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Here Comes the Market Melt Up

               With impending doom on the television every minute of the day, one may wonder why these horrible things don’t carry over to the financial markets. Why is the volatility index trending lower, while consumer sediment is at a thirteen year high? Every August and September for the past number of years, the gurus write articles and make television appearances to proclaim the market is going to crash. It’s easy to agree with them, and for the most part I agree with their sediment and what they have to say. Here is why I think the exact opposite is going to happen and why the market melt up is under way.

               If equities can make it through October with no major correction, the traders who sell in May and go away typically re-enter the market in November. This brings more volume and liquidity and could pave the way for a possible Santa Claus rally. This rally could be amplified with the talk of tax cuts on the horizon. Sell in May and Go Away           

               Tax cuts for the corporations may lie in the not too distant future. A major tax cut will instantly lower the P/E ratios of these stocks and make them look more appealing to the everyday investor. Don’t forget about the 2.6 trillion dollars of corporate profits sitting off shore. In 2004 corporations were given a tax holiday. They were allowed to bring their profits back to the United States at a 5.25% tax rate instead of the standard 35% corporate tax rate. Such an event would bring billions of these dollars home. Most likely these companies would engage it their own stock buyback, and drive prices up. Besides the tax breaks, we are going to see a changing of the guard at the Federal Reserve.  

               In early February of 2018 a new Federal Reserve President will be put into place. Last week interviews for all the possible candidates were concluded and as early as this week an announcement could be made. The list of possible candidates are Gary Cohn, Jerome Powell, Kevin Warsh, and Janet Yellen. Chances are, whoever is selected will be extremely dovish. It is no secret President Trump wants a week dollar. If you pull up a chart of the US dollar, it has been in decline since January of 2017. A little while back the old Fed Chair made his thoughts known.

               Alan Greenspan made public statements indicating he sees extreme dangers in the bond market. Greenspan thinks interest rates are too low which makes them unsustainable. When they move up they are going to move quickly. The bubble is not in stocks but in the bond market. Martin Armstrong echoes the same concerns as Greenspan. The first sign of trouble in the bond market could push new money into the equity markets.

               The big driver of a market melt up could be the deregulation of the financial markets. This is happening right now. A recent New York Times article indicated the Commodity Futures Trading Commission (CFTC) director James McDonald, was in favor of self-regulation. This is starting to sound like the mid-1990s when the Glass-Steagall Act was repealed. This was one of the major drivers behind the behind the dot com bubble. When the market eventually rolls over, this will be the cause of the market failure by the mainstream media. There will be no mention of low rates, cheap money, and fractional reserve banking.

               Mortgage Lending is another area where cheap money continues to flow. According to Fannie Mae’s third quarter Mortgage Lending Sentiment Survey, lending standards have been relaxed since the home mortgage demand has been tightened. This is just more reason why markets will continue their ascent.  

               At the end of the day, there is no one person that knows what the market is going to do. You can’t listen to the talking heads giving their opinion. Most the time these guys have a position and are trying to give their investment some traction to make money. You can only trust price and volume. The best way to monitor that is by using the Market Trakker that Follow the Money provides for free. Market Trakker Tool Investors using this tool would have exited the markets before the stock market crash of 2008. You owe it to yourself to protect the assists you have worked hard to gain.

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The Precious Metals Look Good in the Years Ahead

At the moment gold has no defined trend and silver is in a downtrend. All the markets around the world, with the exception of Egypt, are in uptrends. However, there are a lot of reasons to remain bullish on the metals in the years ahead.

The dollar is trading at a fourteen month low, currently priced at 93 on the US dollar index. It is no secret President Trump wants a cheap dollar during his presidency. Mario Draghi and the Bank of Japan are taking the same stance. They will keep money cheap and credit plentiful to keep the markets on course. Current fed policy makes it is highly likely the next rate hike in the US will not happen in the months ahead.

Investors should take notice of the gold and silver commitment of trader’s reports. The commercial banks have the lowest short exposure in some time. What are the chances the metals market gets taken down over a holiday, when the volume is low, and the commercial banks are right there getting rid of their short exposure. Very rarely are they wrong. At the end of March you could see the commercials heavily short the metals and a few weeks later the price of gold was capped at $1290 and silver topped out at $18.50. Today the reverse is happening.

Marin Katusa released a gold tweet towards the end of July. Katusa highlighted the continuing lack of discovery of new deposits. The chart he shared on twitter indicated gold discoveries are down 85% in the past ten years, and gold reserves continue to decrease. Since this is trend remains more buyouts of junior mining companies are imminent. Marin Katusa's Gold Tweet             

I believe in the future, more profits from the crypto currencies are going to be taken and some of that capital will flow into the precious metals. Companies like Euro Pacific Capital accept bitcoin as payment. Once the transaction is completed, bitcoin is converted into us dollars. Financial technology will continue to improve and more companies will transact in cryptocurrencies, even if they oppose the concept.

Corporate bond debt has reached over 45% of GDP according to Federal Reserve statistics. The same peak levels were reached during the dot com bubble in 2001 and the housing bubble in 2008. Alan Greenspan recently made comments inferring the bond market is where the trouble is. The first sign of bonds rolling over may cause the conservative investor to move in the direction of the precious metals.

Today commodities are trading at a record low levels compared to the S&P 500 according to the GSCI commodity index. Levels this low have only been reached in the early 1970s and in the late 1990s. John Maynard Keynes was correct is saying “Markets can stay irrational longer than you can stay solvent.  

 If one wants to take a position in the metals market, I would advise to watch the gold miners etf (GDX). In February of 2017 a large amount of volume came into the market and moved the price up quickly. This will happen again. Don’t try to catch the falling knife and try to guess where the bottom is, let the big volume and rising sediment tell you when to buy.

To an extent the markets are rigged. That being said, men can only manipulate markets for so long before the market overwhelms them. History bears this out over and over. If you have exposure to the metals market, stay patient.

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A Reason for Confidence in the Chinese Economy

At the end of June, the Morgan Stanly Capital International (MSCI) global equity index gave investors a little more confidence to put their money in the Chinese economy.  Starting in June of 2018, over 200 of China’s A Shares will be scaled into the MSCI index over a span of two years.

This process has been talked about for some time. Many in the investing world, rightfully so, question the authenticity of some Chinese companies and their accounting practices. Being added to the MSCI index will add credibility to these investments. With a large backing from Black Rock, this deal was pushed through.

Investment funds tracking this index will need to have some exposure to the newly added shares. For the average investor, now is the time to do your homework on the Chinese economy. As an example, there is an ecommerce company Inc. It put Wal-Mart out of business when it tried to compete in the same space. When Wal-Mart closed up shop, they actually took a 5.9% stake in JD.  In October of 2016 it doubled its stake to 10.8%.

Steve Sjuggerud, a highly respected financial newsletter writer, has been pounding the table on the Chinese markets for some time. His previous calls on gold and silver, treasury prices, and the overall market have been extremely accurate. If he is looking at equities in China, the average investor should be too. One of his newsletters is “True Wealth China Opportunities” This is the best way I know to get up to speed on what is happening in Chinese markets.

Since the beginning of the year, China A shares have steadily trended to the upside. In the past couple of weeks this acceleration has intensified. 

The greatest generation and baby boomers could have gained an incredible amount of wealth by saving and investing in all American stocks.  It’s my opinion, for the generations that follow, it makes a lot of sense to spread your wealth in the US and internationally. 

China has a high savings rate, a population who is self-dependent, and a silk road project that will connect it to Russia in the future. Guys like Jim Rogers are ahead of the curve. I think there is a strong probability that the Chinese economy will be the economic engine of growth for the next 100 years.

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What Does the Rise in Crypto Currencies Mean

Edward Karr was a guest on the Frank Curzio podcast. The discussion at hand was Bitcoin and the rest of the crypto currencies. Mr. Karr stated the rise of the crypto currencies is the canary in the coal mine for a major economic event to unfold in the future. Edward stated the rise in Bitcoin was a put on the Chinese economy. Wealthy Chinese people have bid up other assets like Vancouver real estate as well as many crypto currencies.

Japan and Korea have put a vast amount of wealth in bitcoin and other blockchain currencies. Investors in Japan, with good reason, are nervous about the undertakings of the Bank of Japan. The BOJ owns more than 40% of government bonds and has been buying stocks for some time. There are days where no bonds are traded in Japan. If the Japanese currency rapidly begins to lose value like in Venezuela, people holding bitcoin will maintain some form of wealth, while those holding the yen will have much less.

The block chain technology is what makes these currencies so intriguing. Mr. Karr gave the example of settling trades. It takes three trading days to transfer funds from one account and put it into ownership in another. With the rise of financial technology, these transactions will occur instantaneously.

Reggie Middleton, the creator of Veritaseum, went to Jamaica at the end of June. He presented the blockchain technology to the leaders in business and those employed in the financial industry. If Veritaseum was to be successfully implemented in a small market, companies like Euroclear, that settle trillions of dollars in transactions everyday are in trouble.

He also pointed out block chain currencies are extremely clean and transparent. That is completely opposite of how central banks, fiat money, and fractional reserve banking operate.

Frank Curzio and Edward Karr both felt governments pose a huge threat to the crypto currencies in the future. At the moment they can’t be taxed. I think there will be day where the central banks and governments are going to take a bold stance against crypto currencies. For a speculative investor this might be the time to buy.

Contrary to that opinion, Nevada is leading the way for blockchain startups to become the new Silicon Valley of block chain technology. Bill 398 was passed 41-0 to make sure local governments can’t tax or impose any other requirements that would stop blockchain use.

To hear this interview go the Frank Curzio Show and listen to the June 14th podcast.