Monday, August 22, 2016

August 21 Update: Keeping HDGE as insurance

The Schiff-Maloney portfolio continued to follow the bullish triangle pattern over the past two weeks, and its value reached an all-time high of over $112,800 on Thursday.  Presently it stands at $112,137.

I've been thinking about the bearish stance on the U.S. stock market using HDGE, and its seeming futility in the face of central banks buying tens of billions of dollars worth of equities, but I've decided to keep HDGE in the portfolio.  As much as the returns have been hurt by the rise in the stock market and the corresponding drop in HDGE, it provides vital insurance against a global market crash, particularly for retirees or people nearing retirement.  The portfolio has been making steady gains since November of last year, and that's more important than the performance of just one fund.

Sunday, August 07, 2016

August 6 Update: Fooled by the Fed Again

1) Stealth QE and HDGE

One-quarter of my Schiff-Maloney portfolio is a bet against the U.S. stock market using a bear fund (ticker symbol HDGE), with the proviso that I will sell it if and when the Federal Reserve Bank announces the next round of quantitative easing (QE).  The first three QE programs all caused stock prices to rise and HDGE to fall, while in 2015 the market started to fall and HDGE rose when there was no quantitative easing.

Just two days ago it was revealed that a new round of stealth quantitative easing (SQE?!) has been going on under our noses for most of 2016.  The website Zerohedge revealed the big news on Thursday.  The Swiss National Bank, already an owner of $41 Billion of U.S. stocks as of 2015, purchased another $21 Billion in just the first six months of 2016, thus explaining the out-of-nowhere rally that's taken the stock market to new all-time highs:

If the central bank of Switzerland was compelled to buy U.S. stocks, other central banks (Japan, EU) were probably following suit.

This was a clever and timely intervention by the central banks.  It was clever because many U.S. investors had recently become aware of the nearly perfect correlation between the Fed printing money (QE1, QE2, and QE3) and the stock market rallies from 2009 to 2014 shown above.  Having foreign central banks do the next round of stock buying without any announcement of QE4 by the Fed, and keeping the U.S. money supply flat, made it look like this year's rally was due to prosperous and optimistic investors buying stocks, when in fact it was foreign central banks who were buying stocks with newly created currency.  The intervention was timely because the U.S. stock market was rolling over in late 2015, and was approaching a 2-year low point in February of this year.  Just as QE1 stopped the 2008 market crash in its tracks, SQE reversed this year's decline and has taken stocks to new all-time highs.

The lesson is that central banks will always stay one step ahead of investors - even well-informed investors - and there is almost nothing they won't do at this point to prevent a bear market or a crash.   There was probably a quid pro quo agreement between the Fed and the other central banks that instigated this year's SQE program, but I don't know what "quid" the Fed gave in return for the foreign banks' "quo", and by the time somebody figures it out, it will probably be to late for investors to profit from it.

Future stealth intervention will probably prevent any major stock market decline before the dollar collapse happens, and that would make HDGE a pointless component of my portfolio.  I will consider dropping it over the next few weeks.

2) A simpler portfolio for small accounts

For investors with small accounts, such as a $5,000 Roth IRA starter account, I've identified some ETFs that can create a decent portfolio with just a few purchases.  (Remember that I may be ejecting HDGE soon, which would make the portfolio even simpler.)

DVYA 25% (Pacific ex-Japan Dividend Fund)
FXF  25% (Swiss Franc Currency Fund)
GLTR 25% (Precious Metals Fund)
HDGE 25%

Aside from HDGE, this portfolio uses only three funds to invest in ~40 stocks, five of the top six Schiff countries (Australia, New Zealand, Hong Kong, Singapore, Switzerland), and 4 precious metals. (GLTR invests in a combination of gold, silver, platinum and palladium!)

3) Slower trend

The Schiff-Maloney portfolio fell 1% this week to $111,369.  Overall its value is still rising, but it's been growing more slowly since mid-June.

4) New silver bullion bar

Many online bullion dealers, including Provident Metals and JM Bullion, are selling a new 5-ounce silver bar that can be broken up into 20, 1/4 ounce pieces for bartering.  It looks to me like an ideal combination of large and small, and best of all it's cheaper than buying twenty quarter-ounce coins.

Saturday, July 30, 2016

July 30 Update: Boing!; Bailing on Bonds


The value of the Schiff-Maloney portfolio bounced up off of the rising lower trend line, netting a 1.5% gain for the week. (click chart to enlarge)


I'm shaking up the portfolio this weekend by selling both of the bond funds (ALD, AUNZ) and replacing them with foreign currency funds, which are analogous to bank accounts or money market funds.  Thanks to some fortuitous timing I was able to take advantage of a six-month window of opportunity in which the value of the dollar relative to Schiff currencies started falling while the global bond bubble continued to inflate.  The closing gains for the ALD and AUNZ positions are 3.5% and 8.5%, respectively.

Given that global bonds are in a bubble, it was technically against the philosophy of the Schiff-Maloney portfolio to invest in them at all, but I had a reason for briefly surfing the bond wave before it broke.   A sizeable chunk of my savings is in a group retirement plan that has access to only a limited number of funds.  Most of them are tied to doomed U.S. stocks and bonds, and none of them invest in foreign currencies, but a few of them have bonds from several countries, including Schiff countries.  To maximize my diversification while getting some protection from the dollar collapse, I was obliged to invest in three foreign bond funds and hope for the best.  In the interest of convincing myself that these funds were adequate, and to demonstrate this decent alternative to other investors with similar limitations, I found ALD and AUNZ and used them in my accounts where I have complete freedom to choose any investment.

A recent post by Mike Maloney inspired me to take a closer look at the bond situation, and what I've seen convinces me that it's a great time to sell the bonds in the Schiff-Money portfolio.  First, Maloney points out that the "yield curve" in the U.S. recently made a big move towards "flattening":

When bond yields fall it means bond prices are rising, and in the chart below you can see long-term U.S. treasury bond prices (20-30 year maturities) have reached a rising upper trend line (green) for only the fourth time since 2008:

There's also a lower trend line (red) that will intersect the upper trend line some time in 2018.  Market technicians call this a "rising wedge" pattern, and in this situation the price usually reverses and falls below the red line well before the trend lines meet, thus it's quite possible that this is THE peak in bond prices.  A drop back to pre-2008 prices would be a ~35% drop, and in this interconnected global economy all foreign bonds would be dragged down as well.  Most bond funds have shorter average maturities (5-10 years), so the fall will not be as steep for ALD, AUNZ, or the mediocre funds that I'm stuck with in my group plan.


I've used the bond sale proceeds to purchase six exchange traded funds (ETFs) that invest in foreign currencies.  Three of the funds are in currencies of top Schiff-approved countries, and three more are second-tier currencies included for diversification.

FXF: Swiss Frank CurrencyShares
FXA: Australian Dollar CurrencyShares
FXSG: Singapore Dollar CurrencyShares

FXS: Swedish Krona CurrencyShares
FXB: British Pound Sterling CurrencyShares
FXC: Canadian Dollar CurrencyShares

The new funds are listed at the bottom of the table below.  Presently they're each sitting at an $8 loss, reflecting the trading fee for a Fidelity account.  (For some reason the ticker symbol for the Singapore fund [FXSG] doesn't add or subtract from the value of the portfolio in the chart, but does for the table. I'm not sure yet how to solve this.)

Finally, this week I encourage you to visit your local coin store with a wad of cash and establish good relations with the proprietor(s).

Saturday, July 23, 2016

July 23 Update: Made in China

The Schiff-Maloney portfolio had another down week with a drop of nearly 1%, but as you can see in the chart below, this is actually an expected decline that takes the value down to the rising red trend line for at least the 8th time since February.  Assuming the current trend holds, this is probably a good time to add money to the portfolio.

Schiff-Maloney Portfolio performance (CLICK TO ENLARGE)

I end today's quick update with something tangentially relevant that I find darkly amusing.  The Wall Street Journal recently produced a video on the Panama Canal expansion project:

The video is informative enough, but at the 1:30 mark the video explains the primary justification for the expansion project, and in doing so it inadvertently lets us glimpse the house of cards that we're sitting on.  The nice young lady explains, "[it] would make it cheaper and faster to get (Asian) consumer goods to big cities along the Atlantic Seaboard," and as an afterthought she notes that it might make it easier for the U.S. to export food and energy.  Even assuming that the canal helps our exports, a country with a supposedly 21st-century, high-tech economy can't stay that way if it's importing most of its consumer goods in return for sending some corn, coal, and treasury bonds.

People assume that this one-way flow of manufactured products can somehow go on forever, but it won't last.  China is wise to what's coming, as evidenced by their recent massive purchases of gold bullion:

Most of us won't be able to afford Chinese goods after the dollar collapses, but Chinese consumers with good manufacturing jobs and gold-backed money will be happy to buy their own products in our stead.

Friday, June 03, 2016

Jobs data looks bad; bots turn super-bullish

Today was a banner day for my Armageddon portfolio - both the dollar and the S&P 500 fell, and that means just about every fund in my portfolio made gains.  The highlights were a 9.7% gain by silver miners [SIL] and an 11.2% gain by gold miners [GLD].

For anyone who is paying attention to the S&P 500 bots, the internal price forces number is now even higher at 8.9 out of 10.

Wednesday, May 18, 2016

Bots are extra bullish now

My S&P 500 market bots have become even more optimistic about the U.S. stock market's prospects for the next few months.  The Internal Price Forces number has risen to 7.9, which is fully bullish. When the bots are this bullish, only a pre-crash signal a la 1929 or 1987 can make them switch to a bearish stance. 

Despite the bots I remain in my bullish-foreign-stocks/short-U.S.-stocks stance.  The Federal Reserve Bank has been the driver of the U.S. stock market since 2009, and that's not going to change any time soon.  Presently the Fed has taken a pause in the money printing and that leaves the market vulnerable.  When the Fed resumes printing (and it will resume printing) the market will start climbing again and the bots will be proven right, but for the wrong reasons.

Tuesday, May 17, 2016

The Schiff Thesis Portfolio

I've set up a portfolio on Google finance that includes my transactions and holdings since I started betting against the dollar on October 14 of last year.  I normalized the starting amount to $100,000.  Here's a screen capture of the results so far (click to enlarge):

Google finance doesn't always give the correct names of the funds, so here's a table of the ETFs I'm using:

ETF TickerDescription
AUSEAustralia + New Zealand Bonds
ALDAsia Local Debt (Bonds)
AUSEAustralia Dividend Stocks
ENZLNew Zealand Stocks
DVYAAsia/Pacific Dividend Stocks
EWMMalaysia Stocks
NORWNorway Stocks
EWLSwitzerland Stocks
HDGEUS Bear Market
SILSilver Mining Stocks
USLOil price ETF (12 month futures)
GDXGold Mining Stocks

I'd rather have a live public portfolio that readers can check at any time - does anyone know of a website that does this?

Tuesday, April 26, 2016

How 'bout them bots!

The S&P 500 market bots have apparently come through once again.  On October 26 last year they switched to a bullish stance with 100% confidence based on an unusual seasonal factor, then last night - exactly 6 months later - they returned to their normal operating mode.  Although they remain in a bullish stance, the "internal price forces" are now neutral with a value of 5.3.  The S&P 500 index was at 2065 when the bots turned bullish in October, and this morning the index opened at 2091, so at the moment the six-month bullish call has eked out a 1% gain.

I've made good gains over the past six months, but it wasn't by following the bots' advice.  Regular readers know that I've been ignoring the bots this time, and instead have been bearishly invested against U.S. stocks with HDGE.  However I've had an equal investment in certain foreign stocks funds, and because these funds have gained more than the S&P over this period (i.e., they've gained more than HDGE has lost) I've made a net gain.

However the REALLY big gainer has been my 10% stake in the Gold Miner's ETF, which has absolutely skyrocketed in the past few months:

Ironically, the ability of my bots to time the U.S. stock market has been of little significance lately, and I suspect the bots will be even less significant over the next year or two as the dollar collapses and gold, silver, and foreign assets make large gains in dollar terms.

Tuesday, April 05, 2016

Dollar's fifth time on the brink

The U.S. Dollar Index is a weighted average of the exchange rate between the dollar and major currencies like the Euro and Yen.  The index started with a value of 100 in 1973 after the dollar was disconnected from gold, and it has since ranged from 165 (in 1985) to 71 (in 2008).  Lately it's been hovering in a range between 94 and 101, and today marks the fifth time in 11 months that it has reached a rising support line, shown in blue in the chart below:

It's only a matter of time before the Federal Reserve Bank lowers interest rates back to zero, or begins printing more money to prop up the stock market, or both, and the index will likely fall through the support line at that time.  It's also possible that foreign investors will anticipate those moves by the Fed before they happen, and if the index breaks below the support line before any Fed actions, it would both reveal that anticipation among fundamental investors, and trigger a bearish rush by currency traders.

This eventual breakdown is precisely why I'm in gold and silver, gold mining stocks, and stocks and bonds of foreign countries with healthier monetary policies.  Americans who are fully invested in U.S. stocks and bonds, or who keep lots of savings in dollars, are going to become much poorer.

Friday, April 01, 2016

Will the bots get a win here?

My automated S&P 500 market-timing bots turned bullish on October 26 last year, when the S&P 500 index was about 2065.  The market then fell 13% from December through February, and has since regained nearly all of the losses.  Yesterday the market closed at 2059, just six points below the bots' buy point.

I chose not to trust the bots at this time, and made a hedged bet of 30% bearish on the U.S. stock market [HDGE] and 30% bullish on some foreign funds that match the "Peter Schiff criteria." (Australia, New Zealand, Hong Kong, Singapore)  This combination has made a small gain over the past few months, which is good enough in these crazy central bank manipulated-markets.

The rare seasonal factor that has the bots pegged at 100% bullish is going to end very soon.  It will be interesting to see if this bullish position would have paid off after all, and what the market stance will be when the seasonal factor ends.

Sunday, February 14, 2016

Some previews from the past

Do you remember the 2008 financial crisis?   It will soon be returning to a neighborhood near you, only it's going to be even bigger this time.  In the last eight years every nation has gotten deeper into debt, and the surviving banks (those that were bailed out in 2008) have gotten bigger and have taken even greater risks, thanks to seven years of 0% interest rates, $3 trillion printed by the Fed, and trillions more printed by other central banks in Europe and Asia.

You may think you have money in your bank account, but even in good times the vault doesn't have a single penny with your name on it.  There's a number on a computer somewhere that indicates your account balance, but the money isn't there.

Tom asks for $242 dollars, which before 1935 was equivalent to 12 ounces of gold.  Do you have 12 ounces of gold?  If not, it will cost you $14,800 to get it at February 2016 prices.

On the other side of your bank account there are people with student debt, car loans, and home mortgages who will soon stop making their payments to your bank.  In theory the bank can repossess the cars and homes and get *something* back when the borrowers default, but if everyone defaults at the same time, and cars and homes all hit the auction block simultaneously, then prices will plummet and the banks won't recoup the money that you think is in your account. Corporations have also been seduced into borrowing billions of dollars that they can't pay back, and much of their debt is in the bond market where it waits to implode.  When this all goes down, the ugly truth will finally slap you in the face: the banks can't even maintain the electronic numbers, let alone actual physical money.  It's all gone.

... UNLESS the Federal Reserve Bank steps in first and prints trillions of dollars more in order to bail out all of the bad debt before the implosion happens. Yes, that will ensure that you still have your electronic numbers at the bank, but the fatal side effect is that you'll be spending $1000 per day on food.  As I've been saying for a while now, one way or another, "a great deal of illusory capital is about to disappear."

Sunday, February 07, 2016

OK. I get it now.

History shows that every form of paper currency eventually becomes worthless.  After World War I, European currencies like the German mark and the Italian lira plummeted in value, requiring governments to print larger and larger denominations just to facilitate the simple act of buying food.

In American history we have the examples of the Continental currency and Confederate States dollar becoming worthless during wartime. It will be no different for the yen, the euro, or the dollar, as the central banks in these modern countries have been printing new money at an accelerating rate since the financial crisis of 2008.

A 2,500 year old Lydian gold coin, on the other hand, is just as valuable in terms of its gold content today as a newly minted 2016 American Gold Eagle coin.  The relative staying power of gold compared to paper is nearly infinite.

For a while the U.S. dollar was actually tied to gold. Anyone with a $20 bill could, in theory, walk into a bank and exchange the paper for one ounce of gold.

However that's not the case today.  In 1971 the U.S. government ended the dollar's connection to gold altogether.  From that point on the dollar only had value because Americans and foreigners alike were in the habit of trading with it, and because nearly every foreign bank in the world backed its local currency with the (formerly gold-backed) dollar.  Now that the Fed is gearing up for a fourth round of Quantitative Easing money printing, the dollar's days as the world standard are coming to an end.

I'm convinced that the citizens of the First World will soon have the same reaction that Auda Abu Tayi did in the movie Lawrence of Arabia; they will realize that they've been working all of these years to earn worthless pieces of paper and ephemeral electronic numbers which the Federal Reserve and other central banks can ceaselessly create out of thin air.