Did i just hear a bell ring?

My friend John Chinnock says there is no bell that rings when stocks hit all time low or all time high.  What he means is there is no clear indicator when the market hits an extreme or a turning point.

Today the FED announced interest rates would not rise.  No surprise to me at all.  The economy does not need higher interest rates to improve.  The only way they could have targeted raising rates if on an international level, the US required to raise as a financial weapon.

So the markets have shot up.  Markets may make a run like we saw in 2009 to 2015, and repeat a 6 year run!

But maybe not.  There are troubling signs like China's stock market and manufacturing nose diving in the USA.

Did a bell just ring? I think I heard it.

Welcome New Reader

You will see text hyperlinks throughout posts, please link through for more information.

Welcome new reader, my name is Mike Murphy, Software Architect and arm chair global financial watcher.

Back in August 2006, while talking to my friend John Chinnock, came to realize that the entire financial markets where based on a ponzi-scheme of subprime mortgages and off-balance sheet derivatives.   Since then I was obsessed with reading ever aspect of the global economic forces at work, up until about 2013, as you can see by looking at my posting activity.

One of the reasons I have posted less is in my minds eye, I grasp enough to personally satisfy my own curiosity of the pressures on the global economic system.   I hope to someday boil down all the information into a concise summary.  For now, here is my short-sweet version.

**UPDATE** Skip all the summary below and read future of employment Post (click).  While below are all important and factors, the reality that affects you most is your ability to be employed.

The world faces unprecedented challenges today, the most critical being peak oil.  Fossil fuels are the reason why we have the lifestyle we have today in the west.  Fossil fuels took about 400 million years of sunshine on plant life to create, and mankind will take about 200 years to burn.  That release of stored energy has created the incredible world we live in today.  Peak Oil basically means that the era of cheap fuel is over.  I urge you to watch the 58 minute video below to indoctrinate you on the many resource challenges we face today.

The world is facing epic deflationary forces driven by technology, except monetary policy which is helping hide the financial strain. As of this writing I believe stock market valuations are precarious at best, partially inflated due to monetary policy.  However, after living through the last few years I have come to realize that investing depends on laws, or lack of laws to determine valuations.   Given reasonable expectations of maintaining sane law enforcement in the USA,  a reversion to the mean is historically likely.   For an ample discussion on this, please see the third video below, starting at 50 minutes in.   An independent indicator for longer term investing that you can read more about here, I do apply this to other stocks and ETF's as an indicator.  The jump the shark moment will be if US Treasuries break the downtrend of last 40 years.

If you think China is somehow going to pull the global economy, I for one don't believe it.  I have posted much about the China ponzi scheme, and with Jim Chanos providing an excellent job in his 2013 synopsis below on China's troubles.  Even if somehow China is wildly successful it would result is substantial cuts to western lifestyles due to resource redistribution.

I do believe in crypto-currencies, a great place to start is my series on money, and what I wrote back in 2011 the ideal form of money.  I think crytpo-currencies are a manifest-ion of what I described back in 2011, and I am lightly following bitcoin and 100 other crypto currencies as they develop.  And I have great hope for the new economy that is brewing with latest manufacturing revolution. But for the old generation I see deflation for decades as robotics and technology sheds millions of more jobs.  Its a generational shift, bad for the older employees, good for latest smart students out of college.

As of June 2014 I do think Gold Miners are a good buy, however due to all the issues above I am nervous about them as a longer term play.  ( GDX at 24 dollars)

For more information, if you care to research, my old new reader post is here.  If you browse my old posts keep this in mind,  the world is changing as I am, which affects viewpoints over time.  Posts in 2008 are likely to be significantly different than my current view.

I highly recommend the first two videos as a must watch.

Headwinds ahead

China is NOT the answer

Market Investing June 2014

Whats up with Gold and Miners?

As readers know, I have been bullish on gold miners since GDX hit 27 on the way down to 21, and around 21-22, I loaded up on gold miners.

Recently when GDX hit 28 going back up, it topped and toppled quite hard down into this past Friday.

Gary of the Smart Money Tracker is pretty bearish, on the gold mining sector.
To Gary's credit, he keeps nimble and will change in an instant once there is momentum to the contrary to prove his view wrong.  Until proven wrong, Gary is bearish.  Gary has been more right than wrong the last few months, so I do give his opinion weight.

Tim Knight of the Slope of Hope is actually turning bullish.  Tim bought GDX with  a stop of $22.70.  Meaning if GDX violates that level down he will exit his position.   I put a video below to see his opinion on recent miner analysis below.

Also my friend and life-long day-trader Happy John is hanging in there, sticking to miners.

Me? I am concerned, not just because Gary says so, but yes Gary's weight does influence me.  I am concerned because out of a bottom I would have expected miners to be stronger.  The fact they haven't held up with gains is a concern.  However, if oil price drops miners should shoot up like a rocket.  After all miners biggest expense is energy.

The readers out there need to hedge bets, lighten up if GDX pops up to be prepared if GDX is beaten down below 21 ahead of the beat down, to be ready for the final bottom.

Global Currency Shakedown, Round 4 about to begin

Back in 2006, with my help of friend John, realized that the US economic structure was based on financial fraud through mortgage securitization.
Bill Clinton signed into law the routing of the glass-stegall act, put into place to separate 'gambling' from bank deposits.  George W routed the FBI department staffing down to a couple of people to investigate the trillion dollar mortgage industry.  In the late years of George W administration the final bubble was being blown, resulting in 2008-2009 financial crash.

In August 2008 I started this blog as an outlet on my rantings to everyone I could meet on the pending economic impact.  Little did I know how close it was.

In the turmoil of then, the natural outcome would have been a deflationary collapse that was stopped by a couple of drastic measures.  First, the government went on a no-holds barred deficit spending campaign to soften the blow to the economy.  Second, mark to market accounting in place since the Great Depression to valuate companies was suspended, as it is to this day.

Some purists would say both of these acts where not appropriate and that capitalist forces should have played out naturally.  I am not one of those people.  Yes, that is an option, and maybe it was the best one that should have been followed.   But I can see why dramatic steps was taken to prevent a global economic collapse, as it was perceived at the time.

What I am against is all of the drastic steps WITHOUT meaningful reform.  That is, 'fixing' of what was broke.  We have chosen to take the worst path, appeasement without follow through on reform.

The market has hit an all time high today.  Did you hear the bell?  My friend John has said there is no bell that goes off warning everyone that the market has hit a multi-year high followed by a market collapse.  Basically, there is no warning.

I am NOT predicting a market collapse per-say.  I am predicting that we are into phase 4 of this mutli-year global economic refactoring.

Phase 1 was the incredible loose regulation and promotion of securitization of trillions of dollars providing the market collapse in 2008-2009.  There are many other factors at work, such as derivatives in the 100's of trillions, but safe to say all the games in phase 1, lead to phase 2, 2008-2009 collapse.

This lead to phase 3, appeasement into 2013.  I realized that appeasement was the route and not cleaning house in 2010, and changed my stance that the market may not collapse per-say, simply be dwarfed by lack of law and raw financial meddling.

We are soon to enter phase 4, appeasement failing.  There is no amount of appeasement that can fix the system, without taking strong steps to fix the heart of the problems.

We have India's Rupee under duress, with India taking draconian steps to curb gold imports.  Mish is calling for a possible Rupee collapse as food inflation hits 18% per year!
We have various countries in Europe, such as Italy, Spain, Greece simply upping the ante on financial gains, buying weeks, months, maybe years, but not decades as they exhaust every  'new legal' option.
We have countries like France, promoting job creation without even bothering to talk to the companies involved in so-called creation plans.  And for what? a few double digit jobs?  That is worth lying about?
Japan is leading the world on the demographic catastrophe that awaits us all in an economic system that at its core foundation is based on ever increasing demand.

We have China continuing to try to transform it's economy into a consumer-global based powerhouse to replace the USA.  In the process, the information about the Chinese economy is safely in the unreliable fantasy zone.  China has HUGE potential, but who can understand their true standings?  At best, it is a hail mary hope that may come to save the world?

Back in march 2011, once I realized the world would NOT fix any core issues, but simply appease, the timeline for 'disaster' shifted from short term (2010-2012) to longer term (2013-2017).

Well, we are here, sad to say.  I don't expect fireworks until 2014, but it could happen next week.
The world dances around the US dollar, and that dance is starting to show it's age.  All is needed is enough people to lose faith in the dance to start the next phase of the crisis, global currency shakedown.

Best I can say is diversify, with a chunk in cash ready to move.  The USD I CANNOT envision any sudden moves down in value for YEARS to come, so it is once again the safest play....until its not! :)

Time to buy Gold miners, try number 3

With the multi-month blood letting on gold miners, and gold, I think we are close to a bottom if not already passed.

Even if gold and miners reverse from here, how much farther can it fall?
In the 2008 crash GDX hit around 15 for a day or two, and traded around 17-20 for a bit before moving much higher.

Below are the charts for gold and GDX.  If you can stomach it, now is the time to get in.
Actually last two weeks was, and I went in early myself.
I think with Gold gaping above the trend, and GDX and GDXJ heading for the trend reversal, it is looking like a good time. (GDXJ is gold miners/silver miners, smaller cap)

Don't expect a straight line up, both could get a nice punch down after such a good rally.

And to boot, my friend Happy John who hasn't traded in gold miners for years, went in for a decent chunk.

As for overall stock market health, the last two bubbles lasted about 6 in 2000 the .dotcom bubble, then 5 years for housing, now its sovereign debt.  If history repeats the market is reaching the end of this bull run.  Even if the market fell apart tomorrow, again, how much lower can gold and gold miners go?

To the charts!

Canary in the Coal Mine - Japan

My friend John said years ago that Japan is the Canary in the Coal mine to watch.   Japan's demographics and extreme deficit spending makes it worth while to watch.  They are in effect ahead of the US trajectory.

Unfortunately, I believe if Japan enters currency crisis, a vortex over the year following will take with it other countries not too far behind it. I am not predicting that Japan enters a crisis, (2014-15?) merely stating that if Japan hits a currency crisis, this will be the beginning of what I feared all the way back in March 2009. (about the bottom of the market)

The decision to transfer all risk from private to public, put the public financial system at risk.  Since money IS about trust (work done today, will be paid back tomorrow), once trust in the system hits a tipping point, it will get ugly.

Japan recently announced basically an all out currency war, pledging to break the yen.  While the yen is not yet broken, it has had a nice decline rather rapidly.  It has lost valuation, wiping out 2.5 years of gains in months.   If Yen reaches below 0.0083, in my mind, its game on for currency crisis.




Safe havens for a possible currency crisis are going to get severely slapped around.  As tensions mount, I expect safe havens to fall, not rise at first.   Even once the worst has past, the safe-heavens should remain under brutal assault throughout the currency crisis.  There is no free lunch, and no easy way out.  A currency crisis will shake the very foundation of everything, and bring on an era not seen since the 1930's.

The last great depression got started the same way, loosely speaking.   A huge credit bubble, credit burst, currency war, then depression and world war 2.  I obviously hope we will avoid WW 3, and at this time don't expect it.

I do have optimism overall.  I believe we are seeing a massive redistribution of capability starting, preparing for the new economy after the worst has past.  I am re-iterating my doom and gloom call for USD until 2015-2017 time period, more likely in 2017.

Gary of the Smart Money Tracker has more to say on this topic, recommend subscribing to his service.

Market Cycles

My friend John, a professional securities trader, has recently become bearish enough to put a toe into shorting the market, for near term.  He views the market movements after QE1, QE2, different than current after QE3.  The market movement difference now has encouraged him to take a bearish stance on the market.

If you read the news, there is plenty of bearish news to back up this view.  Fedex shipping is down, which can be compared to GDP forecasting, California sales tax revenue declined 20% YOY in August,  IMF chief warns of US financial issues in short, medium, and long term, Eurozone is seeing steepest contraction since 2009, Japan exports contract 3rd month in a row and China PMI contracts, Toronto home sales decline 64 percent (due to law change).
Pile on the Euro news with Greece, France, and Spain seeing Neo-Nazi fractions rising threatening those countries status quo.

Now lets look at the opposite view, there is plenty to find, but I am quoting the top two from my perspective. The Federal Reserve bank believes QE3 will help the US economy, as QE1 and QE2 did in the marketplace.

My favorite market watcher Gary of Smart Money tracker is calling for a "near term" bottom with market reversal.  Gary isn't the sort to make super long term predictions like the year ahead, he watches cycles to see next move.

So what is next?  A market fall of significance is always in the cards, especially if you look at history now or in the Great Depression.  (currency wars occurred back then too)  I am mixed, while I don't think in the year ahead we will see 30% market gains, it is possible the market finds a dead range of +10% and -10%.  My inner voice tells me the market is very weak and going to implode, but then again, I have heard that voice a few times in the last few years.

A conservative stance is probably in order, and on any strength, I may continue to lighten to be nimble.

Best Strategy for Fixed Income Savings

In response to my post this past Saturday titled "Why Natural Resource assets is better investment than US Bonds", my friend John Chinnock has emailed me a response. In the email discussion and Instant messaging, John clarified something I was not fully understanding in his strategy. The key to his approach is to purchase highest yield bank CD's with reasonable penalties when the CD is broken. The Bank CD's must be 100% backed by the US government. John Original post is located here on this topic.

In combining my view of 25% resource based investments, with 50% (or more) in John's approach, which I agree is the best strategy for fixed income considering all risks. The remaining 25% is a discretionary investment, perhaps all CD's, more resources or other investments. However I am still in disagreement with John of 100% in CD's. I'll reserve a tit-for-tat post later. For now, here is John's response. Thanks to John for re-hashing his point on CD's.

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I wanted to take the time to write an alternative viewpoint to Murf's post on resource investing. Most of what I think has already been covered in my other guest posts on Murf's site, however, I will try to recap and elaborate. Again, I hope readers appreciate Murf always taking the time to work on his blog, as he really is a very busy guy. His writings here have helped friends and family members preserve their life savings in tricky investing times.

Murf and I basically do agree on the big picture. In the long run, commodities will likely go much higher. His reasoning is clear. Demand for better food and resources will multiply exponentially as more and more of the world's population rises above the poverty level. In time, largely due to the internet and better worldwide communication, the poorest countries will slowly start to accumulate money, and in turn, they will want better food and better resources. An example of this has already been occurring in India, where so many U.S. companies are turning to for job outsourcing. This is just the first step though, as after India, there will be cheap labor coming from many other countries, likely starting in southeast Asia, and then spreading to Africa. Note that this powerful phenomenon known as global wage arbitrage will also work to keep American salaries down for many years. A company has very little reason to hire someone here for a $50K per year salary, when the same job can be outsourced for $5K per year or less. This global change will likely persist for several decades at the very minimum, and will be an extremely powerful deflationary force, especially in the U.S.

The question I ask Murf is, will resource investing strongly outperform FDIC guaranteed CD's over the next 5 years? Readers can access my previous article on why CD's are far better than government bonds. There is something to be said for 4% interest coming in every year, absolutely guaranteed. While there is a chance of loss of purchasing power vs. inflation, there is no chance of loss of principal invested in absolute terms. The same cannot be said at all for resource investing. While unlikely, you could invest in oil, gold, and food, and watch all three be cut in half over the next few years. If you lose half of your life savings, the least of your worries will be maintaining purchasing power vs. inflation! The secret to growing and maintaining wealth is avoiding large blowups. Catastrophic losses are nearly impossible to recover from in investing, especially without then taking further enormous risk in an attempt to recover. And even if resources do outperform CDs, 3-4% consistently every year does add up nicely, especially with dividend reinvestment. Often the high-flying investments strongly outperform CD's for a while, but after one vicious downturn, one would have been better in the slow and steady investment. This also doesn't factor in the ability to have total peace of mind. If the Fed ever decides to end its money printing scheme in recognition of its failure, commodity prices could fall 20% or more in a matter of days. Imagine suffering through that with your life savings invested in resources! These worries are non-existent with CDs.

Another strong argument in favor of CDs relies on buying CDs with small penalties for early withdrawal. If Murf's inflationary scenario does play out, interest rates will spike, or at least slowly trend higher. Unlike with government bonds, with CDs, if rates move far higher, you can simply break your CD, pay the small penalty, and reinvest at a higher rate. Rarely in the investing world do you get a chance at a no-lose investment like this, with a relatively small price to pay to hit the "undo" button! So even in Murf's best case scenario where his vision is completely accurate, it is far from certain that resource investing would strongly outperform CDs anyway when reinvestment at higher rates is an option. And if the CD's slightly underperform, again, the peace of mind factor probably makes CD's the better choice.

Another reason to prefer CD's over resource investing is something I've learned the hard way. It is better to be on the side of the government than against it. Despite Ben Bernanke's frantic money printing, the U.S. isn't about to inflate food commodities to the point that the population starves. They aren't about to inflate oil to the point that nobody can commute to work. They are pushing the money printing envelope now in an attempt to restart the economy, but even they know that there are limits. If the Fed ever ends its money printing in a recognition of its failure, something that likely will eventually happen one day, commodity prices will get completely destroyed overnight. Furthermore, and this also plays into my CD strategy, the number one thing that would wreck the housing recovery is a spike in interest rates. The government will keep interest rates low at all costs, even if it means tanking the stock market in the process to force a flight into the safety of U.S. Treasuries. Remember, the government wants both cheap resources and low interest rates. If you buy CD's and avoid resources, you are on the same side as the wishes of our government. If you buy resources and bet on much higher interest rates, you are betting against the goals of our government. The government may not always win its battles, but believe me when I say that being on their side is a far easier path to take in investing!

Lastly, I have long thought that the U.S. will likely follow the path of Japan. Japan has been experiencing deflation for twenty years now, with low interest rates the entire time. Again, I don't believe that soaring interest rates and hyperinflation are right around the corner by any stretch, at least not for the U.S.. I believe that the U.S. already had its inflationary period. That period was from 1982 until 2007. Over that time, look at the price changes of the stock market and of housing, as well other things such as a college education. American has already had its time of rampant inflation, and in my belief, is now going to enter a long period of deflation, or at least a sideways movement in prices. A 4% risk-free return in a deflationary or stagnant environment is a good deal.

This turned out to be longer than I had planned, but I hope people find it helpful. In investing, slow and steady guaranteed returns with no chance of losses very often win the race. In the times when they don't outperform, they also rarely lose the race by a large margin.

Best of luck to everyone, and thanks again to Murf for his efforts here,

John Chinnock

Case for a Strong US dollar

Guest post from John Chinnock

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I wanted to examine something that is a very popular conception now, not only on Wall Street, but in the minds of the general population as well. Everyone I talk to or read about thinks that the U.S. dollar is doomed. From people you run into in daily life, to friends in dinner conversations, all the way up to top fund managers, it seems that everyone is on board with the thinking that the U.S. dollar is going to go straight into the abyss.

The arguments for this thesis are sound. We have printed trillions that we likely cannot pay back. If more economically troubling times are ahead, then our government will only print more in an effort to do anything possible to fend off deflation and a collapse in housing prices. Furthermore, if the U.S. prints and cheapens the dollar, this lessens the burden of repaying the trillions in Treasury debt that eventually need to be repaid. These arguments are sound and valid.

The problem is when so many people think the same way in the investing world, things rarely go as planned. What could everyone be missing? Is there a scenario where the dollar will do well? I'm not just talking about a six month rally or a short-term blip. Is it possible that the dollar could enter a long-term bull market here and surprise everyone on the planet?

Before I give my reasons, I want to fully state that all scenarios are possible here. I'm not in the camp that the U.S. dollar is necessarily going to enter a long-term bull market here. I'm just stating that there are forces that could cause this that nobody is considering.

1 - The top tax bracket is in the high 30's in terms of %. Historically, this is very low. In fact, there have been times when it was 90%! If taxes overall move higher, especially on the mega-wealthy, the dollar will strengthen considerably as the U.S. raises more money.

2 - There is a small but growing segment of politicians who want to do the right thing in terms of the deficit. Chris Christie is the best example of an extreme budget deficit fighter, but there are more and more slowly appearing in Congress with every election. This could eventually be a huge shift if it gains traction.

3 - What if the massive bailouts and subsequent money printing represented the absolute peak of government insanity? If the government even very slowly begins to shift to a mindframe of spending responsibly, the dollar will quickly strengthen. Look at it this way, they are already doing everything they can to kill the dollar, yet it is hanging in there. In terms of the pendulum, they are already nearly at a swing peak on one side. However, if they were to shift focus to repaying the debt and balancing the budget, the pendulum could swing a long long way in the other direction. This would be extremely supportive of the dollar and could cause violent moves to the upside.

4 - I have mentioned this before, but I will repeat: what would the dollar collapse vs.? The euro: they have Greece, Ireland, Portugal, Italy, and Spain all barely on life support and needing full funding from Germany and France. The yuan: China is so hyper-inflated and overbuilt that if they float their currency, it could surprise 100% of the world's economists and collapse (perhaps after a brief spike higher). The yen: Japan is in the same situation as us but far deeper in terms of debt to GDP ratios. They also suffer from an aging population and shrinking workforce just as we do, yet again there problem is more severe. The yen faces deep structural problems down the road, as does the euro as well as the yuan. All of this is very dollar supportive.

5 - My last point is on sentiment. True bull markets are born from situations where absolutely nobody believes. As the asset moves higher, everyone remains skeptical, sometimes even more so! Despite all of the dollar bashing, it has slowly moved higher over the last two years. Thus far, it has made higher highs and higher lows, while sentiment and predictions for its future have drastically worsened. I'm not stating that this necessarily means the dollar will enter a bull market, but this is perfect classic bull market behavior. Imagine how far the dollar could swing if the fund managers of the world even begin to think in the other direction and feel that a bull move might be coming.

Murf often refers to me as the dollar bull. I embrace that label, not because I feel that the dollar will necessarily move higher, but rather because I feel there are a number of potential catalysts for this move that nobody is considering.

On a final note, I do basically agree with Murf about gold. However, I don't feel that gold will move higher due to inflation. Gold will move higher due to increased stress in the worldwide banking system that will likely take years more to play out. An environment that is filled with potential debt defaults worldwide is an excellent environment for gold. Of course, an environment that is dealing with debt default worldwide is not in the least bit inflationary in any way, at least not in terms of expansion of lending and credit.

Best of luck to everyone out there,

John Chinnock

Guest Post, John Chinnock, US Rates

Guest post from John Chinnock, in what I assume is a response to my Sunday post.

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I just wanted to offer a few quick thoughts as a brief update. For a longer explanation of my thoughts on investing in the current environment, please see my old post at (link here). In that post, I suggested short to medium term bonds as an excellent investment right now. To further clarify, I do not think rates are going to go much lower. After all, they are getting awfully close to zero already! I do feel though that rates will remain low for far lower than anyone expects right now. There are times when a meager return on your money really is the best bet, especially when risk is considered. If the market were to collapse 20%+ from here (easily possible), then 2.5% in a 3 year bank CD will seem amazing in comparison!

There is another brief advantage of investing in bank CDs that I should point out. Obviously, any investment with zero risk is always optimal if you want to sleep well at night, especially if it ties up a huge chunk of your money. The FDIC ensures that all bank deposits up to $250K are insured. This not only guarantees your safety, but it also creates distortions in the fixed income marketplace that a savvy investor can take advantage of. For instance, right now, 5 year treasury bonds are paying 1.22%, yet you can search and find 5 year CD's that pay 3% risk-free. Therefore you are getting a return nearly three times higher than what the free market says that you should be getting, and with zero risk at the same time! Deals like this do not occur often in the investing world, yet with bank CDs, this opportunity exists all the time. If rates do rise before your CD expires, consider that you have nearly a 1.8% bonus over the free market rate of return to begin with anyway.

Best of luck to everyone, and once again, we should all appreciate Murf for his hard efforts in keeping this blog running, despite his busy schedule.

Guest Post, John Chinnock

Guest Post, John Chinnock, in response to my post Ditto Head.

I first want to thank Murf for letting me post on his blog. For those who don't know, Murf is an extremely busy person, and yet he always finds time to maintain and update his site, all just for the benefit of passing his knowledge and research on in an attempt to help others. Great job Murf!

As for Murf's latest post about resources vs. the U.S. Dollar, and our differences of opinion, he and I probably won't see things differently for too long. We just have a difference of opinion for the course of the next 1-3 years (ok, maybe a little longer even). Also, Murf might very well turn out to be right. Every time I have had any faith in the government doing the right thing as opposed to kicking the can of problems down the road, I have always been proven wrong, while Murf has been correct.

For my current thesis favoring deflation and a flat to strong U.S. Dollar, I just feel that we had our 20-30 years of hyperinflation already. Now a period of deflation should ensue that is longer than just 1-3 years. Think of housing as an example. In the 80's, many houses were around $50K. In 25 years, many appreciated 1000%+, ending with a blow-off bubble top. The same can be said for the Nasdaq's bubble top in 2000. I just don't feel that we're on a course to repeat these same types of performances over the next 25 years, either in stocks or in housing.

I have long thought that we would follow the model of Japan after their decline. They have had two decades of low interest rates and stagnant or deflating prices. My best guess is that the same thing happens here in the U.S. High unemployment, the contraction of lending and credit, along with changing consumer attitudes towards spending will all work together to overpower any attempts by the government to reflate. For those who doubt, look how the government just spent trillions in reflation efforts that are already failing. Further money spent will only have even more diminishing returns.

For those people who like to invest contrary to the masses, pretty much everyone thinks the U.S. Dollar is doomed at some point. I think many will be surprised. A question that many fail to ask is, doomed vs. what other currency? As bad as it is here, the U.S. has it far better than nearly everywhere else. Therefore I think that the U.S. Dollar will basically hover or slightly appreciate vs. other world currencies, and I believe that asset values (stocks and housing) will remain probably remain in a choppy directionless grind over the next five to ten years, if not even longer. What we saw was a generational peak in lending and credit which fueled a housing boom. I would not be at all surprised to see prices in the U.S. stagnate for an entire generation. In this type of environment, fixed income guaranteed investments like CDs and Treasuries will be a safe and good bet.

Again, it's all just my opinion. Murf's opinions are also very valid, and should be carefully considered by any reader.

John Chinnock Quote

In reviewing some older material, I ran across this post from July by my friend John Chinnock.

An interesting quote from John below.
Short-term forecasting is not my specialty, but I will make some amateur attempts. We broke out of a huge consolidation on Thursday. Despite the market being very overbought, I see it as very crucial for the market to quickly give back this breakout early next week. As the risk of looking foolish over the short-term (which short-term forecasters usually wind up doing), I see next week as crucial for the near-term bearish case. If we continue to consolidate above the breakout zone (approximately Dow 8900 and SPX 855), we could easily have another large leg higher. I personally will be forced to at least lighten, as once the bulls begin to stampede, logic quickly transforms into euphoria, and rallies can last much longer than expected (do the bulls ever even use logic?). My fear isn't that the market won't eventually fail, it's that we'll go above Dow 10K+ before it does. At some point, as traders, we realize that it is better to make and/or save money than be right.

Interesting forecasting, John's fears came true. The question is, when, not if, will the market correct?

Happy John Guest Post

I asked a friend of mine, John Chinnock to be a guest blogger. John Chinnock has been a stock day-trader for over a decade, and has done very well over the years. John Chinnock from my perspective is neither a bull nor a bear, but is a market trader. He happens to be bearish, as you can see by reading below.

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Hey everyone, this is John Chinnock (Happy John). This is my first guest post on Murf's blog. This post is intended to be an update, as well as a roadmap and guideline for those attempting to follow along with that plays that Murf and I are making. I must warn that I won't write often, but when I do it probably will be long.

Obviously these last two weeks were terrible for those short the market (i.e. me and Murf, and practically nobody else!). Unfortunately, most market tops end with a wild euphoric burst which marks the absolute very top, so just when things are breaking out and look great to the world (and horrible for me), the top could be very close at hand. Unfortunately, nobody rings a bell at the top, and stocks also always look amazing at the exact top.

Before I get into the short-term, I will humbly say that over the long-term, things are going exactly as Murf and I predicted. Everyone knows by now that we both called the "Great Crash" well in advance. Then, we both got bullish early on this year (a little too early), and were able to carve out some nice profits on the long side. Unfortunately, since we both believe that we'll see the market take out its March lows at some point, we were quicker than most to take our longside profits. However, at the time, we distinctly said to each other that this rally will go so extremely far as to actually force us to question our own bearish thesis. We said back then that at the top of this rally, the world will be proclaiming that the bear market is over, and that the economy is saved. Well, I must humbly say, that this has played out exactly as we foresaw (quick note of humility: Mike and I won't always get everything right, so we might dwell and gloat a little extra when our boldest calls come true!).

So I will say that our long-term forecast is so far playing out exactly according to plan, and nothing has changed in that regard. For those who aren't certain of our stance, I will repeat: Murf and I expect an eventual target of new lows for the market within the next twelve months if not sooner. However, now I will look at the near-term forecast. Mike and I shorted the market around mid-May, and until the last two weeks, we were doing just fine. We joked that the rally would become fierce enough at some point to have us question our own short positions, and unfortunately, exactly that is happening right now.

Short-term forecasting is not my specialty, but I will make some amateur attempts. We broke out of a huge consolidation on Thursday. Despite the market being very overbought, I see it as very crucial for the market to quickly give back this breakout early next week. As the risk of looking foolish over the short-term (which short-term forecasters usually wind up doing), I see next week as crucial for the near-term bearish case. If we continue to consolidate above the breakout zone (approximately Dow 8900 and SPX 855), we could easily have another large leg higher. I personally will be forced to at least lighten, as once the bulls begin to stampede, logic quickly transforms into euphoria, and rallies can last much longer than expected (do the bulls ever even use logic?). My fear isn't that the market won't eventually fail, it's that we'll go above Dow 10K+ before it does. At some point, as traders, we realize that it is better to make and/or save money than be right.

Again, If we do not have a big downmove on either Monday or Tuesday, I'm going to be lightening some of my shorts (not covering everything, but definitely lightening). I was lucky to make a very good chunk long from March to May, so in my mind, I'm ok with giving most of that back waiting for a market top, but I have to cut my losses somewhere. If I do lighten, I'll probably add back on a solid break below 950, of course risking a giant whipsaw by doing so.

Granted, nothing is certain, and of course anything can happen. Charts only attempt to predict probabilities. It is just my humble charting opinion that we really need to have a big down day on either Monday or Tuesday at the latest. And again, Murf and I are still 100% convinced that the market is eventually doomed to new lows. It's just all a matter of when. If this opinion ever of ours ever changes, he'll be sure to post it multiple times.

I will also point out a few things in the bears favor. These are all technical chart-based points. (for fundamental reasons, see Murf's most recent post, or basically any blog post!)

1 - We are almost tied timewise with the rally after the 1929 crash. In fact, no bear market in history has had a major rally last longer than 5 months or so, and that would end in early August. So timewise, we could/should fail anytime now.

2 - We've also rallied 50% without any major retracement. This is nearly tied with historical bear market records.

3 - The VIX (measure of volatility and fear) has returned all the way to the old levels of a "no fear" environment. This is very bearish for the market going foward.

3 - Many stocks are moving lower from earnings. MSFT and AMZN, two Nasdaq leaders, both got destroyed on Friday. Restaurants and retailers are also for the most part moving lower from earnings. BAC and WFC (two large banks) look like they want to melt, and just the overall market strength is keeping them afloat. The same goes for GE, and many other large caps.

4 - Weird charting fact: every time the 30dma crosses the 50dma to the downside since the top of the market, new lows have followed fairly quickly. If we have even one decent down day on Monday or Tuesday, the 30dma will again cross down over the 50dma. This cause and effect relationship can't last forever, so far it has held 100% during the bear market.

On a final note, for the casual non-trading readers, here is my final advice in plain English: get out of stocks! Please, sell them all. This rally has been a gift for you to recover your losses. The market has just rallied 50%! This is a gift to sell! If losing half of your retirement money was painful, imagine losing half if not more yet again from these levels! If you are over 55 years old, there is no "holding for the long-run" anymore. Now is the time to be cashing in on a lifetime of laboring, not watching it disintegrate. Yes, you might miss a little more upside, but you've already seen a 50% rally! The most giant debt bubble that the world has ever known has popped, and the crazy spending times of years past are not coming back for decades, if not generations.

At some point I'd like to do a post on how I feel that things will unfold culturally over the next few years, but I'll save that for another time.

Good luck to everyone out there.

John Chinnock

Added graph to illustrate Johns point for long term investor (horizon in next 10-20 years)

From WebSurfinMurf's Financial Blog