Saturday, April 13, 2013

Exponential Trend Failure of the Day

Click to enlarge.

First it Giveth

"First it giveth, then it taketh away."

Hell hath no fury like a momentum investor scorned. And one thing is fairly clear, those who bought gold at the recent peak in 2011 are seriously scorned at this point. At the very least, gold is generating fewer prophets. Pun intended.

On the one hand, I would not rule out a return to the red trend line. The odds seem very low, but anything can happen. You certainly won't see me short gold. Let's just say that I will make no attempt to profit off of its potential demise. "Not my style." (That last quote is an ongoing inside joke. See the comments found here. As of today, SHLD is down 44% since MAB and I were heckled in 2008 for heckling Sears. Sears is the gift that just keeps on giving.)

On the other hand, you won't see me bet on a return to that long-term trend either. I think gold is still extremely expensive relative to toilet paper and aluminum. I have no desire to own gold or silver again at anywhere near these prices. There's ample downside risk left in both of them in the coming years. I've charted many serious exponential trend failures on this blog over the years and very few of them, if any, have actually unfailed. Not all have crashed though, so keep that in mind. For example, the recurring employment exponential failure hasn't crashed so much as stagnated. Gold could do the same or even better. Who knows?

As a side note, the modern miracle metal known as aluminum is considerably cheaper than it was 5 years ago. That has to be adding at least some extra downside pressure to the price of gold. I once again ask, where are the aluminum speculators? Perhaps aluminum is shiny but not all that sexy? Aluminum also pokes a sizable hole in the seemingly never-ending impending hyperinflation theories that some sites love to offer (especially to paid subscribers).

I'm not trying to suggest that we can't hyperinflate. We can and eventually probably will. Eventually could be a very, very long time though. I'm not at all convinced that we will do it in my lifetime. I am factoring in my 48 years of age. Your results may vary (especially if considerably younger). If the economy gets bad enough, then I might have to take on more risk to lower my longevity. You know, like mountain climbing while wearing nothing but a swimsuit. But one way or another, I intend to have my nest egg last the rest of my life! Gallows humor! ;)

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan, 1966

I absolutely believe that. Pick your poison. I continue to sit in long-term TIPS (with intent to hold to maturity), long-term I-Bonds, long-term EE-Bonds, and short-term cash. I'm not expecting miracles. If I am financially ruined (possible), then I won't be ruined alone. There will be many, many others joining me. With rates this low, one might even say that I am slowly being financially ruined (and new investors definitely are). It is manageable though. Fortunately, I locked in rates when Jeremy Siegel warned me to stay away. I refer to him now as Wrong Way Siegel, partly in reference to Wrongway Feldman of Gilligan's Island fame. Why would anyone listen to his interest rate theories at this point? Year after year, just how much more wrong could he be?

If by some chance real yields do rise significantly, then I predict his precious stock market ("Stocks for the Long Run") will get seriously kicked in the you know what again. He won't see that coming either. As seen in the this chart, real yields last rose significantly during the deflationary great recession. Even buried cash had a positive real yield as prices fell. That's why TIPS yields rose. It wasn't because the magical economy fairy cast a wondrous spell and prosperity had been fully restored. The 1980s and 1990s are over. Those rules no longer apply.

This is not investment advice. It is filled with opinions though. Opinions and 50 cents would get you a cup of coffee. Not now of course. There has been some inflation over the years. In recent days, not so much.

So what's behind the drastic price cut?

"The firm could be betting on widening income inequality," Stock said.

What does Starbucks know that we don't do? Sigh.

Source Data:
Yahoo Finance: Historical GLD Prices


Mr Slippery said...

Nearly all commodities have suffered huge drops over the last 6 months: Copper, nickel, iron, gold, silver, aluminum, softs, and oil. Meanwhile, bonds have rallied against the great rotation theory. Why do stocks continue their dreamy rise while real stuff crashes in price? This is an allusion to an illusion.

Stagflationary Mark said...

Mr Slippery,

Why do stocks continue their dreamy rise while real stuff crashes in price?

That's an easy one to answer.

April 12, 2013
Retail sales take a big tumble in March

Consumers cut back across a wide range of categories last month.

See? The answer is easy. Unfortunately, the explanation of the answer requires yet another answer.

That answer can be found here. I know it doesn't sound like much of an answer but I assure you that it is.

Elaine gets a raise at Pendant Publishing, which is merging with a Japanese conglomerate to avoid bankruptcy, and is publishing Kramer's coffee table book.

Emphasis has been added to the secret code words.

George then resolves to start doing the complete opposite of what he would do normally.

One again, emphasis added.

It all makes sense if you assume that the Fed has permanently put a stop to recessions just like Japan did after their housing bubble popped (in the early 1990s) and that US consumers can therefore never become tapped out again any more than Japanese consumers can thanks to the infinite power of ZIRP!

It is best to take a deep breath before saying that sentence out loud of course. There's an awful lot to assume! ;)

Stagflationary Mark said...

I'm off. I pulled another all-nighter.

In other news, I haven't played the guitar in the last two days. I played too much and I have some stiffness in my right hand's pinky finger. If I keep it up then I risk turning my right hand into a claw, lol.

My left hand is doing well, but I "clutch" the pick in a very non-relaxed manner apparently, especially when trying to set speed records.

TJandTheBear said...

The Matrix is the world that has been pulled over your eyes to blind you from the truth.

Stagflationary Mark said...


The gold to red pill (Costco's 600-count generic Benadryl) ratio is way too high for my liking as an investor. It does encourage me to hoard red pills though. However, there's only so many one can hoard due to the expiration date.

Gold cannot be a perfect long-term inflation hedge *and* a perpetual 19% real yield annual investment (21% nominal minus 2% inflation). To believe both sounds a bit like the blue pill at work.

Stagflationary Mark said...

And then there is the stock market. When it comes to the sustainability of meteoric corporate profits over the past few years, it's as if blue pills are hailing from the sky!

Just an opinion of course. ;)

Stagflationary Mark said...

There may be a price point for gold that does make it a great long-term inflation hedge.

It is my opinion that the price point is considerably lower (at least relative to toilet paper). My opinion is irrelevant though. I don't decide the price. The entire world's population does. That's 7 billion people, many of which wear gold. (I do not wear gold and am therefore definitely not a representative sample.)

Stagflationary Mark said...

In other news, I'll definitely be posting a new chart today. I'd do it now but I'd have to wake up our pet bird to use my computer. I did that last night. Don't have the heart to do it twice in a row.

Department store sales are crashing (as seen in the monthly retail sales report). The year over year drop is horrifying. Get ready to put on the @#$%-colored glasses. (@#$% is not rose!)