Investing In an Unjust World

Posted On Feb 16, 2016 By Dave Gonigam

  • Yes, the politicians and central bankers will get what’s coming…
  • … but not necessarily on your timetable
  • How to profit in “our upside-down world” and a rigged system
  • More cracks in the economic edifice… Goldman’s hilarious gold call
  • Saving Minnesotans from illegal Wisconsin brewskis
  • The United States of Serfdom: Readers react

“I have to admit to being baffled by the aptitude of the Wall Street and K Street financial elite to keep their Ponzi scheme growing,” wrote Jim Quinn in mid-2013. The S&P 500 was already up 15% for the year, on its way up to a 30% increase.

For several years, Mr. Quinn has kept a blog called The Burning Platform. It’s one of the few enlightening entries in a mostly useless genre of Internet writing your editor has taken to calling “doom porn” — forever bearish, oblivious to the adage that inevitable events (a market crash) aren’t necessarily imminent.

Here at Agora Financial, we don’t have the luxury of engaging in such activity. We know real people like you count on us for help making real financial decisions and not to “get your doom on.” And so in 2013 our editors identified gold’s breakdown at $1,650 and spotlighted biotech plays that outperformed even a torrid biotech market.

Quinn at least had the presence of mind to recognize the politicians and central bankers could keep the proverbial music playing far longer than most of the doomsters thought possible — or just.

“The appearance of stability is illusory, as the civic fabric of the country continues to tear asunder,” Mr. Quinn continued in 2013.

“Record-high stock markets do not trickle down. The debt-engineered stock market gains enrich the 0.1% at the expense of the working class. Bernanke’s ‘wealth effect’ theory is a charade.”

Hear, hear, says our newest editor, Michael Covel.

You might find that a bit surprising. Michael, after all, is an evangelist for “trend following” — a specialized kind of chart watching. As far as trading goes, Michael is agnostic about the Federal Reserve, the national debt and all the other things that rightly get the doomsters wound up.

But Michael thought so much of Quinn’s 2013 blogpost that he read excerpts of it during his podcast a few weeks later. And yesterday, he directed readers of Trend Following With Michael Covel to the archived podcast episode.

“Even though this is not a recent article, it still applies to everything that’s happening today,” said Michael. “This is especially important now that we’re facing a challenging market environment.

“Central banks around the globe are trying to control the direction of the markets and economies,” Michael goes on.

“But the markets and economies are too complex to be managed by anyone… especially by rumpled suits with Ivy League degrees. They’ve been blowing bubbles for the past two decades, and this is unlikely to change anytime soon.”

So if you’re concerned about the Fed or the national debt or all those other things… rest assured that Michael “gets it.”

But he well understands the dangers of what we call “just world” investing. If it were a just world, investors would be punishing a spendthrift Uncle Sam mercilessly for allowing the national debt to cross the $19 trillion mark. U.S. Treasury prices would be tanking, and yields would be soaring.

Instead, a 10-year Treasury note yields 1.77% this morning — still near three-decade lows.

It’s not a just world… and you’ll quickly go broke investing in a just world. You must invest in the real world.

And in the real world, trend followers are making money in 2016 even while stocks have taken a thumping.

“So far this year,” says Michael, “trend following funds, also known as CTAs, have outperformed all other hedge funds. This is just more proof that this strategy can make money in any type of market environment.”

The average hedge fund got off to a miserable start this year — the worst since 2008. But these CTAs were up an average 2.6% during January, according to Hedge Fund Research.

It’s at this moment we return to a question posed by an aggrieved reader more than once last year. This is the fellow who denounced the other trend followers on our team as “chart chimps.”

“How is it,” he said, “that you can issue calls based on chart patterns generated from a manipulated market?”

Here’s how Michael answered that question in 2013 after reading the Jim Quinn blogpost on his podcast: “You can pretend to know all and be a fundamental follower, but if you’ve got a rigged system, the fundamentals don’t matter. [Emphasis ours.]

“Or you can accept our upside-down world and take advantage of it with a trend following mindset and strategy.”

It’s a strategy and mindset that works in up or down markets. It’s generated gains including 298% on Independent Bank Corp.… 561% on Tucows… and 1,463% on Taro.

And now Michael is opening up this strategy to you. No need for the big bucks to be an “accredited investor” and get into a trend following hedge fund. All you need is Michael’s guidance and the willingness to break one of Wall Street’s most cherished “rules.” Click here and he’ll show you the way.

To the markets… where the proverbial bargain-hunters are stepping in after the holiday yesterday.

The Dow is up more than half a percent as we write — good enough to recover the 16,000 level. The S&P 500 is up a little stronger at 1,879 — but that’s barely above the 1,875 “make or break” level that chart chimp Jonas Elmerraji was telling us about last week.

While the Comex was closed yesterday in New York, gold got whacked hard in Hong Kong. But it’s still holding the $1,200 level nicely, the bid $1,212 at last check.

We see Goldman Sachs is opining that there was no good reason for gold to zoom past $1,250 last Thursday and it’s time to go short the Midas metal.

Yes, this is the same bunch of geniuses that have already walked away from five of their six “top trades” of 2016.

Just for giggles, let’s see what the vampire squid’s justification is: “Banks have ample liquidity to maintain funding against higher capitalization, the negative macro impacts from low oil prices have likely already played out and are not systemic, while the spillovers from China are limited and the U.S. is far from recession.”

Heh. On the subject of bank liquidity and “macro impacts from low oil prices” that have not yet played out, we direct your attention to our episode a week ago today.

Crude is in a “Buy the rumor, sell the news” situation now that news of a production freeze by Russia and Saudi Arabia is confirmed.

Oil zoomed up better than 10% on Friday on the rumors. But today it’s off nearly 2%, a barrel of West Texas Intermediate back below $29.

For one thing, it’s a production freeze, not a production cut. For another thing, only Russia, Saudi Arabia, Qatar and Venezuela have agreed to the freeze; Iran, only recently loosed from Western sanctions, is conspicuous by its absence. And there’s always the chance that one or more of the parties that did agree to the deal will cheat and open up the spigots further.

The two economic numbers of the day are nothing to cheer about. Both of these numbers are a gauge of the economy so far in February… and both disappointed.

The Fed’s Empire State Manufacturing Survey shows that factory activity in New York State has been contracting for seven straight months. At minus 16.6, the number was slightly better than January, but worse than even the most pessimistic guess among dozens of economists polled by Bloomberg.

Meanwhile, the Housing Market Index from the National Association of Home Builders clocked in at 58 — well above the 50 level that’s the dividing line between expansion and contraction but still the lowest reading since May last year. Housing might still be one of the economic “bright spots,” but it’s slowing down.

From the “Regulations Gone Wild” Department, the former owner and manager of a bar in Maple Grove, Minnesota, face felony charges for… selling beer from Wisconsin.

The charge is transporting alcohol into Minnesota for resale. The alcohol in this case is New Glarus Spotted Cow — a popular microbrew. “Beer manufactured by New Glarus is distributed only in Wisconsin,” says the Minneapolis Star Tribune. “The company is not a licensed manufacturer of alcoholic beverages in Minnesota, so it’s illegal to distribute New Glarus beer to a retail establishment.”

Contraband in the Gopher State…

How did investigators catch onto this dastardly crime? An anonymous tip to the Wisconsin Department of Revenue… which passed it on to Minnesota’s Department of Public Safety.

So somewhere in the Badger State there’s a snitch who’s got nothing better to do than, what, look for kegs being loaded into vehicles with out-of-state license plates? “Take a bow, you anonymous patriot!” quips Brian Doherty at Reason.

Mr. Doherty notes that Spotted Cow was also the occasion in 2009 for a $20,000 fine against a bar in New York. [Disclosure: Your editor and his wife have consumed Spotted Cow. In Wisconsin, we hasten to add…]

“Hey Dave, this serfdom issue struck a nerve,” reads the first of several emails after Friday’s episode of The 5.

“You’re an East Coaster; you don’t have a Western appreciation for the state of the states. Over the last 20 years, you have been lead down the rosy road of socialism one small step at a time. The new Socialist Order that is emerging in states like Washington, Oregon, Idaho and Nevada is not being well received by all! But the class of government serfs (Democrat voters) is rapidly filling the voting ranks.

“I found Mr. Sam Smith’s quote very interesting: ‘The rest of us live in villages on farms owned by the lords but in a culture that still retains some of the traditions, freedoms and values the elite no longer experiences. We are victims, but also models and preservers.’ The point that he misses (or maybe not!) is that we, the elder serfs, retain one freedom that the socialist elite will never understand: We will defend to the death our right to own and bear arms to protect against an oppressive and nonfunctional government.

“Until HillyBilly tries to take away this right, it will exist only as a dormant threat. That would be a tipping point! Start making up your mind: Are you in or out?

“Thanks for what you do. Have become a regular reader over the past 18 months and enjoy your commentary, though I do get tired of the sales pitches.”

The 5: For the record, your editor is native to a small Midwestern town where as late as 1960, the local congressman could win re-election by running against the New Deal!

“I’ve been saying for several years that we are devolving into a new medievalism,” writes another, “with the lords and ladies of money on top, and most of us as serfs.

“That implies a group in the middle, the freeholders and merchants, who provide services for the nobility in return for certain privileges. That is now the only status most of us can aspire to.

“All the rest will simply serve — willingly or not. That middle status, of course, is completely at the mercy of those in power and can be revoked with the push of a button — literally, nowadays. Governments have actually been a force resisting this trend, but governments are gradually becoming subservient to the nobility and will soon become enforcers, not resisters. I think we are past the point of no return.”

“I’m currently reading Rose Wilder Lane’s The Discovery of Freedom,” writes a third. “In it, she well discusses how man has dealt with authority through history and what feudalism brought and how it was destined to fail but did work well for a time.

“I see a lot of parallels of what we’re living through today, and Friday’s 5 hinted at some of that pretty well. Maybe recommend her book to those struggling with how to understand and talk about it with their mates.

“It’s helped me grasp some ideas that I know I’ve had for a while and allowed me to talk about them intelligently. It’s got some good history lessons, too, albeit through her eyes. Thanks. Keep up the great work.”

“How can government ‘take care of’ anyone or anything?” writes a fourth reader after we noted the curious words of a Trump supporter Friday.

“It is a 100% cost to the workers in the private sector — which has to factor the federal government’s cost into every product created and sold around the world and at home. There are now 2.73 million federal employees (excluding the uniformed military). Can you image what our Founding Fathers are thinking if they are looking in here!

“I’m age 90, work 50 hours a week, have not had a salary since I was age 36 — try doing that sometime! I get paid only if and after I have done a service for someone who agrees to pay me for whatever I have done for them. I have also worked across from or with government or even partnered with it — impossible. They don’t know how to work the way we in the private sector have had to learn to work or else. Try firing someone in government!”

“Should Janet Yellen raise interest rates another quarter percentage point in March, as Jim Rickards states, will it follow that gold will become cheaper for a short period of time?” a reader inquires. “I’m looking for an entry point again.”

“Thanks, I so enjoy The 5 Min. Forecast.”

The 5: Entry point? If you buy into Jim Rickards’ long-term thesis for gold — it will take $10,000 an ounce or more to restore confidence in the system once it’s broken — will it matter whether you buy at $1,200 or $1,250?

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. The inaugural issue of Trend Following With Michael Covel is set to hit readers’ inboxes today.

New subscribers get a wealth of information, including Michael’s new book, The Trend Following Way: A Proven Strategy to Beat the Market and Retire Rich. It’s not available from Amazon or any brick-and-mortar bookstore — only through us.

If you’re frustrated because you missed the run-up in stocks in recent years… or you rode gold down all the way from $1,900… or for any reason… you owe it to yourself to check out Michael’s strategy, proven to work whether markets are moving up or down and no matter what the politicians and central banks do.

Don’t miss the premier issue today. Here’s where to subscribe.


Other Articles In 5 Min. Forecast