Tuesday, February 25, 2020
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"Freedom by Friday"

Chickens and PIGS

Kevin Raymond February 15, 2010 Freedom by Friday No Comments on Chickens and PIGS

Welcome back. Once again, you’ve entered that portal into another world. Sadly, the views you read here are considered ‘alternative’. Some would say abnormal. I’m proud to agree with them. ‘Normal’ isn’t just boring; in the investment world it’s suicide.

So far, my 2010 prediction:


Seems to be unfolding with alarming accuracy and I trust you’re in profit on a number of levels- don’t forget to lock in those profits with a trailing stop loss!

I decided 2010 would be typified by one word: volatility. As I’ve mentioned before, the volatility of the market is measured by something called ‘the VIX’. You can buy or sell the VIX.

The VIX is simply a measure of how much downside protection traders are buying. If they feel confident about the road ahead, they won’t buy, and vice versa. Here’s an interesting chart below that shows how the VIX has fluctuated since 1991. The boxes illustrate a trading range. As you can see, there seems to be a repeating approximate 5 year period of relatively high or low volatility (a low VIX means low volatility and vice versa):

That huge spike up you can see was the fall of 2008 you won’t be surprised to hear. What you can also see is that if history is any guide, we have more volatility ahead.

What you can also see is a distinct trading range . By playing a trading range you can make money. Look at the chart. Clearly, buying the VIX at around 10 is a VERY safe bet (yet ask any so-called financial advisor about buying the VIX at ANY time and they’ll shake their head and warn you off such a risky investment because they don’t understand it themselves or because it doesn’t pay much commission).

So the VIX is a visual depiction of FEAR and COMPLACENCY: the two sentiments a contrarian trader looks for. When the extremes on the VIX are there, it’s cash waiting to be picked up.

Note: we’re seeing a couple of clear indicators that the big institutions are dumping stocks: they’re selling into good news and when down moves happen, volume surges.

So volatility is picking up. It’s very amusing to hear market commentaries that try to attribute a specific thing that happened on a given day where the market rose or fell:”Stocks fell today on bad results from GE”. The reason stocks fell on that day is because of the bigger picture I’ve been describing here: the government is lying to you about the strength of this recovery and just how precarious the global economy is.

From David Rosenberg:

“While there will be many economists touting today’s report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint.

“Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009.”

Even worse, Obama is trying to fix things. His latest move is to try and provoke a trade war with his biggest creditor: China. And he got what he wanted: China just hit a major US export to China- chicken feet- with a tariff of 40-80%. Congratulations, Mr. President. Does Smoot-Hawley ring any bells? This is how the seeds of war are planted. Actually, if the history of empires is any guide, America won’t stand by and watch another superpower rise.

Moving on to a different farmyard animal from chickens, have you heard of the PIGS? This is an acronym for Portugal, Italy, Greece, and Spain. These are the basket cases of the Eurozone.

Greece has come very close to defaulting on its national debt and the question is if the other states will bail her out. Don’t think this won’t affect you- the ripple effect from this could be cataclysmic as we all face the unthinkable (though historically common): that sovereign states say, “Screw you, buddy” to holders of their Treasurys. (Geithner recently said it was unthinkable that America would do so, and the fact that he said this is worrying in itself.)

My view is that over the next decade we WILL see a series of sovereign defaults (Japan is my top bet). There will be nobody left to trust…except the only thing that can’t lie or go bankrupt: GOLD.

Markets do not like uncertainty, hence the VIX rising lately. The PIGS ARE uncertainty. Who are the people that Greece owes money to? A company you own stock in? Your bank?? Could be. It’s 2008 all over.

There’s a lot of comparison with America today and Japan in the nineties; bulls will cite this as a reason why it will work out. There’s a very important difference though: when the recession hit Japan the population was flush with savings that they gladly bought their government bonds with.

America? If the average American family had to come up with just a few thousand dollars they would struggle. America now is most certainly like Japan in the nineties regarding the consumer.

So the battle for Dow 10,000 rages on. 10,000 is an important psychological number; my bet is that if we start to see a protracted fall underneath that level we could see a panic. If the market can make a sustained rise above 10,000 on the other hand that means they’ve delayed the inevitable a bit longer. Watch Goldman Sachs (GS) and Apple (AAPL) as bellwethers for the rest of the market- they could give early warnings to trouble.

My take on what’s going on? The powers that be know precisely how much trouble is lurking under the surface but they continue to flood the media with upbeat themes to buy time for their banking buddies to surreptitiously and persistently offload their equity holdings.

Don’t get mad, just position yourself accordingly.
Best Regards,

Kevin Raymond

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