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Navigating Q4 2020: Paul Tudor Jones’ 10 Investing Rules

Navigating Q4 2020: Paul Tudor Jones’ 10 Investing Rules

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Navigating Q4 2020: Paul Tudor Jones' 10 Investing Rules Tyler Durden Tue, 09/29/2020 - 08:27

Authored by Lance Roberts via RealInvestmentAdvice.com,

In this week’s Technically Speaking, I wanted to review Paul Tudor Jones’ 10-rules and how to navigate the market for the rest of 2020. Due to a small surgery, I am out of commission this week, so I had to write this article on Saturday. The data is as of Friday’s close, but given we are looking at weekly and monthly charts, it doesn’t change the analysis.

Recap

As noted in “The Sell-Off Is Overdone,” on a very short-term basis, the recent correction has played out much as we suggested in the middle of August.

Over the last couple of weeks, we have been discussing the ongoing market correction. As shown below, the sell-off has been orderly and not one of a “panic” induced decline.

The market did retrace from the top of the 2-standard deviation range to the bottom, which is part of a healthy correction process. As we noted last week, the correction also aligns with the historical weakness seen in September and October, particularly in years preceding an election.

“While the sell-off in the market has gotten overdone short-term, we still suggest using rallies back to the 50-dma to rebalance portfolio risks. Look at the first chart above. The market is currently in a very defined downtrend. Friday’s march failed to break out of that resistance.

In the chart below, we see the market rallied back to the previous consolidation lows with the 20-dma approaching a cross of the 50-dma. Such would suggest more downward pressure on prices short-term. The 200-dma is roughly 7% lower from Friday’s close.

If the market can break above resistance on Monday, clear the 50- and 20-dma’s, then old highs should not be an issue.

But what about for the rest of 2020. For that, we need to look at weekly and monthly charts for better understanding.

A Look At Weekly Data

It is essential to understand that time-frames are important in analysis. If you are a day-trader, you can skip to the bottom of the article. However, if you are a longer-term investor looking to grow capital and manage risk, weekly analysis becomes more beneficial.

The reason we look at weekly data is that it smooths out the day-to-day price volatility and tends to reveal overall market trends more clearly.

While the market is working off some of the more extreme overbought conditions, it remains 2-standard deviations above its 200-week (4-Year) moving average. Even a correction back to the 52-week (1-year) moving average still requires another 7% decline from current levels.

It is also important to note that relative strength has negatively diverged from the market, going back to the beginning of 2018.

The still overly extended market from long-term means with declining RSI suggests investors should remain cautious over the remainder of the year and manage portfolio risk accordingly.

Monthly Data Suggests Caution

When analyzing the monthly data, the bearish backdrop is more evident.

From an investment standpoint, look at the last two bull market advances compared to the current Central Bank fueled explosion. The recent extension failed at the top of the rising upper-trend line forming a “megaphone” pattern.

Secondly, the market is trading MORE THAN 2-standard deviations above the long-term (4-Year) mean, ideal for a more considerable corrective decline. As noted above, combine the extreme extension with a negatively diverging RSI, the risk of a more massive mean-reverting event becomes evident.

When both the MACD and deviation from the 4-year moving average have coincided with previous declines in relative strength, it signaled more important correction processes. However, those correction processes did not occur immediately. As markets do, they tend to “suck” the most investors into the peak just before it gives way.

Importantly, MONTHLY data is ONLY valid at the end of the month. Therefore, these indicators are VERY SLOW to turn. Using Daily and Weekly charts are better for managing your immediate portfolio risk. Monthly charts provide a better long-range prediction of market trends.

Investing For The Rest Of 2020

Given the technical backdrop above, it should be evident that “risk” likely outweighs “reward” for the rest of this year. There are more than enough potential catalysts to upend markets unexpectedly:

  1. A contested election

  2. Lack of fiscal support

  3. A reduction in Federal Reserve support

  4. A resurgence of the pandemic.

  5. Economic growth weakens

  6. Earnings fail to meet expectations

You get the idea.

However, currently, investors are merely chasing performance. However, why would you NOT expect this to be the case when financial advisers, the mainstream media, and WallStreet continually press the idea that investors “must beat” some random benchmark index from one year to the next.

Investing, ultimately, is about managing the risks, which will substantially reduce your ability to “stay in the game long enough” to “win.” However, the distinction between investing and speculating has disappeared. As Ben Graham noted, we should be concerned:

“The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all its dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.” – Ben Graham –The Intelligent Investor:

Yes, the risks are high. However, as investors, we can not merely sit on the sidelines, which is why a set of “rules” to manage risk is so essential. Such is something we can learn from the legendary investor Paul Tudor Jones.

The Rules That Made Tudor Jones Successful

Rule #1: Cut Losers Short & Let Winners Run.

It takes tremendous humility to navigate markets successfully. There can be no such thing as hubris when investments do not go the way you want them. Investors plagued with big egos cannot admit mistakes, or they believe they’re the most significant stock pickers who ever lived. To survive markets, one must avoid overconfidence.

Rule #2: Investing Without Specific End Goals Is A Big Mistake.

Before investing, you should already know the answer to the following two questions:

  1. At what price will I sell or take profits if I’m correct?
  2. Where will I sell it if I am wrong?

Hope and greed are not investment processes.

Rule #3: Emotional & Cognitive Biases Are Not Part Of The Process.

If your investment  (and financial) decisions start with:

  • I feel that
  • My friend told me
  • I heard
  • I hope

You are setting yourself up for a bad experience.

Rule #4: Follow The Trend.

“80% of portfolio performance is determined by the underlying trend. “

Rule #5: Don’t Turn A Profit Into A Loss.

Investing is about creating returns over time. If you don’t harvest gains, and then allow them to turn into a loss, you have started a “financial rinse cycle.”

Most importantly, “getting back to even” is not an investment strategy.

Rule #6: Odds Of Success Improve Greatly When Technical Analysis Supports Fundamental Analysis

The market for a long-time can ignore fundamentalsAs John Maynard Keynes once said:

“The stock market can remain irrational longer than you can remain solvent. “

Applying a technical overly to determine the “when” to invest can significantly improve the return and control the capital risk of the “what” fundamental analysis uncovers.

Rule #7: Try To Avoid Adding To Losing Positions.

Paul Tudor Jones once said, “only losers add to losers.”

The dilemma with “averaging down” reduces the return on invested capital, trying to recover a loss than redeploying capital to more profitable investments. Cutting losers short allows for more significant growth over time. 

Rule #8: In Bull Markets You Should Be “Long.” In Bear Markets – “Neutral” Or “Short.”

To invest against the major “trend” of the market is generally a fruitless and frustrating effort. During secular bull markets – remain invested in risk assets like stocks or initiate an ongoing process of trimming winners.

During bear markets – investors can look to reduce risk asset holdings overall back to their target asset allocations and build cash. An attempt to buy dips believing you’ve discovered the bottom or “stocks can’t go any lower” generally doesn’t work out well.

Rule #9: Invest First with Risk in Mind, Not Returns.

Investors who focus on risk first are less likely to fall prey to greed. We tend to focus on the potential return of investment and treat the risk taken to achieve it as an afterthought.

The objective of responsible portfolio management is to grow money over the long-term to reach specific financial milestones and to consider the risk taken to achieve those goals. Managing to prevent significant drawdowns in portfolios means giving up SOME upside to prevent the capture of MOST of the downside. While portfolios may return to even after a catastrophic loss, the precious TIME lost while “getting back to even” can never be regained.

Rule #10: The Goal Of Portfolio Management Is A 70% Success Rate.

Think about it – Major League batters go to the “Hall Of Fame” with a 40% success rate at the plate.

Portfolio management is not about ALWAYS being right. It is about consistently getting “on base” that wins the long game. There isn’t a strategy, discipline, or style that will work 100% of the time.

Once you understand that, the other 9-rules above become much simpler to incorporate,

Conclusion

“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” – Howard Marks

The biggest driver of long-term investment returns is the minimization of psychological investment mistakes.

As Howard Marks opined:

“The absolute best buying opportunities come when asset holders are forced to sell.”

As an investor, it is merely your job to step away from your “emotions” for a moment. Look objectively at the market around you. Is it currently dominated by “greed” or “fear?” Your long-term returns will depend much not only on how you answer that question but how you manage the inherent risk.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

Whether it is Paul Tudor Jones or any other great investor throughout history, they all had one core philosophy in common; the management of the inherent risk of investing.

“If you run out of chips, you are out of the game.”

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Are You The Collateral Damage Of Central Planners?

Are You The Collateral Damage Of Central Planners?

Authored by MN Gordon via EconomicPrism.com,

The Conference Board – a nonprofit think…

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Are You The Collateral Damage Of Central Planners?

Authored by MN Gordon via EconomicPrism.com,

The Conference Board – a nonprofit think tank that delivers cutting edge research – recently published its latest Leading Economic Index (LEI) for the United States.  The findings were a giant bummer.  In December, the LEI dropped for the tenth consecutive month.

The LEI, if you’re unfamiliar with it, consolidates various measures of economic activity, including credit, interest rate spreads, consumer expectations, building permits, new orders of goods and materials, and several other items, to assess which way the economic winds are blowing.  Over the past six months, the LEI has fallen by 4.2 percent.  This is the fastest six-month decline since the great coronavirus panic.

This week, the Bureau of Economic Analysis provided its advance estimate of Q4 U.S. gross domestic product (GDP).  For the final quarter of 2022, real GDP increased at an annual rate of 2.9 percent.

How could it be that GDP is expanding while the LEI is contracting?

The most probable answer we can think of is the massive expansion of consumer debt.  For example, credit card balances hit a new record of $866 billion during Q3 2022.  That marks a year-over-year increase of 19 percent.

Americans are borrowing from their future to make ends meet today.  This may give GDP the appearance that it’s expanding.  But, in reality, the GDP expansion is merely a measurement of the rate that consumers are going broke.

The fact is the U.S. economy is traversing headlong into a recession at the worst possible time.  We expect things will get especially ugly, as consumers are operating in a world of chaos

World of Chaos

In a centrally planned economy, decisions are not made between individuals through free market mechanisms.  Instead, they’re made by politicians and bureaucrats through policies of mass market intervention.

The elites pass down their edicts.  Thou shall not use gas burning stoves, for example.  Or though shall burn corn in their gas tank.

The central planners, many of which are unelected administrators, force the decrees upon the populace.  Programs, forms, penalties, and whatever else are imposed.  Pounds of flesh must be exacted at every turn.

The real tragedy, however, the very thing that makes ultra-mega governments possible, is the monopoly on the control and issuance of money that’s granted to central bankers.  Without the Federal Reserve, the central bank to the U.S. government, and its seemingly endless supply of fake money, it would be impossible for Washington to cast its wide nets across the entire planet.

Feeding the Leviathan is only a small part of what the Fed does.  Through its control of the money supply the Fed causes a world of chaos to storm through the economy and financial markets.  When the money supply is inflated, a false demand is signaled.  Businesses and individuals change their behavior to exploit the apparent demand.

Then, when the money supply is contracted, and the rug is yanked out from under the false demand, disaster strikes.  Businesses go bankrupts.  People lose their jobs.  Stocks and real estate prices crash.

In short, the Fed’s money games make it exceedingly impossible for a wage earner to save, invest, and build real wealth.  The uncertainty this provokes turns regular wage earners into speculators and gamblers.  Here’s why…

Uncertainty and Instability

In a centrally planned economy, like America and most countries today, where people are compelled by legal tender laws to use fiat money, people must work, save, and invest with the recognition that the government will continue to arbitrarily change the rules.  The Fed may command ultra-low interest rates one year.  The next year it’s jacking them up by hundreds of basis points.

We know that central planners change course at whim and often for political reasons.  Where did the most campaign contributions come from?  Their decisions can be downright suicidal.

The 1930 Smoot-Hawley tariffs, for instance, turned a routine recession into the Great Depression.  Likewise, Fed tightening of monetary policy in 1987 drove interest rates up and triggered a massive stock market crash.

The great consumer price inflation of 2021 into the present marked the highest rate of inflation in 40 years.  And now it’s providing an instructive lesson to individuals and organizations about the uncertainty and instability that’s inherent to centrally planned economies.

As the Fed hikes rates and tightens its balance sheet in the face of a recession, many overleveraged businesses and individuals find themselves wholly unprepared for the central planner’s new set of rules.  Decisions were made in 2021 under a framework that’s radically different today.

Consider real estate investors.  Over the last decade, as interest rates were artificially suppressed by the Fed, their businesses flourished.  They could easily borrow money to buy properties to refurbish and resell at a profit.

But then raging consumer price inflation, which was manufactured by the Fed in the first place, became politically indefensible.  So, the Fed had to move to rein it in by restricting the money supply.  This pushed interest rates relatively higher and undermined the real estate market.

Investors who had planned for mortgage rates at 3 percent are being absolutely destroyed by mortgage rates at 6 percent.  Suddenly their investments don’t pencil out.  Real estate agents and mortgage brokers may find the years ahead to be extraordinarily challenging.

Are You the Collateral Damage of Central Planners?

When the Fed inflates the money supply it also inflates asset prices, including stocks, bonds, and real estate.  When it then yanks the rug, and contracts the money supply, businesses and investors face big losses.  And employees become collateral damage.

According to tech job tracker layoffs.fyi, there have been more than 200,000 technology jobs lost since the start of last year.  What’s more, in 2023 alone, not even one month into the New Year, technology companies have laid off over 67,000 employees.  What’s going on?

Right now, technology companies like Meta, Google, Microsoft, and Amazon, are discovering that the world they knew and loved over the last decade no longer exists.  As the supply of money has tightened, and the flow of speculative money into technology stocks has dried up, these companies have learned they have far too many employees who produce far too little value.

Coding senseless applications and widgets may be a viable job when there’s a seemingly endless supply of the Fed’s cheap credit being pumped into financial markets.  Take the money away, however, and those jobs are incapable of standing on their own two feet.

The point is in a centrally planned economy people are continually misled about how they should go about working, saving, and investing for the future.

Just asked the former code cruncher who was RIFed after two decades of Googling all day.  They thought they were set for life.

Instead, whether they know it or not, they’re the collateral damage of central planners.  Are you the collateral damage of central planners too?

*  *  *

You may not know it.  But you could unwittingly be wiped out be the schemes and designs of central planners.  One way to avoid becoming their collateral damage is to significantly increase your wealth.  The decks stacked against you.  But it can be done.  If you’re interested in learning how, take a look at my Financial First Aid Kit.  Inside, you’ll find everything you need to know to prosper and protect your privacy as the global economy slips into a worldwide depression.

Tyler Durden Sat, 01/28/2023 - 17:30

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Pfizer Responds After Director Says Company Is Developing Ways To Mutate COVID-19

Pfizer Responds After Director Says Company Is Developing Ways To Mutate COVID-19

Authored by Zachary Stieber via The Epoch Times (emphasis…

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Pfizer Responds After Director Says Company Is Developing Ways To Mutate COVID-19

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Pfizer late Jan. 28 responded to comments from a director at the company about exploring ways to mutate COVID-19 as a method to “preemptively develop new vaccines.”

“In the ongoing development of the Pfizer-BioNTech COVID-19 vaccine, Pfizer has not conducted gain of function or directed evolution research,” Pfizer said in a lengthy written statement after days of ignoring queries from The Epoch Times and other outlets.

A sign for Pfizer is displayed in New York in a file photograph. (Timothy A. Clary/AFP via Getty Images)

Pfizer did say that it has conducted research “where the original SARS-CoV-2 virus has been used to express the spike protein from new variants of concern.”

“This work is undertaken once a new variant of concern has been identified by public health authorities. This research provides a way for us to rapidly assess the ability of an existing vaccine to induce antibodies that neutralize a newly identified variant of concern. We then make this data available through peer reviewed scientific journals and use it as one of the steps to determine whether a vaccine update is required,” the company added.

Pfizer did say it has conducted experiments in a level 3 laboratory.

Pfizer said, in its work developing a treatment for COVID-19, it has “engineered” the COVID-19 virus “to enable the assessment of antiviral activity in cells.”

“In addition, in vitro resistance selection experiments are undertaken in cells incubated with SARS-CoV-2 and nirmatrelvir in our secure Biosafety level 3 (BSL3) laboratory to assess whether the main protease can mutate to yield resistant strains of the virus,” Pfizer said. “It is important to note that these studies are required by U.S. and global regulators for all antiviral products and are carried out by many companies and academic institutions in the U.S. and around the world.”

Pfizer produces a COVID-19 treatment called Paxlovid, or nirmatrelvir that is authorized in the United States and some other countries.

In its statement, Pfizer did not dispute that Dr. Jordon Walker, who told a Project Veritas journalist that Pfizer is exploring how to “mutate” the COVID-19 virus, was or is a Pfizer employee.

Professional profiles for Walker, which have since been taken down, listed him as a director of messenger RNA research at the company. Pfizer’s COVID-19 vaccine utilizes messenger RNA. The profiles also listed a Pfizer email address, and an email sent to that address did not bounce back. A receptionist at Pfizer on Thursday also told The Epoch Times that Walker had an internal company profile, but a different receptionist on Friday said there was no listing for the doctor, indicating he might have been terminated after the comments were made public.

Malone

Dr. Robert Malone, who helped develop the messenger RNA technology, said that the experiments Pfizer described met the definition of “gain of function.”

Pfizer is basically acknowledging that they are doing the same type of gain of function research that Boston University was caught doing, but they are denying that it is gain of function or directed evolution,” Malone wrote on Twitter.

Malone pointed to Pfizer’s comment about taking the original SARS-CoV-2 virus and using it “to express the spike protein from new variants of concern.”

Gain of function generally describes experiments that aim to increase functions of a virus such as transmissibility and virulence. Walker had said in his comments that the work he was describing was not gain of function, but “directed evolution.”

Researchers with Boston University revealed in 2022 that they had developed a strain of COVID-19 that killed 80 percent of mice infected with it.

The U.S. National Institutes of Health (NIH) is supposed to oversee risky research conducted in or funded by the United States but has faced criticism for only reviewing a handful of projects—none since 2019—under the oversight system.

The NIH funded gain of function experiments at the Wuhan laboratory situated near where the first COVID-19 cases were identified, and officials have promised to keep funding research in China.

Sen. Marco Rubio (R-Fla.) had written a letter to Pfizer CEO Albert Bourla referring to Walker’s remarks and questioning whether the company has or is planning to mutate the COVID-19 virus.

Walker’s comments “are alarming,” Rubio wrote in the Jan. 26 missive.

YouTube Takes Down Video

In a notice sent to Project Veritas, YouTube cited its medical misinformation policy, which bars “claims about COVID-19 vaccination that contradict expert consensus from local health authorities or the World Health Organization (WHO).”

It wasn’t clear which authorities specifically YouTube was relying upon to rebut the video.

YouTube, which is owned by Google, did not respond to a request for comment.

O’Keefe noted that the claims in the video were made by a Pfizer director.

Project Veritas was given a “strike,” which prevents the organization from taking actions like uploading new videos for one week. A second strike would block such actions for two weeks and a third strike in a 90-day period would result in a permanent removal of the group’s account, YouTube warned.

Read more here...

Tyler Durden Sat, 01/28/2023 - 14:30

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Von Greyerz: As West, Debt, & Stocks Implode; East, Gold, & Oil Explode

Von Greyerz: As West, Debt, & Stocks Implode; East, Gold, & Oil Explode

Authored by Egon von Greyerz via GoldSwitzerland.com,

“The…

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Von Greyerz: As West, Debt, & Stocks Implode; East, Gold, & Oil Explode

Authored by Egon von Greyerz via GoldSwitzerland.com,

“The risk of over-tightening by the European Central Bank is nothing less than catastrophic” says Prof Kenneth Rogoff .

At Davos he also said:

Italy is extremely vulnerable. But this could pop anywhere. Global debt has gone up massively since the pandemic: public debt, corporate debt, everything.”

Rogoff believes that it is a miracle that the world averted a financial crisis in 2022, but the odds of a major accident are shortening as the delayed effects of past tightening feed through.

As Rogoff said: 

“We were very fortunate that we didn’t have a global systemic event in 2022, and we can count our blessings for that, but rates are still going higher and the risk keeps rising.”

But lurking in the murkiness is also the global financial assets/liabilities which is almost $500 trillion including the shadow banking system at 46% of the total. The shadow banking sector includes  pension funds, hedge funds and other financial institutions which are largely unregulated.

Shadow banking is not subject to the normal mark-to-market rules. Thus no one knows what the real position or losses are. This means that central banks are in the dark when it comes to evaluation of the real risks of the system.

Clearly, I am not the only one harping on about the catastrophic global debt/liability situation.

And no one knows the extent of total global derivatives. But if they have grown in line with debt and also with the shadow banking system, they could easily be in excess of $3 quadrillion.

Cultures don’t die overnight, but the US has been in decline since at least the Vietnam war in the 1960s. Interestingly, the US has not had a real Budget surplus since the early 1930s with a handful of years of exception.

But when you, like the US, live on borrowed time and borrowed money, it becomes increasingly difficult to keep up appearances. In 1971, the pressures on the US economy and currency became too great.  Thus Nixon closed the Gold Window with the dollar having lost over 98% in real terms since then. This is of course a total catastrophe and a guarantee that the remaining 2% fall to ZERO will come in the near term future, whether it takes 5 or 10 years for the dollar to reach oblivion. Remember that the final 2% is 100% from today!

The US, EU and Japan have now reached the stage when no one wants their debt. So sovereign debt of these nations is no longer a question of “passing the parcel” but keeping the parcel. When every third party holder of these debts is a seller, who will buy?

These three countries will end up holding their own debt. Japan already holds over 50% of its debt. Before the Western Ponzi scheme comes to an end, these three nations will virtually hold 100% of their own debt. At that point, the bonds will be worthless and interest rates will have reached infinity. Not a pretty prospect!

US – PERFECT RECIPE FOR DISASTER

The final phase of all empires always includes excessive deficits and debts, inflation, a collapsing currency, decadence and war. And the US qualifies perfectly in all those categories.

Ernest Hemingway stated it superbly:

The first panacea of a mismanaged nation is inflation of the currency; the second is war.
Both bring temporary prosperity;
both bring a permanent ruin.
But both are the refuge of political
and economic opportunists. 

The US has failed in every war since the Vietnam war, including the Yugoslav Wars, Afghanistan, Iraq, Syria and Libya. The results have been massive casualties and destruction of the countries, often leading to economic misery, anarchy and terrorism.

The Ukrainian war is not between Ukraine and Russia but between the US and Russia as I discussed in a previous article (Link). The clear proof that there is no desire for peace from the US is that they are sending money and weapons to Ukraine in the $100s of billions and “encouraging” an increasingly suffering Europe to do the same. But they are not sending any peace negotiators to Russia in an attempt to end the war. This is very ominous.

The geopolitical situation is now on a knife edge with two major nuclear powers fighting about a relatively insignificant country. This is how major wars normally start.

Let us hope that the current conflict does not lead to a major nuclear war since that would be the end of the world. Thus not worth to speculate about the outcome of this high risk scenario.

But the economic war and the collapse of the US dominated financial system is not just  inevitable but also catastrophic for the Western economies.

A COMMODITY DOMINATED WORLD

As the hegemony of the US is coming to an end, the dominance of the decadent West is moving quickly to the East and South. Commodity based countries like the enlarged BRICS will dominate for the next few decades and probably longer. Oil and gas will form the base of this shift but also many other commodities including gold which is now starting a new era.

It is likely that 2023 will be the first year of many when we will see a strong rise in gold just like 2000 – 2011 which saw a 7.5X gain.

The end of the Western debt based cycle and the rise of the Eastern and Southern commodity cycle is well illustrated in the graph below

OIL, GOLD TO GO UP > 9X AGAINST STOCKS

The S&P Commodity Index relative to Stocks has recently made a 50 year low. Just to return to the mean, the index would need to go up 4X. But when long term cycles turn up from a historical low, they tend to trend higher and longer than anyone expects. So a move past the 1990 high of 9 is very likely. This would mean that commodities, and especially oil and gold, relative to stocks would move up more than 9X!

This  9X move  would obviously involve a combination of falling stocks and rising commodity prices.

The expected move of the index confirms the shift from the West, based on an unsound and debt infested system, to the East & South, based on commodities.

Much of this move is based on the fossil fuels of the countries involved – to the chagrin of the climate movement zealots.

In today’s woke world, there is a tendency to believe that we can change all the laws of nature and science. This is the case both in the economy and climate.  Bankers and governments are confident that they can create permanent prosperity by printing worthless pieces of paper believing that these represent real and lasting value and wealth.

Well surprise, surprise, these people will soon have the shock of a lifetime as all that printed money returns to its intrinsic value of ZERO.

A debt based economy eventually becomes a self-fulfilling prophecy.

The higher the debt, the more the debt needs to grow in a never ending vicious circle. In the end the debt cycle becomes a perpetual motion Ponzi scheme……. UNTIL IT ALL CRASHES!

The debt feeds on itself and the more that is issued, the more needs to be issued. As inflation rises, the escalating interest cost on the debt leads to more debt. Next is defaults, both private and foreign. Then the $2-3 quadrillion derivatives, a great part of which is in the shadow banking system, comes under pressure. This leads to massive further debt creation by the Fed and other central banks, desperately trying to save the system.

This will eventually lead to what von Mises called:  “…. a final and total catastrophe of the currency system involved.”

But remember that we are here talking about the Western financial system. The economic sun in the East will rise strongly and eventually be the guiding light for the world economy.

The debt based US and West will to quote Hemingway decline “first gradually and then suddenly.”  So due to the $2+ quadrillion size of the problem, the biggest part of the decline is unlikely to take more than 10 years and it could be a lot faster, especially at the end.

But the climate zealots

 will have to wait to 2050 to learn that through their actions they didn’t manage to limit the increase in temperature to 1.5 degrees. But with a lot of luck, climate cycles might be on their side and make the weather much colder.

Personally I believe that cycles determine the climate and not humans.

The climate cycle graph below covering 11,000 years shows that there has been numerous periods with warmer temperatures than currently. At the peak of the Roman Empire 2000 years ago, Rome had a tropical climate.

Fossil fuels produce 83% of the world’s energy today. According to forecasts this percentage is unlikely to come down significantly in the next 50 years.

Partly due to the increased cost of producing energy, fossil fuel production will fall by 26% by 2048. Increases in nuclear and renewables will not compensate for this decline.

If the world stops using fossil fuels, the world economy would totally collapse. Sadly the climate activist movement does not seem to worry about such disastrous consequences.

So it seems fairly clear that for a very long time, the world will be dependent on fossil fuels in order for the economy and population not to collapse.

For the above reasons, the commodity based countries will soon dominate the world and that for a very long time.

The constellations of commodity rich nations are forming rapidly.

Firstly we have the BRICS countries which currently consist of Brazil, Russia, India, China and South Africa. Many countries are in the process of joining BRICS including Saudi Arabia, Iran, Algeria, Argentina and Turkey.

It is the enlarged BRICS aim to bypass the dollar and create their own trading currency.

Many talk about the Petroyuan replacing the Petrodollar but what would everyone do with the Chinese currency since it isn’t freely convertible. Better then to have a currency linked to several commodity countries like Special Drawing Rights. This would create more stability and usability. The Credit Suisse analyst Pozsar calls this Bretton Woods III.

There is also the EAEU or Eurasia Economic Union with Russia leading plus China, India, Iran, Turkey and UAE involved.

The SCO – the Shanghai Cooperation Organisation headquartered in China is also an important force. The SCO is a political, economic, international security and defence organisation. It includes many Eurasian nations like China, Russia, Uzbekistan, Kazakhstan etc.

All the economies involved in this important development are commodity based. For example, commodities are 30% of Russian GDP. Their target is to expand gold mining to 3% of GDP and become the biggest gold producer in the world.

Russia has the world’s largest commodity reserves at $75 trillion and produces 11 million barrels of oil per day. Russian friendly provinces produce another 14M totalling 25M. China produces 5m barrels and the Middle East Oil going through the Strait of Hormuz is 22M barrels.  So in a conflict with the US, Russia, China and Iran  could decide to close the Strait of Hormuz which means they would have control over 50% of global oil supply. As Goldman Sachs has stated, oil would then be in the $1000s.

If we take Russia, Iran and Venezuela, they control 40% of the global oil supply.

The point I am making is that these various constellations of commodity countries will be the dominant economic power of the future as the US and Europe decline.

So for Russia, gold and oil are two strategic commodities which will play an important role not just for Russia but for all of these Eastern/Southern countries.

And no one should believe that the US and European sanctions are working. Russia and Iran are selling oil and gas to China at a discount. China then exports this, including refined products, to Europe at premium.

So the sanctions are a farce which totally kills the European economy.

Interestingly, the relationship between yellow gold and black gold has been stable for decades as this chart shows:

GOLD / OIL RATIO 1950 – 2023

GOLD – THE VITAL WEALTH PRESERVATION ASSET FOR 2023 AND BEYOND

Gold was the best performing asset class in 2022 but the investment world didn’t notice since it is hanging on to the declining bubble assets of stocks, bonds and property.

Let’s look at gold’s performance in various currencies in 2022:

The chart shows gold up 15% against Swedish Kroner on the right and for example up 11.6% in pounds, 6% in Euros and virtually unchanged in US$.

Bearing in mind that most asset markets, including bonds, have fallen by 20-30%, this is an outstanding performance by gold.

But no one must believe that gold is going up. All gold does it to reflect the total mismanagement of most economies. The chart above should be turned upside down to reflect the loss of purchasing power of all paper money.

As has been the case since 1971, this trend of falling currencies will continue but not at the same steady pace.

With the debt infested Western economies collapsing, their currencies will implode one after the other.

So please firstly acquire as much physical gold as you can afford and then some more.

And when you own your gold, don’t measure the value in collapsing currencies. Just measure your gold in ounces, kilos or grammes.

Also please don’t keep it in the country where you live, especially if that country has a tendency to grab assets. I don’t need to tell you which countries you can’t trust. The problem is, there are not many you can trust.

BEWARE – A GOLD CUSTODIAN DISAPPEARED WITH CLIENTS’ METALS

Also if you store your gold with a gold custodian, ensure that only you can release it by having the Warehouse Receipt in your name. A custodian gold company disappeared last year with the major customer assets in spite of the gold being stored with a major vault company. The weakness was that the gold company could release the gold without the client’s approval. This is not an acceptable way to store your wealth preservation asset. 

Finally remember that gold is not just your most important wealth preservation asset but can also be beautiful.

TUTANKHAMUN’S DEATH MASK 1327 BC

Tyler Durden Sat, 01/28/2023 - 11:30

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