“It’s tough to make predictions, especially about the future.” The saying is usually attributed to Yogi Berra, though there is currently a cottage industry in debunking virtually every quotation source ever cited.
Whoever said it, it’s true. Still, inquiring minds want to know. So we listen to Tarot card readers, self-proclaimed prophets, strangers at the bar, friends with opinions, famous investors, and, perhaps worst of all, weathermen. It’s like shooting at a tiny moving target in the dark.
So why do we try? And why do people try to make the predictions we so desire? Well, perhaps tellingly, Berra (or whoever) said it’s tough to make predictions, not impossible. There are patterns to life, and we live in a cause-effect world.
Many things are therefore at least somewhat predictable: What goes up must come down. It’s appointed to man once to die. Like breeds like. Empires end. Objects at rest or in motion tend to remain as they are unless acted upon by forces. And the list goes on.
In the investment world, most things alternate between trend formation and mean reversion. Which one predominates at any given point in time is often exceptionally difficult to determine. And time is the operant word.
Timing is huge. The saying, “the market can remain irrational longer than you can remain solvent” is appropriate here. So is the saying, “timing is everything.” Both are true and immensely important.
So there are some things you can do. Make sure any advisors you listen to include both forest and trees in their consideration of any investment. That means they consider both the macro and micro situation.
You can also use your own judgment, though doing so again necessitates focus on both forest and trees. We tend to focus too narrowly or too broadly, depending on our abilities and our nature. If you find that an investment is sound and hear that it is at an all-time high or low, that should get your attention. Such points can be good times to sell or buy investments.
But crucially, the most important way to deal with the uncertainty of timing is to include something in your portfolio whose value is timeless. That way you can’t miss—and that’s where precious metals come in.
Don’t be fooled by the fact that the metals vary in dollar “equivalence” day by day. There are many factors that influence that fact, but none of them are inherent in the metals themselves. The metals remain constant, and constantly valuable. They are like the ocean. The surface might be smooth or have 50-foot waves, but its nature and essential depth remain constant.
Key Takeaways:
- People move markets
- Are bonds signaling SOS?
- What happened to the metals?
The McAlvany Weekly Commentary: David interviews legendary market analyst Robert Prechter this week. Robert gives some stark and shocking evidence of how unusual markets have been the past few years. He keeps tabs on over 25 indicators of economic/financial health, and offers one as emblematic of the markets’ extreme imbalance. He also emphasizes the psychological aspects of the markets, confuting the efficient market hypothesis entirely. And he describes how the stock markets differ integrally from economics because of investors’ ability to be both buyers and sellers. “That’s how you get the herd mentality, and that’s how you get socionomic causality instead of mechanical causality, and that’s how you get models such as the Elliott Wave principle, because I think human optimism and pessimism, waves of social mood, are patterned.”
Credit Bubble Bulletin: Simple, clear, helpful. This week’s CBB begins with a factual statement of unassuming clarity: “Monthly non-farm payroll reports tend to be market moving. Released on the first Friday of the month, the data hits two weeks ahead of options expiration.” This helpful observation is followed by application to the week’s developments before the hammer is dropped: “Friday’s reversals don’t alter the reality that bond markets are in some serious trouble. Global markets were provided some relief at a critical juncture, but the reversal didn’t erase a week of losses that had traders fearing things were beginning to ‘break.’” Details are provided in key excerpts from Bloomberg and the Financial Times before turning the spotlight on global currencies, bonds, and credit default swaps.
Hard Asset Insights: McAlvany Wealth Management has just concluded its annual client get-together in Durango, Colorado. Morgan’s priority on interfacing with clients means that this week’s HAI consists of only the price segment of the normal weekly missive.
Golden Rule Radio: Tory and Miles are again the hosts for this week’s program. They spend considerable time breaking down the metals’ action since last week. Gold and silver both took a sharp downward break in dollar price for the week, and human nature tends to project such moves into the future. That can happen, of course, but it’s not the norm. More often, forces set in motion by the move tend to slow and reverse it, at least temporarily—which is why the correct identification of secular (macro) trends is important. Also important is to identify indicators that give more information than price. The moving average convergence/divergence (MACD) and the relative strength index (RSI) are two such indicators. Both tell a very different tale than price alone. This is a condition Miles call divergence, where a major indicator is moving one direction but the price is moving the opposite direction. That usually happens at a certain phase of a market move. Be sure to tune in for far more information than the news offers.
