Signs Of The Times

“Hedge Funds Place Largest Bets on Commodities Since 2011”

                                                                                     – Reuters, February 23

“China’s credit-market gauges are triggering alarm bells, as banks grow

cautious in lending to each other.”

                                                                                             – Bloomberg, February 23

“Those who torment us for our good will torment us without end.”

                                                                                     – C.S. Lewis

“But danger also lies in the acceptance of a totalitarian outlook by

intellectuals of all colours.“

                                                                                             – George Orwell

One of the most elegant criticisms of climate hysteria was made by a member of

the Labour Party in England.

“In the twenty-first century what sort of person seriously believes that natural

calamities like floods can be blamed upon allegedly ‘sinful’ behaviour?”

                                                                                             – Ed Miliband, Spiked, February 17

Global warmers have become tribal shamans.

* * * * *

Stock Markets

Big forces are in play.

Stocks have recorded sentiment and momentum numbers only seen at cyclical peaks. Central bankers continue their unprecedented recklessness. And then the Left is getting highly agitated.

Prince Charles compares climate sceptics to “chickens with their heads cut off”. Senate leader Harry Reid calls Americans displaced from their healthcare insurance “liars”.

Putin sends thuggish troops into Ukraine whose “uniforms” have no insignia. In August 1939 Hitler send troops into Poland dressed in Polish uniforms prior to declaring war. The trumped up issue was access to the port city of Danzig.

We have noted that there is no easy way out of the cyclical excesses accomplished. Speculation has continued with Biotechs (IBB) and the Internet Index (FDN) heading for the parabolic. Tesla has soared from 136 to 265 in six weeks.

A few weeks ago we mentioned the “Silly Season” that can erupt in April. Notwithstanding the weather, “Spring” seems to be arriving early.

The S&P had a setback with the initial hit to credit spreads and has recovered to new highs. Ross has had a target in the 1885 region.

The bull market run is well beyond the probable 249 weeks and is becoming a very long-running example.

As with the culmination of every speculative move, we watch the action in credit spreads, which deterioration is coincidental with political distress in Ukraine. The chart follows.

Credit Markets

Over in China, the central bank does not appear too successful lately. Credit spreads have widened – the most distinctive on data back to the carefree days of 2007.

As noted last week, spreads reached their best at the end of December and reversed. Emerging (EMB/TLT) spreads widened the most in taking out the 200-Day ma and on the latest recovery stalled out at the 200-Day.

It makes sense that the Emerging would reverse with some drama. Spreads for junk, munis and investment-grade are in the pattern but not dramatic. The lid on the rebound was the 50-Day, one line above EMB/TLT.

The pattern in spreads is not healthy and close to failing.

A chart follows.

Price action in JNK, for example, soared into this week and reached a Weekly RSI of 77 on Tuesday. Last week this was 76 and at the precarious high last May it reached 79. Then “mini-panic”.

The bond future slipped from 134 to 131.71 on the rebound in spirits with relief in Ukraine. This is at support and we have had a target of around 136.

Commodities

The big “Rotation” turned out to be very good, with some outstanding winners, such as coffee and more recently wheat.

Agricultural prices (GKX) had set a double bottom at the 41 level in January. The rally made it to 381 last week with the Daily RSI at 82. The latter compares to 83 reached with the “Drought Rally” of 2012. Today it is at 84.

Outstanding rally.

The Weekly RSI is up to 69 and the best with the drought was 69, so the action is becoming impetuous. This sector was the most dismal and we thought it would have the best chance for a good move. With some corrections the GKX could make to the 450 level. It is at 400 now.

Base metals (GYX) jumped from a multi-year low of 330 in early December to 362 six weeks later. And right back down to 331 in early February. The bounce made it to 347 from which it slipped to 336 last week.

At 346 the rise is working on the resistance level.

Will it break out?

It could, but as we pointed out years ago the real price made exceptional gains to 2011, which prompted significant increases in capacity. And Chinese speculators as “investors” are still in the game.

We had been looking for copper to reach a seasonal high in, or around March.

Natural gas enjoyed a fabulous rally. The expiring contract made it to 6.40 and it has slumped to 4.50 as the market contemplated the end of the “Great Cold”.

Some traders have been looking for a hot summer, but it is best to remember that most of the US last summer was unusually cool. This summer could also be on the cool side.

After running on fumes, gasoline ignited and joined the play. As noted the action became overbought at a Daily RSI of 81.

Crude oil rallied from 91 to 105, which level had many of the characteristics of a brick wall. The drop to 100 is at support.

Sometimes crude can set a key high in March and that was behind our “Peak Oil” special of February 19th. The next leg down would be another step towards the “New Paradigm” for crude oil prices. This would be crude’s version of the decline in natural gas prices from the “old” level to the “new”.

We’ll look at the real price as deflated by the CPI.

In the bubble era that climaxed in 1873 crude’s real price reached 129, and in the Great Depression that ended in 1895 it fell to 18. In the bubble era that ended in 1929 crude reached 42 and fell to 5.

In the second energy crisis crude soared to 115 in March 1980 and plunged to 23 in March 1986. The rise included the Iranian Hostage story that Ronald Reagan ended. Of course the action became extremely overbought on an outstanding boom in commodities. The nominal price crashed from 39.50 to 10.40.

With the expressed goal of defeating Communism and the “Evil Empire”, Reagan deregulated the domestic oil markets. Also a deal was worked with the Saudis not to support prices on the way down. Petroleum exports were the main source of Russia’s cash flow and the Soviets went broke. It ended that empire. Putin, in a counter-reformation move is trying to restore it.

In real terms, crude has been relatively high for long enough to build a lot of capacity. Then there is the innovation of fracking. Prices seem eligible for an extended decline that could significantly reduce Russia’s cash flow. This could be assisted by reduced or no attempts at price support.

Makes sense.

Coffee has been our bell weather and it has soared from 1.01 to 2.05, reaching 86 on the Weekly RSI. This is the highest since 86 was reached in July 1994. That rally took six months and made a bigger gain. This one is in its fourth month.

Coffee is in the GKX and has been hyping the gain. The ETF trades as “JO” and nimble traders could short a little. Only enough to support the habit for a year.

Most policymakers still do not understand inflation in financial assets and its dangers. However, they do understand inflation in hard assets and the CPI. Soaring commodities could shift the ideological struggle at the Fed towards those who want to curb the reckless behaviour.

Around March has been our target for the commodity rally and this we have. Overall strength has been remarkable. Speculation is becoming precarious and on a spike like this it is difficult to call the exact end.

Link to March 7, 2014 Bob Hoye interview on TalkDigitalNetwork.com:

http://talkdigitalnetwork.com/2014/03/gold-to-gain-as-equity-markets-peak/

Credit Spreads: S&P

• Note the spread reversals in 2008, 2010 and 2012.
• Worthwhile trades followed.
• Reversals in 2007 (not in chart) and in 2008 were cyclical.
• Taking out .375 sets the reversal, which after five years will be cyclical.

BOB HOYE, INSTITUTIONAL ADVISORS

E-MAIL bhoye.institutionaladvisors@telus.net

WEBSITE: www.institutionaladvisors.com

InTheMoneyStocks interviews Martin Armstrong beginning at the 24:31 mark of this YouTube Video about where he expects the markets are headed overall. Martin relates some really fascinating things that governments are doing manipulating markets, especially Gold & Silver. The host Gareth questions Martin from the perspective of helping the public take control of their financial future in the face of panicking Federal Governments who are extremely interested in the money you have in your bank account, or even Gold or Silver Bars that unless you have it buried in the ground behind your house they know precisely what you have an where it is. Martin also discusses where he thinks the Stock Market is going and you might well be surprised by what he thinks.  

The beginning of the video is an exchange between InTheMoneyStocks Pro Traders and Chief Market Strategists, Gareth Soloway and Nick Santiago, who after having personally profited from the markets for over 2 decades elected to put together this company, InTheMoneyStocks, to give back by helping to educate the public and help them negotiate their way through these oftentimes hair raising and chaotic markets. They do their best to forecast what we can expect this week March 10th – 14th in the Stock Markets. 

Again the host Gareth welcomes a passionate Martin Armstrong to talk markets beginning at the 24:31 mark, and questions him to gain his expert insight into where the markets and economy are headed. 

Enjoy! – Editor Money Talks

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While Stocks continute to soar, the real winner so far in 2014 is last years big loser. This gentleman Sy Harding makes some very interesting points in this article below, not the least being that despite Stocks great big gain of 26% last year they are really only up 1.9% net so far in 2014. Meanwhile last years big loser, gold bullion, which was down 28% last year, is up 12% so far this year. More stunning, Gold Mining Stocks which where down a huge 49% last year on average, are up 20% so far this year. In short, Sy lays out some interesting thoughts in this analysis below. Personally I found it interesting reading and thought you might too. – Editor Money Talks 

Safe Havens Are Trouncing Stocks So Far This Year

Investors are going crazy for stocks, piling into individual stocks and equity mutual funds at a near record pace. Investor sentiment polls confirm the high level of bullishness. Margin debt is at record highs. Brokerage firms and polls of investor groups show individual investors have unusually high portfolio allocations skewed to stocks and away from bonds and cash.

Households continue to pull money out of municipal bonds, of which they are the largest holders. Thomson Reuters reported this week that new municipal bond sales hit a 14-year low in February, “as individuals continue to flee from bonds to put their money into the rising stock market”.

But wait a minute.

Who is selling the stock to those clamoring for more? Someone must be, given that stocks are barely up for the year so far. Who is buying the bonds individuals are fleeing from, since demand for bonds seems to have them rising in price in spite of the selling?

That also shows in the data.

The S&P 500 was up 26% last year. So far this year it is up just 1.9%. The Dow is down 1.0% for the year so far. The Nasdaq is doing better, up 3.5%.

However, mutual funds and ETFs invested in 20-year bonds (TLT), were down 16% last year, but are up 6% so far this year.

I’m not confident that bonds can continue their 2014 rally. That will almost surely depend on the direction of the stock market. I have been saying for some time that bonds will only rally if the stock market rolls over into a serious correction.

However, gold bullion, which was down 28% last year, is up 12% so far this year. The gold mining stocks, down 49% last year on average, are up 20% so far this year.

[Must Read: Ned Schmidt: The Bear Market in Gold Is Over]

In my January 3 column ‘Will 2013 Winners Also Be Winners in 2014’, I noted how it is often a mistake to chase the previous year’s winners after they have already had several years of gains. I quoted John Rekenthaler, V.P. of research at fund-ranking service Morningstar, who says that almost always “Investors piling into the hottest funds of the previous period will be sorry, since the lower ranked funds tend to be the winners over the next three-year period.”

I noted in that column that if it is advisable for investors to choose from the previous period’s losers there was one stand-out – gold.

So far that is working out. Gold down 37% last year from its 2011 peak, is up 12% so far this year.

Gold does have a few positives going for it this year that it didn’t have last year, in addition to the much lower price.

For instance, beginning in 2012, India, the world’s largest consumer and importer of gold, raised its import tax on gold from 2% to 10%, in an effort to cool off demand for gold (which was draining off too much cash from India’s economy). The move worked to slow demand for gold, but created a hardship for India’s important jewelry manufacturing and exporting industry. Beginning last fall India has been cutting back the gold tax, and is expected to continue to do so.

Gold is also the traditional hedge against global instabilities and uncertainties.

It was spiked up to its record $1,900 an ounce in 2011 as the ‘Arab spring’ uprisings, which began in Egypt in 2010, began to proliferate into neighboring countries. Those uprisings settled down considerably in 2012 and 2013, and gold plunged in its 37% bear market decline.

However, this year’s eruption of violence in South Sudan, and the civil wars in Syria and Ukraine (now with Russia’s involvement), among other global hotspots, have global uncertainties back in the headlines.

We primarily utilize technical analysis for our buy and sell signals, but the fundamentals seem to also support a positive outlook for gold. So far this year, it also confirms the notion that the previous period’s losers are often the winners in the next period.

In the interest of full disclosure, my subscribers and I have positions in the gold bullion SPDR Trust Gold etf, symbol GLD, and the gold mining stocks etf Market Vectors Gold Miners, symbol GDX.

An old friend contacted us last week with a business opportunity. More and more US states – not to mention Canada – are making it legal for people to smoke weed. 

“Look, we all know that the use of medical marijuana is not limited to terminal cancer patients. You just go to the doctor. You tell him you have a pain here… or there. He prescribes you weed. If not, you get a different doctor. 

“People don’t like to see young people smoking pot because they think it stunts their growth. I mean intellectually. And their careers. Marijuana seems to slow them down. 

“But it’s not young people who are driving this trend. It’s older people. They tried it when they were young. And now they’ve got plenty of aches and pains. And they know marijuana can help them. And it won’t do them any harm. This market is huge. And it’s growing… well… like a weed.” 

Yes, dear reader, another new high. The Bubble Era is boiling them up everywhere. Record stock prices. Record debt. Record junk-bond issuance. Record household wealth increases. 

Heck, records were meant to be broken. When one high is registered, there is bound to be a new high coming down the pike sooner or later.

We checked into our hotel in Aiken: 

“You’re aware of our smoking policy?” asked the desk clerk. 

“No,” we replied. “Is smoking prohibited or obligatory?” 

“Huh? Oh… you’re not allowed to smoke anywhere in the hotel.” 

“Does that apply to medical marijuana as well as to tobacco?” 

“Uh… you’re joking, right?” 

“Right.” 

But it was a good question. Dope is coming. Hotels are required to have ramps, elevators and wheelbarrows to haul their gimpy-legged guests. An ad in the newspaper told us that landlords, too, are required to cater to those who can’t get through the door on two pins. 

Soon, hotels may be required to accommodate potheads too. 

Why? 

It could be a medical condition… a federally-protected disability. Those with a doctor’s prescription will be able to puff on weed even in non-smoking places. Roach clips will be provided in the lobby! 

Forbes reports that marijuana stocks are hitting record highs… and minting their first billionaires: 

You have probably never heard of Bart Mackay, a 57-year-old Las Vegas lawyer who works on various ventures like Dot Vegas, which operates the Vegas top-level domain. But on paper, Mackay is the first pot-stock billionaire. 

Mackay’s holdings in CannaVest, which bills itself as the world’s leading hemp-based investment company, are valued at $1.8 billion. That figure might seem like a drug-induced hallucination, but it’s technically true. CannaVest is the top-performing stock in America in 2014 with a market capitalization greater than $1 billion. 

Its thinly-traded shares, which change hands on the Over-The-Counter Bulletin Board, or “pink sheets,” have soared by 680 percent in the last year. They are already up more than 300 percent in 2014. The average daily volume of about 10,900 shares has been light this year, but someone is buying the stock and the $117 it closed at on Friday makes Mackay the world’s first pot stock billionaire thanks to his 15.7 million shares in CannaVest.

Hostile Takeover

“Let’s not delude ourselves,” continued our entrepreneurial friend, “this is a hostile takeover of a multibillion-dollar industry. 

“It’s all about control and money, not freedom. It will be heavily licensed, regulated and taxed. There will be a lot of money in it… it’s like the liquor business when they got rid of prohibition. 

“If you legalized pot, prices would collapse. Nobody wants that. What they’re really doing is shifting the margins from the smugglers and dope dealers to the government. 

“You’ll be able to get pot… without worrying about going to jail or associating with shady characters. The quality is much higher than the stuff we smoked in college. And the people in the business – licensed producers, wholesalers and retailers – will make a lot of money. So will the government. Everybody will be happy. 

“We heard an example recently: Dad (67-years-old) was plagued all his life by depression. Practically ruined his life. Then a woman at his church – at church! – introduced him to marijuana. 

“Now, he smokes dope… and he’s fine.” 

Regards,

Bill

It may sound crazy, but one day marijuana may be as legally available in the US as alcohol. 

That means for anyone with a long-term time horizon… and able to stomach plenty of volatility along the way… investing in marijuana stocks could see big returns. 

Already, 20 states and the District of Columbia allow the use of marijuana for medical purposes. And as the New York Times reports: 

Proving this isn’t a partisan issue, the two states likeliest to legalize marijuana next are Democratic-controlled Oregon and Republican-controlled Alaska. 

Meanwhile, the Treasury Department and Justice Department have released guidelines that will make it easier for banks to do business with legitimate marijuana businesses without fear of criminal charges. 

There’s certainly a strong fiscal case for legalizing marijuana. According to Colorado Governor John Hickenlooper, taxes from legal marijuana sales will reach $134 million in the coming fiscal year – much higher than had been predicted when the measure was passed in 2012. 

None of this means the path to marijuana being as freely available as alcohol will be a smooth one. Pot is still illegal at the federal level. And there are plenty of vocal opponents of legalization. 

But today, 51% of Americans believe marijuana should be legal, according to a recent New York Times/CBS News poll. That’s up from 27% in 1979, when the New York Times and CBS first asked the question. 

Until marijuana is legalized under federal law, though, view any investment in marijuana-related stocks as a speculation. And like any speculation, you need to adhere to strict position-sizing rules. 

That means keeping any investment in marijuana stocks as a small portion of your overall portfolio. An unforeseen change in the law could wipe out your stake.