February 26, 2014
- Distant early warnings? The return of house flipping, the advent of “1%” vandalism
- Cue the clueless top callers: S&P 500 flirts with record, record plays coy
- Once more, with feeling: Do you want to be right, or do you want to make money?
- China’s dance with financial collapse: Jim Rickards on the stateside fallout
- Instant golden riches… junk silver worth more than an Olympic medal… wacky weed and urban myths… and more!
The following pop-up ad assaulted your editor on his morning news cruise…
Say what? Is it 2005 again? Hell, they haven’t even come up with a euphemism for house flipping. It’s as if an epic housing bust never happened.
Maybe it’s a local thing. The U.S. capital’s housing market is robust because of how quickly the federal government is metastasizing.
We’re not saying this is a sure sign of another top. But it’s on our radar. As is this…
“Last Sunday, multimillion-dollar homes in Atherton [Calif.] had offensive graffiti sprayed on them,” reports San Francisco’s KPIX-TV. “The graffiti was found on walls, fences and even a car.”
Most of the time, the message was the same…
[Atherton Police photo]
At least nine properties were vandalized. Atherton was named the “most expensive ZIP code in America” by Forbes last year. Median household income as reckoned by the Census Bureau is $228,393.
“It makes sense that it would happen in this neighborhood,” a woman pushing a stroller told the San Jose Mercury News, a bit ominously.
Here again, it might be only a local phenomenon. Class war has broken out in San Fran; the bohemian types who’ve gravitated there over the decades are getting gentrified by Silicon Valley types who find San Jose and environs too boring. Atherton is midway between the two.
We’ve long figured “the 1%” are capable of taking care of themselves. But for just as long, we’ve been on guard for the moment when the same kind of resentment might be turned against the upper middle class…
Maybe the third time’s a charm? Once again, today, the S&P 500 is set to reach a record close above 1,850.
That was also the case yesterday. And the day before. Neither time did it pan out.
You don’t have to search far to find screechers online who say this fact is confirmation that the top is in — that’s the restrained version — or the less-restrained call in bold red font that THE BIG ONE is now only days or weeks away.
Fred Sanford, calling a market top…
On the other hand, consider this: “Since 1982, almost half of the S&P 500′s closes have been within 5% of all-time highs,” says our Jonas Elmerraji.
“That’s a staggering statistic, especially considering the fact that it includes some major market corrections along the way.”
For sure: 1987, the dot-com crash, 2008…
“Most investors off the Street,” Jonas explains, “have a lot of trouble computing the fact that stocks spend most of their time near highs — even the professionals do. Not long ago, I saw a note from a very prominent and well-respected hedge fund manager on Twitter saying that ‘all major crashes happen after new highs’ — so the fact that the S&P was breaking record levels in 2013 meant that his crash scenario looked more likely.
“That’s one of the stupidest things I’ve ever read. It’s like saying that most shark attacks happen in the water.
“Our friend probably wrote that little nugget of investing ‘brilliance’ because he had been publicly bearish about U.S. stocks for the better part of the last two years. His fund was getting creamed. It was wishful thinking on his part. He should have known better.”
“As the old saying goes, you can’t ‘wish’ the market into action,” Jonas goes on — spotlighting the fatal mistake of the tweeting hedge fund guy.
That’s why Jonas doesn’t shy away from predictions. He shuns them altogether.
“Predictions are for people who want to look back and say, ‘I was right.’ Trading is for people who want to look back and say, ‘I made money.'”
It gets back to the nature of “trend following” as practiced by Jonas and Rude Awakening editor Greg Guenthner: You don’t play the fool’s game of picking tops and bottoms. “By reacting to technical price action in stocks,” says Jonas, “we’re inherently going to be a little bit late on every entry and on every exit — that’s the nature of the beast. But by forgoing a tiny bit of missed theoretical profits on every setup, we dramatically decrease the risk of every position we take on.”
And, as a result, make much bigger profits.
“Technical traders do use forecasts and outlooks,” Jonas clarifies.
“There are two important differences between the forecasts we make and the predictions that the guys on CNBC make, though: First, forecasts can change when the facts change, and second, we never, ever trade them. Instead, they just provide context.
“Earlier this month, I shared my outlook that I thought the S&P 500 was going to bounce higher. The technical factors were all lining up in favor of higher ground to end the month — and new highs by mid-March.
“Having the forecast gave us some important context. It helped us figure out whether the big trend had staying power or whether it was time to start getting defensive. But that forecast would have changed the moment the big index broke below its price channel.”
At the risk of repeating ourselves, here are Jonas’ annotations to a chart of the S&P, updated through this morning. The big turn he called in our virtual pages on Feb. 6 — the arrow on the far right — looks even more decisive now, no?
“We didn’t trade it,” he cautions, “until the S&P caught a bid and bounced off trendline support. It wasn’t an outlook anymore; it was a reaction to the market’s bounce. That’s the point when it became a high-probability trade.”
We’ll interrupt Jonas — because he’s too modest — to point out that in the three weeks since, his most elite readers have played the bounce for a gain of 75.4%.
“There’s no question that it’s a stressful time to be an investor,” he says. “Right now, lots of folks are agonizing over where the market is heading in 2014. But while most investors spend their time worrying about whether they’re ‘right’ about the market, we’ll just concern ourselves with making money.”
[Ed. note: Yet again, we risk repeating ourselves by drawing your attention to this presentation by Jonas. Fair warning. We’re taking it offline tomorrow night at midnight. If you’d like your own crack at 75% gains in three weeks, starting as early as Friday morning, please check it out while there’s still time.]
Gold got within a five-spot of $1,350 overnight but has tumbled back to $1,325 this morning.
Blame it in part on dollar strength; the dollar index has rallied a half-percent, to 80.5.
And dollar strength can be chalked up in part to a drop the Chinese yuan — which, if we take The Wall Street Journal at face value, was done on purpose.
“China’s central bank,” the paper reports, “engineered the recent decline in the country’s currency to shake out speculators as it prepares to allow for a wider trading range for the tightly tethered yuan, according to people familiar with the central bank’s thinking.”
Hmmm. Compare and contrast with this, hours earlier from the Financial Times: “The sell-off in the renminbi is a reflection of market forces and should not be overinterpreted, the Chinese central bank has said in its first official statement on the sudden weakening of the country’s currency.”
From this, we can only conclude Chinese central bankers are at least as clueless as the American variety. Heh…
“China is on the verge of a financial collapse of unprecedented magnitude,” writes Currency Wars author Jim Rickards, once again holding forth in his hometown paper, The Darien (Conn.) Times.
As in the United States, Chinese bank deposits get squat for interest. “These low rates,” he explains, “send Chinese investors in search of higher yields elsewhere. Because of capital controls, Chinese citizens are not able to invest in foreign assets such as U.S. or Canadian stocks and bonds. The only investments available to most Chinese other than low-rate bank deposits are gold, real estate and so-called ‘wealth management products.'”
We’ve chronicled the blowup and bailout of these products in recent weeks. “Actual performance on the wealth management products is below the promised returns in many cases,” Mr. Rickards goes on. “Banks cover this up by selling new products and using the proceeds to pay off the old ones. This is exactly how a Ponzi scheme operates.
“Eventually, some event such as a project failure or admitted fraud will start a panic in which investors demand that the banks redeem their wealth management products all at once.”
Expect blowback in the United States, Rickards says, perhaps next year. “Investors should be well prepared for these scenarios with significant portfolio allocations to hard assets such as energy and transportation stocks, land, precious metals and fine art.”
And now back to the Bay Area, where a couple has instantly joined the 1% by discovering $10 million in gold coins in their backyard.
The find is for real: The kingpin of the coin grading world, David Hall of Professional Grading Coin Service, counts 1,427 coins minted between 1847-94. Mint condition. Face value over $28,000. A few of the individual coins might be worth $1 million each.
The couple made the find while out walking the dog on their property — in six decaying metal canisters like this…
How they got there, no one can figure out. “The nearest we can guess is that whoever left the coins might have been involved in the mining industry,” says coin dealer Don Kagin, who’s helping the couple bring the coins to market.
The couple understandably wants to remain anonymous — really, who’d want amateur prospectors crawling all over their property with metal detectors? — and will sell most of the stash on Collectibles section of Amazon.com.
“The gold medal at this year’s Sochi Olympic Games weighs 531 grams, making it one of the largest ever awarded,” reads an essay from Liberty Coin & Currency of Portland, Ore.
“If it were made of pure gold, it would be worth nearly $24,000 at today’s gold prices.”
Ah, but as we noted during the 2012 games, modern-day gold medals are made of silver, coated with gold. Melt value about $600. Silver medals? Those are mostly silver, worth about $370 at current prices.
And a bronze medal? The mixture of copper, zinc and tin is worth about $3.50
The eagle-eyed folk at Laissez Faire Today point out a pre-1965 silver quarter is now worth more than an Olympic bronze medal — about $3.95. So there.
“Instead of throwing the remote, I shouted, ‘You dumb SOB!'” writes a reader who shares your editor’s Olympic-size pique with Bob Costas’ anti-Russia snit during the Sochi games last weekend.
“Almost every day,” the reader goes on, “or night, there was a snide ‘political’ comment about either Putin or Russia, including some guests who professed to be Russian experts. Somebody high up in NBC must have laid out that negative political format, and someone else high up in our government surely gave them the go-ahead.
“Maybe it was coincidental that Michelle was on NBC late night last week pushing Obamacare. Political commentary has no place in the Olympic TV coverage, but who is surprised at what our TV networks say that favors certain political views? I think it’s called propaganda for the masses.”
The 5: And the drumbeat goes on. “Putin Rattles Saber” was the ominous main headline on Drudge this morning. Putin ordered a drill for troops stationed near the Ukraine border.
“Vlad Putin’s Russia has re-emerged as America’s No. 1 enemy,” says veteran foreign correspondent Eric Margolis. “Muslims are out.”
“At the rate Colorado marijuana dispensaries are collecting money,” a reader muses after yesterday’s episode, “it won’t be very long at all before they charter their own bank.”
The 5: Well, there’s a thought. If they can get a charter.
Your editor was musing about all this over instant message this morning with our executive publisher and 5 founder Addison Wiggin. “Police agencies,” he says, “will lose a ton of funding from the feds if pot is legalized or even decriminalized.”
Exactly. Which is how Michael Pristoop, the police chief in Annapolis, Md., wound up testifying against legalization yesterday before a state Senate committee. “I remember the first day it was decriminalized [in Colorado] there were 37 deaths.”
Chief Pristoop was citing a satirical story at an Onion-like site called The Daily Currant. The story cited a brewery executive who said, “When was the last time you heard of someone overdosing on beer? All these pro-marijuana groups should be ashamed of themselves. The victims’ blood is on their hands.”
Remarkably, one of the senators immediately called BS. “If it was a misquote,” Pristoop replied, “then I’ll stand behind the mistake. But I’m holding on to information I was provided.”
Holding on very tightly, indeed…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. The United States comes in 19th in the world in a new ranking of retirement security from Natixis Global Asset Management.
No. 1, Switzerland, got props for its strong pension system. Austria was lauded for its health care.
“In contrast,” says a CNN summary, “American workers are increasingly having to save for retirement on their own or through workplace 401(k) plans, while high health care costs remain an added burden.”
You’re on your own… but we’re here to help. You can get started on your own retirement blueprint and declare financial independence with only two Benjamins.