The Magic Wand of the Central Bankers

Volatility is back. One day Wall Street is down a few hundred points, the next day, it’s back up. Overnight, the Dow surged 274 points.

Why? Because the US Federal Reserve released the minutes of its most recent monetary policy meeting which showed — surprise, surprise — that they are in no rush to raise interest rates. Oh, and they are also concerned about the strength of the dollar.

The market response? Buy stocks!!

At least this stupidity might give the Australian stock market some reprieve today. The local index has been bludgeoned recently. Even when Wall Street rises, Aussie stocks have struggled to post decent gains.

That’s largely thanks to the surging US dollar, which has dragged commodities down, including iron ore, Australia’s biggest export earner.

For the first time in a few years, stocks at the top end of the market, like the banks and the big resource companies, are leading the sell-off. The recent correction in the market served to break the upward trend that’s been in place since 2012.

The trend is no longer your friend.

Despite this newly ugly market environment, or maybe because of it, Australian Small-Cap Investigator analyst Tim Dohrmann is having a ball. He’s picking winners left and right at the moment.

That’s because Tim doesn’t care what’s going on in the market. He’s looking at small caps with exciting business plans…companies who are getting on with it regardless of QE, government idiocy, budget deficits, or anxious consumers.

Tim’s latest winner is a small oil explorer that just found an ocean of the stuff in Africa. I don’t know what Tim’s secret is…he usually scurries off to the back of the office each day and surrounds himself with company reports and data sheets. But whatever he’s doing, it’s working.

One thing I do know is that Tim isn’t looking closely at gold stocks right now. They are on the nose big time. Recently, gold fell right back down to its recent lows at around US$1,180 per ounce.

Just as everyone starting worrying about a break below the lows and a collapse in gold prices below US$1,000, the price turned around. You can see the turnaround in this chart. The plunge lower that we saw in early October has reversed quickly in the past few days.

Gold price

Maybe the price bounced in sympathy with the start of The Gold Investment Symposium in Sydney, which kicked off yesterday.

I arrived in Sydney early today to catch the day two presentations. I’m scheduled to speak at the end of the day…hopefully there’s still a crowd here to listen.

You can tell when an investment is on the nose by looking around a conference room. There are a good amount of people here, but the room is by no means full. And I get the sense that it’s mostly die-hard gold types in the audience, rather than interested newbies.

Which is a shame. The Gold Symposium is an excellent conference, with quality speakers. The education you get here in half a day beats what you’ll get by listening to the mainstream media drone on for months.

But it’s a great sign if you’re a contrarian. Gold certainly looks like it’s been abandoned by all but the true believers. I don’t know if gold has found a lasting bottom, but apathy and disinterest are two welcome signs that a bottom is close.

You haven’t had the capitulation phase just yet…and it may not even take place. There’s no guarantee that markets bottom out in a textbook fashion. And, as I’ll show you tomorrow, gold is much closer to the bottom here that it is near a top.

Getting back to the actual conference, first up this morning was Brent Johnson from Santiago Capital, based in San Francisco. Brent explained how it’s a mathematical certainty that the current monetary system will collapse at some point.

He doesn’t know when that will be, of course, but he reckons it’s not as far off as many people probably think. Assuming you’re even thinking about an end point for our monetary system…which most people are not.

Brent says you’d be mad not to have some of your capital invested in physical gold, the ultimate insurance against such a collapse.

Santiago Capital tells their clients to have between 15% and 25% of their capital in gold. This may seem ill-advised now…but it won’t in a few years time.

Don’t forget, you make your money in the buying. You buy when things look hopeless and everyone thinks you’re an idiot for doing so. It’s these conditions that produce huge gains in the years ahead.

Brent likens the current day monetary system to a shark. Most sharks must continue to move in order to stay alive. If they stop, they die. In the same way, the monetary system must keep the money flowing. And to do this, debt must keep growing to pay the interest on the previously created debt.

In other words, we’re in one giant Ponzi scheme. That’s a statement that has been bandied around for years now. But because central banks seem all powerful, and nothing Ponzi-like has happened yet, the gravity of the term is lost on most people.

But make no mistake, you’re living through the largest Ponzi scheme in history. It’s only the magic wand of central bankers that keeps this Ponzi scheme expanding. And it has the added benefit of anesthetising people’s brains to the dangers of what they’re doing.

Well, it won’t work. It can’t work. Life doesn’t work like that and the market, at its core, is a representation of life.

So do yourself a favour and buy a little bit of gold insurance… even if you don’t believe anything will happen. After all, that’s what insurance is for.

Until tomorrow…


Greg Canavan+
For Markets and Money

Join Markets and Money on Google+

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money