Dear subscribers,
This is update #2012 for Monday early morning, June 30, 2014.
During the past week, the S&P 500 hit yet another record high, while the Russell 2000 Index again failed to surpass its record peaks from the first week of March 2014. This has been a recurring pattern which has been almost entirely ignored by the financial media even though it matches similar negative divergences from at least a dozen previous major U.S. equity zeniths including October 2007, January 1973, and August 1929 which were all followed by severe bear markets. A few subscribers asked what would happen if IWM were to surpass its March 6, 2014 pre-market peak of 120.64. The answer is that this would likely postpone the next global recession by several months, thereby giving currently undervalued funds like URA and KOL more time to rally toward their 2011 highs and also likely giving U.S. Treasury funds including TLT a longer bear market and therefore TLT possibly moving toward or below 90 in 2015. Greater extremes usually provide greater potential percentage gains (and losses), which I will discuss in more detail in my main topic of the day.
If there was one thing that investors worldwide "knew" at the end of 2013, it was that we would definitely not see articles like these:
Investors also "knew" a half year ago that wage inflation would be nonexistent in 2014:
Rising inflationary expectations are becoming so commonplace that some analysts are taking it for granted and wondering about its implications:
The behavior of New York Stock Exchange margin debt is similar to what it has been at past major U.S. equity index peaks:
Most investors are underestimating the likelihood of an imminent and potentially sharp U.S. equity correction:
This analyst understands why most investors repeatedly buy high and sell low:
As has been the case for millennia, analysts are confusing classically cyclical price fluctuations with "permanent" trends:
Because of recent elections in India, many people have become unusually optimistic about the future. As a result, they will become especially upset if recently elevated expectations aren't realized--and are already beginning to agitate to ensure that their most important issues are addressed such as relaxing the severe import restrictions and taxes on precious metals imports:
Sharply rising Indian equities have discouraged consumers in that country from buying precious metals, but that could change quickly if Indian equities are eventually perceived to have begun another bear market or are believed to have limited remaining upside potential--plus higher Indian stock-market valuations could lead some in that country to sell recently appreciated stocks to buy gold:
The increased popularity of solar energy in recent years has been shifting the supply-demand equilibrium for silver:
New Jersey Democrats seem determined to return the state's income tax to its former high of 10.75%, versus the current top rate of 8.97%, which of course would encourage what has already been an exodus of wealthy business owners from the Garden State--although Governor Chris Christie is highly likely to veto it as he had done in previous years when similar tax increases were proposed:
Here is another take on the same issue--with everyone realizing that this could affect Christie's Presidential chances in 2016:
New Jersey is continuing to suffer from its overbuilding of commercial property three decades ago:
Understanding the relationship between debt and prosperity is important. In emerging-market countries which recently had all-cash economies, the introduction of credit creates a new dynamism which initially leads to more rapid growth. In countries which have become accustomed to debt for several decades, especially where there is no longer any social stigma associated with owing large sums, the combined burden of mortgages, student loans, credit cards, auto loans, and related borrowing leads to reduced GDP growth rates which can cause such economies to underperform:
Preparing for a trip to Mars takes a lot of work--especially ensuring that high-speed internet access will be available:
The primary reason that contrarian investing is so difficult is that, without consciously realizing it, our moods adjust so that they will be in line with the vast majority of others' moods--as Facebook recently proved with a secret research project involving 689 thousand users:
The U.S. dollar index rose to a Friday 5:50 a.m. high of 80.215, and then retreated to a Friday 4:00 p.m. bottom of 80.014, its lowest
level since May 21, before closing Friday at 80.031.
The behavior of the U.S. dollar index appears to have confirmed that its July 2013 foray above the July 24, 2012 intraday high of 84.100
was a false upside breakout, with several important lower highs being completed since the U.S. dollar index topped out at 84.753 on July 9, 2013.
The U.S. dollar index will probably continue its intermediate-term pullback toward a level in the mid-70s which will likely be completed
at some point during the first several months of 2015.
Emerging-market currencies had been especially out of favor during 2013, and will therefore continue to be among the strongest to rebound
throughout 2014 and probably into the first half of 2015.
The U.S. dollar index has been in a peculiar long-term bull market since March 16, 2008, when it had completed an all-time nadir at 70.698.
Since then, the U.S. dollar index completed its first higher low of 71.314 on July 15, 2008; its second higher low of 72.696 on May 4, 2011; its
third higher low of 73.421 on July 27, 2011; its fourth higher low of 73.452 on August 17, 2011; its fifth higher low of 73.525 on August 29, 2011;
and its sixth higher low of 74.724 on October 27, 2011.
It may have completed additional higher lows in November 2011, but we won't know that for certain until the greenback completes its current
intermediate-term retreat.
Peculiar is an excellent word, because the U.S. dollar index surged to an important high in less than one year on March 4, 2009, and has been
forming several important lower highs since then, thereby creating a long-term bear market which has persisted for roughly one year less in duration
than its long-term bull market.
On June 10, 2014, the U.S. dollar index rallied to a 9:45 p.m. peak of 80.898, its highest point since June 5, 2014.
On June 5, 2014, the U.S. dollar index rallied to an 8:35 a.m. peak of 81.020, its most elevated mark since February 6, 2014.
On May 8, 2014, the U.S. dollar index descended to an 8:35 a.m. bottom of 78.906, its most depressed point since September 14, 2012.
On February 6, 2014, the U.S. dollar index rebounded to an 8:30 a.m. peak of 81.232, its highest reading since February 5, 2014.
On February 5, 2014, the U.S. dollar index rose to a 10:30 a.m. peak of 81.240, its highest level since February 3, 2014.
On February 2, 2014, the U.S. dollar index rose to a 9:45 p.m. peak of 81.323, its highest point since January 31, 2014.
On January 31, 2014, the U.S. dollar index climbed to a 10:00 a.m. peak of 81.324, its highest mark since November 12, 2013.
On November 12, 2013, the U.S. dollar index climbed to a 4:35 a.m. peak of 81.464, its highest reading since November 8, 2013.
On November 8, 2013, the U.S. dollar index surged to a 10:30 a.m. peak of 81.482, its highest level since September 13, 2013.
On September 5, 2013, the U.S. dollar index rallied to a 10:45 a.m. peak of 82.671, its highest point since July 18, 2013.
On July 15, 2013, the U.S. dollar index rallied to a 7:50 a.m. peak of 83.460, its highest mark since July 10, 2013.
On July 9, 2013, the U.S. dollar index rallied to an 11:40 a.m. peak of 84.753, its most elevated reading since July 5, 2010.
On September 14, 2012, the U.S. dollar index slumped to a 10:10 a.m. bottom of 78.601, its lowest mark since February 29, 2012.
On July 24, 2012, the U.S. dollar index rallied to a 1:45 p.m. peak of 84.100, its most elevated reading since July 13, 2010.
On May 1, 2012, the U.S. dollar index dropped to a 9:55 a.m. bottom of 78.603, its lowest reading since February 29, 2012.
On February 29, 2012, the U.S. dollar index retreated to a 12:05 a.m. bottom of 78.095, its lowest level since December 2, 2011.
On November 30, 2011, the U.S. dollar index slumped to a 9:00 a.m. bottom of 77.923, its lowest point since November 23, 2011.
On November 8, 2011, the U.S. dollar index slid to an evening bottom of 76.513, its lowest mark since October 25, 2011.
On October 27, 2011, the U.S. dollar index slumped to a 2 p.m. bottom of 74.724, its lowest reading since September 6, 2011.
On August 29, 2011, the U.S. dollar index slid to a very early morning bottom of 73.525, its lowest level since August 17, 2011.
On August 17, 2011, the U.S. dollar index slumped to a mid-morning bottom of 73.452, its lowest point since July 27, 2011.
On July 27, 2011, the U.S. dollar index retreated to a very early morning bottom of 73.421, its lowest mark since May 5, 2011.
On May 4, 2011, the U.S. dollar index slid to a mid-morning bottom of 72.696, its most depressed reading since July 29, 2008.
Relevant past peaks for the U.S. dollar index include 88.708 on June 6, 2010; 89.624 on March 4, 2009; 92.63 on November 16, 2005; 99.49 on August
26, 2003; and 120.99 on July 5, 2001.
I expect the U.S. dollar index to complete a historic top near the end of the next global equity bear market, perhaps in the year 2016, which
could be anywhere between 90 and 120.
TLT, a fund of U.S. Treasuries averaging 28 years to maturity, climbed to a Friday 10:19 a.m. peak of 113.82, its highest level since
May 30, before retreating to a Friday 3:35 p.m. low of 113.17 and closing Friday down 17 cents at 113.24.
The behavior of TLT is typical for any asset which is still in a very-long-term bull market, but which has been forming several important lower highs
since July 25, 2012 and is likely to continue its decline during the next several months. This is part of a typical rotation from defensive to cyclical
assets, which occurs during nearly any transition from a multi-year equity bull market to a subsequent equity bear market. Because defensive
assets became more overvalued than usual and cyclical names including mining and emerging-market shares had been more undervalued than usual during
June-December 2013, this rotation will likely continue to be stronger than average throughout most of 2014 and likely persisting into early 2015.
TLT is likely to slump to roughly 90-100 where I will progressively repurchase it probably as close as possible to its lowest points of 2014 and
2015. I would like to see several well-known analysts declare that the long-term U.S. Treasury bull market which began in 1981 has ended, since that
will signal that it still has a lot of life and at least one more spectacularly higher high still to come during 2016-2017.
On June 20, 2014, TLT retreated to a 9:41 a.m. bottom of 110.90, its lowest point since June 19, 2014.
On June 19, 2014, TLT slumped to a 1:45 p.m. bottom of 110.74, its lowest mark since June 5, 2014.
On June 5, 2014, TLT slumped to an 8:38:17 a.m. pre-market bottom of 110.59, its lowest reading since May 12, 2014.
On May 29, 2014, TLT climbed to a 10:58 a.m. peak of 115.19, its most elevated point since June 6, 2013.
On May 12, 2014, TLT descended to a 2:07 p.m. bottom of 110.54, its lowest level since April 30, 2014.
On April 30, 2014, TLT retreated to an 8:16:00 a.m. pre-market bottom of 110.14, its lowest point since April 29, 2014.
On April 29, 2014, TLT slid to an 8:39:36 a.m. pre-market bottom of 109.98, its lowest mark since April 22, 2014.
On April 22, 2014, TLT slid to a 10:30 a.m. bottom of 109.61, its lowest reading since April 10, 2014.
On April 2, 2014, TLT slid to a 3:19 p.m. bottom of 107.17, its lowest level since March 20, 2014.
On March 19, 2014, TLT slid to a 2:00 p.m. Fed announcement bottom of 106.81, its lowest point since March 13, 2014.
On March 7, 2014, TLT slumped to an 8:32:41 a.m. post-employment bottom of 105.44, its lowest mark since January 22, 2014.
On January 10, 2014, TLT dropped to an 8:28:12 a.m. pre-market and pre-U.S. employment report bottom of 103.05, its lowest reading since January 9, 2014.
On January 8, 2014, TLT retreated to a 1:02 p.m. bottom of 102.10, its lowest level since January 3, 2014.
On January 3, 2014, TLT descended to a 10:33 a.m. low of 101.77, its lowest point since January 2, 2014.
On January 2, 2014, TLT dropped to an 8:30:15 a.m. pre-market bottom of 101.44, its lowest mark since December 31, 2013.
On December 31, 2013, TLT slumped to a 1:59 p.m. bottom of 101.17, its most depressed reading since August 2, 2011.
On June 6, 2013, TLT rallied to a 12:26 p.m. peak of 116.79, its highest mark since May 24, 2013.
On May 22, 2013, TLT climbed to a 10:09 a.m. peak of 118.55, its highest reading since May 16, 2013.
On May 16, 2013, TLT rallied to a 2:31 p.m. peak of 118.94, its highest level since May 10, 2013.
On May 9, 2013, TLT rallied to a 1:14 p.m. peak of 121.32, its highest point since May 3, 2013.
On May 1, 2013, TLT rallied to a 1:24 p.m. peak of 124.26, its most elevated mark since December 12, 2012.
On December 6, 2012, TLT climbed to a 1:58 p.m. peak of 126.08, its highest reading since November 28, 2012.
On November 28, 2012, TLT rallied to a 10:08 a.m. peak of 126.20, its highest level since November 16, 2012.
On November 16, 2012, TLT climbed to an 11:28/11:34 a.m. peak of 127.19, its highest point since September 5, 2012.
On August 31, 2012, TLT surged to close at 127.72, its highest mark since August 6, and traded in the after-hours session as high as 127.76.
On August 2, 2012, TLT soared to an 11:53 a.m. peak of 130.69, its highest reading since July 26, 2012.
On July 25, 2012, TLT climbed to a 10:09 a.m. top of 132.21, an all-time record zenith.
On July 25, 2011, TLT slumped to a pre-market bottom of 94.75, its lowest reading since July 7, 2011.
On June 30, 2011, TLT slumped to a mid-morning bottom of 93.29, its lowest level since May 2, 2011.
On April 8, 2011, TLT slid to a pre-market bottom of 89.64, its lowest point since February 18, 2011.
On February 10, 2011, TLT retreated to a late morning bottom of 88.14, its lowest mark since April 7, 2010.
On April 7, 2010, TLT slumped to an early morning bottom of 87.30, its most depressed reading since September 20, 2007.
VIX is probably the best-known measure of equity index implied volatility, which is synonymous with investors' fear of an upcoming bear market.
VIX rose to a Friday 10:10 a.m. high of 11.84, and then descended to a Friday post-4:00 p.m. bottom of 11.19, its lowest point since June 24,
before closing Friday down 37 cents at 11.26.
VIX has apparently been forming a pattern of higher lows from a multi-year bottom which occurred at 11.05 on March 14, 2013, and which is signaling
the recent or upcoming completion of a bull market for the S&P 500 just as the VIX bottom of 9.39 on December 15, 2006 followed by several higher
lows for VIX presaged the general U.S. equity peaks in the second half of 2007.
On June 26, 2014, VIX rallied to a 9:50 a.m. peak of 12.51, its highest reading since June 17, 2014.
On June 24, 2014, VIX retreated to a 12:54 p.m. bottom of 10.87, its lowest mark since June 20, 2014.
On June 20, 2014, VIX slumped to a 10:12 a.m. bottom of 10.34, is most depressed reading since February 22, 2007.
On June 17, 2014, VIX rallied to a 9:43 a.m. peak of 12.89, its highest reading since May 20, 2014.
On May 16, 2014, VIX rose to a 10:29 a.m. peak of 13.66, its highest level since May 15, 2014.
On May 15, 2014, VIX rallied to an 11:16 a.m. peak of 13.77, its highest point since May 9, 2014.
On May 7, 2014, VIX ascended to a 10:15 a.m. peak of 14.49, its highest mark since April 28, 2014.
On April 28, 2014, VIX rallied to a 1:33 p.m. peak of 15.28, its highest reading since April 15, 2014.
On April 15, 2014, VIX rallied to a 1:02 p.m. peak of 17.50, its highest level since April 11, 2014.
On April 11, 2014, VIX rallied to a 2:49 p.m. peak of 17.85, its highest point since March 14, 2014.
On March 14, 2014, VIX surged to a 3:18 p.m. peak of 18.22, its highest mark since February 6, 2014.
On February 5, 2014, VIX climbed to a 10:29 a.m. peak of 20.72, its highest reading since February 3, 2014.
On February 3, 2014, VIX rallied to a post-4:00 p.m. peak of 21.48, its most elevated level since June 24, 2013.
On June 24, 2013, VIX surged to a 10:05 a.m. peak of 21.91, its most elevated point since December 31, 2012.
On March 14, 2013, VIX slid to a post-4:00 p.m. bottom of 11.05, its most depressed reading since February 26, 2007.
On December 28, 2012, VIX soared to a post-4:00 p.m. peak of 23.23, its highest mark since June 14, 2012. Because VIX trades until 4:15
p.m., it reflected the entire post-closing slump for the S&P 500.
On June 14, 2012, VIX climbed to a 9:45 a.m. peak of 24.81, its highest reading since June 13, 2012.
On June 13, 2012, VIX surged to a 3:30 p.m. peak of 24.93, its highest level since June 5, 2012.
On June 4, 2012, VIX rallied to a 10:09 a.m. peak of 27.73, its highest point since December 12, 2011.
On December 8, 2011, VIX climbed to a late afternoon peak of 30.91, its highest mark since November 29, 2011.
On November 25, 2011, VIX climbed to an early morning peak of 34.77, its highest reading since November 21, 2011.
On November 21, 2011, VIX rallied to a late morning peak of 35.29, its highest level since November 17, 2011.
On November 17, 2011, VIX surged to a 1:52 p.m. peak of 36.46, its highest point since November 1, 2011.
On November 9, 2011, VIX soared to a late afternoon peak of 36.43, its highest mark since November 1, 2011.
On November 1, 2011, VIX soared to a noon peak of 37.53, its highest reading since October 7, 2011 and a gain of more than 53% within 1-1/2 trading days.
On October 4, 2011, VIX climbed to a 10 a.m. peak of 46.88, its highest level since August 9, 2011.
On August 9, 2011, VIX rallied to a post-Fed-announcement peak of 47.56, its highest point since August 8, 2011.
On August 8, 2011, VIX soared exactly 50% to its intraday peak of 48.00, its highest mark since May 21, 2010.
On May 21, 2010, VIX soared to an early morning peak of 48.20, its most elevated reading since March 10, 2009.
The S&P 500 Index descended to a Friday 1:18 p.m. low of 1952.18, and then rebounded to a Friday 3:52 p.m. high of 1961.47 before closing
Friday up 3.74 at 1960.96.
In a repeat of October 2007, the Russell 2000 was unable to confirm numerous new peaks by the S&P 500 during the second quarter of 2014.
As measured by IWM, a fund which is based upon the Russell 2000 Index, IWM reached 120.58 on March 4, 2014 and 120.64 at 8:43:34 a.m. in the pre-market
session on March 6, 2014, just after the monthly U.S. employment report was released. On June 24, 2014, IWM completed an important lower high at
11:01 a.m. with a price of 118.91.
Continuing a two-decade pattern, the S&P 500 had achieved a new all-time zenith above its October 11, 2007 top of 1576.09,
just as its 2007 top was higher than its 2000 top which was above its 1997 top.
Within the next few years, the S&P 500 will slump below its March 6, 2009 bottom of 666.79, just as its 2009 bottom was lower than its 2002
bottom which was below its 1998 bottom, thereby continuing another long-term pattern.
This sequence of higher highs and lower lows over a period of many years is known as a megaphone formation.
Eventually, its dividend yield will climb above six percent, just as U.S. equities overall have done during all prior eras of stagnation.
On June 26, 2014, the S&P 500 slid to a 9:50 a.m. bottom of 1944.69, its lowest mark since June 18, 2014.
On June 24, 2014, the S&P 500 climbed to an 11:04 a.m. peak of 1968.17, a new all-time zenith.
On June 12, 2014, the S&P 500 retreated to a 3:44 p.m. bottom of 1925.78, its lowest reading since June 5, 2014.
On May 20, 2014, the S&P 500 retreated to a 1:59 p.m. bottom of 1868.14, its lowest level since May 16, 2014.
On May 16, 2014, the S&P 500 dropped to a 10:29 a.m. bottom of 1864.82, its lowest point since May 15, 2014.
On May 15, 2014, the S&P 500 slumped to an 11:56 a.m. bottom of 1862.36, its lowest mark since May 7, 2014.
On May 7, 2014, the S&P 500 slid to a 10:15 a.m. bottom of 1859.79, its lowest reading since April 28, 2014.
On April 28, 2014, the S&P 500 slid to a 1:33 p.m. bottom of 1850.61, its lowest level since April 16, 2014.
On April 15, 2014, the S&P 500 retreated to a 1:02 p.m. bottom of 1816.29, its lowest point since April 14, 2014.
On April 14, 2014, the S&P 500 slid to a 3:14 p.m. bottom of 1815.80, its lowest mark since April 11, 2014.
On April 11, 2014, the S&P 500 slid to a 2:49 p.m. bottom of 1814.36, its lowest reading since February 13, 2014.
On February 5, 2014, the S&P 500 slid to a 10:29 a.m. bottom of 1737.92, its lowest level since October 18, 2013.
On October 9, 2013, the S&P 500 retreated to an 11:24 a.m. bottom of 1646.47, its lowest point since September 6, 2013.
On August 30, 2013, the S&P 500 slid to a 3:54 p.m. bottom of 1628.05, its lowest mark since August 28, 2013.
On August 28, 2013, the S&P 500 retreated to a 9:35 a.m. bottom of 1627.47, its lowest reading since July 5, 2013.
On June 24, 2013, the S&P 500 slumped to a 12:23 p.m. bottom of 1560.33, its lowest level since April 22, 2013.
On April 18, 2013, the S&P 500 slid to a 2:58 p.m. bottom of 1536.03, its lowest point since March 5, 2013.
On February 26, 2013, the S&P 500 slid to an 11:48 a.m. bottom of 1485.01, its lowest mark since January 22, 2013.
On December 28, 2012, the S&P 500 slid to a 3:50 p.m. bottom of 1401.58, its lowest regular-hours reading since December 5, 2012. At 16:14:45 in
the after-hours session, the S&P 500 as measured by SPY at 138.55 would have traded at 1387.61, its lowest reading since November 28, 2012.
On December 5, 2012, the S&P 500 retreated to a 10:55 a.m. bottom of 1398.23, its lowest level since November 28, 2012.
On November 28, 2012, the S&P 500 slid to a 10:10 a.m. bottom of 1385.43, its lowest point since November 20, 2012.
On November 16, 2012, the S&P 500 slid to an 11:29 a.m. bottom of 1343.35, its most depressed mark since July 26, 2012.
If you admire the old monk, the 61.8% Fibonacci retracement is 1346.11, which was slightly broken to the downside on November 16, 2012.
On July 25, 2012, the S&P 500 slid to a 10:57 a.m. bottom of 1331.50, its lowest reading since July 24, 2012.
On July 24, 2012, the S&P 500 slumped to a 2:30 p.m. bottom of 1329.24, its lowest level since July 12, 2012.
On July 12, 2012, the S&P 500 slid to a 10:46 a.m. bottom of 1325.41, its lowest point since June 28, 2012.
On June 28, 2012, the S&P 500 slumped to a 2:31 p.m. bottom of 1313.29, its lowest mark since June 26, 2012.
On June 26, 2012, the S&P 500 slid to an 11:10 a.m. bottom of 1310.30, its lowest reading since June 25, 2012.
On June 25, 2012, the S&P 500 slumped to a 12:00 p.m. bottom of 1309.27, its lowest level since June 12, 2012.
On June 12, 2012, the S&P 500 slumped to a 10:39 a.m. bottom of 1306.62, its lowest point since June 6, 2012.
On June 4, 2012, the S&P 500 slid to a 1:25 p.m. bottom of 1266.74, its most depressed mark since January 5, 2012.
On December 19, 2011, the S&P 500 slid to a late afternoon bottom of 1202.37, its lowest reading since November 30, 2011.
On November 25, 2011, the S&P 500 slid to a late afternoon bottom of 1158.66, its lowest level since October 10, 2011. If you count the
pre-market session, the futures-equivalent bottom at 8:36 a.m. was 1149.60, which would mark its lowest level since October 6, 2011.
On October 4, 2011, the S&P 500 plummeted to a 10 a.m. bottom of 1074.77, its lowest point since September 1, 2010.
On August 27, 2010, the S&P 500 retreated to a mid-morning bottom of 1039.70, its lowest mark since July 7, 2010.
On July 1, 2010, the S&P 500 slid to a late morning bottom of 1010.91, its most depressed reading since September 4, 2009.
GDX, a fund of primarily large- and mid-cap gold mining shares, rose to a Friday 9:44 a.m. high of 26.15, and then descended to a Friday
1:06 p.m. low of 25.71 before recovering to close Friday up 3 cents at 25.98.
On June 26, 2014, GDX slid to an 8:00:03 pre-market bottom of 25.38, its lowest mark since June 19, 2014.
On June 24, 2014, GDX climbed to a 9:52 a.m. peak of 26.53, its highest mark since March 18, 2014.
On June 17, 2014, GDX retreated to a 9:37 a.m. bottom of 23.68, its lowest reading since June 12, 2014.
On June 9, 2014, GDX retreated to a 3:59 p.m. bottom of 22.53, its lowest level since June 6, 2014.
On June 6, 2014, GDX slid to a 10:00 a.m. bottom of 22.34, its lowest point since June 5, 2014.
On June 5, 2014, GDX dropped to a 7:50:33 a.m. pre-market bottom of 22.22, its lowest mark since June 3, 2014.
On June 3, 2014, GDX retreated to a 10:33 a.m. bottom of 22.00, its lowest reading since May 30, 2014.
On May 30, 2014, GDX descended to an 11:56 a.m. bottom of 21.94, its lowest level since May 29, 2014.
On May 29, 2014, GDX retreated to a 7:55:37 a.m. pre-market bottom of 21.86, its most depressed point since January 10, 2014.
On March 14, 2014, GDX rallied to a 9:37 a.m. peak of 28.03, its most elevated reading since September 19, 2013.
On January 15, 2014, GDX retreated to a 9:47 a.m. bottom of 21.87, its lowest point since January 10, 2014.
On January 10, 2014, GDX dropped to an 8:30:00 a.m. pre-market bottom (to the exact second of the U.S. employment report) of 21.24, its lowest mark
since January 9, 2014.
On January 9, 2014, GDX retreated to a 3:57 p.m. bottom of 21.26, its lowest regular-hours reading since December 31, 2013. In after-hours
trading, GDX touched a 4:25:57 p.m. bottom of 21.19, its lowest reading since December 31, 2013.
On December 31, 2013, GDX retreated to an 8:50:16 a.m. pre-market bottom of 20.48, its lowest level since December 24, 2013.
On December 23, 2013, GDX descended to a 9:51 a.m. bottom of 20.24, its lowest point since December 19, 2013.
On December 19, 2013, GDX slumped to a 10:04 a.m. bottom of 20.37 (20.179 ex-dividend), its lowest mark since December 6, 2013.
On December 6, 2013, GDX retreated to an 8:30:43 a.m. pre-market bottom of 20.31 (20.119 ex-dividend), its most depressed reading since
November 21, 2008.
On September 18, 2013, GDX soared to a 3:50 p.m. peak of 28.64, its highest level since September 3, 2013.
On August 27, 2013, GDX rallied to a post-open peak of 31.35, its highest point since April 12, 2013.
On April 9, 2013, GDX surged to an 11:59 a.m. peak of 36.29, its highest mark since April 2, 2013.
On March 21, 2013, GDX rallied to a 1:46 p.m. peak of 38.58, its highest reading since February 27, 2013.
On February 26, 2013, GDX rallied to an 11:57 a.m. peak of 39.29, its highest level since February 19, 2013.
On February 7, 2013, GDX ascended to a 10:54 a.m. peak of 42.94, its highest point since January 30, 2013.
On January 30, 2013, GDX rallied to a 10:39 a.m. peak of 43.14, its highest mark since January 24, 2013.
On January 22, 2013, GDX rallied to a 2:18 p.m. peak of 45.92, its highest reading since January 15, 2013.
On January 15, 2013, GDX rallied to an 11:52 a.m. peak of 45.96, its highest level since January 3, 2013.
On January 2, 2013, GDX surged to an 8:06 a.m. pre-market peak of 47.75, its highest point since November 30, 2012.
On November 23, 2012, GDX rallied to a 12:52 p.m. peak of 49.00, its highest mark since November 14, 2012.
On November 8, 2012, GDX surged to a 3:15 p.m. peak of 51.82, its highest reading since November 1, 2012.
On October 31, 2012, GDX surged to a 3:55 p.m. peak of 52.97, its highest level since October 17, 2012.
On October 17, 2012, GDX rose to a peak of 53.40, its highest point since October 9, 2012.
On October 5, 2012, GDX climbed to a 10:22 a.m. peak of 54.64, its highest mark since September 21, 2012.
On September 21, 2012, GDX rallied to a 9:41 a.m. peak of 55.25, its highest reading since March 2, 2012.
On May 16, 2012, GDX slid to a 1:51 p.m. bottom of 39.08, its most depressed reading since September 2, 2009.
On February 29, 2012, GDX rose to a 9:38 a.m. peak of 57.91, its highest level since February 2, 2012.
On February 2, 2012, GDX rallied to an 11:07 a.m. peak of 57.94, its highest point since December 9, 2011.
On December 1, 2011, GDX rose to a mid-morning peak of 61.01, its highest mark since November 16, 2011.
On November 8, 2011, GDX rose to a 1 p.m. peak of 63.69, its highest reading since September 21, 2011.
On September 21, 2011, GDX rallied to a mid-afternoon (pre-Fed) peak of 66.90, just below its all-time high.
On September 9, 2011, GDX climbed to a mid-morning all-time zenith of 66.98.
On December 7, 2010, GDX rallied to an early morning peak of 64.62, a new all-time high.
Today's first main topic is commitments 2014-6-27.
These are the traders' commitments which were released by the U.S. government at 3:30 p.m. on Friday, starting with copper:
Copper commercials significantly reduced their net long position to 12,582 contracts, which is modestly above its historic average and is thus modestly bullish for COPX and the shares of most base metal producers. These are the commitments for the "poor man's gold":
Silver's commitments dramatically deteriorated from what had been its most bullish extreme since July 2013 three weeks ago, as commercials increased their net short position to 42,897 contracts--its largest since February 12, 2013. This has turned neutral for silver and for the shares of silver producers. Let's continue with the yellow metal:
Gold's traders' commitments significantly deteriorated, with commercials increasing their net short position to 131,607 contracts after having reached their lowest total two weeks ago since January 21, 2014. This number is modestly closer to its unusually bullish readings of the past year than it is to its most bearish levels of August 2011, and is now modestly bullish for gold and for gold mining shares. These are the long bond's traders' commitments:
Commercials slightly increased their net short position in the 30-year U.S. Treasury bond to 2,884 contracts. The situation remains neutral. Until commercials become substantially net long, and Bill Gross is bragging about how much he has reduced his Treasury holdings rather than how much he has recently increased his allocation, it is far too dangerous to purchase U.S. Treasuries. Here are the commitments for the loonie:
Canadian dollar commercials moderately reduced their net long position to 4,540 contracts which is slightly bullish. The Canadian dollar has been progressively rallying from below 89 U.S. cents during the third week of March 2014 when it had touched its lowest point since July 14, 2009. These commitments are for the British pound:
Commercials in the British pound modestly reduced their net position to 68,896 contracts; the previous week's level of 72,946 had been their most bearish reading since July 2007. Since this remains profoundly negative, if you own British pounds then you should consider switching into a basket of other currencies until this situation becomes dramatically more favorable.
Today's second main topic is angry regression.
On Wednesday mornings during the school year, I teach eleventh-grade students at a public high school in Manhattan about basic concepts of economics, entrepreneurship, investing, and similar topics. I was talking about how all assets experience mean reversion when one student asked why I called this process "mean". He thought I meant the word in the sense of malicious or enraged, rather than the definition of arithmetic average. When I thought about it later, I realized that when an asset becomes extremely far above or below fair value, then it does exhibit a sort of revenge behavior as it angrily moves back to its proper place. It thereby shows the world that it never should have become so distorted, and thereby punishes those who thought its temporary condition would last indefinitely.
One of the most interesting aspects of the financial markets is that even with millennia of evidence about natural fluctuations for all assets classes, analysts continue to conclude that deviations from fair value represent fundamental, permanent shifts, and that the greatest and most irrationally lopsided behavior is caused by the strongest and most lasting changes in supply/demand, future prospects, and other such nonsense. In update #1878 from May 31, 2013, I discussed the way that practically everything in equilibrium experiences repeated cyclical gyrations. For example, suppose there is an isolated island with a combination of rabbits and foxes, where the rabbits are the primary food source for the foxes. Assume also that the two are currently both at "fair value" where there is a certain ideal ratio of foxes to rabbits. By pure luck, or from some random event, the foxes multiply more rapidly than usual, so there are more of them than can be sustained by the rabbit population. The higher number of foxes will cause overhunting of rabbits, thereby making them notably scarcer. Let's pretend that the price of these rabbits surges three times as much as would be justified given their rarity.
Now our antihero, a commodity analyst, arrives via luxury liner to the island. Not having any proven talent other than knowing which are the best beers on tap at the bar near the office during Friday happy hour, he writes a dozen-page report about how the rabbits on that island are permanently in shortage, and therefore rabbit prices will continue to rise for many more years. What actually happens, of course, is that the scarcity of rabbits causes the foxes to have far fewer offspring, since they adjust their mating to the available food supply. Several months later, the lack of new fox babies causes the rabbits to multiply much more rapidly than before, returning the situation very briefly to its original equilibrium--but the foxes are slow to adjust to the new proliferation of rabbits. So the number of foxes remains low, while the rabbits continue to rapidly multiply and are soon more numerous than they had been in several years. The ratio of foxes to rabbits is down to about half its usual level, although the price of rabbits has plummeted by 90%. Our fearless analyst, returning to the island after a few months of drunken carousing, releases a new official brokerage report stating that rabbits will be in surplus for the foreseeable future, and that additional price declines are virtually certain. What of course happens instead is that the temporarily high rabbit population leads to many more baby foxes being born, which then feast on the rabbits and soon reduce their numbers briefly to fair value and several months later to the next rabbit "shortage".
If you replace the rabbits with iron ore from Australia and the foxes with steel manufacturers in China, then the situation is virtually identical. If you read any current analysis about the future price of iron ore, such as the link about iron ore near the top of this update, then you will almost always see a conclusion about why the price will have to continue to decline because of increased Australian production and decreased Chinese demand. What these analyses leave out, besides the repeated cyclical nature of their interrelationship, is how sharply prices will plummet during a downtrend relative to what fundamentals would justify. If there is 10% less global demand relative to supply, which would be a pretty dramatic decline, but the price has slumped by 60%, then that means that the price will recover sharply even if the actual situation is unchanged. In reality, if you're a frequent buyer of iron ore and the price is enormously below the mean, then you're going to buy more of it and stockpile it, especially if interest rates are so low that your carrying costs are virtually zero (or negative in real terms). If you're a producer, then you're going to curtail your output because your profit margins will be greatly improved if you wait for higher prices before ramping up exploration and development. There is no exchange-traded fund of iron ore producers, for reasons which I don't understand, but if there were then shares of companies including Cliffs Natural Resources (CLF) and Companhia Vale do Rio Doce (VALE) would have to be incredible buying opportunities, similar to the present undervaluations for uranium mining (URA) and coal mining (KOL) shares.
The prices of coal, uranium, and iron ore are naturally "angry" that they haven't rebounded along with crude oil, natural gas, and other popular energy sources which are allegedly enjoying superior supply-demand imbalances. In reality, when one set of energy subsectors has rallied to five-year highs, while another set is trading close to five-year lows, then this is a classic situation where some form of mean reversion will occur sooner or later. In the short run, analysts and advisors will become highly excited about the outperforming securities and gloomy about those which have lagged, causing these extremes to become even more extreme. Sooner or later, however, the lagging subsectors within a given sector will exact their full revenge, and then some, by dramatically outperforming their overbought counterparts in order to briefly restore some form of logical balance--before continuing to rally because momentum players will be jumping aboard, brokerages will be making unexpected upgrades, and investors worldwide will be chasing recent outperformance.
My favorite quote is at the very top of this update, where one analyst discussing the price of iron ore points out that "in previous years, we have seen a sharp selloff followed by a sharp rebound", but "this time, we don't think there will be that sharp rebound." This is the same as an analyst actually staying on the island for decades to observe the repeated fluctuations, but then still concluding after a recent drop in the rabbit population that it's different this time. If you think back to previous bear-market bottoms, it's always supposedly different. February 2009: "We never had a mortgage meltdown before, so stocks aren't likely to recover for many years." October 2002: "We never had the collapse of an internet bubble, so tech shares in particular will take a very long time to rebound." December 1974: "We never had a U.S. Presidential resignation, a sharp surge in the price of crude oil, and simultaneous declines for urban real estate and equities all happening in the same year, so the market will remain mired in stagflation indefinitely." July 1932: "Never before have we suffered U.S. unemployment above 25%, which will persist for a generation." The rabbits keep gyrating from shortage to surplus; the dumb bunnies are not these poor creatures but the overpaid analysts who keep insisting that their populations won't recover on this particular unique occasion because the world has entirely changed and will never be the same again.
In 2011-2012, the price of solar photovoltaics plunged more than 95%, one of the steepest-ever drops for energy-related assets. Since then, it has been the top-performing energy subsector, as you can verify from a chart of TAN or KWT. If you read any of the analyses from the final months of 2012, then you would conclude that solar energy shares would remain "permanently" depressed, if they didn't go into outright bankruptcy. I'll admit that I sold these far too soon, since they have gone well beyond regressing to the mean and have reached probably an equally irrational overvaluation which will eventually lead to their next severe bear market. Whenever an asset is regressing toward the mean from an especially exaggerated extreme, it can be difficult to gauge how far beyond the mean it will eventually go. When Bill Gross announced he had sold 100% of his U.S. Treasuries in February 2011, TLT appropriately collapsed almost to 88 which made it an obviously compelling buy. However, it wasn't as easy to figure out how powerfully it would rally thereafter. I figured to myself, "In 2008, the world's financial markets collapsed and in total panic TLT was able to surpass 123. We're not going to experience anything nearly as cataclysmic, so maybe TLT will get to 113 or 114 at best." Naturally it moved above 132 in July 2012. Regardless of how carefully you plan for the future, extremes often take on a life of their own in both directions.
The financial markets often go to absurd extremes in either direction, which are usually followed by even greater extremes as amateurs pile in during any extended bull market and bail out near the end of any prolonged bear market. Eventually, however, irrationally priced assets will angrily regress toward the mean and beyond in order to punish the millions who had loaded the boat on the wrong side of the trade. Gauging the timing or extent of such a move is always challenging; the best you can conclude is that usually ridiculously irrational valuations will be followed by nearly inverse extremes, so if you're sufficiently disciplined and patient you'll come out ahead much more often than not. Normal cyclical price fluctuations are almost always attributed to apparently logical cause-and-effect relationships which are assumed by analysts to be essentially permanent and linear. Don't be fooled by a detailed diatribe about why it's allegedly different this time, because it almost always isn't.
Take care.
--Steve
