A time-tested mantra for the US stock market is, “Sell in May and go away.”
The depth of a stock market sell-off that begins in May depends on where the United States economy sits in the business cycle. In the early stages of the cycle, sell-offs that begin in May are great buying opportunities.
As the business cycle peaks, the US stock market has a nasty habit of not just losing upside momentum in May, but suffering a horrific crash in September or October.
Tomorrow is the next FOMC meeting and there’s clearly a new sheriff in central bank town.
I refer to Ben Bernanke as Dr. Jeckyll and Jay Powell as Mr. Hyde. The bottom line is that Powell is proceeding with aggressive rate hikes and quantitative tightening (QT).
With the Fed now deploying a major hiking cycle while the business cycle is in a late stage, the more appropriate mantra for 2018 could be, “Sell in May or get blown away!”
Please click here now. Double-click to enlarge. Note the price zone on this Dow chart that I’ve defined as a key line in the sand for the US stock market.
Some Fed speakers have talked about the potential for the central bank to become more aggressive, given the inflationary implication of tax cuts coming at this late stage of the business cycle. If Powell himself makes any such statement this week it could create an institutional investor panic. That would likely send the Dow tumbling under my line in the sand zone.
Please click here now. Stock market investors who bought only in recent years should give serious consideration to the use of put options as a strategy to mitigate the fast-growing risks that the US central bank is putting on their table.
My personal stock market focus is China and India, and to a lesser degree South Korea and Japan. These markets can crash along with the US market, but they are poised to recover more quickly and offer vastly more long-term upside potential than US markets.
Most neocons think that North Korea’s Kim responded to Trump threatening him. I don’t believe Kim or most North Koreans are threatened by Trump at all. Trump did show Kim that if North Korea wants to spew endless war mongering propaganda about America, he can do so too. He simply showed Kim how silly and outdated this propaganda is for the modern era.
Peace on the Korean peninsula is coming not because of silly “hawk talk” from Trump but because North Korea’s government is ready to make economic deals and move away from pure communism. Trump has likely offered significant economic carrots to Kim in return for dialing back its nuclear weapons programs.
“Some big investors see warning signs ahead for markets but are holding their positions. Egyptian billionaire Naguib Sawiris is taking action: He’s put half of his $5.7 billion net worth into gold.” – Bloomberg News, May 1, 2018.
Please click here now. Sawiris is arguably one of the world’s biggest gold stock investors. He’s a master investor with a target of $1700 to $1800 for bullion.
Sawiris wants to see more hardcore business owners on the boards of gold mining companies. His opinion is that there are too many miners and bankers on these boards, and to really succeed in what I call the “gold bull era”, more businessmen are needed. I agree!
Please click here now. Double-click to enlarge. Sawiris is one of the largest shareholders in Australia’s Evolution Mining stock, and it’s pretty clear he’s riding a winning horse. Evolution is the number two gold producer in Australia now and it’s magnificently poised to prosper in the China and India oriented gold bull era.
I have a long-term target of $100 a share for Evolution. Investors can be comfortable paying as much as $10 for this fabulous company. In the $5 to $3 area, I’m an eager buyer on every 25cents dip and an eager seller of a third of what I buy on rallies that carry the stock 50cents higher than my buy price.
I cover Evolution (and other key Aussie miners) on my junior miners site at www.gracelandjuniors.com It’s a key component of my extensive “Thunder Down Under” portfolio.
Please click here now. Double-click to enlarge. Gold bullion is performing exactly as I’ve projected it would over the past couple of weeks. Excitingly, it’s now entering my key $1310 to $1280 buy zone.
Investors who took my recommendation to buy put options in the $1370 area should begin booking juicy profits on those options now. Book more profits on more options on any deeper weakness under $1300 ahead of this Friday’s jobs report release.
I don’t expect any serious upside gold price fireworks to occur until the Fed’s June meeting is complete. That will almost certainly see Powell oversee another rate hike and a ramp-up of QT. That should shock US stock and bond markets and blast gold higher. Having said that, gold is oversold now. In the days following the jobs report, a decent move higher is likely in the cards for gold price enthusiasts.
Please click here now. Double-click to enlarge. For the past few years, key Chinese gold jewellery stocks and Aussie miners have soared higher while GDX and most Western miners have languished. I think that’s about to change, with GDX set to join the upside fun, regardless of what happens to bullion in the medium term.
Yesterday’s high-volume day should be noted. Days where volume spikes tend to suggest a minor trend rally or decline is almost finished. Some GDX components (like Barrick) have soared higher while bullion has swooned. That hasn’t happened in a meaningful way since the heady inflationary days of the 1960s and 1970s. The inflation that will be created by launching tax cuts in the late stage of the business cycle is only beginning, and investors need to get positioned in gold stocks now to benefit.
Investors should focus any buying of protective put options more on bullion than gold stocks. Regardless, gold bullion is poised for good second half of the year performance, and gold stocks are poised for a great one!
It’s very important for gold, bond, and stock market investors to stay focused on the main fundamental price drivers and ignore what may feel exciting but is largely irrelevant to price discovery. Citizen demand from China/India and US central bank policy are the main price drivers for gold.
From 1960 to 1980, US recessions were generally inflationary, and the Fed raised rates during that period. Since then, recessions have carried a deflationary theme, and interest rates have fallen.
In 2013 I began suggesting that the Fed was going to end its deflationary QE and rate cutting programs. A new era of rate hikes and quantitative tightening would begin, resulting once again in inflationary US recessions.
I’ll dare to suggest that America is now poised to experience its first inflationary recession in almost three decades. Importantly, this is happening while Chinese and Indian citizen demand for gold is beginning to rise after a multi-year lull.
Ben Bernanke created enormous Main Street deflation with his QE and rate cutting policy. He incentivized corporations to engage in massive stock buyback programs while the Fed itself used printed money to buy government bonds. Small bank regulation made it unprofitable to make loans to small business. Main Street deflated, the labour force participation rate collapsed, and financial assets soared.
Please click here now. Double-click to enlarge this important labour force chart.
I’ve described Janet Yellen as the “Great Transitionist”. She tapered QE to zero as I predicted she would and began modest rate hikes. It’s clear that the US labour force participation rate bottomed during her tenure as Fed chair.
Jay “Mr. Hyde” Powell is poised to take her policy to the next level, and launch aggressive QT (quantitative tightening) and rate hikes, and the first of at least eight rate hikes should come tomorrow!
Wage inflation is poised to surge as the participation rate breaks out to the upside. Unfortunately, because Janet moved so slowly with her rate hikes, this wage inflation is going to occur as the US business cycle rolls over, creating an inflationary recession.
What does this mean for gold investors? Well, I think a celebratory drum roll is what it means! That’s because nothing is more positive for gold stocks than a long period of stagflation.
Against a background of a major resurgence in Chindian citizen demand for gold with stagnant mine supply (except for Russian and Canadian mines), a true “bull era” for gold, silver, and companies involved in all facets of the metals business is born!
Please click here now. Double-click to enlarge this Dow chart. I chart sixty major US stocks, including all thirty Dow Jones Industrials Average component stocks. What I’m seeing is a major breakdown in the health of the market. The market is being carried by fewer and fewer stocks.
QT and rate hikes are sucking the life out of the market, and I’ve wondered aloud if Jay Powell’s words to stock market investors should be,“Sell in May, or get blown away by Jay!” The bottom line is that Mr. US Stock Market will have his first meeting with Mr. Hyde tomorrow, and I doubt it goes well for Mr. Market.
The meltdown in breadth doesn’t mean the US bull market in stocks is finished right now, but with the US bond bull market already slain by QT and rate hikes, it’s just a matter of time before Jay Powell pulls the US stock market’s life support plug. I’ve repeatedly told my subscribers that when investment decisions are made, forget about Trump, and focus on the Fed. Simply put, focus on the Fed, or wind up financially dead!
Investors need to think outside the stock and bond market box to prosper in an inflationary recession. On that note, please click here now. I wasn’t the earliest bitcoin investor, but I certainly was an aggressive bitcoin accumulator in the sub $500 zone.
Bitcoin currently trades at about $8000. After establishing a core position with an average price of about $200, I’m obviously thrilled to be sitting in “forty bagger” mode today. Blockchain enthusiasts who enjoy this type of sustained wealth building fun can join me at mywww.gublockchain.com website.
It’s important for all investors to understand that at about $20,000 a coin, bitcoin threatened to steal thunder from mainstream media’s darling Dow Jones Industrial Average. An enormous regulatory drive was promptly launched in conjunction with the launch of five-coin bitcoin futures. An expected price correction was created by the regulators. These regulators don’t help investors. They just help themselves by getting salaries to perform useless tasks. Regardless, markets tend to be “here to stay” once these pencil pushers get involved. The bottom line is that regulation lets institutional investors embrace the asset class, and that’s happening now.
Of great interest to me is the major double bottom that is forming now on the daily bitcoin chart. Importantly, there’s a huge volume spike on the first decline to my $8000 – $5000 buy zone. Volume is low on the second decline to that same $8000 – $5000 area. The volume pattern and the time frame of one to two months between the bottoms is classic “Edwards & Magee” technical action!
Tom “Mr. Bitcoin” Lee (Ex head of US equities for JP Morgan) just issued a fresh bitcoin target of $90,000 by 2020. That’s possible, albeit aggressive. My intermediate term target of $34,000 is more moderate, more likely to happen, and still a superb gain from current price levels.
In a stagflationary environment like the one beginning now, bitcoin and precious metals are mostly likely to earn the title, “assets of champions”. Please click here now. It’s very important for gold investors to stay focused on the US central bank, India, and China. Hallmarking and the new spot exchange in India are just two very positive long term drivers of higher gold prices. A “Gold Board” will be launched soon. This board could ultimately have the power to determine the gold import duty rate and other key policy that affects the global gold price.
My Chinese jewellery stocks that I cover at www.gracelandjuniors.com are soaring higher as Chinese citizen gold buying is accelerating. Australian miners are also doing reasonably well. Investors in most individual GDX and GDXJ component stocks and the “raw juniors” need the patience to wait for US wage inflation and more progress in the Chindian gold markets. Then they can sink their teeth into the glory of new highs across the board for these stocks. It’s going to happen, but realism and patience are required. The seeds of inflation are being sown now. It’s not realistic to demand those seeds become jack in the beanstalk trees too quickly.
Please click here now. Double-click to enlarge this impressive daily gold chart. With “Jay Day” (FOMC decision day) tomorrow, gold is performing admirably in its post Chinese New Year trading. It’s making a beeline towards my $1300 Jay Day target zone. I expect statements from Jay Powell to set the stage for a move above the ultra-important $1370 area resistance zone. That should usher in substantial buying from Chinese citizens who have been quiet for the past few years.
Most gold investors are not focused enough on buying their favourite gold stocks in the current $21 buy zone for GDX. Instead they are trying to guess when a big parabolic price rise will occur. That type of price action starts at the end of an inflationary period, not the beginning of it. I will say that I’m particularly excited to see substantial insider buying take place now at major gold mining companies. These company directors obviously see the current time as one for major gold stock accumulation. I’ll dare to suggest gold bugs around the world need to follow that lead!
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line: