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a true Golden Edge in a world of change.


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Normal Metrics gone, as the Fed goes-for-broke

“Are U.S. Stock prices Headed for a fall?” – asked Burton Malkiel in the WSJ

His answer:

+ Dangerously overvalued, is what the CAPE Ratio people have said about stocks:

“Today’s CAPE has been exceeded only during market peaks of 1929, early 2000, and 2007”

+ But stocks are reasonably valued, relative to near record low 10-year yields – of only 2.4%

+ BOTH may be right because “low discount rate can justify high stock prices…”

And: “low rates may persist”.  But CAPE valuations look dangerous

His suggestion: Diversify (into markets not so dangerously valued)

=== ===

The relationship between Stocks and Bonds over time, is something I want to examine closely.

Last: 8/28/14

SPY : 200.14
TLT : 118.97
Ratio: 1.682 – Stocks are expensive versus bonds,
The historical comparison, and Ratio chart both suggest
Historical– : –SPY- : –TLT- : Ratio
2004yrend : 120.87 : $88.55 : 1.365
2007yrend : 146.21 : $93.05 : 1.571
11/20/08 — : $75.45 : 104.43 : 0.722
12/19/08 — : $88.19 : 122.26 : 0.721
03/31/09 — : $68.11 : 103.65 : 0.657
2010yrend : 125.75 : $94.12 : 1.336
2013yrend : 184.69 : 101.86 : 1.813

History: SPY/TLT Ratio: 3 years

[url=http://s273.photobucket.com/user/jimolsen2/media/SPY-toTLT_zps262bfd3f.png.html]SPY-toTLT_zps262bfd3f.png[/URL]

History: SPY versus TLT: 11-years : 3-years

[url=http://s273.photobucket.com/user/jimolsen2/media/TLTvsSPY3_zps8c1678a6.gif.html]TLTvsSPY3_zps8c1678a6.gif[/URL]

I have identified, past Buy and Sell windows, for purchasing or selling Stocks, which are characterized by:

B /Buy : TLT peaks, at a time when Stock prices are down (Low SPY/TLT ratio)
S /Sell : SPY peaks, as TLT is making a low (High SPY/TLT ratio) – but that’s not the selling point;
the NEXT peak in SPY is, typically a few weeks to 3-4 months later
 
Those prior SPY-Buy windows were created by a flight to Bonds as stock prices fell.  
But something different seems to be at work since 2011, when the Fed began “Operation Twist”, which is manipulating bond prices…
 
Bond prices have moved to high levels (near the record levels of mid-2012) WITHOUT big falls in equities.
This is related to the Fed’s unprecedented efforts to manipulate interest rates, and the US economy. Now the stock market itself is being racheted higher by rising bond prices (ie falling long term rates), as the Fed’s manipulation takes hold, and investors like Private Equity firms and bankers take record low discount rates as normal, and begin to base their buyouts, buybacks and other decisions on the assumption than ultra-low interest rates can be maintained long enough for their stock and company purchases to yield a return.  That was true a few years ago, but it may or may not be true from 2014 as a starting point.
 
This leaves both stock and bond markets in a highly vulnerable position – with both at/near unprecedented valuations together.  What we are now beginning to see, I believe, is a pre-emptive “flight to safety”, with people (like Warren Buffett and George Soros) selling stocks and buying bonds now, BEFORE equities have even peaked.  Buying volumes on stocks are way down, and the “pre-emptive” stock sellers are trying to get their money out without forcing stocks lower, by selling lightly, not in a rush.  And their buying of bonds is helping to raise bond prices, making it easier for the Fed to keep long term rates down.  
 
The peak in stocks – normally no more than 3-4 months beyond the peak in the SPY-to-TLT ratio, has been delayed now for almost nine months. Stock and bond prices are now rising together.  But the SPY may struggle to make progress above the psychological barrier of SPY-200, and SPX-2,000.  Will we get a rise in TLT when SPY peaks?  Probably.  But the scope for further big rallies in bond prices may be limited by the very low returns now offered by 10-year bonds.  Will foreigners, who now own so many bonds, want to go on holding if rates go even higher?  It is possible that we will see an unusual rush out of dollar assets (rather than a simple shift from SPY to TLT), when stocks peak.  And THAT may be very good for precious metals prices.
 
We live in “interesting” and unprecedented times.  Keep your seat belts on.


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A Major Crazy Rumor … (?)

Last Stand in September (for the cabal?)

David Wilcock : “The Cabal has to pay-up… And they don’t have the money.”

Quote

There’s some pretty big stuff missing here but I guess it depends on who you’re talking to. The short answer is that “everything bad the Cabal is hoping to accomplish is either being done now, or is about to be done.” Thankfully they are being systematically counter-attacked.

I now have three independent high-level insiders telling me the same thing about next month. One of them has the intel from two completely different sources, so technically it’s four different very informed insiders saying the same thing. Each of these sources has access to the different major factions, so it constitutes a uniform consensus.

We’ve heard almost all of this story before and I have become skeptical and distrustful. That’s my disclaimer. There is no point in fearing this information and, as has been the case in at least seven other instances, whatever they plan doesn’t end up happening.

Nonetheless, here is the gist of it:

The Cabal has to pay up in September and they don’t have the money. Everyone hates them because of the NSA snooping and the destruction of the world’s economy. The international community has lost its patience. BRICS is accelerating very rapidly as the Cabal is withering.

Therefore the Cabal has to go all out, and do everything they possibly can to create maximum chaos, before the end of September, as that apparently is their “moment of truth.” Ben alluded to something big coming, and I have heard no specifics, other than that the Cabal seems to see the end of September as their deadline and whatever they do, it needs to be before then.

In the “moment of truth,” the USG will be forced to declare the Fed and its dollar to be bankrupt and in default — or it will be declared for them by others. We will shift from the FRN (Federal Reserve Note) to the TRN (Treasury Reserve Note). Money will now be issued and backed by the US Treasury itself. No money will be allowed to be printed without collateral of some kind behind it.

– David Wilcock

> post & discussion : http://www.greenenergyinvestors.com/index.php?showtopic=19306&page=12


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Silver – has a nice Base in place

SILVER – The Opening Gap, got “faded” two days in a row … Three strikes may not happen

Three Day chart : Silver-update : Gold-update

[url=http://s273.photobucket.com/user/jimolsen2/media/silverFade_zps59815644.gif.html]silverFade_zps59815644.gif[/URL]

Note how the opening jump up was sold off between 8:00-9:30 NYT (before the SLV opening) on both Tuesday and Wednesday.  This means that SLV started the trading day, trading off its high, up with a GAP still there, acting like a vacuum. Does this selling pattern mean that Silver will not move higher.  I don’t think so, I think the selling is being absorbed, and SLV / Silver may be set for a move higher.

The SLV chart looks different – more bullish, I think … SLV 10d-update : SLV-6mos : GLD-6mos : GDX-6mos

SLV-10d_zpsdc7335cb.gif

SLV remains in a reasonable position for a sustainable rise.  A push above the 8d-MA on Thursday, may set the stage for a decent rally going into September.


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Silver SQUEEZE Warning …

UPDATE: Shanghai Silver Warehouse Stocks Fall 24% In One Week

SRSrocco on August 25, 2014 

While the Comex utilizes highly leveraged paper contracts to control the price of silver, physical metal continues to be drained out of the Shanghai Futures Exchange.  In just one week, total inventory declined by 24%. … At the beginning of August, there were 148 metric tons of silver on warrant at the Shanghai Futures Exchange.  In just three weeks, 29% of the total inventory was removed.  The majority of this decline took place last week when 22 metric tons were withdrawn on Friday alone.

(What next?)

A Nice JUMP in Silver : +$0.12 so far // Shanghai : Rmb.4176 =?= $18.75

t24_ag_en_usoz_2.gif : AgTD0.png?id=11406021131 :  SLV-live

> SGE – Site : http://www.sge.sh/pu…sgeen/index.htm

Calc: AG-Shang.: 4,200 RMB/kg / 6.150 = $ 683 / 35.274 = $19.36 (discount: about 20 cents?)

4176 /6.15 = 679.0 / 35.27 = $19.25 +0.25= $19.50 / 1.04 = 18.75

Check that number ($18.75) on this chart:

SLV_zps15937542.gif

Let’s see if it can be sustained into the start NY Trading… and beyond.

(Don’t forget: Gaps often get “faded”.)

If it is, we may be getting an important TURN today


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More on the LQD-to-TLT Ratio : Corporates / T-Bonds

Look for a rapid drop in the LQD-to-TLT Ratio BEFORE major stock market drops … 7-yrs : 4-yrs : 1-yr

LQDetc-7yrsB_zps34df9b5c.gif

How do those COLLAPSES in the LQD-to-TLT Ratio play out (as stocks fall, using IWM/Russell-2000) ?

(2008-2012): update

LQDetc-fr08_zps0e342562.gif

(2011-2014): update

LQDetc-4yrs_zpsb50e0f06.gif

What happens typically is the Ratio first erodes… and then plummets

as TLT/Treasuries shoot up as stocks fall; i.e T-bond prices rise (in a rush to the safety of TLT);

meanwhile, LQD can “wobble”, or even fall, as in 2008.

Will we see a flight into TLT if stocks slide?

That is the usual historical pattern, but it will not necessarily happen.

(Someday, Bonds and Stocks may fall together, and that would be a fast destruction of wealth.)


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The LQD Bellwether is at a Key Level

This indicator has provided an early warning of Stock market drops in the Past.

ETF- : 8/22/2014
LQD : 119.76 + 0.15
TLT. : 117.29 + 0.65
Ratio: 1.021

LQD-to-TLT_zps292affd8.png

What is this?

It is the price of Highly liquid, Corporate Bonds, divided by the price of Treasury Bonds.

The Drop in this ratio tells us that money is flowing out of the “higher risk” corporate bonds and into the “low risk” Treasuries.

It can provide a Crash warning, as risk preference shift

A break of the uptrend next week, may tell us that a Top in stocks is being put in place. (Or has been made.)


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STUDY THIS CHART ! – Do you see a Turn coming?

Tell me, are the Turns obvious?  I think so

SPX versus VIXupdate-SPX : update-VIX

SPX3_zpsbb75db9b.gif

Tell me. please, when is the next Turn due?

If I get a few responses, I will give you my answer.

Meantime, here are some bullet points from an article in today’s SCMP:

Buffett Bucks Trend with US$55 B Cash Pile – SCMP, pg.B2

+ Individual investors have been cutting their cash, the opposite of Mr Buffett
+ Berkshire Hathaway had US$55bn. at the end of June ’14, up over 50% yoyr
+ Individuals cut cash to 15.8 percent, the lowest in 14 years (AAII showed)
+ Cash provides protection against downside, falls in the Stock market