Buying a Dog with a Broken Leg
Last year Brussels was hit by a terror alert.
In response, the government launched a novel campaign called “Call Brussels.”
They set up public phones on the streets. And people from all over the world could call.
The locals would then reassure potential foreign tourists that it is safe to visit.
It was cute. The video on YouTube has a very sweet lady on the phone, gently mocking the idea that Brussels is unsafe.
That was two months ago.
Can you spell epic fail?
Now, we all know some dogma can be dangerous.
Terrorists blowing themselves up and killing innocent people in the name of certain principles is a good example of dogmatic belief.
But the Brussels government was also dogmatic in this case.
Their dogma was the blind belief that Islamic violence would not hit Belgium. They laughed at the idea—two months ago.
That chuckling stopped real quick.
Why am I telling you this story?
Because dogmatic beliefs are extremely dangerous in the markets as well.
We see this every minute of every day going back to the first organized markets.
Many investors just love to think that they know with absolute certainty what will happen in the market… and that everything will go according to plan.
For example, just a few years ago the chattering class majority believed that the Chinese population and Chinese wealth would explode upward to never stop.
And that it would create infinite demand for every last imaginable commodity, pushing their prices to the moon and beyond.
It didn’t turn out that way. Instead, commodities crashed…and they crashed bleeping hard.
But now we’re seeing signs of recovery, as measured by the price action.
Is it Time to Buy Commodities?
For example, take a look at the ten best performing ETFs so far this year:
See anything in common?
With the exception of DOD, all of the top-performing ETFs are related to commodities.
From gold, silver and copper miners… to oil and steel producers… to stocks from Latin America countries that are big exporter of commodities.
Does that mean this is the beginning of another great bull market in commodities and commodity related stocks?
Let me repeat that: nobody knows if this recent rally will continue.
Does that mean literally 1,000s of Wall Street professionals come on the TV every day to say they know when they do not know? Yes, it means that.
Are they lying or just making things up? One or the other.
Anyone who tells you they KNOW for sure that commodities will keep rallying…
They’re selling you a dog…a dog with a missing leg that is mentally challenged… and that could have rabies.
And I hope you’re not buying that puppy just because you feel a certain way.
Objectivity is critical in the markets. This is not puppy picking time.
According to my system, the CRB commodity index remains in a long-term downtrend.
It’s definitely worth keeping an eye on these recent price movements.
My proprietary system has already triggered a “buy” signal on select assets in the commodity space, such as gold and gold stocks.
There could be more “buy” signals coming soon (or not). Let’s see what happens, and not guess what will happen.
Let me slow down. As I write this, it is early here in Asia and I have had 4 glasses of tea already…
For now, enjoy Jack Crooks’ article below. Jack has more than 20 years of experience trading currencies.
He’s president of Black Swan Capital, a firm that publishes research on currency futures, foreign exchange spot and commodities markets.
In this article, he talks a little more about the dangers of dogma and the right way to approach this recent rally in commodities.
Please send me your comments to firstname.lastname@example.org. I’d love to hear your thoughts. Please tell me exactly what you think. Don’t sugar coat it!
Lurching from Nirvana to Crisis; Our Dogma is Barking?
By Jack Crooks
The perfect master is the market itself. The market speaks to us in only one language—price. ~ Edward Toppel
In the midst of the great commodities boom past, despite the prognostications of many it was never going to end, e.g. one top seer was fond of asking us to visualize every Chinese citizens eating just one egg and one strip of bacon and having a glass of juice every day for breakfast and voila–commodities investing nirvana.
Well, despite the logic of this visualization, it hasn’t been that simple. But that’s the point—it never is simple.
In the real world of human action and modern economies, we are presented with more complexity than we can intelligently process. Yet it seems our investment gurus continue to preach either Ms. Rosy Scenario into perpetuity or doom and gloom just around the corner.
I guess stridency sells. Validate your reader/viewer/listener whether right or wrong; just be damn confident when you do it. This entiremilieuof hubris is why I increasingly shun TV and conferences—and prefer books to news.
Well, in the wake of commodity investment wreckage far and wide, wemaybe at, and I hate to use this two-word phrase, as all the “smart” guys on TV love to utter it— an “inflection point”of some type. I.E. something that leads to a change in the long-term down trend in the commodities market.
My idea and usage of the phrase “inflection point” in no way should be construed as a new bull market cycle in commodities; but we may be in the midst of a playable multi-week or multi-month bounce in key commodities once some near-term frothiness is burned off—which I think we are seeing at the moment.
I guess one of the reasons I am edging toward commodity bullishness is my natural contrarian nature railing against the mantra-like screech from so many analysts who now insist Chinese crisis is “inevitable.”
Well, to put it bluntly—it is not inevitable. And in fact, China’s stimulus efforts will likely create interesting price action, and this action may last longer than many now believe.
There is a degree of complexity about China the Western mind seems to have trouble grasping; at least speaking for myself. We tend to fixate on what we perceive as facts with somewhat flawed lenses—or models of reality if you will. From Henry Kissinger’s brilliant book,On China:
Other societies, the United States included, have claimed universal applicability for their values and institutions. Still, none equals China in persisting—and persuading its neighbors to acquiesce—in such an elevated conception of its world role for so long, and in the face of so many historical vicissitudes. From the emergence of China as a unified state in the third century B.C until the collapse of the Qing Dynasty in 1912, China stood at the center of an East Asian international system of remarkable durability.
Are we to believe willy-nilly that China’s rise and economic cycle is no different than the other “economic miracles” in Asia? Is the recent history of the “Asian growth model” more important than the history of China’s “remarkable durability” over centuries?
Are we to believe $3 trillion in reserves, and the fact that 95% of China’s debt is owned domestically, are not powerful crisis buffers?
According toThe Economist, “The central government’s relatively low level of debt, at just over 40% of GDP, means it has plenty of room to help the banks. Indeed, with the right policies, China could survive a deleveraging without too much pain.”
So why is there such certainty about a pending Chinese economic crisis?
Keep in mind when you read both well-reasoned, and not so well-reasoned, rationales for pending crisis, many of these same analysts not so long ago believed China was about to take over the world; as if hegemon status is such a simple feat.
Funny to think of now, but it seems every China hegemon forecaster worth his weight in gold told us it was a sure bet the US dollar would be replaced by the Chinese yuan “any day now” as the world reserve currency.
The US military would soon cower under the weight of advanced Chinese weaponry and be pushed easily out of the region as China asserted its version of the Monroe Doctrine.
The skirmish shaping up in the South China Sea—Spratly Islands—contains elements of said doctrine despite the fact China has a bit more work to do to get there.
This is yet another reason China’s leadership can ill afford a financial crisis and will likely act with more vigor than many expect—even if said actions is likely to lead to “bigger risks” down the road.
But when it comes to speculative investment time frames—if Chinese policy makers act with vigor, as they seem to be doing, I suspect it will create at least a multi-week and more likely multi-month counter trend moves in stuff which has been crushed.
As investors, we should approach this objectively, through analysis of price action and not let our own story get in the way of reality.
So, regardless of whether China does slip into crisis, muddles-through, or becomes the overnight hegemon… it seems plenty of investment opportunities abound for those who can suppress their own dogma.
For, The Daily Reckoning