprise. He warned that China was in the “late stages of an enormous credit bubble,” and he projected that the economic fallout when that bubble burst could be “as extraordinary as China’s economic outperformance over the last decade.”

To my knowledge, Mark Hart and his team at Corriente were the first of many global macro managers to anticipate a hard landing in the People’s Republic of China. Mark argued that the Middle Kingdom would land very hard indeed, popping speculative bubbles in the property and stock markets, sending foreign capital flying out the door, and triggering a rapid collapse in the renminbi … and even if the Chinese government could manage its economy away from a deflationary bust, they would be forced to devalue the renminbi to do so. In other words, Mark saw a much lower renminbi under almost every outcome.
It was a mind-blowing concept to me that the main driver of global growth (at the time) could not only implode but even drag the rest of the world down with it.

I can’t share the original Corriente China presentation with you for legal reasons, but here are a few public notes published by the Telegraph’s Louise Armistead after she attended one of Mark’s presentations in November 2010. These may look like obvious observations today, the sort you can find plastered all across the internet, but very few people were actually paying attention four years ago. And the data has only gotten worse since 2010 as rampant credit growth and insidious shadow lending have continued to fuel greater and greater capital misallocation.

In the presentation, which amounts to a devastating attack on the prevailing belief that China is an engine for growth, the financier argues that ‘inappropriately low interest rates and an artificially suppressed exchange rate’ have created dangerous bubbles in sectors including:

Raw materials: Corriente says China has consumed just 65pc of the cement it has produced in the past five years, after exports. The country is currently outputting more steel than the next seven largest producers combined – it now has 200m tons of excess capacity, more that the EU and Japan's total production so far this year.

Property construction: Corriente reckons there is currently an excess of 3.3bn square meters of floor space in the country – yet 200m square metres of new space is being constructed each year.

Property prices: The average price-to-rent ratio of China's eight key cities is 39.4 times – this figure was 22.8 times in America just before its housing crisis. Corriente argues: “Lacking alternative investment options, Chinese corporates, households and government entities have invested excess liquidity in the property markets, driving home prices to unsustainable levels.” The result is that the property is out of reach for the majority of ordinary Chinese.

Banking: As with the credit crisis in the West, the banks’ exposure to the infrastructure credit bubbles isn’t obvious because the debt is held in Local Investment Companies – shell entities which borrow from Chinese banks and invest in fixed assets. Mr Hart reckons that ‘bad loans will equal 98pc of total bank equity if LIC-owned, non-cashflow-producing assets are recognised as non-performing.’

The result is that, rather than being the ‘key engine for global growth’, China is an ‘enormous tail-risk’.

(Louise Armistead, The Telegraph, “Hedge fund manager Mark Hart bets on China as the next ‘enormous credit bubble’ to burst.” Nov. 29, 2010)

The markets may damn well prove Mark right, along with a host of other managers who either jumped on his bandwagon or reached the same conclusions independently; but it seemed downright crazy in 2010 to think that the main driver of global growth could abruptly become its biggest threat within a few short years.

On a personal note, I obsessed over China’s culture, economy, and political system for years in college and then witnessed the country’s transformation firsthand during my time at Shanghai’s Fudan University in the summer of 2007. Then and later, I marveled at China’s strength relative to the developed world and the seemingly invincible central government’s ability to keep the economy chugging along with credit growth and fixed investment while it hoped for the return of its developed world customers then mired in the Great Recession.

It wasn’t what I wanted to hear … but I had to accept that Mark could be right. He had clearly identified a major imbalance which has continued to worsen over the last few years, and now we are just waiting for the next shoe to drop.



Four years later, Chinese production is slowing in the shadow of a massive credit bubble and in the face of aggressive reforms. Disappointing investment returns are revealing broad based capital misallocation; property prices are cooling (relative to other countries); and commodity stockpiles are mounting.

With China’s new policy of allowing defaults (historically, China’s default rate has been 0%), there is a real risk that follow-on events could spin out of control, raising nonperforming loan ratios and sparking a panic as bank capital is significantly eroded.

In the meantime, the renminbi is trading down, most likely due to an intentional effort by the People’s Bank of China to aid in the slow unwinding of leveraged trade finance.

Now the signs of a Chinese slowdown (and thus a global one, as the world is geared to 8% Chinese growth) are clear, and people around the world are meeting uncertainty with emotion. With that in mind, let’s dig into the data that really matters and try to get to the heart of China’s dilemma.
China’s Minsky Moment?

“China is like an elephant riding a bicycle. If it slows down, it could fall off, and then the earth might quake.” – James Kynge, China Shakes the World

After 30 years of sustained economic growth topping 8% and a successful bank cleanup in 2000, the People’s Republic was well on its way to blowing through the “middle income trap” and transitioning to a more advanced consumption-based economy. But then in 2008 the banking crisis in the United States abruptly ushered in a painful era of balance sheet repair across the developed world and delivered a demand shock to emerging markets. Rather than allow the Chinese economy to fall into recession at such an inconvenient time, the Party leadership sprang into action to stimulate demand with its largest fiscal deficit in more than 60 years and to mobilize bank lending with historically low interest rates and enormous liquidity injections.



As you can see in the charts above, China’s total debt-to-GDP (including estimates for shadow banks) grew by roughly 20% per year, from just under 150% in 2008 to nearly than 210% at the end of 2012 … and continued rising in 2013. Even more ominous, corporate debt has soared from 92% in 2008 to 150% today against the expectation that China’s government would always backstop defaults. That makes Chinese corporates the most highly levered in the world and more than twice as levered as US corporates, just as  corporate defaults are happening for the very first time in more than 60 years.



By another measure, China has accounted for more than $15 trillion of the $30 trillion in worldwide credit growth over the last five years, bringing Chinese bank assets to roughly $24 trillion (2.5x Chinese GDP) and prompting London Telegraph columnist Ambrose Evans-Pritchard to tweet John and me a short message: “China riding tail of $24 trillion credit tiger. Tiger will eat Maoists.” And to that, I would respond that I hope the tiger doesn’t find its way to France. (You can follow John and Worth on Twitter at @JohnFMauldin and @WorthWray.)

Looking further into the debt problem, China is steadily incurring more and more credit for less and less growth – suggesting that the newer debt is less productive because it is being put to unproductive uses – as you can see in Chart 2 above. That explains why many analysts believe China’s official reported nonperforming loan ratio of 1% is more like 11% – or more than 20% of GDP.

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: China’s Minsky Moment? was originally published at Mauldin Economics

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Weekly Futures Recap With Mike Seery for week ending March 21st

Natural gas prices are trading below their 20 day but above their 100 day moving average in the April contract telling you that the trend is mixed as prices have broken down recently hitting a 7 week low in last Fridays trade as warm weather is on the horizon. The trend has turned negative at least here in the short term as I would sell a futures contract at the break out of 4.40 and place my stop loss at the 2 week high which currently stands at 4.73 risking around $3,300 if your trading the large contract or $850 dollars in the mini contract as the chart structure is very solid allowing you to place a tight stop loss minimizing risk. The long term trend is higher in natural gas as prices rallied to 5.20 last month due to the cold weather however I am trading with the short term trend which is lower while making sure that the chart structure is solid before entering so currently this meets criteria.
TREND: LOWER
CHART STRUCTURE: SOLID

Coffee futures in New York finished lower for the 6th consecutive trading session finishing lower by about 2800 points for the trading week hitting a 4 week low in today’s trade and if you followed my recommendation in yesterday’s blog when prices hit 181 which was the 10 day low I was recommending to take profits and move on as this market remains neutral at this time so sit on the sidelines and wait for better chart pattern to develop. Prices are trading below their 20 day but above their 100 day moving average telling you the trend is mixed and as I stated yesterday I believe a possible good entry to get long this market is around 160 level which is about the 50% retracement from recent lows to highs as I don’t believe this bull market is over it was just overextended to the upside. I keep in contact with several Brazilian coffee producers and they still believe that the crop is devastated and prices eventually will move higher so look for a possible entry point below the market as prices still remain weak finishing down over 300 points this Friday afternoon right near session lows.
TREND: MIXED
CHART STRUCTURE: POOR

Sugar futures were down about 35 points this week hitting a 4 week low as prices continue to the downside and I still remain neutral this market as I’m waiting to see better chart structure as the trend currently is mixed so look for some other commodity that has a strong trend and just keep an eye on sugar at this time. The 50% retracement from contract lows of around 15.00 to the recent 4 month highs that were hit earlier in the month was 18.50 which is about 350 points divided by 2 equaling 175 points so currently the 50% retracement is at about 16.75 which is just an eyelash away so if you’re looking at possibly getting long this market look to buy around that level. Sugar futures are trading far below their 20 day and right at the 100 day moving average as the next support levels are all the way down at 16.00.
TREND: MIXED
CHART STRUCTURE: SOLID

The 10 year notes in Chicago this week sold off sharply due to the fact of Janet Yellen’s testimony stating that bond purchases that the Federal Reserve has been doing for several years now will come to an end in September with the possibility of rates rising 6 months after that date sending the yield on the 10 year note to 2.77% & in my opinion I think the bond market has started their bearish trend. Prices are trading below their 20 and 100 day moving average hitting an 8 week low and I’m recommending selling the futures contract at today’s price placing your stop above the 10 day high at 125 risking around $2,000 per contract as the trend has turned bearish and I think this could be a special situation as interest rates look to finally start to rise after years of record low rates.
TREND: LOWER
CHART STRUCTURE: EXCELLENT

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FREE WEBINAR: How To Trade Options – The Complete Roadmap

Join our trading partner Doc Severson for his next free webinar "How To Trade Options – The Complete Roadmap". Doc has made this easy by scheduling four live webinars, so just pick the time that fits your schedule best and register now.

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Doc has put together a short video explaining exactly what he is going to cover in this webinar.

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Here are just a few of the details........

    •    The real secrets that successful options traders won’t tell you!

    •    How a one trick pony loses every time

    •    How to prepare and profit from any market condition 

    •    How easy options trading can be with the right tools

    •    Why these four strategies will set you up for life

    •    How options trading can fit into your schedule…not vice versa.

    •    And one secret about volatility that could save your account

Watch the video now and please feel free to leave a comment and let us know what you think

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Crimea.....River as markets tear up over Ukraine

By Grant Williams

An article from Grant on February 17, 2013

 (Marina Lewycka): Public clashes between Ukrainians and Russians in the main square in Sevastopol. Ukrainians protesting at Russian interference; Crimean Russians demanding the return of Sevastopol to Russia, and that parliament recognise Russian as the state language. Ukrainian deputies barred from the government building; a Russian "information centre" opening in Sevastopol. Calls from the Ukrainian ministry of defence for an end to the agreement dividing the Black Sea fleet between the Russian and Ukrainian navies. The move is labelled a political provocation by Russian deputies. 

The presidium of the Crimean parliament announces a referendum on Crimean independence, and the Russian deputy says that Russia is ready to supervise it. A leader of the Russian Society of Crimea threatens armed mutiny and the establishment of a Russian administration in Sevastopol. A Russian navy chief accuses Ukraine of converting some of his Black Sea fleet, and conducting armed assault on his personnel. He threatens to place the fleet on alert. The conflict escalates into terrorism, arson attacks and murder.

Sound familiar? All this happened in 1993, and it has been happening, in some form or other, since at least the 14th century.

So begins an article in the UK Guardian this week, written by a British novelist of Ukrainian origin, Marina Lewycka; and amidst all the furore surrounding the events in Ukraine these past couple of weeks, it's important to gain a little perspective in order to understand the history surrounding the country's fractious relationship with Russia and its recent dalliance with European suitors.

Source: Wikipedia

The key to the stand-off over Ukraine is the Crimean Peninsula — no stranger to conflict over the years and home to the infamous "Valley of Death" into which rode the 600 whom Tennyson commemorated in his epic poem recounting the ill-fated Charge of the Light Brigade. The order that sent those gallant young men to their inevitable doom is symptomatic of the kinds of catastrophic misjudgements that get made when emotions are running high.

At 10:45 a.m. on October 25th, 1854, the following order, signed by the Quartermaster General Richard Airey, was delivered to Field Marshall, Lord Lucan (no, not him. HE was the 7th Earl of Lucan. THIS was the 3rd Earl — his great, great grandfather):

Lord Raglan wishes the cavalry to advance rapidly to the front — follow the enemy and try to prevent the enemy carrying away the guns — Troop Horse Artillery may accompany — French cavalry is on your left. R Airey. Immediate.

The vagueness of Raglan's order confused Lucan, as it made no mention of which guns the Light Brigade were being ordered to keep from leaving the battlefield; but when he questioned the order, Captain Louis Nolan of the 15th The King's Hussars damned his impudence:

"Attack, sir!"
"Attack what? What guns, sir?"
"There, my Lord, is your enemy!" said Nolan indignantly, vaguely waving his arm eastwards. "There are your guns!"

And with that, not daring to challenge a direct order further, Lucan ordered the Earl of Cardigan to lead the 600 men of the 13th Light Dragoons, the 17th Lancers, the 11th Hussars, the 4th Light Dragoons, and the 8th Hussars into the teeth of the Russian battery two kilometres distant, with further guns flanking their advance on either side….

Cannon to right of them,

Cannon to left of them,

Cannon in front of them

Volley'd and thunder'd;

Storm'd at with shot and shell,

Boldly they rode and well,

Into the jaws of Death,

Into the mouth of Hell

Rode the six hundred.

The result of one of the most famous military blunders of all time, the destruction of the Light Brigade at the Battle of Balaclava, demonstrated the dangers of military miscalculation in the Crimea; and 160 years later the possibility of another such misjudgment on the part of a commander looms heavily over the region.
However, rather than tracing every twist and turn in the Crimea between 1854 and today, we shall focus on the more recent history of the isolated and vulnerable peninsula that juts out into the Black Sea from Ukraine's southern coastline; and, with a little help from the NY Times, we'll begin with a look at how things stood after the first week of the crisis….

Click here to continue reading this article from Things That Make You Go Hmmm… – a free weekly newsletter by Grant Williams, a highly respected financial expert and current portfolio and strategy advisor at Vulpes Investment Management in Singapore.

The article Things That Make You Go Hmmm: Crimea River was originally published at Mauldin Economics

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Nine Secrets for Successful Speculation

By Louis James, Chief Metals & Mining Investment Strategist

When I started working for Doug Casey almost 10 years ago, I probably knew as much about investing as the average Joe, but I now know that I knew absolutely nothing then about successful speculation.
Learning from the international speculator himself—and from his business partner, David Galland, to give credit where due—was like taking the proverbial drink from a fire hose. Fortunately, I was quite thirsty.

You see, just before Doug and David hired me in 2004, I’d had something of an epiphany. As a writer, most of what I was doing at the time was grant-proposal writing, asking wealthy philanthropists to support causes I believed in. After some years of meeting wealthy people and asking them for money, it suddenly dawned on me that they were nothing like the mean, greedy stereotypes the average American envisions.

It’s quite embarrassing, but I have to admit that I was surprised how much I liked these “rich” people—not for what they could do for me, but for what they had done with their own lives. Most of them started with nothing and created financial empires. Even the ones who were born into wealthy families took what fortune gave them and turned it into much more. And though I’m sure the sample was biased, since I was meeting libertarian millionaires, these people accumulated wealth by creating real value that benefited those they did business with. My key observation was they were all very serious about money—not obsessed with it, but conscious of using it wisely and putting it to most efficient use. I greatly admired this; it’s what I strive for myself now.

But I’m getting ahead of myself. The reason for my embarrassment is that my surprise told me something about myself; I discovered that I’d had a bad attitude about money.

This may seem like a philosophical digression, but it’s an absolutely critical point. Without realizing that I’d adopted a cultural norm without conscious choice, I was like many others who believe that it is unseemly to care too much about money. I was working on saving the world, which was reward enough for me, and wanted only enough money to provide for my family.

And at the same instant my surprise at liking my rich donors made me realize that—despite my decades of pro-market activism—I had been prejudiced against successful capitalists, I realized that people who thought the way I did never had very much money.

It seems painfully obvious in hindsight. If thinking about money and exerting yourself to earn more of it makes you pinch your nose in disgust, how can you possibly be effective at doing so?

Well, you can’t. I’m convinced that while almost nobody intends to be poor, this is why so many people are. They may want the benefits of being rich, but they actually don’t want to be rich and have a great mental aversion to thinking about money and acting in ways that will bring more of it into their lives.

So, in May of 2004, I decided to get serious about money. I liked my rich friends and admired them all greatly, but I didn’t see any of them as superhuman. There was no reason I could not have done what any of them had done, if I’d had the same willingness to do the work they did to achieve success.

Lo and behold, it was two months later that Doug and David offered me a job at Casey Research. That’s not magic, nor coincidence; if it hadn’t been Casey, I would have found someone else to learn from. The important thing is that had the offer come two months sooner, being a champion of noble causes and not a money-grubbing financier, I would have turned it down.

I’m still a champion of noble causes, but how things have changed since I enrolled in “Casey U” and got serious about learning how to put my money to work for me, instead of me having to always work for money!

Instead of asking people for donations, I’m now the one writing checks (which I believe will get much larger in the not-too-distant future). I can tell you this is much more fun.

How did I do it? I followed Doug’s advice, speculated alongside him—and took profits with him. Without getting into the details, I can say I had some winning investments early on. I went long during the crash of 2008 and used the proceeds to buy property in 2010. I took profits on the property last year and bought the same stocks I was recommending in the International Speculator last fall, close to what now appears to have been another bottom.

In the interim, I’ve gone from renting to being a homeowner. I’ve gone from being an investment virgin to being one of those expert investors you occasionally see on TV. I’ve gone from a significant negative net worth to a significant nest egg… which I am happily working on increasing.

And I want to help all our readers do the same. Not because all we here at Casey Research care about is money, but because accumulating wealth creates value, as Doug teaches us.

It’s impossible, of course, to communicate all I’ve learned over my years with Doug in a simple article like this. I’m sure I’ll write a book on it someday—perhaps after the current gold cycle passes its coming manic peak.

Still, I can boil what I’ve learned from Doug down to a few “secrets” that can help you as they have me. I urge you to think of these as a study guide, if you will, not a complete set of instructions.

As you read the list below, think about how you can learn more about each secret and adapt it to your own most effective use.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion.

This may seem like an obvious corollary to the above, but it’s a point well worth stressing on its own. To be a successful speculator does not require being an emotionless robot, but it does require abiding by reason at times when either fear or euphoria tempt us to veer from our game plans.

When a substantial investment in a speculative pick tanks—for no company-specific reason—the sense of gut-wrenching fear is very real. Panic often causes investors to sell at the very time they should be backing up the truck for more.

Similarly, when a stock is on a tear and friends are congratulating you on what a genius you are, the temptation to remain fully exposed—or even take on more risk in a play that is no longer undervalued—can be irresistible. But to ignore the numbers because of how you feel is extremely risky and leads to realizing unnecessary losses and letting terrific gains slip through your fingers.

Secret #4: Trust your gut.

Trusting a gut feeling sounds contradictory to the above, but it’s really not. The point is not to put feelings over logic, but to listen to what your feelings tell you—particularly about company people you meet and their words in press releases.

“People” is the first of Doug Casey’s famous Eight Ps of Resource Stock Evaluation, and if a CEO comes across like a used-car salesman, that is telling you something. If a press release omits critical numbers or seems to be gilding the lily, that, too, tells you something.

The more experience you accumulate in whatever sector you focus on, the more acute your intuitive “radar” becomes: listen to it. There’s nothing more frustrating than to take a chance on a story that looked good on paper but that your gut was warning you about, and then the investment disappoints. Kicking yourself is bad for your knees.

Secret #5: Assume Bulshytt.

As a speculator, investor, or really anyone who buys anything, you have to assume that everyone in business has an angle. Their interests may coincide with your own, but you can’t assume that.

It’s vital to keep in mind whom you are speaking with and what their interest might be. This applies to even the most honest people in mining, which is such a difficult business, no mine would ever get built if company CEOs put out a press release every time they ran into a problem.

A mine, from exploration to production to reclamation, is a nonstop flow of problems that need solving. But your brokers want to make commissions, your conference organizers want excitement, your bullion dealers want volume, etc. And, yes, your newsletter writers want to eat as well; ask yourself who pays them and whether their interests are aligned with yours or the companies they cover.

(Bulshytt is not a typo, but a reference to Neal Stephenson's brilliant novel, Anathem, which defines the term, briefly, as words, phrases, or even entire books or speeches that are misleading or empty of meaning.)

Secret #6: The trend is your friend.

No one can predict the future, but anyone who applies him- or herself diligently enough can identify trends in the world that will have predictable consequences and outcomes.

If you identify a trend that is real—or that at least has an overwhelming amount of evidence in its favor—it can serve as both compass and chart, keeping you on course regardless of market chaos, irrational investors, and the ever-present flood of bulshytt.

Knowing that you are betting on a trend that makes great sense and is backed by hard data also helps maintain your courage. Remember; prices may fluctuate, but price and value are not the same thing. If you are right about the trend, it will be your friend. Also, remember that it’s easier to be right about the direction of a trend than its timing.

Secret #7: Only speculate with money you can afford to lose.

This is a logical corollary to the above. If you bet the farm or gamble away your children’s college tuition on risky speculations—and only relatively risky investments have the potential to generate the extraordinary returns that justify speculating in the first place—it will be almost impossible to maintain your cool and discipline when you need it.

As Doug likes to say; it’s better to risk 10% of your capital shooting for 100% gains than to risk 100% of your capital shooting for 10% gains.

Secret #8: Stack the odds in your favor.

Given the risks inherent in speculating for extraordinary gains, you have to stack the odds in your favor. If you can’t, don’t play.

There are several ways to do this, including betting on People with proven track records, buying when market corrections put companies on sale way below any objective valuation, and participating in private placements. The most critical may be to either conduct the due diligence most investors are too busy to be bothered with, or find someone you can trust to do it for you.

Secret #9: You can’t kiss all the girls.

This is one of Doug’s favorite sayings, and though seemingly obvious, it’s one of the main pitfalls for unwary speculators.

When you encounter a fantastic story or a stock going vertical and it feels like it’s getting away from you, it can be very, very difficult to do all the things I mention above. I can tell you from firsthand experience, it’s agonizing to identify a good bet, arrive too late, and see the ship sail off to great fortune—without you.
But if you let that push you into paying too much for your speculative picks, you can wipe out your own gains, even if you’re betting on the right trends.

You can’t kiss all the girls, and it only leads to trouble if you try. Fortunately, the universe of possible speculations is so vast, it simply doesn’t matter if someone else beats you to any particular one; there will always be another to ask for the next dance. Bide your time, and make your move only when all of the above is on your side.

Final Point

These are the principles I live and breathe every day as a speculator. The devil, of course, is in the details, which is why I’m happy to be the editor of the Casey International Speculator, where I can cover the ins and outs of all of the above in depth.

Right now, we’re looking at an opportunity the likes of which we haven’t seen in years: thanks to the downturn in gold—which now appears to have subsided—junior gold stocks are still drastically undervalued.

My team and I recently identified a set of junior mining companies that we believe have what it takes to potentially become 10 baggers, generating 1,000%+ gains. If you don’t yet subscribe, I encourage you to try the International Speculator risk-free today and get our detailed 10-Bagger List for 2014 that tells you exactly why we think these companies will be winners. Click here to learn more about the 10-Bagger List for 2014.

Whatever you do, the above distillation of Doug’s experience and wisdom should help you in your own quest.

The article Doug Casey’s 9 Secrets for Successful Speculation was originally published at Casey Research

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What GM, GS and XOM Do, So Does the Broad Market

Over the years working with professional traders I found it interesting how each individual has their bellwether stock they follow to gauge the stock markets trend and identify reversals before they take place.

About 10 years ago I traded with a floor trader who swore that whatever GS (Goldman Sachs) did the market followed. Another said he only used XOM (Exxon Mobil), while Stan Weinstein says GM (General Motors) was the stock to follow.

While each of these traders have been highly successful with their bellwether stock, I wanted to cover these in more detail and show you have to get the best of each of their strategies working for you. This will help you properly time the market, identify the overall market health and at which point you should be getting long or short stocks in your portfolio.

Just Click Here to Watch this Quick Video

If you would like to successfully trade both bull and bear markets then join my trading and investing newsletter today and catch the next hot sectors for 2014 using my ETF Trading Strategies.

Chris Vermeulen
The Gold & Oil Guy



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Is this Gold's "Best of the Breed" a Golden Rocket!

Gold and gold stocks have be stabilizing for months and have been quietly rising. Many gold stocks are up 30% even 50% in the past three months. The $HUI AMEX Gold Bugs Index is up over 30% from the lows.

If you think you have missed most of the move already you are wrong. The truth is most of the biggest rallies in stocks take place after a basing pattern with 30 -50% or more has formed. This is signaling massive accumulation in gold stocks and its happening right now by the institutions.

So in this exclusive report I want to share one golden rocket stock pick which I feel has huge upside potential “IF” the precious metals market and miners can breakout of this stage 1 pattern it has formed.

One thing that excites me is about precious metals and gold stocks is the fact that we have heard nothing about gold, silver or mining stocks in the media for months… almost like the big institutions have told the media to avoid putting the spot light on it until they accumulate all they can in terms of physical bullion and stock shares.

This is the same for a few other sectors I have been watching build massive stage 1 bases in over the past few months and will be investing and actively trading them also once they break out of the basing stage.


Gold Stock Trading & Investing Success Formula

1. KISS – Keep It Simple Stupid! – Non one likes or follows complicated trading strategies

2. Understand and know how to identify the four market stages – Read My Book: Click Here

3. Know why and how stages must be traded for timing your entry, profit taking and exits.

4. Scan the market for the top performing sectors and focus on stocks/ETFs within those sectors.

5. Review all stocks and funds to meet setup criteria and trade only the best looking charts primed to start a new bull market (low overhead resistance nearby, strong relative strength, strong volume on breakout, 30 week SMA moving up etc..) Get this done for you: Click Here

6. Sit back, watch and monitor position for possible change in the stage, to adjust stops and identify profit taking levels.


Golden Rock Stock Pick

The chart below is top quality gold stock which has all the characteristics of a big winner. Just to be clear, I normally do not mention individual stocks within public reports. I am not compensated in any way to post this report. This is nothing more than my technical outlook on a stock and not investment advice. I do plan on buying some shares of this company this week or next.





Golden Rocket Conclusion:

While it still my be a little early for precious metals to bottom, it looks as though the stage (pardon the pun) has been set for a precious metals bull market to start. As they say, there is always a bull market somewhere… the key is finding it and taking the proper action.

If you want simple, hassle free trading and investing join my newsletter today.

  Just visit The Gold & Oil Guy

Sincerely,

Chris Vermeulen
Founder of Technical Traders Ltd. - Partnership Program

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Week Ending Commodities Market Summary - Crude oil, Natural Gas, Gold, Sugar and U.S. Dollar

April crude oil closed higher due to short covering on Friday as it consolidates some of this month's decline. Today's high range close sets the stage for a steady to higher opening when Monday's night session begins. Stochastics and the RSI are oversold but remain neutral to bearish hinting that sideways to lower prices are possible near term. If April extends this month's decline, the 62% retracement level of the January-March rally crossing at 96.76 is the next downside target.Closes above the 20 day moving average crossing at 101.62 would confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 101.62. Second resistance is March's high crossing at 105.22. First support is the 62% retracement level of the January-March rally crossing at 96.76. Second support is the 75% retracement level of the January-March rally crossing at 94.93.

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April Henry natural gas closed higher due to short covering on Friday as it consolidates some of the decline off March's high. Today's high range close sets the stage for a steady to higher opening when Monday's session begins trading. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If April extends the decline off February's high, the 62% retracement level of the November-February rally crossing at 4.131 is the next downside target. Closes above the 20 day moving average crossing at 4.632 would confirm that a short term low ghas been posted. First resistance is the 20 day moving average crossing at 4.632. Second resistance is February's high crossing at 5.209. First support is the 50% retracement level of the November-February rally crossing at 4.338. Second support is the 62% retracement level of the November-February rally crossing at 4.131.

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April gold closed higher on Friday as it extends this year's rally. The high range close sets the stage for a steady to higher opening when Monday's night session begins trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If April extends the rally off December's low, the 87% retracement level of the August-December decline crossing at 1398.00 is the next upside target. Closes below the 20 day moving average crossing at 1339.90 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 1388.40. Second resistance is the 87% retracement level of the August-December decline crossing at 1398.00. First support is the 10 day moving average crossing at 1353.30. Second support is the 20 day moving average crossing at 1339.90.

Check out Dave’s book ”The Ten Year Career”…..get it here

May coffee closed lower due to profit taking on Friday. The low range close set the stage for a steady to lower opening on Monday. Stochastics and the RSI are overbought and are turning neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 18.45 are needed to confirm that a short term top has been posted. If May extends the rally off November's low, the 75% retracement level of the 2011-2013 decline crossing at 23.27 is the next upside target.

Ready to start trading crude oil? Start right here....Advanced Crude Oil Study – 15 Minute Range

May sugar closed lower on Friday and below the 20 day moving average crossing at 17.55 confirming that a short term top has been posted. The low range close set the stage for a steady to lower opening on Monday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If May extends this week's decline, the reaction low crossing at 16.62 is the next upside target. Closes above the 10 day moving average crossing at 17.91 would temper the near term bearish outlook.

Get Our Options Trading Strategies Test Drive

The June U.S. Dollar closed lower on Friday. The low range close sets the stage for a steady to lower opening when Monday's night session begins trading. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If June extends the decline off February's high, monthly support crossing at 78.91 is the next downside target. Closes above the 20 day moving average crossing at 80.13 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 80.13. Second resistance is the reaction high crossing at 80.74. First support is Thursday's low crossing at 79.37. Second support is monthly support crossing at 78.91.

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Hedge Fund Trader Seth Klarman: QE Stimulus Bubble Will Burst

Major hedge fund trader says the QE stimulus bubble will burst.... at some point

In his letter to investors, Seth Klarman noted that “most” investors are downplaying risk and this “never turns out well,” noting that most people are not prepared for anything bad to happen. “No one can know what the future holds, but any year in which the S&P 500 jumps 32% and the NASDAQ Composite 40% while corporate earnings barely increase should be cause for concern, not further exuberance,” Seth Klarman’s investor letter said. “It might not look like it now, but markets don’t exist simply to enrich people.”

Noting that stock markets have risk and are not guaranteed investments may seem like an obvious notation, but against today’s backdrop of never before witnessed manipulated markets Seth Klarman sagely notes “Someday, financial markets will again decline. Someday, rising stock and bond markets will no longer be government policy. Someday, QE will end and money won’t be free. Someday, corporate failure will be permitted. Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.”

When will this happen? “Maybe not today or tomorrow, but someday,” he writes, then starts to consider what a collapse might look like. “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’ Just when investors become convinced that it can’t get any worse, it will. They will be painfully reminded of why it’s always a good time to be risk-averse, and that the pain of investment loss is considerably more unpleasant than the pleasure from any gain. They will be reminded that it’s easier to buy than to sell, and that in bear markets, all to many investments turn into roach motels: ‘You can get in but you can’t get out.’ Correlations of otherwise uncorrelated investments will temporarily be extremely high. Investors in bear markets are always tested and retested. Anyone who is poorly positioned and ill prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”

Seth Klarman’s focus on Fed

Seth Klarman then once again turned his sharp rhetorical knife to the academics that run the US Federal Reserve who seem to think that controlling free markets is a matter of communications policy.

“The Fed, in its ongoing attempt to tamp down market volatility as much as possible decided in 2013 that its real problem was communication,” Seth Klarman dryly wrote. “If only it could find a way to communicate to the financial markets the clarity and predictability of policy actions, it could be even more effective in its machinations. No longer would markets react abruptly to Fed pronouncements. Investors and markets would be tamed.” The Fed has been harshly criticized by professional traders for its lack of understanding of real world market mechanics.

This lack of understanding is a concern given that the Fed is taking the economy into uncharted territory with unprecedented stimulus. “As experienced traders who watch the markets and the Fed with considerable skepticism (and occasional amusement), we can assure you that the Fed’s itinerary is bound to be exceptional, each stop more exciting than the one before,” Seth Klarman wrote, sounding a common theme among professional market watchers. “Weather can suddenly turn foul, the navigation faulty, and the deckhands hard to understand. In short, the Fed captain and crew are proficient in theory but lack real world experience. This is an adventure into unexplored terrain, to parts unknown; the Fed has no map, because no one has ever been here before. Most such journeys end badly.”

While the mainstream media is loaded with flattering articles of the Fed’s brilliance in quantitative easing and its stimulus program, the real beneficiaries of such a policy are the largest banks. Here Seth Klarman notes they have placed the economy at great risk without achieving much reward. “Before 2009, the Fed had never bought a single mortgage bond in its nearly 100-year history,” Seth Klarman writes of the key component of the Fed’s policy that took risky assets off the bank’s balance sheets. “By 2013, the Fed was by far the largest holder of those bonds, holding over $4 trillion and counting. For that hefty sum, GDP was apparently raised as little as 25 basis points in the aggregate. In other words, the policy has been a near-total failure. Bernanke is left arguing that some action was better than none. QE in effect, had become Wall Street’s new ‘too big to fail’ policy.”

Seth Klarman: What do economists know?

There has been considerable discussion that the academic side of the economics profession has little clue how markets really work. Economic academics, who now make up the majority of the Fed governors, often look at the world from the standpoint of a game of chess, where one can explore different options and there is now a “right” or “wrong” approach to market manipulation.

“The 2013 Nobel Memorial Prize in economics was shared by three academics: two were proponents of the efficient market hypothesis and the third was a behavioral economist, who believes in market inefficiency,” Seth Klarman wrote. “We suppose that could be considered a hedged position for the awards committee, one that would never occur in the hard sciences such as physics and chemistry, where a prize shared among three with divergent views would be an embarrassing mistake or a bad joke. While a Nobel Prize might well be the culmination of a life’s work, shouldn’t the work accurately describe the real world?”

Another interesting insight on the topic was to come from David Rosenberg, Chief Economist and Strategist at GluskinSheff, who recently wondered “[A]m I the only one to find some humour, if not irony, in the fact that the three U.S. economists who won the Nobel Prize for Economics did so because they ‘laid the foundation for the current understanding of asset prices’ at the same time that these asset prices are being determined less today by market-determined forces but rather by the distorting effects of the unprecedented central bank manipulation?”

Seth Klarman: Fed Created Truman Show Style Faux Economy

Baupost Group, among the largest hedge funds in the world, returned $4 billion in assets to clients at the end of 2013 because it didn’t want to grow too quickly and dilute performance. Klarman’s fund, which in 2013 had a high of 50% of his portfolio in cash, up from 36% in 2012, posted 2013 returns in the mid-teens consistent with the fund’s nearly 22 year track record.

Seth Klarman on Baupost’s returns

Saying the fund “drew a line in the sand” when it decided to return roughly $4 billion to clients at year end, Seth Klarman reflected on the decision, saying he wanted to control the fund’s head count, noting “we could not allow the firm to grow without limit. We are wise enough to know a good thing when we see it, and cautious enough to want to cherish, protect and nurture it so that we might maintain its essential qualities for a very long time.” A 50% cash position for a hedge fund might be construed as an indication the fund has grown to the point it was having difficulty allocating all the capital in appropriate trades.

He noted the 2013 performance occurred “despite the drag of large, zero yielding cash balances throughout the year.” Klarman, author of Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor, said the performance resulted from “considerable progress in event driven and private situations, and at least some uplift from the strong equity rally. Distressed debt, public equities, structured products, and real estate led the gains.” Tail risk hedges, the only material area of loss in the portfolio, cost approximately 0.2% as the fund reduced exposure to distressed debt, structured products, and private investments while public equity exposure increased modestly.

Market bifurcation {the basis for being bullish on equities}

In 2013 Seth Klarman noted the market bifurcation, which he describes as “a momentum environment of market haves (which we avoid spending time on) and have-nots (which receive our undivided attention) – coupled with our energetic sourcing efforts and valued long-term relationships,” and he expressed optimism for the fund in 2014 amidst what might be a stock market subject to individual interpretation. “In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, the stock market, heading into 2014, resembles a Rorschach test,” he wrote. “What investors see in the inkblots says considerably more about them than it does about the market.”

Seth Klarman noted that those “born bullish,” those who “never met a stock market they didn’t like” and those with “a consistently short memory,” might look to the positives and ignore the negatives. “Price-earnings ratios, while elevated, are not in the stratosphere,” he wrote, stating the bull case. “Deficits are shrinking at the federal and state levels. The consumer balance sheet is on the mend. U.S. housing is recovering, and in some markets, prices have surpassed the prior peak. The nation is on the road to energy independence. With bonds yielding so little, equities appear to be the only game in town. The Fed will continue to hold interest rates extremely low, leaving investors no choice but to buy stocks it doesn’t matter that the S&P has almost tripled from its spring 2009 lows, or that the Fed has begun to taper purchases and interest rates have spiked. Indeed, the stock rally on December’s taper announcement is, for this contingent, confirmation of the strength of this bull market. The picture is unmistakably favorable. QE has worked. If the economy or markets should backslide, the Fed undoubtedly stands ready to once again ride to the rescue. The Bernanke/Yellen put is intact. For now, there are no bubbles, either in sight or over the horizon.

Seth Klarman’s market analysis

Like many of the best market analysts, Seth Klarman looks at both sides of the issue, the bull and bear case, in depth. “If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about,” he wrote. Citing a policy of near-zero short-term interest rates that continues to distort reality and will have long term consequences, he ominously noted “we can draw no legitimate conclusions about the Fed’s ability to end QE without severe consequences,” a thought pervasive among many top fund managers. “Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings. But what is the right multiple to pay on juiced corporate earnings?”

As he outlined the bear case, he started to divulge his own analysis that “on almost any metric, the U.S. equity market is historically quite expensive. A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix, Inc. and Tesla Motors Inc.

As it turns out he was just warming up. “There is a growing gap between the financial markets and the real economy,” Seth Klarman wrote, noting that even as the Fed promised that interest rates would stay low, they did get out of control to some degree across the yield curve in 2013. “Medium and long­term bond funds got hammered in 2013. Meanwhile, corporate earnings sputtered to a mid-single digit gain last year even as stocks drove relentlessly higher, without even a 10% correction in the last two and a half years,” a concern among many professional traders.

When it comes to stock market speculation and jumping on the bull market happy talk, Seth Klarman notes it’s never hard to build a “coalition of willing” who are willing to climb on the bandwagon. “A flash mob of day traders, momentum investors, and the usual hot money crowd drove one of the best years in decades for U.S., Japanese, and European equities,” he wrote. “Even with the ranks of the unemployed and underemployed still bloated and the economy barely improved from a year ago, the S&P 500 , Dow Jones Industrial Average 2 Minute, and Russell 2000 regularly posted new record highs.”

Seth Klarman noted that whether you see today’s investment glass as half full or half empty depends on your age and personality type, as well as your “lifetime” of experiences. “Our assessment is that the Fed’s continuing stimulus and suppression of volatility has triggered a resurgence of speculative froth,” while citing numerous examples of overvalued internet stocks that defied value investing logic.

“In an ominous sign, a recent survey of U.S. investment newsletters by Investors Intelligence found the lowest proportion of bears since the ill-fated year of 1987,” he wrote. “A paucity of bears is one of the most reliable reverse indicators of market psychology. In the financial world, things are hunky dory; in the real world, not so much. Is the feel-good upward march of people’s 401(k)s, mutual fund balances, CNBC hype, and hedge fund bonuses eroding the objectivity of their assessments of the real world? We can say with some conviction that it almost always does. Frankly, wouldn’t it be easier if the Fed would just announce the proper level for the S&P, and spare us all the policy announcements and market gyrations?” he said in a somewhat hilarious moment that bears a degree of truth.

Seth Klarman on Europe

Seth Klarman still isn’t much of a bull in Europe, as we noted in a previous ValueWalk. “Europe isn’t fixed either, but you wouldn’t be able to tell that from investor sentiment,” he noted. “One sell-side analyst recently declared that ‘the recovery is here,’ a sharp reversal from his view in July 2012 that Greece had a 90% chance of leaving the Euro by the end of 2013. Greek government bond prices have nearly quintupled in price from the mid-2012 lows. Yet, despite six years of painful structural adjustments, Greece’s government debt-to-GDP ratio currently stands at 157%, up from 105% in 2008,” he said, noting a growing concern among fund managers regarding the government debt crisis getting out of hand.

Seth Klarman noted that Germany’s own government debt-to-GDP ratio stands at 81%, up from 65% in 2008, and said “That doesn’t look fixed to us.” The EU credit rating was recently reduced by S&P, he noted, while European unemployment remains stubbornly above 12%. “Not fixed,” he said. “Various other risks lurk on the periphery: bank deposits remain frozen in Cyprus, Catalonia seems to be forging ahead with an independence referendum in 2014, and social unrest continues to escalate in Ukraine and Turkey. And all this in a region that remains saddled with deep structural imbalances. As Angela Merkel recently noted, Europe has 7% of the world’s population, 25% of its output, and 50% of its social spending.” While he notes the problems in Europe, Seth Klarman did not rule out that opportunity might be found in the region.

Seth Klarman on Bitcoin

Seth Klarman also weighed in on Bitcoin, noting that “Only in a bull market could an online ‘currency’ dubbed bitcoin surge 100-fold in one year, as it did in 2013. Now most sell-side firms are rushing to provide research on this latest fad,” he also noted that while “bitcoin funds” are being formed, the fund is “happy to let pass us by, the thinking behind cryptocurrencies may contain a kernel of rationality. If paper currencies – dollars and yen – can be printed in essentially unlimited volumes, and just as with all currencies are only worth what recipients on any given day will exchange in goods or services, then what makes them any better than the “crypto” kind of money?”

Comparing the economy and the Federal Reserve’s management of it to the movie The Truman Show, where the lead character lived in a false, highly-orchestrated environment, Seth Klarman notes with insight, “Every Truman under Bernanke’s dome knows the environment is phony. But the zeitgeist is so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end, and no one wants to exit the dome until they’re sure everyone else won’t stay on forever.” Then he quotes Jim Grant who recently noted on CNBC, the problem is that “the Fed can change how things look, it cannot change what things are.”

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The article Outside the Box: Seth Klarman: Investors Downplaying Risk “Never Turns Out Well” was originally published at Mauldin Economics.

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Complete Breakdown of Financial Controls in US Government, Says Austin Fitts

Complete Breakdown of Financial Controls in US Government, Says Austin Fitts Former HUD Assistant Housing Secretary and investment advisor Catherine Austin Fitts reveals her thoughts on the ever rising debt ceiling… what Obamacare is really about (and that’s not socialized healthcare)…why over $4 trillion missing from federal programs may not be incompetence, but a covert strategy....how to protect yourself from the constant devaluation of the U.S. dollar.....and what exactly the Popsicle Index measures and why it matters.

Here are a few excerpts:

“I don’t see Obamacare as something designed to offer healthcare. … I think the question comes down to a bigger one, which is, are we going to create a society where one hundred percent of everything is digitized and under central control?”

“Who is the governance system, and why are they behaving the way they are behaving? What we see is literally a psychopathic effort and intensity—whether it is in the energy area, whether it is in the currency area, whether it is in the food area, whether it is in the healthcare area—to get 100% central control and to use digital means to do it, and the question is why?”

“Well, you have a complete breakdown of internal financial controls in the U.S. government.…..You had over $4 trillion of what is called undocumentable adjustments and to this day, [these agencies] have never, as required by law, produced audited financial statements.”

“In my experience, government is not incompetent at all.…..Gridlock is a cover story, incompetence is a cover story. There is a plan, you just can’t see what it is.”

The article Complete Breakdown of Financial Controls in US Government, Says Austin Fitts was originally published at Casey Research.

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Elliott Wave Theory - Keys to Investor Success

Elliott Wave Theory - Plenty of people will freely offer you advice on how to spend or invest your money. “Buy low and sell high,” they’ll tell you, “that’s really all there is to it!” And while there is a core truth to the statement, the real secret is in knowing how to spot the highs and lows, and thus, when to do your buying and selling. Sadly, that’s the part of the equation that most of the advice givers you’ll run across are content to leave you in the dark about.

The reality is that no matter how many times you are told differently, there is no ‘magic bullet.’ There is no plan, no series of steps you can follow that will, with absolute certainty, bring you wealth. If you happen across anyone who says otherwise, you can rely on the fact that he or she has an agenda, and that at least part of that agenda involves convincing you to open your wallet.

In the place of a surefire way to make profits, what is there? Where can you turn, and what kinds of things should you be looking for?

The answers to those questions aren’t as glamorous sounding as the promises made by those who just want to take your money, but they are much more effective. Things like careful, meticulous research. Market trend analysis. Paying close attention to extrinsic factors that could impact whatever industry you’re planning to invest in, and of course, Elliott wave theory. If you’ve never heard of the Elliott wave, you owe it to yourself to learn more about it.

Postulated by Ralph Nelson Elliott in the late 1930’s, it is essentially a psychological approach to investing that identifies specific stimuli that large groups tend to respond to in the same way. By identifying these stimuli, it then becomes possible to predict which direction the market will likely move, and as he outlined in his book “The Wave Principle,” market prices tend to unfold in specific patterns or ‘waves.’
The fact that many of the most successful Wall Street investors and portfolio managers use this type of trend analysis in their own decision making process should be compelling evidence that you should consider doing the same. No, it’s not perfect, and it is certainly not a guarantee, but it provides a strong framework of probability that, when combined with other research and analysis, can lead to consistently good decisions, and at the end of the day, that’s what investing is all about. Consistently good decision making.

We use Elliott Wave Theory in real time by looking at the larger patterns of the SP 500 index for example. We deploy Fibonacci math analysis to prior up and down legs in the markets to determine where we are in an Elliott Wave pattern.  This helps us decide if to be aggressive when the markets correct, go short the market, or to do nothing for example.  It also prevents us from making panic type decisions, whether that be in chasing a hot stock too higher or selling something too low before a reversal.  We also can use Elliott Wave Theory to help us determine when to be aggressive in selling or buying, on either side of a trade.

For many, its not practical to employ Elliott Wave analysis with individual stocks and trading, but it can be done with experience.  We instead use a combination of big picture views like weekly charts, Wave patterns within those weekly views, and then zoom in to shorter term technical to determine ultimate timing for entry and exit.  This type of big picture view coupled with micro analysis of the charts gives us more clarity and better results.

One of our favorite patterns for example is the “ABC” pattern.  Partially taken from Elliott Wave Theory, we mix in a few of our own ingredients to help with timing entries and exits.  This is where you have an initial massive rally or the “A” wave pattern. Say a stock like TSLA goes from $30 to $180 per share, which it did.  The B wave is what you wait for and using Fibonacci analysis and Elliott Wave Theory we can calculate a good entry point on the B wave correction.  TSLA dropped from $180 to about $ 120, retracing roughly 38% (Fibonacci retracement) of the rally $30 to $180.  The B wave bottomed out as everyone was negative on the stock and sentiment was bearish. That is when you get long for the “C” wave.  The C wave is when the stock regains momentum, good news starts to unfold, and sentiment turns bullish.  We can often calculate the B wave as it relates often to the A wave amplitude.  Example is the TSLA “A” wave was 150 points, so the C wave will be about the same or more.

When TSLA recently ran up to about $270 per share, we were in uber bullish “C” wave mode, and we had run up $150 (Same as the A wave) from $120 to $270.  That is when you know it’s a good time to start peeling off shares. Often though, the C wave will be 150-161% of the  A wave, so TSLA may not have completed it’s run just yet.



Knowing when to enter and exit a position whether your time frame is short, intermediate, or longer… can often be identified with good Elliott Wave Theory practices.  Your results and your portfolio will appreciate it, just look at our ATP track record from April 1 2013 to March 3^rd 2014 inclusive of all closed out swing positions.  We incorporated Elliott Wave Theory into our stock picking starting last April and you can see the results:

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Sincerely,

Chris Vermeulen
Founder of Technical Traders Ltd. - Partnership Program

Which Month is the Best for Buying Gold?

By Jeff Clark, Senior Precious Metals Analyst

Many investors, especially those new to precious metals, don't know that gold is seasonal. For a variety of reasons, notably including the wedding season in India, the price of gold fluctuates in fairly consistent ways over the course of the year.


This pattern is borne out by decades of data, and hence has obvious implications for gold investors. Can you guess which is the best month for buying gold?

When I first entertained this question, I guessed June, thinking it would be a summer month when the price would be at its weakest. Finding I was wrong, I immediately guessed July. Wrong again, I was sure it would be August. Nope.

Cutting to the chase, here are gold’s average monthly gain and loss figures, based on almost 40 years of data:

Since 1975—the first year gold ownership in the U.S. was made legal again—March has been, on average, the worst performing month for gold. This, of course, makes March the best month for buying gold.

But: averages across such long time frames can mask all sorts of variations in the overall pattern. For instance, the price of gold behaves differently in bull markets, bear markets, flat markets… and manias.
So I took a look at the monthly averages during each of those market conditions. Here’s what I found.

Key point:

The only month gold has been down in every market condition is March.

Combined with the fact that gold soared 10.2% the first two months of this year, the odds favor a pullback this month.

And as above, that can be a very good thing. Here’s what buying in March has meant to past investors. We measured how well gold performed by December in each period if you bought during the weak month of March.

Only the bear market from 1981 to 2000 provided a negligible (but still positive) return by year’s end for investors who bought in March. All other periods put gold holders nicely in the black by New Year’s Eve.
If you’re currently bullish on precious metals, you might want to consider what the data say gold bought this month will be worth by year’s end.

Regardless of whether gold follows the monthly trend in March, the point is to buy during the next downdraft, whenever it occurs, for maximum profit. And keep your eye on the big picture: gold’s fundamentals signal the price has a long climb yet ahead.

Everyone should own gold bullion as a hedge against inflation and other economic maladjustments… and gold stocks for speculation and leveraged gains. The greatest gains, of course, come from the most volatile stocks on earth, the junior mining sector.

Following our recent Upturn Millionaires video event with eight top resource experts and investment pros, my colleague Louis James released his 10-Bagger List for 2014—a timely special report on the nine stocks most likely to gain 1,000% or more this year. Click here to find out more.

The article Gold Is Seasonal: When Is the Best Month to Buy? was originally published at Casey Research.

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