Happy Friday, January 25th

We are seeing a nice rally today in everything but bonds across our portfolios. Gold, silver and the miners are up from 1.3% to 3.7% today.

The S&P500 is up 0.9% at this writing, so the jury is still out on which way stocks will move (up or down) from this halfway point in the recovery since the day before Christmas. Volatility is beginning to subside. . . a good sign for stocks.

We invested 10% of our cash, now holding 40% cash in our diversified, non-speculative accounts.

Have a great weekend.

Where do US stocks go from here?

We’ve had a really nice rally since the intermediate term bottom hit the day before Christmas 2018. Each time we’ve seen a morning drop in stocks, buyers have stepped in and almost always ended the day with overall gains. As of this writing on Tuesday, January 22, at 9:50 AM Central, the S&P500 index is down 1% and US Small Caps and the International Stocks are down more. We’ll see what happens.

The rally has regained about half of the big 20% drop from all-time highs last Fall, but our indicators do not show up-trends for any asset classes except gold. Accordingly, we are treating Gold as our least risky asset class … both in terms of weekly volatility and trend. Since our methodology is all about managing risk, the least risky asset class gets the highest percentage portfolio allocation.

We are at another potential turning point for US Stocks. If stocks continue rallying and enter an up-trend they will “earn” a higher allocation of our portfolios. The same goes for bonds. No changes for now.

Have a great week.

Yay! A rally to end the year!

Well, Mr. Mnuchin announced last weekend that he was calling the big banks last week to ask for their help in restoring confidence in the markets. Monday was terrible because everyone was on vacation. But, Shazam! The day after Christmas, we saw the biggest one day point gain in history!

Can you say “Plunge Protection Team”? The PPT is an old urban legend in finance that there is a secret group of financiers that, upon request, will step into the financial markets and act to stop a crash.

However, we see that this “secret” group really does exist! The day after markets officially enter bear market territory, they go up 5% in one day! I’m sure many breathed a sigh of relief.

There’s only one problem, though. If the selling continues, how many times will this group (if it exists) continue to step in and prop up the markets? Hmmm.

No actions are necessary in our portfolios. Gold and the gold miners continue their uptrend. We continue to hold a lot of cash.

Cheers, and Happy New Year!

Friday Before Christmas Raises Questions

I’m not “into” politics, but I was disheartened by the resignation of our Secretary of Defense. The open acknowledgement of fundamental differences about US foreign policy creates great uncertainty around the world, in my view. That may very well benefit only those who wish our great nation ill.

The financial markets do not “like” uncertainty. Business leaders around the world are less prone to make big investments in the future when the political and regulatory environment seem unstable. No-one likes the idea that policies, tax rates, regulations or interest rates could take unexpected turns after they make a big bet on the future. So they don’t.

People are less likely to buy goods and services when they are uncertain about their jobs and future prospects. This uncertainty increases when big auto companies downsize and stop making certain products. This contraction in spending, this reduction in optimism, have self-reinforcing effects.

We seem to be at a turning point for our nation and for the world. This may just be another momentary blip in the markets like January of 2018 was. But it may be more.

Since we don’t predict the future in our methodology, we look at the behavior of different asset classes over recent months and respond accordingly. Gold has started an uptrend after a seven year bear market. All other major asset classes are trending down. It is time to be cautious.

Have a blessed Christmas and Happy New Year.


Not Such a Good Week

As of this writing on Friday afternoon, the S&P-500 is down about 2% today, to wrap up a pretty bad week for stocks. Thankfully, gold, US Treasuries and the miners are doing well, offsetting our stock allocations.

After last week’s announcements about the Trade Truce, many people seemed to be jumping back in to stocks. Then came Tuesday’s big drop, followed by the market holiday, then Thursday’s big morning scare followed by a rally to close Thursday almost unchanged.

Lot’s of volatility. Volatility equals danger for your portfolio, in my view. So there is no reason for us to change our allocations at this time. We’ll keep holding lots of cash.

Have a great weekend!

So Much for the Trade Truce Stock Bump!

Over the weekend, the news hit the press of the “Ceasefire” in the US – China trade war. Stocks opened up 2.5% or so yesterday morning. As of this writing, Tuesday afternoon, the stock markets have already given all of those gains back.

Now, we must wait to see if the lift from the Fed’s statements last week that we are “close to neutral” on interest rates is lost as well.

Three things are reassuring for our clients:

  • US Treasuries are rallying,
  • Gold is rallying, and
  • We are holding more than 50% cash.


The Fed Flips!

Yesterday Mr. Powell, the Fed leader, reversed his previous stance on the need to continue raising interest rates for a long time. Stocks, bonds, foreign currencies and precious metals soared on the news.

Our client portfolios did quite well, since all those asset classes appear in various client accounts.

Today gold is still going up along with bonds, while stocks are catching their breath. The more dovish the Fed gets, the more attractive gold gets, I believe.

Since gold and silver are at multi-decade inflation-adjusted lows and stocks are just 10% or so off all-time highs, it makes sense to over weight the former and underweight the latter. However, in our standard allocation, we do not anticipate the future. We simply allocate funds among the asset classes based on how they are behaving recently.

No action needed for now.


What Alan Greenspan said before he went over to The Dark Side!

Many thanks to Chuck Butler of The Daily Pfenning for sharing this Alan Greenspan quote from 1966.

“This is the shabby secret of the Welfare Statists’ tirades against Gold. Deficit Spending is simply a scheme for the confiscation of wealth… Gold stands in the way of this insidious process. It stands as a protector of property rights. If one can grasp this, one has no difficulty in understanding the statists’ antagonism toward the Gold Standard”… – Alan Greenspan from Gold & Economic Freedom 1966

Don’t kid yourself. The United States had a $100 Billion budget deficit (we spent more than we brought in) in October 2018, the first month of our new fiscal year. That deficit is GROWING EVERY MONTH, with no credible end in sight. Don’t forget the budget deficit projections do not include unfunded liabilities like Social Security and Medicare. Yikes!

Something has to give someday. When the debt destruction wildfire occurs (think California Camp Fire), it will likely happen suddenly and “burn up” savings held in cash and “safe” investments like bonds. The middle class and poor will probably suffer, but many of the wealthy will likely be burned as well.

Word to the wise!




Two Steps Forward, Three Steps Back

At least that’s what it looks like on Monday, 11/19 at 11:30 Central Time. We had a nice rally last Thursday and Friday. Things were looking better going into the weekend. This morning, however, we are down 1.75% on the S&P-500, giving back all the gains from that rally, and then some. Ouch. For 2018, the S&P-500 is up less than 1% at this writing.

You may have noticed that I don’t try to explain the daily or weekly stock market behavior. That’s because, in the short term, markets move pretty randomly. The explanations you see on the news are usually pretty bogus. On any given day, I can give you three reasons why the market is falling . . . or three reasons why it is rising. That doesn’t mean I really know exactly what caused the movement on any given day. Very few people do, and they are probably not talking.

By now, though, enough things have happened that you should see the value in our methodology raising cash over the last two months. Predicting the future is a pretty sure way to lose your shirt. BUT, reducing portfolio risk when market risk increases does pay off in the long run. . . and that is our goal.

We are well positioned. No need for any action at this time.


Stock Markets are Sliding

It looks like today (Thursday) the S&P-500 will open below where it started 2018. It was just a couple of months ago that “everyone” saw nothing but upside to the stock market and the real estate market … apparently too willing to forget 2006-2008, just 10 years ago.

I don’t know if this is the beginning of the big bear market or another scare. I have learned to stick to my methodology pretty closely and respond to what the market is doing right now, rather than try to predict the future.

We still hold over 50% of our non-speculative accounts in cash because of the increased risk. No need for any changes at this time.