WASHINGTON, May 12, 2014 – The Maven pretty much took a break last week, spending most of his time in front of the computer dazed and confused. Institutions continued to dump stock, particularly tech, by the bucket-load. Bonds, supposed to go down, went up. And despite the Ukraine, Nigerian and Syrian debacles, gold just sat there like the lump on the log it’s been for well over a year now.
In short, last week was a merry-go-round of misery for any serious investor employing any rational investment scheme.
None of last week’s bizarre nonsense made any sense, unless one began to realize that reason rules the markets less than ever these days. HFTs, algos, and other assorted HAL 9000s trade by the headline and front-run the average investor with fusillades of fake quotes. We haven’t checked lately, but sales of Maalox and Tums must be at an all time high.
Tech continues to be an unmitigated disaster, particularly in the Social Networking Corral where the damage last week gave investors who still remember the 1999-2001 dot.bomb debacle a creepy sense of déjà vu all over again. Here’s another batch of hot companies that, save for LinkedIn (LNKD), are long on promises and very short indeed on profits. That was all fine and good when bonds, utilities, REITs and anything else with a high yield tanked last year at the very thought of a Fed taper.
But now that the taper is actually happening, frightened investors are instinctively going back for yield, driving prices of these stocks up again.
Meanwhile, back at the tech ranch, these same investors, seeing these stocks sink like stones without even a hint of dividend yield to hold them up, are driven to dump them for dividend-paying utilities, blue-chips and even preferred, not to mention intermediate term bonds and bond funds. More déjà vu.
On more specific fronts, word leaked that Apple (APPL) was very likely to buy high-end headphone manufacturer Beats (privately held). Analysts purportedly began to scratch their heads, wonder why, if Apple wanted to get more deeply into the world of music hardware, software and online subscription models, the company didn’t go for something bigger like Pandora or Harman. (P.S.: maybe they will do that as well.)
More on this in our companion article here.
Elsewhere, the usual headline-grabbing stuff is having, for once, a more predictable effect, namely the “referendum” held in Eastern Ukraine which, no doubt, will show somewhere north of 150% support for its absorption by Vladimir Putin’s New Soviet Union (NSU). You gotta love these democratic people’s republics like NSU, Venezuela, North Korean, Cuba, et. al., whereby the democratic process is subverted by non-believers in order to destroy it. (And don’t think it’s not happening here.)
In any event, at least for today, this phony vote has gotten a bid for gold, palladium and silver, giving a little boost to the ETFs in these metals we prefer: SGOL, PALL and SIVR—given that our brokerage firm lets us trade these without a commission. Given how quickly you have to move in and out of this stuff to play, that’s a gift we’ll gladly take.
Otherwise, for now at least, preferred stocks and a very few REITs are the Happy Hunting Grounds in an increasingly treacherous market.
Today’s Trading Tips
As hinted above, this week might be a good time to cop a quick trade or two in SGOL, PALL and SIVR. Back in the day, any kind of nasty-looking international trouble like the phony 50% coup in Ukraine would automatically move these metals and platinum as well. You could always grab a quick trade when trouble was brewing and then, when the usual phony negotiations were launched, you could quickly slip out and pocket your winnings.
Now, somehow and for some reason, it’s very clear to us that someone (like maybe sovereigns or state run banks and national treasuries) is conspiring to keep a lid on gold at approximately $1300 an ounce. Therefore, a fairly reliable trade has been to slip in to small positions when “they” are beating gold down, and then slip out in the vicinity of $1300 when things start to look toppy, i.e., when the boys are ready to short you to death.
Conspiracy theorists claim that there’s much more “paper gold” (ETFs that don’t actually hold the physical metal) than there is real gold, thus creating a potentially serious delivery problem, necessitating sneaky action by central banks, big bank traders like J. P. Morgan, and the usual fat cats and Zurich gnomes to keep a lid on the price at all costs lest this or some other monetary secret slip out of the barn.
Whatever the case, the regular bottling up of precious metals in light of the long-ongoing international currency debasement, makes the kind of trade we’ve just outlined something that has frequently worked for us and will likely continue to do so. Until it doesn’t.
Otherwise, just stick with your favorite utilities, preferred stocks, and REITs until you start seeing signs of interest rate panic again, which we figure might happen this fall.
The Fed had, we think, expected interest rates to rise slightly at least as their bond buying program wound down. But the scary stuff in Ukraine and elsewhere has sent a good bit of money scurrying into, surprise, treasurys and high-yielding stocks and out of riskier assets.
There’s also that matter of the ECB. which promises every month it seems to lower interest rates on the Euro. But, like Lucy pulling the football away from Charlie Brown, every time U.S. investors expect this to happen, like last week, the promise gets pulled away until next month.
So now, the market waits until the first week of June for this “sure thing.”
Which will start the dollar moving upward as a pre-reaction, before it gets slapped down again when Draghi pulls away the ECB football just when you think they’ll kick it. Which slaps the dollar back down again, gooses treasurys, etc.
Which is why it’s best to keep raising cash and holding only high-yield investments until you actually see that football get kicked. Let’s not hold our breath.