Trading the Trend

[Skate]

Some food for thought from Ray Dalio:My take away is that a great deal of smart money will move into precious metals as a long term storage of wealth, in effect the diversification of assets within portfolios, as investors seek some wealth protection and security.

@Chronos-Plutus great video, it was a real eye-opener for me, explained so well. Diversification of assets is what he hammered home. Who would have thought money in the bank would be a "risky" asset class.

Hitting the [Like button] once isn't enough sometimes.

So...

Skate.

 

[qldfrog]

Some food for thought from Ray Dalio:

My take away is that a great deal of smart money will move into precious metals as a long term storage of wealth, in effect the diversification of assets within portfolios, as investors seek some wealth protection and security.

Mr @Skate is staring in the video at 6:46.what a gem

 

[Smurf1976]

Mr @Skate is staring in the video at 6:46.what a gem

Quite a remarkable likeness there.

As for the video, well it certainly aligns with my basic thinking that we see inflation, the only question being the details of when and where it shows up.

 

[Chronos-Plutus]

Earnings Season kicking off:

"The earnings season fires off next week in a big way with a slew of major banks joining Abbott Labs (NYSE:ABT), PepsiCo (NASDAQ:PEP), Domino's Pizza (NYSE:DPZ) and Netflix (NASDAQ:NFLX) in the initial crossfire. Analysts expect Q2 profit for S&P 500 companies to be down 44% before improving to -25% in Q3 and -14% in Q4."

"PepsiCo (PEP) on July 13; Citigroup (NYSE:C), Delta Air Lines (NYSE:DAL), JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) on July 14; Goldman Sachs (NYSE:GS), PNC Bank (NYSE:PNC), U.S. Bancorp (NYSE:USB) and Alcoa (NYSE:AA) on July 15; Abbott Labs (ABT), Domino's Pizza (DPZ), Johnson & Johnson (NYSE:JNJ), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS) and Netflix (NFLX) on July 16; Autoliv (NYSE:ALV), Ally Financial (NYSE:ALLY) and BlackRock (NYSE:BLK) on July 17."

https://seekingalpha.com/article/4357924-stocks-to-watch-bank-earnings-and-spac-deals-blaze-in

 

[ducati916]

Yeah I thought as much (don't mean that as a dig at you). You're looking at the first things anyone looking at a new stock would look at.

GPU manufacturing is cyclical - it takes years per generation like with cars. The next generation are out late this year. As you can imagine, like with cars, sales will always slump when the next model is just around the corner. Classic osborne effect.

So the new models come out, they fly off the shelves, and then sales gradually reduce until the next model/generation comes out, and the cycle repeats itself. Right now, we're only a few months away from the next generation coming out (teasers are already being "leaked") so few people are buying anything while they wait.

The market is obviously pricing in its anticipation of the next gen's sales as I agree with you that there's no current fundamental for the gain(s) we've seen lately aside from the structural shifts I've mentioned previously obviously, and they aren't nearly enough to explain this much of a rally.

Ok, fair enough.

jog on
duc

 

[over9k]

Thanks duc. Let's try to listen to/work with each other more from now on hey?

 

[ducati916]

Some food for thought from Ray Dalio:

My take away is that a great deal of smart money will move into precious metals as a long term storage of wealth, in effect the diversification of assets within portfolios, as investors seek some wealth protection and security.

Looks as if I will be the stick-in-the-mud. This video was dross. Why?

1. FDR did not sever the link with gold, he defaulted. He raised the price to exchange from $20.67oz to $35oz and later limited the exchange to Central Banks only. Agreed that that was inflationary.

2. Wars are inflationary and inhibit stock prices: stocks are not a great inflation hedge.

3. The 1970's were inflationary for a number of reasons:

(a) Nixon closed the gold window and US dollar weakened;
(b) 2 Oil shocks 1 in 1973 and 2'nd in 1979;
(c) During 1972 & 1973 there were food price shocks and a further one in 1979;
(d) Legal issues: (i) COLA (Cost of living adjustments) were part of Employment Contracts via Employment Act 1946, in 1977 the Humphrey-Hawkins Full Employment Act was passed by President Carter.

Volcker crushed inflation (ironic as it was he who advised Nixon to shut the Gold Window) via interest rates. That is the point, inflation, if and when it returns (unlikely in near future) is easily controlled via monetary policy.

The important 'fact' re. inflation is: (i) The Fed does not care about CPI inflation, it only cares about (ii) PPI. Low PPI essentially means that profit margins on corporate profits move higher. Therefore stocks are the place to be.

Disinflationary needs to be distinguished from deflationary. There is a difference. 2008 was deflationary. Globalisation is disinflationary. Now with the rise of Nationalism worldwide (the Smoot-Hawley Tariff Act 1930 converted a stock market bust into a full fledged depression) it can be argued that the disinflationary pressures are reducing (Trump's tariffs against China etc) so there could be an increase in inflation. Dalio did not discuss this. However, while we have extreme Fiscal and Monetary policies, those inflationary forces (paradoxically) are blunted. Why? Because Zombie companies are kept alive which keeps supply higher than it should be, thereby keeping prices lower. The clearest example is in the oil patch. The Arabs sought to wipe out shale and thereby reduce supply. Once again, control of supply, in a constant or growing demand, means higher prices. Shale, while wounded, is still hanging in there. So some supply has been destroyed, but not all. Prices rebounded very quickly from (-$32) to +$40. Therefore currently (but watching) we will not have PPI inflationary pressures via oil.

You can see government debt peaks after wars and gradually reduces as wartime production converts back to peace-time.

Unprecedented increase in money supply: still little inflation via PPI.

This is for the gold bugs. Gold tends to bust above 4.5. Obviously miles away.

Not clearly shown, but far right of chart is US dollar trending down after Nixon defaulted.

jog on
duc

 

[qldfrog]

Quite a remarkable likeness there.

As for the video, well it certainly aligns with my basic thinking that we see inflation, the only question being the details of when and where it shows up.

I think inflation is there with the market rising, gold rising and RE not crashing..just a different behaviour that 1974 inflation where wages rised and prices of consumer good followed..or was it the other way round?
This is all in my opinion good for the subject of that thread:
Inflation or currency/USD loss of intrasic value is an underlying support for the bounce/trend.

 

[Chronos-Plutus]

Looks as if I will be the stick-in-the-mud. This video was dross. Why?

1. FDR did not sever the link with gold, he defaulted. He raised the price to exchange from $20.67oz to $35oz and later limited the exchange to Central Banks only. Agreed that that was inflationary.

2. Wars are inflationary and inhibit stock prices: stocks are not a great inflation hedge.

3. The 1970's were inflationary for a number of reasons:

(a) Nixon closed the gold window and US dollar weakened;
(b) 2 Oil shocks 1 in 1973 and 2'nd in 1979;
(c) During 1972 & 1973 there were food price shocks and a further one in 1979;
(d) Legal issues: (i) COLA (Cost of living adjustments) were part of Employment Contracts via Employment Act 1946, in 1977 the Humphrey-Hawkins Full Employment Act was passed by President Carter.

View attachment 105859

Volcker crushed inflation (ironic as it was he who advised Nixon to shut the Gold Window) via interest rates. That is the point, inflation, if and when it returns (unlikely in near future) is easily controlled via monetary policy.

The important 'fact' re. inflation is: (i) The Fed does not care about CPI inflation, it only cares about (ii) PPI. Low PPI essentially means that profit margins on corporate profits move higher. Therefore stocks are the place to be.

Disinflationary needs to be distinguished from deflationary. There is a difference. 2008 was deflationary. Globalisation is disinflationary. Now with the rise of Nationalism worldwide (the Smoot-Hawley Tariff Act 1930 converted a stock market bust into a full fledged depression) it can be argued that the disinflationary pressures are reducing (Trump's tariffs against China etc) so there could be an increase in inflation. Dalio did not discuss this. However, while we have extreme Fiscal and Monetary policies, those inflationary forces (paradoxically) are blunted. Why? Because Zombie companies are kept alive which keeps supply higher than it should be, thereby keeping prices lower. The clearest example is in the oil patch. The Arabs sought to wipe out shale and thereby reduce supply. Once again, control of supply, in a constant or growing demand, means higher prices. Shale, while wounded, is still hanging in there. So some supply has been destroyed, but not all. Prices rebounded very quickly from (-$32) to +$40. Therefore currently (but watching) we will not have PPI inflationary pressures via oil.

View attachment 105860

You can see government debt peaks after wars and gradually reduces as wartime production converts back to peace-time.

View attachment 105861

Unprecedented increase in money supply: still little inflation via PPI.

View attachment 105862

This is for the gold bugs. Gold tends to bust above 4.5. Obviously miles away.

View attachment 105863

Not clearly shown, but far right of chart is US dollar trending down after Nixon defaulted.

jog on
duc

The primary objective of Central Banks is to manage inflation. The inflation metric (CPI) that Central Banks use are clearly erroneous when looking at the basic cost of living expenses.

Where Ray Dalio is correct is that these markets right now are clearly disconnected from fundamentals and it is the Central Bank easing of monetary policy that services the debt during times of economic and financial crisis.

Where Ray Dalio is also correct, is that Central Banks have eased monetary policy to the point that we now have trillions an trillions of dollars of negative yielding debt with interest rates to remain at zero/negative in perpetuity, until there is a global monetary reset. This means that holding cash is in effect, destroying your wealth, not mention the global trend of bank bail-ins that you need to worry about.

Will the FED be able to service the next impending and inevitable tsunami of debt that will crash the economy, without destroying the USD?

Another point that Ray Dalio made was that a portfolio of assets that is spread across multiple countries and multiple currencies is prudent. Gold and silver are the ultimate universal storage of wealth. I can put a few 1 ounce gold/silver coins in my pocket, get on flight to anywhere in the world, and sell my asset with no problems at all. Can you do that with any other asset? NO. Furthermore I can open up precious metal accounts all over the world.

 

[Lucky777]

This is an amazing thread! I’m about on page 4 right now, give a shout-out for duc for starting this thread pretty amazing insights. Will give my thoughts when I’m done if there is any, seems to be quite covered.

So far I’m riding the trend of tech stocks til it’s perceived death which doesn’t seem to be anytime soon, maybe a month or two till earnings and stimulus are what changes it. Then switch to a few health stocks. I’m mainly riding the individual assets(stocks) atm. Good luck everyone

 

[over9k]

This is an amazing thread! I’m about on page 4 right now, give a shout-out for duc for starting this thread pretty amazing insights. Will give my thoughts when I’m done if there is any, seems to be quite covered.

So far I’m riding the trend of tech stocks til it’s perceived death which doesn’t seem to be anytime soon, maybe a month or two till earnings and stimulus are what changes it. Then switch to a few health stocks. I’m mainly riding the individual assets(stocks) atm. Good luck everyone

Stimulus won't reverse anything - in fact, tech was the only sector that grew when there wasn't any stimulus. The only thing stimulus will do is maybe bounce the other sectors as well - in parallel with tech. But if you saw my other post, you'll see that many sectors have been flat for 2 or even 3 months despite all the stimulus at those time(s).

Think about seasonality for the northern hemisphere too, a time when people traditionally spend more time indoors anyway, along with the cold making the populace even more susceptible to infection and thus even more afraid to go out ergo christmas spending inevitably all being online.

I have no plans to sell any of my positions.

edit: here's my post i was referring to https://www.aussiestockforums.com/t...onavirus-outbreak.35169/page-257#post-1081215

 

[ducati916]

1. The primary objective of Central Banks is to manage inflation. The inflation metric (CPI) that Central Banks use are clearly erroneous when looking at the basic cost of living expenses.

2. Where Ray Dalio is correct is that these markets right now are clearly disconnected from fundamentals and it is the Central Bank easing of monetary policy that services the debt during times of economic and financial crisis.

3. Where Ray Dalio is also correct, is that Central Banks have eased monetary policy to the point that we now have trillions an trillions of dollars of negative yielding debt with interest rates to remain at zero/negative in perpetuity, until there is a global monetary reset. This means that holding cash is in effect, destroying your wealth, not mention the global trend of bank bail-ins that you need to worry about.

4. Will the FED be able to service the next impending and inevitable tsunami of debt that will crash the economy, without destroying the USD?

5. Another point that Ray Dalio made was that a portfolio of assets that is spread across multiple countries and multiple currencies is prudent. Gold and silver are the ultimate universal storage of wealth. I can put a few 1 ounce gold/silver coins in my pocket, get on flight to anywhere in the world, and sell my asset with no problems at all. Can you do that with any other asset? NO. Furthermore I can open up precious metal accounts all over the world.

1. The Fed. is mandated with: (i) Full employment, (ii) Production Growth, (iii) Price Stability, (iv) Balanced Trade/Budget accounts

2. But he goes further and states that the outcome will be inflation.

3. Via inflation.

4. We'll see.

5. No argument there, but hardly prescient.

Summary: dross.

jog on
duc

 

[ducati916]

So some w/e charts.

First up, the Commercials:

Looking to support/buy the dollar.

Still leaning against Gold. These two charts are consistent in that a stronger dollar (could) result in weaker gold.

Which is the reversion to mean trade.

Mr Skate raised a question re. timing for (stock) markets:

This is a macro-indicator that I follow. See how (the red line) often pre-empts markets moving lower? Not infallible (what is) but when combined with market (specific) data, provides a pretty good heads up.

Market internals solid moving forward into next week for challenging the all-time highs in SPY.

We have interest in QQQ or Tech. So I will now include QQQ

You can see how significantly different the QQQ are from SPY. SPY has no divergence. The QQQ has that divergence, which means that the index is inherently unstable, or more likely to mean revert.

TRIN shows lots of potential upside:

Volatility

No issues.

jog on
duc

 

[ducati916]

Banks:

What Bank Stocks Bode
The Relative Report
Brogan Group Equity Research of Wellington Shields
July 9: Everywhere I turn, the talking heads are talking about the banks, how bad they look, and how much they have underperformed. This, to me, is a very binary call. You either step in today and buy the banks with the expectation that they are at a triple bottom, or you sell them with the expectation that they go to new lows. We do not have a horse in this race because our Money Flow Model has told us since Dec. 20 to step aside, as the [downside] risk for the overall equity market and the banks is too high.

The last time we saw a similar relative performance triple bottom was on July 6, 2016, when we were very bullish on the stock market because the money flows to the banks were very positive (88%). Today, we are at what looks to be another relative performance triple bottom, but we are not bullish because the bank money flows are extremely negative.

There is a very good chance that we are going to see lower prices in the banks, which will probably pull down the whole stock market. We continue to own defensive non-cyclical assets, with the expectation of high market volatility over the next several months.

Already at a pretty extreme level. Obviously we'll have to wait and see.

jog on
duc

 

[Chronos-Plutus]

1. The Fed. is mandated with: (i) Full employment, (ii) Production Growth, (iii) Price Stability, (iv) Balanced Trade/Budget accounts

2. But he goes further and states that the outcome will be inflation.

3. Via inflation.

4. We'll see.

5. No argument there, but hardly prescient.

Summary: dross.

jog on
duc

Well that is what the FED have on their website. Let's judge:

(i) Full employment
FAIL
(ii) Production growth
FAIL
(iii) Price stability
FAIL
(iv) Balanced trade
FAIL

The only dross I can see is on the FED website

 

[Chronos-Plutus]

Central Banks are supposed to manage inflation to tick all the boxes of these well and wonderful ideals.

 

[ducati916]

Well that is what the FED have on their website. Let's judge:

(i) Full employment
FAIL
(ii) Production growth
FAIL
(iii) Price stability
FAIL
(iv) Balanced trade
FAIL

The only dross I can see is on the FED website

But on inflation, starting with Volcker who gave them the model:

They are rocket scientists!

jog on
duc

 

[Chronos-Plutus]

But on inflation, starting with Volcker who gave them the model:

View attachment 105883

They are rocket scientists!

jog on
duc

I would rather look at the average price of a Big Mac, over the last couple of decades, than use their CPI metric

The FED cash rate will never rise, over a sustained period, from here on. In fact it will be never-ending stimulus now, or the markets crash.

 

[over9k]

Dunno about perpetuity chronos, but certainly until the pandemic is over.

They've planned two rounds - I betcha there's more

 

[qldfrog]

Banks:

What Bank Stocks Bode
The Relative Report
Brogan Group Equity Research of Wellington Shields
July 9: Everywhere I turn, the talking heads are talking about the banks, how bad they look, and how much they have underperformed. This, to me, is a very binary call. You either step in today and buy the banks with the expectation that they are at a triple bottom, or you sell them with the expectation that they go to new lows. We do not have a horse in this race because our Money Flow Model has told us since Dec. 20 to step aside, as the [downside] risk for the overall equity market and the banks is too high.

The last time we saw a similar relative performance triple bottom was on July 6, 2016, when we were very bullish on the stock market because the money flows to the banks were very positive (88%). Today, we are at what looks to be another relative performance triple bottom, but we are not bullish because the bank money flows are extremely negative.

There is a very good chance that we are going to see lower prices in the banks, which will probably pull down the whole stock market. We continue to own defensive non-cyclical assets, with the expectation of high market volatility over the next several months.

View attachment 105882

Already at a pretty extreme level. Obviously we'll have to wait and see.

jog on
duc

Hum Mr Duc, that does not fit well with the ETF of US regional banks...
In cases like that, do you lower your bets, take a conservative approach?
Appreciate your different view cf "inflation"