The Big Picture |
- BEA: Myths and Misperceptions About The U.S. Economy
- Albert Edwards: 10 Year Bond Yield Headinbg Below 1%
- 10 Thursday PM Reads
- Contextualizing Retracements By Time Frame
- 10 Thursday AM Reads
- Are You an Investor or a Story Teller?
- The Golden Rage
| BEA: Myths and Misperceptions About The U.S. Economy Posted: 26 Apr 2013 02:00 AM PDT  |
| Albert Edwards: 10 Year Bond Yield Headinbg Below 1% Posted: 25 Apr 2013 10:30 PM PDT Click to enlarge
Kudos to Albert Edwards for ignoring Career Risk and making a fairly outrageous call. I question whether this sort of analysis is brave or stubborn or brave (or both) — but more importantly what clients are supposed to do with it. The rest of Albert’s call: The S&P500 is going to fall 75% to 450, the Sub-1% US 10 year, and Gold > $10,000. Godspeed.
US bond yields are still in a pronounced technical downtrend. My good friend and famous chartist Nick Glydon once said that the most important tool in investing was a ruler. My own view is that US 10y will break below 1% as global recession beckons, but even if I am wrong, a move back up to 3¼% will not break the bull market downtrend of yields (see chart below).
Source:  |
| Posted: 25 Apr 2013 01:30 PM PDT My WSJ-heavy afternoon train reading:
What are you reading?
What’s Wrong With This Picture?  |
| Contextualizing Retracements By Time Frame Posted: 25 Apr 2013 10:30 AM PDT The meme of this morning was “Gold has already regained half of its losses.” That was the chatter I keep hearing. (The comment was blindly repeated by the usual suspects). As discussed earlier, I am now on all sorts of email lists informing me what a fantastic buying opportunity this drop was — but you may have missed it! Gold has already made up half of its losses! I was surprised to hear that, considering GLD had bounced 8% after falling off of its highs by 30%. That sent me to the charts — here is what I found:
Gold has indeed regained half of its losses — if you only look back as far as last Tuesday:
Down 15% up 8% is indeed a > 50% retracement of the very recent drop.
But what is we are looking further than hours or days? If your time frame is measured not measured in days but rather is weeks and months, what do we have? We can go back to Q3 of 2012:
Now its a 25% drop, and gold has retraced almost a third of the fall.
Last chart: 3 years going back to 2011 highs:
In this case, its a full 30% drop, and the retracement is a little over a quarter of the drop.
When I look at any chart post-collapse, I want to know three things:-
These can help us to determine if this is a mere stabilizaton, a legitimate turnaround, or a pause before the next leg down.  |
| Posted: 25 Apr 2013 07:00 AM PDT My morning reads, curated with tender loving care:
What are you reading?
Sell in May, Post-Election Year Edition  |
| Are You an Investor or a Story Teller? Posted: 25 Apr 2013 04:28 AM PDT I am fascinated by the pushback to the Goldbuggery post. It has provided an enjoyable and intriguing glimpse into the minds of a certain type of investor. The thought process of undisciplined traders, the people who invest based on a narrative is amazing (and a little sad). Our story thus far: On April 9th, I suggested the actual rotation that was underway was not Bonds into Stocks, as Wall Street was claiming, but rather “Sell Commodities, Buy Bonds.” The timing was most fortuitous, as commodities went into free fall and bonds popped, sending yields even lower. What caught my attention next was the full on denial of the Gold buying community. Despite the price action, they refused to accept even the possibility that their thesis — one that had made money for more than a decade — was coming to its natural end. That led to my snarky tongue-in-cheek post, 12 Rules of Goldbuggery. It was a bit of a laugh but I was surprised just how viral it went. The pushback to it was an exercise in cognitive dissonance, some of which was disturbing in its money losing emphasis on narrative. My response was this explanation of my thinking about any and all trades — not just gold — titled Sell Out: "The Other Side". Here is where things get interesting: Lots of emails/blog posts/comments from some quarters of the mortally offended bug world. A small subset seemed to have some recognition that something was amiss (“strange things are afoot at the Circle K”), but they could not quite put their fingers on it. It does not matter what the trade is — it could be Gold, Apple or China — when a winner turns into a loser, you do not sit idly by and watch any trade go from bad to worse. You must have a plan B, an exit strategy, or else you just watch it turn into a full on disaster. “I’ll sell my Gold when it hits $7000” is simply bad trade management. Some of the less jihadist Gold Bugs did engage in reasonable email exchanges with me. It often seemed as if they were following the 12 rules on purpose. Here is a typical exchange:
Variations of that sort of debate played out over and over again: They would make a specific claim/prediction/thesis, and I would counter with some fact or data that countered their claim. They would go back to the narrative, while I went back to the numbers. All of these debates ended precisely the same way: I would send the the following email, asking the bugs this question:
This answer was the most instructive part of each of these conversation. In my opinion, it determined whether these folks were destined to be successful investors or whether their future was in crafting narratives and telling stories. Nearly all of of them were unwilling to abandon the narrative that had served them so well from $400 to $1900 in Gold. It is no different for an investor in a hot stock like Apple. Those who rode AAPL from $50 or $100 up to $700 left huge unrealized profits on the table when it plummeted to under $400. These traders are no different than gold bugs or China bulls, many of whom watched big winners turn into small winners, then break evens, then losses, then disasters. Their muscle memory is that every buy was a winner, and every previous sale led to regret. They cannot see any change in trend. This is why bad traders buy every dip in a crash until they run out of capital. They tell the same story (repeatedly) as the head down the road to ruin. If you want to tell stories, go to Hollywood. If you want to invest capital, have a plan, including a course of action for what to do when things inevitably head south. ~~~ The reality of investing in any asset class is that markets require two sides for any trades to go off. I am not suggesting that any side is always correct; if that were the case the losing side would all eventually disappear, leaving no one to take the other side. Rather, what made this exercise so fascinating was how far people are willing to go rather than admit a trade is not working out. The absurd contortions required to stick to the story is an instructive lesson. All trades eventually end. The question I have for you is “Do you want your portfolio to end with them?”  |
| Posted: 25 Apr 2013 03:00 AM PDT The price of gold plummets, even as deranged millionaire John Hodgman champions the timeless allure of a drab gray, crash-proof carcinogen. Wednesday April 24, 2013, 05:54  |
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