Source: Michael J. Ballanger for Streetwise Reports 08/23/2018
Precious metals expert Michael Ballanger discusses failed trades, as well as three resource companies that have been winners this year.
The new high registered Tuesday in the S&P 500 (plus a myriad of smaller cap indices) marked the longest bull run in NYSE history and given that it has done so on the crest of a gargantuan global growth of credit, here is a list of failed trades that plagued a great many savvy (and not-so-savvy) traders in 2018.
Failed Trade #1: Shorting Stocks within a money-printing orgy
There is an expression that I learned in the fall of 1979 when in discussion with a portfolio manager who toiled for the old and venerable Walwyn Stodgell Cochran Murray Ltd. of Toronto and it goes like this: “Never underestimate the replacement power of equities within an inflationary spiral.” The idea here is that since banks control monetary policy and since banks detest policies that reduce the money supply, then monetary policy shall always, one-hundred percent of the time, favor the indiscriminate creation of money. Reeling in profligate spending regimes is contrary to the interests of the global banking fraternity (or cartel) that earns outrageous profits off the ever-expanding supply of currency units, be they dollars, loonies, euros, yen, pounds or yuan. Traders, investors and a myriad of portfolio managers have been carried out of the Capitalist Coliseum on their shields having attempted to short the S&P 500 because of “overvaluation.” The failure here lies in misjudging the manner in which $14 trillion in credit creation since 2009 has decided to percolate down into the system, debasing its purchasing power and saving the banking system from certain (not “probable or possible “) collapse.
When CNBC runs a cover story entitled “LONGEST BULL RUN EVER” complete with pompoms and drums and flutes, look no further than the U.S. Treasury and the Federal Reserve as rationale. Where the trade failed miserably was in the erosion of the stability and sanctity of cash such that it took more of the diluted purchasing power of American currency units to buy one hundred shares of Apple in 2018 than it did in 2013. The expansion of price-to-earnings multiples, which are historical omens for better business conditions in the future, came about as a function of wildly expanded money-in-circulation chasing the same number and quality of iPhones, NOT due to improved wages and living conditions unless, of course, you are a banker.
Failed Trade #2: Fighting the Fed
Fighting the Fed while investing against accommodative monetary policies is like taking a knife to a gunfight; chances are you will lose. The “stretched valuation” meme has been trotted out by visionaries such as Jeff Gundlach, Doug Kass, Peter Schiff, and a handful of other notables including on any given Wednesday, Dennis Gartman, who reserves the right to change his mind whenever he (often) chooses. While I, too, agree that stocks are overpriced by most measures, by way of passive policy moves and/or direct intervention, the Working Group on Capital Markets(the PPT), working alongside the Fed, have been able to keep equity markets elevated with constant surveillance and animated jawboning. Until the Fed signals a hostile shift in policy (and they haven’t yet despite the rate hikes), fighting the Fed has been a loser’s trade. Shorting the VIX into spikes to above 25 has always resulted in returns to the 10–12 range since the lows of 2009. As the late and quite great Marty Zweig used to say “Don’t fight the tape and don’t fight the Fed.”
Failed Trade #3: Owning gold and silver
For the year, the S&P 500 is ahead 8.46% while gold is down a near-identical 8.76%. Silver is off 14.4% so there is a great deal of catching up to do if my forecast of an”up year” is to materialize. This year has been all about the mighty U.S. dollar and how “making America great again” means pumping up U.S. stocks and bludgeoning anything gold, silver or foreign. Owning gold and silver in 2018 is now reminiscent of the dog days of the summer of 2015 when everyone HATED junior explorers of all ilk and tone. However, the last month of 2015 saved the year and here in 2018, we have the seasonally strong fourth quarter to do the same. One proviso for the discussion of “seasonality” is that it has been yet another “fail” because expectations of Dewali (Indian wedding season) and restocking by the Italian jewelry trade have been ineffective in triggering anything representing accelerated demand and a subsequent price floor. The failure here was that elevated inflation rates would prompt demand but it hasn’t come close to the debilitating impact of the strong USD since trade war rhetoric began.
Failed Trade #4: Owning the Senior and Junior Gold and Silver Miners
Whether it was the big boys like Barrick and Newmont or the up-and-comers like Argonaut or Fortuna, owning the gold and silver miners was a brutal exercise in masochism. 2018 was the first year in the last ten that I failed to record one trade in the Junior and Senior Gold ETF’s but I am seriously contemplating an intiating position in the JNUG (DIrexion Daily Junior gold Miners Bull 3X ETF). Mind you, every time I type in the ticker symbol into the “BUY” box on the order entry machine, a series of sirens and loudspeakers go off with an imposing voice booming out “Warning! Warning ! Warning! You are about to blow your brains out and your wife will divorce you!,” which gives one pause before pulling the trigger. I know in my heart of hearts that the junior gold miners are cheap from every aspect of analysis known to mankind, but we all feel like the cat that jumped onto the stove—we absolutely avoid getting burned again by interventions and false bottoms.
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From:: The Gold Report