To the ignorant go the spoils

SPX-weekly-1024x622

To the Ignorant the Spoils

It actually seems, at times, as though there is this mysteriously large buyer that suddenly appears whenever the equity market most “needs it”…and the subsequent buying is so aggressive and so desperate…not the style of the mostly steady “hands” I personally know. It just seems too good to be true and the Sortino Ratio numerically reflects that belief. Plus, we all know that the economic fundamentals are not as smooth as the weekly or monthly charts of the S&P 500 would suggest.

Remember that equities typically offer the most risk of any asset class…not the lowest risk as the above data set suggests. Nevertheless, Yellen and Bernanke must be “psyched” as their “wealth effect” model has been so effective…actually too effective as the market distortions grow ever larger…and more market bears become contorted “road-kill”.

To be sure these distorting effects may be entirely assigned to The Fed…the debt monetizing, interest rate suppressing “Masters of the Universe” who always get what they want while answering to nobody.

They’ve literally trounced and expectorated on the concept of “moral hazard” and, it seems, purposely reconfigured and redefined its meaning into: We have no economic morals and this poses an enormous hazard to the performance of hedged money managers. The spoils go to the ignorant only – the Fed’s true heroes.    What Risk?

 

Pop QUIZ

curve

An ode to the end of a con

How long can deception go on?

When prices are set by banks printing debt

All trust in the “markets” is gone!

QUIZ

Two businesses, each earns $10.

Company A: Has $50 in net assets and produces $10 in earnings.

Company B: Has $1,000 in net assets and produces $10 in earnings.

  1. Which is the better business?
  2. Which is the better value?
  3. What is the difference in value between the two companies?

Anyone who doesn’t pass this quiz meets my Ex (Hoping won’t help; prayin’ won’t do you no good!

Capitulation IV; Analysts Like to Herd; Agony and Euphoria

Miner Sentiment

Bloomberg hating on gold. “Looks like a short”, “Nothing uglier”, “Not even an asset”…AFTER miners drop 90%.

What's uglier than gold

“The Direxion Daily Gold Miners Bear 3X Shares, or DUST, is up a whopping 99 percent in July.” via @

Grant on gold July 22 2015 Zweig   The same analyst who suggested buying miners within 1% of the all-time top in Sept. 17, 2011 now says gold is a “doorstop” in July 17, 2015.  NOW, he tells me!  Journalists chase price and sentiment.

Zweig

Goldman sees gold to $1,000 (July 2015) and Goldman sees gold at 1840 by end 2012  Note a pattern?

gold_10_year_o_b_usd

Media piles on late in trend:

Perhaps today the absurdity has reached the apex of its crescendo with this utterly ridiculous “letter to gold bug” published by Marketwatch:   It’s time to surrender and let the yellow metal fall to its bear market low

Better analysis: Gold Warns Again and Heavy wears the crown

yen and gold

Amazon Beats

AMZN

amzn 1 yr

How analysts react after Amazon reports–follow the herd recommendations regardless of price. Analysis?

http://www.bloomberg.com/news/articles/2015-07-24/wall-street-cranks-up-its-outlook-for-amazon-after-it-delivers-monster-earnings-report

The headlines reported that AMZN’s sales were up 20% year over year for Q2 and that net income had swung from a loss of $123mm to a profit of $92 million yr/yr for Q2.  While those numbers are what they are, sales growth from Q1 to Q2 was a mere 2.9% – pretty much in-line with the rate of inflation.

The media propagandists attributed AMZN’s highly “surprising” quarter to big gains in its AWS business segment, which is its cloud-computing business.  However, if we drill down into the numbers made available in its 8-K, we find that the AWS segment represents just 7.7% of AMZN’s revenue stream vs. 6.6% of revenues in Q1.   Sure seems like a lot of manic hype over well less than 10% of AMZN’s business model.

As it turns out, AMZN’s AWS business model, like everything else it does, is seeded in low quality sources of revenue that will ultimately prove to be unsustainable.  Why?  See this comment sent to me by someone who read my Amazon research report and who used to specialize in high tech accounting for Silicon Valley start-ups:

I audited many of the high fliers that crashed and burned, took companies public & was at the printers the day the bubble really burst which ultimately tabled that IPO…Amazon Web Services is growing by leaps and bounds and a significant amount of those $’s are coming from venture backed start-ups. Almost the entire Silicon Valley and other startups outside the Valley use AWS. Venture backed startups have exploded just as AWS revenues have exploded…That segment of their business will get walloped which right now seems to be a main source of their operating income.  

Read more: Dot con

Notice the difference between mining stocks and Amazon–Deja-Vu of the late 1999’s/2000.  Remember the music Sugar Ray

amzn fomo

bezos_laughing

Advice for New Investors

Capitulation Part III

Scarcity rising

Gold making history as October and December contracts tip into backwardation

See https://monetary-metals.com/why-are-we-here/ and Gold Slammed Again

gold chart Geopert

spy commodities

twitter gold

Least Bullish

gold stock analogsDeepest Bear Market Ever in Terms of Price and Time?

Highest volume day ever

http://www.businessinsider.com/now-is-the-time-to-get-greedy-in-gold-2015-7

Sales Decline for SP 500 SP500-vs-CRB-Commodity-Index

 

hy vs stocks

 

Capitulation Part II

Gold-Miners-vs-200-MA

Gold-Miners-Compound-Return (1)

An Epic Bear Market in miners

Mining securities are not the thing for widows and orphans or country clergymen, or unworldly people of any kind to own. But for a businessman, who must take risks in order to make money; who will buy nothing without careful, thorough investigation; and who will not risk more than he is able to lose, there is no other investment in the market today as tempting as mining stock.” – Charles H. Dow (1879)

dust gdxj

There is NO REASON to own gold! (NOW, they tell us!)

No hope for gold holders

Global dollar stress might be causes gold price crashes.

The “price action” for gold is bad!  The price of gold went down.

dollar mg

Why not be happy and say that the dollar buys you more gold because of this:

Chart-2-basis-and-cobasis

The holders of physical bullion are not selling, but futures traders are–see the red line rising which is the co-basis.  If I hold gold in stock, but sell futures to lock in the price, then co-basis represents the difference between the bid price for spot and the offer price for futures.   Leveraged futures traders are selling futures but bullion holders are not de-stocking (selling).  The selling in gold futures has brought epic extremes in prices of miners relative to gold/silver. EPIC quantitative easing may be a factor.

Video: Sellers in action:SELL ‘EM!

BAML commodities

20150718_yield_0

2015jul21xau1

Does Gold represent good “value?”

Gold to S&P 500


Ratio gold to sp

Only you can answer that question. Don’t confuse gold (money) as an investment. If you couldn’t find a margin of safety in the current stock market, you might own gold because you believe gold relative to dollars is safer, holds purchasing power better, more stable, etc.

See Value Investors Hate Gold

For those technical wizards out there, note that silver did not “confirm” the price decline in gold yesterday.

Capitulation

Just remember (thanks www.monetray-metals.com)

Batman-knows-best

Capitulation Selling-A Real-Time Case Study

T-XAU-SP

The chart above shows an index of gold and silver miners relative to the S&P 500, breaking now to a new extreme.  Will the world need to produce and find more minerals and metals or will the world just need health care and bio-tech?

letter-jul-19-gold

The read line is the co-basis that is rising as the dollar rises relative to gold. This indicates rising demand for physical and more futures selling. Bullish.

So who is selling?

The Fed’s decision to restock the rate toolkit has got the gold market very nervous,” George Zivic, a New York-based portfolio manager at OppenheimerFunds Inc., which oversees $235 billion, said by phone. “We have already seen that gold did not perform as a safe-haven investment. There is not a single motivating reason to own gold.”

CKT5wyiUYAAopBy

Who knows, perhaps money managers are funding their long equity positions with short gold positions.

“It looks like the end of an era for gold,” said Howie Lee, analyst at Phillip Securities in Singapore, adding that China had been grappling with oversupply after importing a record volume in 2013.

wmc150720b

Money managers (a few of them) finally see gold as undervalued.

Gold_Valuation1

Gold_CoT_Chart1

Gold_Specs

GLD_Sentiment

I am posting this so as to have a record of certain market events.  I seek out where the most marginal or urgent seller is operating AFTER a long decline (four years).

NUGT_Sentiment

Reversion to the Mean/Mental Models; Money and Banking

Bell curve

Bell curve

See Mental Models

CKOjCtbUEAESrub

Back to the extremes of the Internet Bubble years…………..and the extremes may become even more extreme!

T-XAU-SP

wmc150720b

Bank of England Money an Introduction (pdf) Part 1

Bank of England Modern Money Creation (pdf)  Part 2

How QE Works by the Bank of England Part 3

Slanted but instructive.

he following quote from C. Edward Griffin tells the little known story how dollars are created.

The Mandrake Mechanism

The American dollar has no intrinsic value.  It is a classic example of fiat money with no limit to the quantity that can be produced.  Its primary value lies in the willingness of people to accept it and, to that end, legal tender laws require them to do so.  It is true that our money is created out of nothing, but it is more accurate to say that it is based upon debt.  In one sense, therefore, our money is created out of less than nothing.  The entire money supply would vanish into bank vaults and computer chips if all debts are repaid.  Under the present System, therefore, our leaders cannot allow a serious reduction in either the national or consumer debt.  Charging interest on pretended loans is usury, and that has become institutionalized under the Federal Reserve System.  The Mandrake Mechanism by which the Fed converts debt into money may seem complicated at first, but it is simple if one remembers that the process is not intended to be logical but to confuse and deceive. The end product of the Mechanism is artificial expansion of the money supply, which is the root cause of the hidden tax called inflation.  The expansion then leads to contraction and, together, they produce the destructive boom-bust cycle that has plagued mankind throughout history wherever fiat money has existed.

http://www.activistpost.com/2011/08/g-edward-griffin-mandrake-mechanism-and.html

Prize for Investing Students

SANTANGEL’S INVESTOR FORUM

The Santangel’s Investor Forum invites eligible students to apply to receive a free ticket to attend the 2015 Forum, to be held in New York City on October 22, 2015.

A benefactor who wishes to remain anonymous has endowed a table at the upcoming conference to enable a select number of talented students to attend the annual invitation-only event.

All enrolled undergraduate and graduate students are eligible. Interested candidates should apply by emailing their resume and a current investment idea write-up to Steven Friedman (sfriedman@santangels.com).  The idea can be for any type of security or asset class, but the write-up must be limited to 300 words. Preference will be given to unique and original ideas. Please submit ideas by September 15, 2015.

Please feel free to pass this along to anyone who may have an interest.

The Secret to Good Returns

What I learned