market

When Authorities “Own” the Market, The System Breaks Down: Here’s Why

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authoritiesCharles Hugh Smith – Panicked by the possibility of declines that undermine the official narrative that all is well, authorities the world over are purchasing assets like stocks, bonds and mortgages directly. Central banks are explicitly taking on the role of buyers of last resort on the theory that if they place a bid under the market to arrest any decline, private buyers will re-enter the market once they detect that the risk of a drop has dissipated.

The idea is that once private buyers flood back into the market, central banks can unload the assets they bought to stem the panic. In this view, the market is not based on fundamentals such as revenues, profits and price-earnings ratios–it’s all about confidence. If central banks restore confidence by reversing any drop with massive buying, this central-planning manipulation will restore the confidence of private investors.

When this restoration of confidence has been accomplished, private buyers will happily buy the central banks’ stocks, bonds and mortgages. The central banks’ portfolios of assets will shrink and the central banks will once again have “dry powder” to buy assets the next time markets falter.

This sounds reasonable in the abstract, but it doesn’t work in the New Normal economy central banks have created. Let’s consider a simple example to see why.

Let’s start by recalling that prices are set on the margin, i.e. the last view shares, bonds or homes bought/sold. In a neighborhood of 100 houses, the price of each home is based on the last few sales which become the comparables appraisers use to establish the fair market value of all the nearby properties.

As the risk-on investment mindset switches to risk-off, house prices start declining. If the last home sold for $400,000, the next seller will expect at least $400,000. But since the mood has changed and risk has re-emerged, buyers are suddenly scarce. Homes listed for $400,000 don’t sell. Eventually a house sells for $350,000 because the seller just needed to get out.

Suddenly, the value of the other 99 homes is in question. Home prices are sticky, meaning sellers refuse to believe the value of their home has declined. So listings of homes asking $399,000 pile up while potential buyers are wondering if $350,000 is a bit rich and perhaps $340,000 is the “real value.” Continue reading →

Three Choices: Sell, Hold, Hold And Add

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Michael Noonan – Last year, the rage was the record-setting number of coins various mints were selling to the public, such an incredible demand that would surely impact the demand factor for gold and silver.  Then the focus changed to how many tons China and Russia were buying each and every month, scooping up all available supply with their insatiable demand. Gold and silver responded by going lower.

The most popular gold/silver sites, the most respected gold/silver analysts from around the world all chiming in how gold and silver will go through the roof while both metals continue to still languish in the basement, as it were.

Who has not heard $5,000 gold, $10,000, even $50,000 gold by an exuberant few?  Same for silver, $200, $400, $1,000.  During all this time, gold has yet to hold above $1,230, silver above $18.  There is a huge gap between current prices and unfulfilled pie-in-the-sky price projections.  This has caused much disappointment, even delusion by some because the sum of their purchases were often under water.  Huge imagined profits actually became real [unrealized] losses.  [This does not mean they cannot become profitable]

We wrote a little in-house commentary, last week, Adapting To Changing Markets, to reflect how we have chosen a more focused approach to the short-term aspect of the markets, questioning the validity of the existence of free-trading markets anymore. The elite’s central bankers have virtually taken over almost all the Western world’s financial dealings and markets.  A few, like crude oil, have become political tools. Continue reading →

Stocks – Bulls, Bears, And Pigs: Which Are You?

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marketMichael Noonan – When we started out in this business, one of the first saws of trading we learned was: Bulls make money, Bears make money, Pigs get slaughtered.  That simple admonition is coming full circle as the stock market has been muscled to all time highs by central bankers seeking to protect their fiat currency Ponzi scheme at all costs.  For anyone not paying attention, that cost will be passed onto you.

We have been staunch advocates that the most important and overriding information one can have on any market is the trend.  It is hands down the best guide one can have, and too few give it just due.  In an up trending market, bulls make money.  Bears who opt to fight the obvious trend are on the wrong side of momentum, and the tuition can be costly, but always a choice.

There have been numerous bear advocates for at least the past five years trying to pick a top.  Such a futile endeavor ignores another old saw:  more money is lost trying to pick tops and bottoms than at any other market phase.  Richard Dennis, Long Term Capital Management are examples of purported professionals who chose to ignore the trend.  Their losses were destructively huge, and they played the role of Pigs that were financially slaughtered.

Where are you as a stock investor in today’s faux-Bull market?  Are you a Bull, a Bear, or   a Pig?  If a Bear, clearly you do not understand the nature and function of one and are operating against the prevailing market strength.  A mis-placed Bear in a Bull market is nothing more than an ego gone awry. Most who remain on the long side of the market more than likely considers him/herself a Bull.  Unless one has been exceptionally select in being long, at this late phase of the market, those who are long and wrong are really playing the role of a Pig destined to be slaughtered.

Continue reading →