Keep Calm, Carry on… and Make Money

  • The bears are growling with a “flood of Wall St. warnings”
  • But what if you didn’t have to worry about the timing of the next crash?
  • Russia and China step up their “de-dollarization” plans
  • Good help is hard to find: An update from the small-biz trenches
  • Rising death rates? Hey, it’ll save corporate pensions!
  • A China-India war update… a milestone in credit card debt… answering critical emails about one of our newer services… and more!

On the one hand, “Stocks just entered a historically scary period,” says Money magazine. On the other hand, Morgan Stanley says warnings of a crash “are out of whack with reality,” according to Business Insider.

If the Drudge Report is any indication, stock market jitters are on the upswing, Dow 22,000 and all-time highs notwithstanding. Here’s a collage of headlines that appeared on Drudge roughly 24 hours ago…

Drudge Report Headlines

“We’re probably going to experience a stiff correction at some point in the not-so-distant future,” says our Jonas Elmerraji. “It’s inevitable. But that’s not much of an insight.

“And as to when it might happen — next week, next month, next year — your guess is as good as mine.”

Jonas is quick to add that’s not a cop-out. In fact, he believes this agnostic nobody-knows approach can make you a more successful trader than 99% of everyone else in the markets.

It all comes back to a cheeky question we like to pose now and then: Do you want to be right, or do you want to make money?

“There’s a reason,” says Jonas, “why CNBC and all the other media outlets gather up all the stock market predictions from Wall Street strategists every year and rank how close they got to the final number at the end of the year. It makes for great TV. Easy ratings.

“But don’t you think it’s kind of funny that CNBC never ranks those Wall Street talking heads by how much money they made their clients instead?”

It’s not the same thing.

“The way you make money in the markets,” Jonas goes on, “is by identifying a consistently profitable system and then sticking to that system — even when your gut is telling you that you should do something else.”

A well-designed system doesn’t have to be right about whether the Dow is zooming to 30,000, crashing to 15,000 or anything in between. It just has to have you in and out at the right times.

That’s why we’re so keen on the computer-driven “K-Signs” Jonas has been developing. Jonas has fed 20 years of data for every S&P 500 stock into this system — plus a host of other stocks and ETFs. From there, he’s been able to determine the best times of year to buy and sell a stock — down to the day. And he’s back-tested it extensively.

The best part about it, if you’re worried about a crash on the horizon? This system would have made money in 2008, even as the S&P 500 tumbled 38%. “The median winning trade that year would have produced a 20% gain,” says Jonas. “That actually makes 2008’s winners some of the biggest — a result of the added volatility in the market that year.”

The downside, if that’s what you want to call it — the system’s overall win rate of 93.5% fell to “only” 67%. We suspect you’d still be happy making money on two out of every three trades.

If you haven’t checked out the K-Sign breakthrough yet, you owe it to yourself to click here and investigate.

To the markets, where the big dollar bounce that started on Friday is carrying into today. The dollar index is up more than a third of a percent, to 93.8. That’s pushed gold down to $1,253.

The major U.S. stock indexes are in the green as we write, but not by much. The Dow has added 10 points, to 22,129.

The Russian-Chinese joint project of “Escape From the Dollar” is gathering speed.

On the heels of President Trump signing new Russia sanctions into law, Russia’s Deputy Foreign Minister Sergei Ryabkov said yesterday, “We will of course intensify work related to import substitution, reduction of dependence on U.S. payment systems, on the dollar as a settling currency and so on. It is becoming a vital need.”

As Jim Rickards pointed out here last week, the new sanctions pose an “existential threat” to Russia’s energy industry — shutting out not just potential American partners, but European ones too. After all, Europeans use the dollar as the common currency.

Meanwhile, there’s a startling new estimate of China’s gold reserves — from one of the Chinese Communist Party’s mouthpieces, no less.

As we said back in June, the official figures from the People’s Bank of China have held steady all year at 1,843 metric tons. We’ve long thought the real figure was close to 4,000… and now a story in China’s Global Times says as much.

The story cites a report from the Chinese industry website saying that 16,193 metric tons of gold are held by private citizens, with 4,000 more held by the central bank. “The estimated number,” says Global Times, “could mean that China may have overtaken Germany as the second-largest holder of gold in the world after the U.S., which has gold reserves of 8,133 tonnes based on a report published by the World Gold Council.”

If 4,000 is the “officially unofficial” figure now, it is surely even higher. Recall what Jim Rickards has been saying for years: The more gold the Chinese central bank can accumulate, the bigger is China’s “seat at the table” whenever the global monetary system goes kerflooey and the powers that be sit down to start fresh.

Also from the Global Times, we see the Chinese government is opening the door to a “small-scale military operation” to kick Indian troops out of disputed border region in the Himalayas.
We’re among the few U.S. media outlets, mainstream or alternative, to monitor this brewing conflict. “If India refuses to withdraw, China may conduct a small-scale military operation within two weeks,” says Hu Zhiyong from the Shanghai Academy of Social Sciences. “India, which has stirred up the incident, should bear all the consequences.”

Yikes. China kicked India’s rear during a border war in 1962. But that was before either country had the bomb…

If small-business owners are getting impatient with the pace of reform in Washington, it’s not showing up in the monthly Optimism Index from the National Federation of Independent Business.

The July number rings in this morning at 105.2 — a meaningful jump from the June figure of 103.6 and the highest reading since February. While Obamacare repeal and tax reform are moribund, “many important changes have occurred to the regulatory structure with few if any new rules showing up in the Congressional Register,” says NFIB chief economist Bill Dunkelberg.

With regulation becoming less of a problem, the survey shows growing concern about finding good help. Asked the “single most important problem” they face, 21% of respondents said taxes, but close behind was 19% citing “quality of labor.”

“Small-business employers are finding it very hard to hire and keep their workers,” says Dunkelberg.

For the record: Americans have now piled up even more credit card debt than they did just before the Panic of 2008…

US consumer credit card debt chart

The latest consumer credit figures from the Federal Reserve show outstanding credit card debt at $1.02 trillion.

No, that’s not a sign of impending collapse; there’s no reason the number can’t go higher from here unless defaults start to rise, and there’s no glaring sign of that right now.

Like a stock market crash, it’s inevitable. But the timing is squishy at best…

Whelp, it looks as if all those people dying in middle age from suicides and substance abuse will help shore up Corporate America’s shaky pension plans.

As we’ve been chronicling since late 2015, death rates among middle-age white Americans are rising. A Bloomberg story today finds an upside to these grim figures: “…over the last two years, at least 12 large companies, from Verizon to General Motors, have said recent slips in mortality improvement have led them to reduce their estimates for how much they could owe retirees by upward of a combined $9.7 billion, according to a Bloomberg analysis of company filings.”

Heh… Last month we pointed out how Bloomberg said that 186 of the 200 biggest pension plans in the S&P 500 aren’t fully funded. Problem solved!

The article also points out the same phenomenon benefits Social Security. According to a report last month from the program’s chief actuary, the most recent figures “show continued mortality reductions that are generally smaller than those projected.”

And with that, the Social Security administration has now acknowledged “the awful way Social Security might be ‘saved.’”

That was the title your editor gave to an article penned at The Daily Reckoning more than two years ago. We pointed out the most educated, highest-earning Americans are working longer and continuing to contribute to the Social Security system. Meanwhile, life expectancy among Americans who never finished high school is falling; many die before they can ever collect benefits.

Back to the Bloomberg piece: “Absent a war or an epidemic, it’s unusual and alarming for life expectancies in developed countries to stop improving, let alone to worsen. ‘Mortality is sort of the tip of the iceberg,’ says Laudan Aron, a demographer and senior fellow at the Urban Institute. ‘It really is a reflection of a lot of underlying conditions of life.’ The falling trajectory of American life expectancies, especially when compared to those in some other wealthy countries, should be ‘as urgent a national issue as any other that’s on our national agenda,’ she says.”

But it’s not. Figuring out the “whys” behind middle-age suicide, alcoholic liver disease and heroin/prescription painkiller overdoses would gore too many elite oxen. It’s only “deplorables” dying earlier, right?

“Enough with the K-Signs already,” a reader implores.

“You spent the first minute and a half of yesterday’s 5 talking about how Kinetic Profits nailed the recent move in Apple, but AAPL was never an official recommendation of the service!

“Can we look at actual recommendations? One April reco closed for a 35% loss. Of six June recos, five are down between 8–22%. The Aug. 1 recommendation is up 4% but it doesn’t matter because I’m not rich enough to spend $1,435 on option play. That would be, like, 50% position sizing.

“Seems like if you’re going for 93.5% losses, do this.”

Adds another current subscriber: “You should not be promoting a service that has such a dismal record.”

The 5: It’s true that AAPL wasn’t an official recommendation. It was something we talked about here in The 5 back in June for demonstration purposes.

Coupla things: Last we checked, all but two of the stocks in the Kinetic Profits portfolio were in the green. The options recommendations, however, were largely in the red. That’s part and parcel when you trade options. “Option prices can be illiquid,” says Jonas Elmerraji. “They don’t trade with the consistency that their underlying stocks see. And that means that sometimes the return numbers you see in the portfolio are delayed or inaccurate.

“Options are a great way to ramp up your potential returns on a trade, but they’re a lousy way to track that trade’s progress — especially in a low-volatility market.”

Which brings us back to a point we made at the end of yesterday’s episode, when talking about gold: All that really matters is how the trade has performed once the Kinetic Window closes (in gold’s case, on Sept. 22). Everything in between is noise.

That’s why we went ahead and launched the service in June after readers of our daily Rude Awakening gave K-Signs a test-drive with seven “beta” trades. Every one of them was a winner — which lines up with the 93.5% win rate in the back-testing. If we’d had six losers, or even three or four, we’d have told Jonas to either refine the system or junk it.

We know it sounds clichéd to counsel patience. But in this case, patience is key to the system. Watching the trades day by day is only going to make you crazy. What matters is if you’re in the green when all’s said and done.

Which isn’t to say Jonas is resting on his laurels: “If we started seeing more completed losing trades than we should from a statistical standpoint, that’s when we’d start investigating what’s going on. And I’ll be keeping a very close eye on that.”

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. While gold waits to make its next big move, did you know there’s a way to extract income from the Midas metal?

It’s true. A week ago today, readers of our Income on Demand service collected a $300 instant payout.

Forget about places that give you “cash for gold.” Learn how you can get cash from gold at this link.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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