Godzilla Investing

Sometimes we rant.

It’s never too long, usually, and we don’t do it often, so when an occasion like New Year’s affords us an excuse and the spirit of the rant settles upon us, we figure it’s time to take a minute and let loose.

First off, we had a good year. It was a good year because we remained independent. We laid out our own investment hypothesis and stuck with it regardless the noise. We made tactical adjustments along the way if our thinking, or just our timing, proved askew.

And we can’t emphasize that first point strongly enough.

Success is never the product of doing what the other guy’s doing, or just did, or says he’s going to do. It comes from the formation of a clear picture in your own bedraggled, imperfect mind and holding fast to it, even as the winds and the hail and the monsoons buffet and shake your very foundations. Remaining focused on the big picture is essential.

Don’t look there!

That said, there are certainly individuals from whom we’ve a great deal to learn, and still others, whose thinking is so extreme and far from the herd that we always seek them out – even if it means rejecting their position 99 out of 100 times. Fresh thought is a key factor in this business. And it’s not to be found in the mainstream media, financial or otherwise.

It also won’t be found on Kitco.com.

What’s Kitco?

Kitco’s an immensely popular website among the precious metals diehards, and one we often visit to get a taste of the prevailing gold-zeitgeist soup. As contrarians, we’re ever looking for a bland brew at bottoms and an overly salty content at tops.

And how’s it taste presently?

Unfortunately for the bulls, there’s still a goodly measure of sodium floating about the stew at the moment, leading us to believe that our own bearish take on gold is still relevant – and the trend toward $900 is still on.

That’s a rant?!

Just warming up.

The rant begins here, friends, with a critique, as it were, of one of the most asinine ‘analyses’ we’ve seen on the Kitco site in our many years of sipping there.

It comes courtesy of a fellow whose name we daren’t mention, but whose article can be found here, for those with the stomach, and a full bottle of choice antiemetic close by.

The lout talks a smooth ruse, but seems to think the market in stocks is about to crash. Moreover, the swindler states that we’re already downbound! He writes –
I can assure you we are not done with the secular bear market in stocks.

Boy genius… Care to tell us how you arrived at that? Or how using a chart of unknown origin, you explain that – [T]he stock market’s P/E ratio is again at a [sic] historically extended level.

Which he then claims is 26.3, but from where he gathers this so-called information we’re never made privy.

Why the rude tone? First, because this is a rant. And second because a quick gander at a number of widely visited websites tells us something far different – that the Dow is trading with a P/E of 16.83, the S&P 500 18.98, and the NASDAQ 100 at 21.55, all numbers that are only slightly above long-term historical norms!

Who is this chap, we’d like to know, who in the same fluffily written and researched snatch of sugar free cotton candy goes on to claim – I don’t expect this secular bear market will be finished until we reach P/E ratios similar to 1932.

Did you catch that? “This secular bear market…?”

Of course, when a secular bear market does actually begin it could be a doozy – as secular markets of any variety – bull or bear – are by definition long lasting and tend to overreach.

But we are clearly not in a secular bear market now. We are in a secular bull market that began… well just about any date will do – and will not be finished until a final blow off top sucks in every last clown-suited, trumpet-playing, street-corner, gidget-fiddling, wash-up-on-the-Jersey-shoreline miscreant out there.

Sucks him in and spits him out.

It will be a bear market that puts a close to the longest and most intense period of economic growth in the history of mankind – one that accounts for hundreds of millions of human souls being lifted from a wretched universal poverty that dominated the world just over a century ago into a new reality of health, hygiene and prosperity as yet unknown to our species.

And when it ends (or perhaps, pauses – we’ll see), we’ll also have a sense of just how far back into that poverty we have to drift before the next growth cycle commences.

But that’s for another day.

The rant is now over. And the conclusion is clear. Stay away from the websites of the whacked. Get your information from clear-headed (if somewhat socially obtuse and idiosyncratic) fellows like us!

A Trade…

This is the United States Oil Fund ETF (NYSE:USO), a reasonable proxy for the price of crude, whose shares are now looking nicely bullish. Technically, both RSI and MACD indicators (red boxes) are now super-waterline, placing the stock in a clear bull trend, while nearly all her moving averages are heading north. Price, in the meantime, is woking to climb above them all (blue circle).

A Bull Move Begins

In the futures pits, crude just peeked her head above $100 last week before falling back slightly. But with global growth now gearing up, we believe that number (100) will capture traders’ imaginations. We feel strongly that there’s room for oil to head back toward all time highs near $150 a barrel later in the new year.

And one of the key catalysts of that push will be Japan, a country whose deflationary past is never far behind – even in the best of times.

While we don’t believe in Abenomics any more than we do the Fed’s tricks or the POBC’s or any other central banker’s shenanigans, it also happens to be what the market likes. So if Honest Abe can get the Japanese engine kickstarted, we’ll just keep our mouths closed and buy.

As Japan lurches toward growth for the first time in half a decade and Europe pulls out of its Mediterranean migraine, oil will likely have itself a banner year.

It’s still a secular bull market, friends, with real economic growth and the beginnings of some inflation in the oil pits.

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Options Trader Elite bids you consider purchase of the USO January (2015) 40 CALL for $1.13, and paying for it with the sale of five February 33 PUTs, each going for $0.24. Total credit on the trade is $0.07.

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With kind regards and a very Happy New Year!

Hugh L. O’Haynew
Senior Analyst
Normandy Research

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