The Stupid Variable

–Why isn’t investing a science? After all, with a modest lesson in securities analysis, it isn’t that hard to tell when a stock is cheap or dear relative to its intrinsic value. Once you know how to value a security properly, the only other major variable you have to consider is whether the asset class that security belongs to is rising or falling.

–Ahh! If only it were so easy. If investing was strictly a rational exercise, everything would always be perfectly priced and on one would have an advantage over anyone else. There would be brilliant investors and stupid investors still. But the price of security—which represents where buyers and sellers are collectively meeting—wouldn’t deviate much from the intrinsic value of the security.

–But throw a few variables in the mix—fear, greed, the future—and all of the sudden what you should pay for a security and what you can expect to get in terms of performance are all up in the air. And that’s kind of where we are today.

–Stock prices are remarkably stable for a world at war and in the midst of a nuclear crisis/natural disaster in the third largest economy on the planet. This means investors are very good at holding their nerve, or they have badly mis-calculated about what’s going on. That’s understandable. In a fluid situation, you don’t always know what’s going on.

–One step to calm your breathing down and relax your heart rate is to study a few soothing charts. The idea is to strip out all the commentary and just focus on the “price action” and see what, if anything, that tells you. If you missed it last Friday, Slipstream Trader Murray Dawes took readers through five of the charts that he follows and shows you what they’re telling him at the moment. You can watch on Murray’s YouTube channel here.

–Speaking of price action, we had a look the latest continuous copper futures chart this morning. Why? Copper is a good sentiment indicator. When it can rise in the face of end-of-the-world news, it tells you that investors are focused on the economy, not the headlines. Of course investors could be generally wrong about the impact of geopolitical events. But let’s look at the chart anyway.

Copper stays on target


–The three-year chart shows you how copper, like most stock market indexes, has surfed the global liquidity wave higher. But what if that wave crashes? The 200-day moving average for copper is at $3.76 per pound. The more immediate bearish target would be the 10-day MA at $4.24/lb.

–But in the Grand Narrative of Everything that informs our understanding of the market, the short-term copper price only tells us that most asset prices will fall without more money pumping from central banks. In fact, it suits the bankster agenda quite nicely to allow prices to fall even more, including commodities.

–Weaker commodity prices remove the sting from the accusation that quantitative easing is causing food and fuel inflation. And weaker stock prices create demand from the Fed’s Wall Street constituency for more money and asset buying.  In the interim, the Fed and other central banks will sit tight and let the anxiety build the backdrop for the next big round of Quantitative Easing.

–It’s hard to trade a market like that. It’s even harder to invest in it. If you’re daring, you can try to sell into the rallies that anticipate QE and then buy during the periods of acute anxiety, like now. But you’d have to be playing with someone else’s money to employ that strategy AND sleep at night.

–Incidentally, most fund managers are playing with someone else’s money when they make these decisions, which is why they probably sleep well at night. If they’re wrong, it’s not their money and they can blame the market. If they’re right, they look smart.

–Nothing is certain in the Middle East and North Africa. It could “blow over” and stabilise with new regimes that pump what’s left of the regions oil to global security patrons China and the U.S. Or, it could be a long-term crisis in the legitimacy of the regimes that rose to power on the Petro-dollar standard.

–We wish there were a simple strategy you could take to hedge all your risks. But if you’re in the financial markets, there is no such strategy. This is why the best strategy is to migrate your wealth out of financial assets and into tangible assets. We’ll keep saying it until stocks look like a screaming bargain.

Dan Denning
For Markets and Money Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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