Is the Trend Your Friend?

McAlvany Recap • Apr 15 2024
Is the Trend Your Friend?
MPM Posted on April 15, 2024

Is the Trend Your Friend?

Trend following is such a strong inclination that many people will stick with it right into the teeth of destruction. They believe that people who buck the trend are rude, crude, and socially unacceptable. And that, of course, is a fate worse than death.

If you’re in the cohort of the “me, too,” you might as well stop reading right now. What’s written here will just irritate you, and that’s absolutely not our intent.

It’s not that trends are third rails—at least not always. Investors are told that “the trend is your friend,” and that is often true. People who invested with the trend since the Great Financial Crisis have done much better than the trend avoiders. Of course, the GFC handed trend followers their heads by the tens of millions before that herd nirvana was even a twinkle in Bernanke’s eye—which is not necessarily an inconsequential point.

And that’s at least partially what we’re trying to convey here: to everything there is a season, and a time for every purpose under heaven. But of course it’s hard to unerringly see exactly what season it is. Trend followers tend to follow the trend right into financial meltdowns. Trend avoiders tend to either stay out of markets entirely and miss out on tons of upside or they join the frenzy just before the meltdown. Either way is not conducive to financial health.

So pick your poison—or perhaps you’d like to avoid the false dilemma of death by participation vs. death by abstention altogether. Perhaps you’d like to live instead. If so, our expert opinion would be that that is a good choice.

And perhaps the first stop along that road to life is one or more of the below publications. This week on the McAlvany Weekly Commentary David McAlvany interviews Neil Howe on the fourth turning. Turnings are 20-plus year periods in which historically predictable things happen. Fourth turnings complete the cycle, and tend to be very disruptive and difficult. We’re in one now, and that’s good to know as you make your plans for the future.

This week in the Credit Bubble Bulletin, Doug Noland talks about what happens when financial bubbles burst, and his comments make clear the fact that we’re in extremely dangerous territory. Again, a word to the wise is sufficient.

Writing in Hard Asset Insights, Morgan Lewis identifies what appears to be a clear decision by the Fed to avoid recession at the expense of letting inflation run free. Given that inflation affects different investments differently, that’s also good information to know and factor into your planning.

And hosts Miles Green, Tory Aggeler, and Rob Mclaughlin present chart evidence and detailed analysis setting forth the financial imperative of using precious metals as portfolio insurance. Again, given the times that strongly appear to be upon us, that’s crucial to know.

If you’re going to participate in the trend, recognize the danger. Protect your portfolio and develop a plan for what you’ll do when the major markets inevitably shed their horns and hooves and grow teeth and claws. Your “future you” will thank your “present you” profusely rather than beating him about the head and shoulders with regret.

Key Takeaways:

  • Batten down the hatches, the fourth turning is here
  • Bubbles are huge in size, influence, and implications
  • The Fed: inflation is not our biggest concern
  • Metals steady in a changing landscape

The McAlvany Weekly Commentary: The Fourth Turning Is Here: Neil Howe

Neil Howe returns to the program this week for an information-packed interview. Neil is an historian, economist, demographer, and consultant. Far more important than all that, he is an exceptionally insightful observer, he sees patterns and trends that the rest of us miss, and he is a high-level critical thinker. These traits are on full display during this illuminating interview. He has followed up his seminal book The Fourth Turning with his recently published The Fourth Turning Is Here. The turnings he describes, about 20-plus years in duration, correspond roughly to the seasons of the year. A fourth turning is therefore analogous to winter, with all its challenges and difficulties. Prior fourth turnings included the Revolutionary War, the Civil War, and World War II, so war is a common element in such periods. The title of his most recent book should therefore get our attention. Neil’s work is some of the most original and insightful available anywhere, and this interview is perhaps the best introduction to the grand scale, fine detail, and keen organization of his analysis. Click the link above to listen to the program, or read the transcript available on the same page.

Credit Bubble Bulletin: Trouble Brewing in Financial Asset Wonderland

If you’ve ever wondered why anyone would develop and maintain for decades a publication dedicated to financial bubbles, this week’s post should address your doubts. The tendency for bubbles to develop and then grow in size tens if not hundreds of times more than most people believe possible is now well established. But that fact is incredible, so most people accordingly refuse to believe it. Yet bubbles dominate our modern era. They define wealth distribution and growth across virtually all segments of society, dictate or strongly influence both domestic and foreign policy, and set us up for boom and bust cycles of increasingly immense magnitude. Doug begins his post this week by driving home the fact that bubbles can grow to mind-bending size before they burst. However, bubbles are not only immense, they’re sinister: “In a fatefully ironic late-cycle dynamic, fear of missing out completely usurps bubble concerns right before the inevitable reckoning. Bubbles eventually burst—and they have this innate diabolical propensity to somehow catch the over-exposed masses by surprise, causing the greatest damage to the largest number of traders, individuals, institutions, businesses, and governments.” China and Japan are in even worse straits than we are. Don’t miss this penetrating insight into the dynamics of our current moment, both here and abroad.

Hard Asset Insights: Under Pressure

Morgan continues to highlight and emphasize the pivotal nature of the Fed’s current actions. Future historians, avers Mohamed El-Erian in a statement initially quoted last week, will likely look at our day as the point in time when the Fed stopped targeting inflation. That’s huge, and Morgan’s analysis over past weeks and months has given clear shape to our current predicament. The Fed can choose either recession or inflation. It’s virtually impossible to avoid both. And while recession is far more likely to be short-lived and can be shortened further by letting it freely do its rejuvenative work, it is apparently scarier to the ruling class than inflation—particularly in an election year. But inflation is no walk in the park, either. Morgan provides detail after revealing detail of what inflation on the march looks like today. It’s not a pretty picture, and consumers will not be heartened by the data. Will it cause the Fed to renege on its intended rate cuts? Time will tell, but Morgan highlights the intense pressure on the Fed in this environment.

Golden Rule Radio: Gold & Precious Metals Stand Strong

Miles, Rob, and Tory host this week, beginning the program with charts illustrating strong moves in the precious metals, a not-so-strong move in the S&P 500, and a rocket blast in the dollar. They focus for a time on this dollar move, noting that it initially had very little impact on the gold price. Tory and Rob explain why the dollar is going up on the index even as it becomes less valuable in the marketplace. And they also analyze the 10-year Treasury bond and its effects on such things as mortgage and other lending rates. Tory clarifies that this increase in the 10-year’s yield reflects an increase in risk to lend the US government money. The government has to pay more in interest for people to lend it money to operate. The result, as the hosts note, is that the most recent 10-year Treasury auction tanked. There were relatively very few buyers. Tory notes that such high yields on the 10-year and the strong dollar are both headwinds for gold, yet gold has continued to demonstrate strength. Miles then takes some time to explain why silver is not retreating from its recent higher levels, though that is what would normally be expected.

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