Stocks, bonds, and gold have all put in gains over the past 15 years. The Morningstar chart (I am a subscriber) includes all dividend or coupon payments as reinvested as received, so these are total returns except for taxes and commissions.
The US Treasury long term bond fund of Vanguard has had the least volatile upward trend, and for this 15 year period the Vanguard bond fund (VUSTX) and the Vanguard Standard and Poors 500 fund (VFINX) had virtually identical returns of approximately 6.4% annualized.
Surprisingly, the Central Fund of Canada (CEF), investing only in gold and silver bullion, stored in an allocated sector of a bank vault in Canada, with precise auditing, did much better. For US income taxpayers, Central Fund qualifies as a Passive Foreign Investment Company (PFIC) which has IRS reporting requirenents and as a precious metals PFIC trust fund has some tax advantages over standard precious metals deposits and funds. Also it pays virtually zero dividends, generally a penny per share annually, so the PFIC dividend/interest issues are non-existent.
CEF is completely unleveraged. In addition to its other attributes, it is classified as a closed-end fund. It can issue new shares to buy more gold and silver bullion. As a closed end fund it typically prices at a discount to its net asset value, so you get more for your money when the discount is in effect.
CEF, consisting of gold and silver bullion in a Canadian vault, outperformed both US stocks and US Treasury long term bonds by 2.4% annually over the past 15 years. You didn't have to pay a penny in tax....well maybe a penny a year...or make any changes in investment to make annualized gains of 8.6% per year in a very difficult market period.
If, as I suspect, we are resuming the more inflationary part of the long wave cycle, interrupted by 8 years of FED madness, CEF should do well. In the similar inflationary era from 1968 to 1980, the best investments were gold and TBills. Most US brokerage money market funds now are effectively TBills. So CEF and a money market fund might be the best places for long term money. TBill rates increase and precious metals increase in value during such a period.
For active traders, one could short term trade around these bases, or one could just sit back and enjoy life.
From Ed Seykota's remarks in Jack Schwager's Market Wizards: "Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them "funnymentals". However, if you catch on early, before others believe, then you might have valuable "surprise-a-mentals".
Political "funnymentals", as in elections or edicts, do matter, in the the US as well as in Italy or the Congo. nevertheless, tech analysis shows that some methods of Mr Gann and Mr Elliott still work, not to forget Mr Andrews and "Sir G9".
The chart above demonstrates some of the techniques of all four of those gentlemen, as well as some simple moving averages. If December gold doesn't hold 1225-1218 odds increase to fall to 1190-1178, or lower.
Times are changing, whether we like it or not, and as traders or investors we must adapt.
The rest of the charts demonstrate some other indicators and methods I use.
There are a number of factors currently affecting gold after a splendid performance earlier this year and a pullback or consolidation since early summer. I won't list the ones you'll recognize on this chart. There are also timing issues. If gold can break above 1275-77 and stay there for a week or so, a bull market will likely proceed like the others of the past 70 years.
Just to remind me that the real return of bonds has beat that of stocks for the past 20 years, Edwards, of Societe Generale, points out that if a recession were to recur due to FED raising rates, US Treasury long rates could drop from over 2% to zero or lower. That could give 100%+ gains. This what's happened to UK bonds (gilts) this year and to Japanese bonds too.
Of course this is what has happened for long Treasurys and SP500 stocks for 20 years, and not what will necessarily happen in future.
Here is a chart first published here in 2009 targeting a low for the PPI this year. There is increasing cycle, sentiment, economic, and technical evidence for bottoms in PPI, the stock earnings/price ratio and bond yields in this next month. We'll simply have to see, but I am gradually and modestly positioning in metals and stocks on bigger down days. More later.
I call this the Gary Shilling chart. Shilling has made his fortune being long the zero coupon 30 year Treasury bond since 1981. He has always seen the interest received as a secondary consideration. He mainly has preferred them for their appreciation.
EDV, Vanguard's 30 year zero coupon TBond ETF, and Hoisington's similar mutual fund WHOSX, are easy ways to ride this bull.
It has been a verrrrry good year to date: the best since 2009. Largely it's due to the golds and silvers and oils I was piling into last time here.
I did cut the metals stocks back almost 100% about two weeks ago, but am buying them back slowly on down days.
Sentiment is very dark and gloomy which is a good thing for asset prices.
I hope to have more time to post my analysis, perhaps even this weekend...
"Bonds, stocks, and dollar have made another run since 2010-11 while gold and commodities have crashed. I think reversals are close at hand. What is up will go down, and what is down will go up.
"I am lightly net short in stocks but long intermediate term VIX's (VXZ). I am still long US Treasurys but am anticipating a final run up there and converting to TBills and short term TIPs. I am just starting to buy gold and silver (CEF and physicals) and selected oil and gas stocks (mostly US trusts) and commodity funds (RJI and GCC)."
Since then the US dollar is virtually unchanged in an extended consolidation between 95 and 100. Gold was just beginning its low point then and is now much higher. Crude oil was just starting another crash from about $45/barrel down to $27.30 basis WTIC spot on February 10, an 81% decline from its high in 2011. US stocks have been up and down and all around and are down rather modestly for all the volatility to date. I am modestly short the Euro.
I was selling my EDV (30 year US Treasury strips) on spikes up and sold the rest on Friday. This has been a very good trade. With the 30 year T bond breaking an important uptrend line, there is the possibility of a larger break. I'm not ready to announce a bond bear market since so many bond bear markets have been prematurely paraded out over the past 30 years. I know of only one person who has never made that error, and that is Gary Shilling, to whom I owe my own modest success. Van Hoisington and Lacey Hunt have also been bond mentors, and all three are still bond bulls. I could rejoin them later, but my plan is and has been the same as three months ago: to use the bond proceeds to get long in 1-5 year inflation protected T-notes and cash.
My other good gain has been in gold and gold stocks, primarily CEF (gold and silver in storage) and ASA, historically the first ever US-listed gold stocks fund. Nearly all of both were sold off this week for reasons partly visible in the chart below, resembling the one for the bonds. I did also buy some TGLDX, probably still the best gold mutual fund, and VGPMX from Vanguard whose record has improved with its newer management. These two I am keeping. I will add back CEF and ASA at some point, since I think gold has probably made its low.
I have made modest profits on my long position in VIX (VXZ) due to the stock market drop. This could be reduced or sold out in the coming week depending on events. I don't think the stock markets have bottomed yet, but I could be wrong. The Dow Industrials (INDU) make the best case for a lot more downside. But I am not an "Armageddonista".
My big loser was in oil where I got stopped out in early December for losses. I started scale down buying in oils and gas stocks again in later January. The nice bounce of the past few weeks has largely bailed me out, but I have cut back while waiting to see what happens next.
My longer term views have been clouded by the length of the commodity slump and the bond and dollar bull markets. I still would like to believe that the Long Wave upcycle from the 1999-2003 bottoms is still operative, and that the crises interventions from 2002 on have prolonged the bond bull market and exacerbated the commodity corrections and stock booms and busts. If this is somewhere close to being correct, I would expect fairly early confirmation of a bond top and a gold bottom and that other commodities would begin to carve out and confirm bottoms this year and next. Also I would expect stocks to rise before long and eventually make much higher new highs over the next decade and perhaps until 2030.
We've seen the US dollar chart in the previous post from 1980 to present with its three bull market moves to 1985, 2001, and now: perhaps the Reagan, Clinton, and Obama bull markets with declining tops as national exhaustion occurs?
However, if we draw a trend line off the 1985 and 2001 peaks we'll see that this bull market has broken out on top, whether on an arithmetic or logarithmic chart.
The outcome of this move is the key to most future outlooks.
The world and markets are in a transition to a new status. Who remembers, if they knew of, Francis Fukuyama's 1992 book, The End of History and The Last Man? It was written while the Soviet Union was imploding. Fukuyama's notion was that the Great Liberal State, envisioned by G. W. F. Hegel in 1806, after the French Revolution and during the Napoleonic Empire and Wars, was finally fully in charge everywhere in 1990 allowing freedom and honest government. Communist and Fascist revolutions and final defeats left the world "free at last".
What was called the Peace Dividend in the 1990's, as the costs of defense were seemingly justified to be cut, got quickly spent and a lot more as well by the advanced nations. And so we now find the world overspent and massively over indebted. We find our freedoms being trampled upon by the Great Liberal Governments in their desire to control nearly every facet of our lives in order to make things "work right" and to enable them to collect taxes on everything.
This is where we are, and every political party everywhere supports the plan. However, people, who, after all, create the economy and markets, are not following the script very well. So we must invest in different ways to survive and hopefully prosper while governments use every crisis to increase their power. This isn't a call to arms, rather a call to brain power.
After a huge rebound from the summer lows, stocks are looking toppy again. It's a selective rally as many indexes have remained quite a bit off their 2015 highs. Forty four percent of all publicly traded stocks in the U.S. are as said to be down at least 10 percent year-to-date and 39 percent are down more than 15 percent year to date.
I suspect the stocks, sovereign bond, forex, and gold markets are in somewhat the same position as in 2000.
The interrelationships of markets since 1980 are instructive. Interest rates and gold topped out, the dollar bottomed, and stocks the dollar rose from 1980 to 1985 when gold fell under $300 and the dollar was over 160. As the dollar fell from 1985, all else rose until the 1987 crash which led to a wide consolidation band in all assets into 1994. Then the great moderation as the dollar made another bull run into 2000 along with stocks and bonds and gold ground its way back down to under 300 and then 250.
Bonds, stocks, and dollar have made another run since 2010-11 while gold and commodities have crashed. I think reversals are close at hand. What is up will go down, and what is down will go up.
I am lightly net short in stocks but long intermediate term VIX's (VXZ). I am still long US Treasurys but am anticipating a final run up there and converting to TBills and short term TIPs. I am just starting to buy gold and silver (CEF and physicals) and selected oil and gas stocks (mostly US trusts) and commodity funds (RJI and GCC).
Yesterday's SPX chart contained several indications of possible topping of the secondary rally from the August lows. One was the touch of the bisect of the range from the all-time high of summer to the August low from the 2014 autumn low.
Another indication was the possible completion of Reverse Point Wave (RPW)* expanding triangles from that low and at the end of wave five of the larger RPW. There exists an even larger RPW shown here in August. All of these may be ending now. If so there could be a very severe correction coming up.
A third indication is the 2CS bearish sentimeter I have tabulated for 19 years. It has fallen to 75 as of today. This is an area for bearish sentiment at the tops of secondary rallies in bear markets in this century: in 2008 and in 2001.
A fourth possible indication is a setup for a Scottish method short trade entry for SPX tomorrow. I will add to shorts if this occurs and SPX closes lower tomorrow.
* RPW's (Welles Wilder) or Five Pointers (G9) have been known by many names, as outlined in Edwards and Magee's Technical Analysis of Stock Trends.
There was a buy today on the NYSE session of SPX which became confirmed by noon EST. So there was a decent profit on the down move. The last two day bars can be read as a bullish harami in candlestick language.
However in the Scottish method there is a pretty good probability that there will be a sell tomorrow. A lower open with follow-through would cinch it. The open will be critical.