Tag Archives: seeking

When The Dollar Crashes

Editor’s note: Originally published on January 26, 2015 Back in late April of 2011, legendary investor Jim Rogers made one brilliant call combined with one incredibly stupid observation. So he was hitting about 50%. That’s not bad, the very best prognosticators rarely do better than getting it right 65% of the time. Most people get it dead wrong most of the time. Speaking of silver on April 20, 2011, Rogers was quoted as saying, “If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year. And then we’ll have to worry. It’s not parabolic yet”. Rogers concluded silver wasn’t yet in a bubble. That may well turn out to be one of the very worst predictions Jim Rogers ever made in his life. A week later, on April 28, silver peaked at just a smidgen under $50. In two weeks, by May 12th, silver dropped by an incredible 33%. But Rogers got one thing dead right when on April 20th, he said, “A parabolic move and all parabolic moves end badly.” Silver went parabolic and Rogers couldn’t look at a chart and recognize a parabolic move when it stared him in the face. He knew enough to understand the effect of a parabolic move; he just didn’t see it in front of him. If you want to retire rich, go to a tattoo parlor and have them inscribe on your forehead, in reverse writing, “ALL PARABOLIC MOVES END BADLY.” In the same way that people tend to think in absolutes about politics, either you are a Republican or a Democrat; investors want to think in terms of either Technical Analysis or fundamentals. That tends to suggest there are no other alternatives in either politics or investing. I don’t know a single investor made rich by either TA or fundamentals. Maybe they work for some, some of the time. I’ve just never seen it. In April of 2011 silver went parabolic. At least to those who were capable of recognizing a parabolic chart in front of them. There were probably 100 fundamental reasons to buy silver. TA suggested silver was headed to the moon. Both were wrong. There are 100 reasons to buy a commodity, any commodity, at every top. And if you actually believe TA is valid, invert the chart and see what is suggests then. That’s what Warren Buffett did before rejecting TA as an investment guide. The investment psychology as measured by the bullish consensus toward silver in April of 2011 was higher than it was at the very top of silver at $50.25 in late January of 1980. And silver went parabolic. ALL PARABOLIC MOVES END BADLY. I was working on a piece for Friday, last week, and I needed to know what the Dollar Index was doing. I pulled up a chart and saw that the Dollar Index was up a remarkable 2% for the day . It actually went above 2% during the day but I couldn’t capture it on a screen print. I did capture the 2% move and used it in a piece. 2% in a day is a lot in any currency much less the Dollar Index. For one reason or another, I watched again on Friday to see what the Dollar Index would do. Between Thursday and the high on Friday the 23rd of January the Dollar Index climbed a remarkable 3.25% in 36 hours. I’ve never seen such a move in a currency. No one that I know saw that or at least no one remarked on the move. So I went back to the piece I wrote about silver on April 25th of 2011 and looked at the chart I had posted of silver where I claimed, “Silver is going parabolic.” I took a lot of flak at the time in 2011 because all the silver clowns were convinced silver was going to $500 an ounce overnight. I was right, they were wrong. Silver went parabolic and then crashed in two weeks by 33%. About five guys got it dead right in April of 2011 and everyone hated them for it. A 3.25% move in any currency is a parabolic move. It is the kind of move that ends a trend, no matter up or down. There are a hundred fundamental reasons to buy the dollar right now. TA suggests the Dollar Index is going to 125. Everyone loves the dollar. The bullish consensus on the Dollar Index is the highest in recorded history. That is what marks tops. ALL PARABOLIC MOVES END BADLY. Black Swan events are those hard to predict and rare events that are beyond the realm of normal expectations. Parabolic moves may not qualify as in the realm of normal expectation but that doesn’t mean you can’t recognize them in front of your nose. The dollar index will crash one day. It won’t be down 33% in two weeks similar to that move in 2011 in silver. But the Dollar Index could be down 1/3 of the move since July of 2014 in as little as two weeks. The index was around 80 on July 1st and rocketed higher to 95 last week. I can see the dollar dropping 5 points in two weeks. Wouldn’t everyone be shocked?

Ivy Portfolio February Update

Scott’s Investments provides a daily Ivy Portfolio spreadsheet to track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book ‘ The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets ‘. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages. The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”. The spreadsheet’s signals update once daily (typically in the late evening) using dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure. The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals. The current signals based on January’s adjusted closing prices are below. The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz : (click to enlarge) I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10 month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers. Not all ETFs in each portfolio are commission free, as each broker limits the selection of commission-free ETFs and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply depending on each broker. Below are the 10 month moving average signals (using adjusted price data) for the commission-free portfolios: (click to enlarge) (click to enlarge) Disclosures: None Share this article with a colleague

Between The U.S. Economic Recovery And Global Slowdown There Is GLD

Summary The FOMC is still likely to raise rates in the coming months, but the global economic slowdown could still keep up GLD. I reexamine the relation between GLD and the U.S. dollar. The upcoming non-farm payroll report could bring GLD further down. The FOMC’s recent meeting was concluded with no changes to policy. The statement presented modest changes to the wording. For now, the market still estimates a rate hike in the middle of year. Following this news, the price of the SPDR Gold Trust (NYSEARCA: GLD ) fell down albeit it’s still up for the year. Let’s review the latest from the FOMC, the upcoming reports to be released this week, and reexamine the relation between the U.S. dollar and gold in light of the global economic slowdown. Last week’s main event was the FOMC meeting , in which the FOMC tried not to “rock the boat” and provided little changes in the wording in the statement. Nonetheless, following the release of the FOMC statement, the price of GLD took another tumble. (click to enlarge) Source of data taken from FOMC’s site and Bloomberg The statement still suggested that FOMC remains bullish on the U.S. economy, which isn’t a good sign for keeping rates low for a long time. The recent release of the U.S. GDP , in which the GDP growth rate for the fourth quarter was only 2.6%, market expectations were at 3% and in the third quarter the GDP grew by 5% may have contributed to the rally of GLD on Friday. A closer look at this report, however, reveals a more complex picture: real personal consumption grew by 4.3%; conversely, government spending tumbled down by 7.5%; private inventories added 0.8 percentage points to the growth rate. So even though government spending dropped, the GDP grew by 2.6% – mostly due to higher personal consumption and gain in inventories. All in all, this wasn’t a bad result and could tie up the FOMC’s bullish sentiment with respect to the progress of the U.S. economy. The upcoming non-farm payroll report could provide another indication for the progress of the U.S. labor market. Current estimates are for a gain of 231,000 jobs in January. A much higher gain in number of jobs could result in another fall in the price of GLD. (click to enlarge) Source of data taken from the U.S. Bureau of Labor Statistics and Google Finance Moreover, if the labor market keeps showing signs of recovery over the coming months, then this will bring the FOMC one step closer towards hitting the rate hike button. The debate over the next rate hike is likely to pick up in the coming months as we will get closer to the June meeting. Some still suspect the FOMC could back down from its current direction of raising rates in the coming months. But the FOMC doesn’t tend to make such a deviation from its direction unless the economic climate when it comes to inflation and labor warrants such a change. On both counts, the FOMC continues to voice little concern and to change market expectations with a sudden announcement, while has been done in the past, seems less likely considering the conditions only continue -albeit slowly – to improve. Despite the recent fall in the price of GLD, gold holdings in GLD keep picking up, and as of last week, reached over 758 tonnes of gold – this is a 6.5% gain since the end of 2014. This is also the highest level of gold hoards for the ETF since October 2014. This means, the recent fall in the price of GLD didn’t hold back investors from investing in the ETF. Another point to consider is the ongoing rise in the U.S. dollar, which coincides with the rally of gold prices. The chart below shows the relation between the U.S. dollar and gold prices during 2014-2015. Source of chart taken from FRED The relation between the U.S. dollar and GLD should be, as expected, negative; i.e. when the U.S. dollar appreciates against major currencies, the price of GLD tends to come down. This wasn’t the case, however, in recent weeks, as indicated in the chart above. Since the beginning of the year, both GLD and the U.S. dollar appreciated. But this type of positive relation was also the case back in 2008. (click to enlarge) Source of chart taken from FRED Back then, the U.S. economy, as well as other leading economies, was in a recession. This time, however, the U.S. economy is performing well while other economies show a slowdown in growth. In both times, the demand for gold picked up when the economic climate was uncertain and the global economy wasn’t doing so well. In times of uncertainty, the U.S. dollar tends to rise, U.S. treasury yields fall and gold prices rise. The main difference is that the U.S. economy, this time, is doing much better, and thus the U.S. dollar is likely to keep appreciating. Therefore, the ongoing appreciation of the U.S. dollar is likely to eventually catch up with the price of GLD and curb down its rally. For now, it seems that even if the FOMC were to raise rates in June by 0.25%, it won’t bring down the ongoing fall in the U.S. treasury yields and, consequently, the recovery of GLD. After all, the concerns over the global economy continue to offset the impact of the potential rise in the Fed’s rate on gold. In times of uncertainty, the U.S. dollar and GLD rally. But it also means that the recent rally of GLD could slow down on account of a stronger U.S. dollar. For more see: 3 Questions About Gold Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.