Asxnewbie.com. The weekly ramblings of an eccentric trader.

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Weekly Ramblings of an Australian Stock Trader

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Version 2.0: Gold Heading to ‘Fire Sale’ Prices.

Version 2.0: Gold Heading to ‘Fire Sale’ Prices

I like gold. But there’s a time to buy and a time to sell.Last week, I showed you the first part of my analysis of why gold is going to US$931 dollars per ounce next year. If you didn’t get to see it, you can view it here. This week, I’m going to back up my claim with more analysis and another chart.

One reason gold will fall is due to the bullish stock market run. Despite the mainstream media calling the stock market a ‘bubble’, this rally doesn’t look anywhere near the top…far too many people remain bearish and interest rates are still too low.

There is a clear thirst for yield out there, pushing more and more people into the stock market. This should result in the stock market hitting new highs next year.

This chase for yield will likely mean a sell-off in gold. After all, gold doesn’t offer any yield. At US$931, gold will be trading at a ‘fire sale’ price and the mainstream media will no doubt go crazy. Especially when the stock market is hitting new all-time highs.

50% corrections are typical in any financial market. It happened in the US housing market during the 2008/09 financial meltdown. The stock market felt similar pain. In fact gold fell 50% between 1974-1976. This sort of price action isn’t unusual.

After falling from US$1,920 per ounce at the end of 2011, US$931 would represent roughly the 50% correction level. In this case, US$931 would be a great buying opportunity.

The chart below shows you the long term gold price. Each bar represents one month. Compared to last week’s logarithmic chart, this normal chart shows the real-time closing prices of gold. Therefore, it’s a lot more volatile than the logarithmic chart, which smooths out the volatility.

world gold index
Source: Freestockcharts; Diggers & Drillers
Click to enlarge

 

You’ll notice that last week’s long term smooth uptrend no longer exists on the normal chart. In this case, the best way to explain this story is using Fibonacci sequence lines (dotted lines). I’ve fitted the lines using the long term top (US$1,920) and bottom (US$250) prices.

Every Fibonacci sequence level has acted as support and resistance in the past. These levels should come into play in the future.

Importantly, my target gold price of US$931 per ounce aligns with the significant long term 61.8% Fibonacci level (US$900).  Shown by the red line, this level is psychologically important for traders. Interestingly, technically the logarithmic and normal charts line up. This signals that there’s a good chance gold will fall to US$931 per ounce. [Read more →]

August 25, 2014   Comments Off

War: How Anybody Can Declare War on the World and Win.

War: How Anybody Can Declare War on the World and Win

Editor’s Note: What follows is an exclusive extract of John Robb’s speech at World War D earlier this year. John is a former US counterterrorism commander, high-tech entrepreneur; expert on digital-age warfare, and author of bestseller, Brave New War. Here looks at a few examples of the ‘super-empowered individuals’ of the digital age:

I want to explore the idea that anyone can declare war on the world and win.

The first example of that is Edward Snowden. Edward declared war on the entire US national security system. He did this by stealing the crown jewels — the equivalent of the crown jewels in information — information from the founders of information, the National Security Agency.

He then speared this information out of the country. He has been able to rage an ongoing war against the US National Security infrastructure or security system for the last year, successfully, without even dying, which is pretty amazing.

What makes Edward’s story particularly interesting with us is that he is not just a one-off, an outlier. He is part of a new type of threat.

I call these people ‘super-empowered individuals’.

People that have access to computers, networks and globalisation and can use those to do an amazing amount of stuff, an amazing amount of work. Stuff that used to take an entire corporation or government agency to do just a decade ago.

Many of us in this room are already super-empowered individuals. We publish our own books. We run big — relatively big — companies from home, through our computers. We do things that make us look ten times larger than we are to the outside world by using this leverage.

However, not everyone is going to use it for productive [ends], and a lot of people are going to use it to disrupt the systems that we rely upon, break them for personal gain. These super-empowered individuals are able to leverage the network precisely because it’s huge, beyond the scope of any national system. It is interconnected. It is extremely vulnerable to disruption…

…Let’s quickly dive on why Edward Snowden was so interesting. He didn’t succeed because he picked a vulnerable target. Obviously, the National Security Agency is arguably the most proactively secure organisation in the world.

They spend billions on protecting against people just like him. They have security clearances that stretch back years, not just top secret, above top secret and they do complete background checks. They have electronic monitoring of all online activity. They have firewalls and firebreaks throughout the system. They even have protections against wireless transfer. They have the ability to then go after people who actually steal secrets, with the full weight and might of the national security system behind them.

How did he do this? He did this because of one simple paradox. It’s a paradox we see in banks. [Read more →]

August 25, 2014   Comments Off

We Hope You Followed Our Australian Share Market Advice…

We Hope You Followed Our Australian Share Market Advice…

Did you do it?

We told you to do it.

But you probably didn’t trust us enough to do it.

In fact you probably did something we told you not to do.

That’s understandable. Even though we’ve gotten pretty much every part of this market right for the past five years we don’t expect everyone to believe us.

But we’re telling you now: you better believe us. If you don’t, it could cost you…

So, what are we going on about?

It should be obvious. The Age reports:

The broader market meanwhile finished at its highest since June 2008, with the S&P/ASX 200 Index firming 10.8 points, or 0.2 per cent, to 5634.6 points.

As we mentioned yesterday, it was barely three weeks ago that many commentators were fretting about crashing stock prices.

Well, stocks did fall…but then they recovered. Just as we said they would. That’s why when most others told you to sell stocks at the time, we told you to get into the market and buy.

That’s what we did. We took our own medicine and added to our personal blue-chip portfolio. It was a good move. The S&P/ASX 200 index is up 3.6% since the recent low on 8th August.

And there’s much more to come. [Read more →]

August 22, 2014   Comments Off

Why Stocks are Set to Soar When This Trend Ends.

Why Stocks are Set to Soar When This Trend Ends

Over the past year, the Australian share market has had displayed more volatility than the streets of Ferguson, Missouri.

And although the S&P/ASX 200 is up 9.9% during that time, for most of this year the market has traded in a sideways channel.

It’s important to know that.

For all the talk about crashes and crises the market has only closed higher than yesterday’s close on one day this year. That was on 31 July.

That was the day before the market began to crash because…heck, do you know what, we don’t even remember. Do you remember?

We bet you don’t. And that’s our point about all these fake crises — they amount to nothing. If you can’t remember the reason barely three weeks later, then you know it wasn’t a dot-com bust, subprime meltdown or September 11 type disaster.

Of course, that’s history. More important is what will happen next? Here’s our take…

The market has been going sideways.

But the market never goes sideways forever.

Eventually it will break out of a sideways trend and move higher…or lower.

It’s always one or the other. It can’t be both. [Read more →]

August 22, 2014   Comments Off

Profiting from the Most Important Safety Feature in your New Car.

Profiting from the Most Important Safety Feature in your New Car

You’ve probably never heard of John Hetrick. But you should have. It’s possible he’s saved more lives in the history of the world than anyone else.

Thanks to Hetrick, we all drive around in our cars safer than ever before.

In the spring of 1952, Hetrick was out driving in his car with his wife and his seven year old daughter.

In the spring of ’52, my wife, my seven-year-old daughter, Joan, and I were out for a Sunday drive in our 1948 Chrysler Windsor. About three miles outside Newport we were watching for deer bounding across the road.

Suddenly, there was a large rock in our path, just past the crest of a hill. I remember hitting the brakes and veering the car to the right. We went into the ditch but avoided hitting both a tree and a wooden fence. In that respect we were very lucky.

As I applied the brakes, both my wife and I threw our hands up to keep our daughter from hitting the dashboard. There was soft mud in the ditch, so the car wasn’t damaged, and no one was hurt.

During the ride home I couldn’t stop thinking about the accident. I asked myself, ‘Why couldn’t some object come out to stop you from striking the inside of the car?’ As soon as I got home that night I sat down at the kitchen table and drew some sketches. Each evening for the following two weeks, I’d add or subtract something from the sketches.

This was the very beginning of the airbag.

Another safety device in cars is the seatbelt. The history of the seatbelt goes back as far as the 19th century. However it wasn’t until 1958 when SAAB made seatbelts standard in all their cars.

What you also may not realise is in 1970, Victoria put in place the first law in the world making seatbelts compulsory for front seat passengers and drivers.

Of course now seatbelts are standard in every new car in the world. [Read more →]

August 20, 2014   Comments Off

The Most Miserable Bull Stock Market in History.

The Most Miserable Bull Stock Market in History

What do you think of when you think of a bull market bubble?

Euphoria. Excitement. Frenzy…buying stocks because everyone else is buying stocks.

Buying stocks because stocks are going up.

That’s what we think of when we think about bull market bubbles.

We don’t think of high unemployment, high inflation, and generally miserable consumers and investors who think the world is about to end.

And yet today’s stock market has more of the characteristics of the latter than the former. If the market really is in a bubble (as many claim), this must be the most miserable and depressing stock market bubble in the history of stock markets.

That’s why, for all the talk of a bubble in stocks, we just don’t buy it…

Bloomberg yesterday reported on Australia’s ‘misery’:

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens.

Australia’s misery index — the sum of unemployment and inflation rates — is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression.

As with any statistic, you should take it with a grain of salt. But don’t ignore it completely.

This all goes to support our view that interest rates aren’t going anywhere fast. Can you really imagine the Reserve Bank of Australia raising interest rates as the unemployment rate goes up?

It ain’t gonna happen. [Read more →]

August 20, 2014   Comments Off

How the Stock Market Scores on the ‘Crash Scale’.

How the Stock Market Scores on the ‘Crash Scale’

Well, that appears to be another imminent crash threat that has come and gone.

It’s not the done thing to say, ‘We were right.’

But we were. So we’ll say it. We were right.

The Australian share market is now almost back to where it was on 31 July. That was the market’s highest point in six years.

And for the year the Aussie market is up 4%.

It’s not a stunning return, but it’s hardly a complete fizzer either. Not only that, but it’s a poke in the eye for those who claim the stock market is at the top of a bubble.

It’s not. In fact, according to a team of US analysts in a report from earlier this year, stocks only show two out of the nine characteristics you’ll normally find in a bubbly market…

The Financial Times explained the research in March this year:

In a checklist of nine factors that it says in 2000 and 2007 signalled a peak for equities, [research firm] Strategas says only two are currently flashing red today.

One is rising real interest rates — as shown by meek inflation and 10-year Treasury yields near 2.80 per cent.

The other is weakening upward earnings revisions.

In bad news for crash watchers, it seems that since then, there is now only one of the signals flashing red. [Read more →]

August 19, 2014   Comments Off

The Street Cred of Fracking

The Street Cred of Fracking

I’m sure you’ve followed recent news from the Middle East. Iraq is breaking into three regions defined by ethnicity and religion — Sunni, Shia and Kurd. What this all means to you, and to your investments and investing strategy. Where do you go from here?

Yes, global oil prices are up with bad news from Iraq; but the price rise isn’t a number that we haven’t seen several times before, within the past three years or so. Somehow, the world has survived. So let’s be cautious, here. Don’t panic into rash investment behaviour based on shocking news headlines.

At this point, let’s back up and consider what an oil price-quote reflects. Yes, price reflects current oil ‘demand’, to be sure. If you run a refinery, you need oil and you’ll pay a certain price to obtain it.

Then again, oil prices reflect expectations of future availability. That is, if I can’t buy a certain barrel of oil today, perhaps I’ll defer and buy it tomorrow, or next week, or next month — which gets me to North American fracking.

Despite all of the tight oil coming out of North American rocks due to fracking, I’ve noticed that many people just don’t seem to be all that impressed. For example, several years ago, at the Offshore Technology Conference in Houston, I heard a talk by Alexei Miller, CEO of Russian energy giant Gazprom.

During the question session, someone asked Mr. Miller about his views on fracking. According to my notes, he replied that, ‘Fracking is like going to a dinner party, and being served only hors d’oeuvres. They might be tasty; but I want to sink my teeth into a juicy steak.

That is, per Gazprom’s Mr. Miller, fracking is a less important form of major energy production than traditional drilling operations in hydrocarbon-bearing formations. All in all, Mr. Miller was disdainful of fracking. That was quite evident.

I saw the same sense of disdain towards fracking over the past few years, at the Platts Energy Conference in London. There, an ‘international’ group of energy experts gathered, and essentially damned US fracking with faint praise, when they weren’t openly bad mouthing it.

Think of everything that might be wrong with fracking, and the London critics focused on it during past Platts Conferences. Fracking is costly per well, energy intensive, materials intensive, water intensive, has high decline rates, relies on a drilling treadmill, only works in sweet spots, needs lots of gathering pipelines, leads to energy sprawl, faces political opposition and much more. [Read more →]

August 19, 2014   Comments Off

Gold Heading to ‘Fire Sale’ Prices.

Gold Heading to ‘Fire Sale’ Prices

I like gold. But there’s a time to buy and a time to sell.

Over the next two weeks, I’ll walk you through my analysis on gold. In this analysis I’ll show you why gold is going to US$931 dollars per ounce next year.

One reason is due to the bullish stock market run. Despite the mainstream media calling the stock market a ‘bubble’, this rally doesn’t look anywhere near the top…far too many people remain bearish, and interest rates are still too low.

There is a clear thirst for yield out there, pushing more and more people into the stock market. This should result in the stock market hitting new highs next year.

In this case, the chase for yield will likely mean a sell-off in gold. After all, gold doesn’t offer any yield.

The best way to explain this is by looking at the technicals. This is because markets are irrational and spurred by emotions. In this case, technical analysis tracks the emotional history of investors by analysing price movements. This is why it’s useful to use both technical and fundamental analysis.

The chart below shows the long term gold price. Each bar represents one month. Note that this is a logarithmic chart, which smooths out price volatility over the long run. This is only useful for looking at long term charts, not short term. I’ll show you a normal (arithmetic) chart next week.

Gold Price with support lines
Source: Freestockcharts; Diggers & Drillers
Click to enlarge

The technicals show that gold is in a long term uptrend and has been ever since 2001. Saying this, I expect the long-term bullish pattern to break down in the next year or two.

Here’s why… [Read more →]

August 18, 2014   Comments Off

The Chart That ‘Proves’ the Low Interest Rate Era is Alive and Well.

The Chart That ‘Proves’ the Low Interest Rate Era is Alive and Well

Raise your hand if you really think interest rates are about to go up.

We’re sorry to keep going on about boring old interest rates.

But it amazes me that so many folks still think central banks are about to pull the trigger on rate increases.

We just don’t see it happening.

In fact, we’ll go further — it won’t happen. If anything, the trend isn’t up…it’s down…

In a moment we’ll show you a remarkable chart.

Some may think this is an exaggeration, but we’ll go so far to say that it’s one of the most remarkable charts we’ve seen…at least in the past 10 years.

If you think the chart of the 2008 stock market crash is frightening, you’ve seen nothing. During that crash, the US stock market halved in value.

But how would you like a market (another ‘blue-chip’ market) that has effectively fallen 71% in value over the past three years? [Read more →]

August 18, 2014   Comments Off