"Money power denounces, as public enemies,
all who question its methods or throw light upon its crimes."
[ Wm. Jennings Bryan]
We have already covered the importance of trends, especially long-term trends. For a refresher, check out the Beginner's Page, Investment Philosophy, and the Investment Pyramid.
The bullish long-term trend is what we are interested in investing in – also known as the primary trend. There can be more than one long-term trend occurring at any given time.
This is due to the many different markets available to invest in: i.e. the stock market, the bond market, commodities, energy, precious metals, currencies, real estate, etc.
Presently there are three (3) bullish long-term or primary trends occurring. These trends also look as though they will continue into the future.
The three primary bullish trends are:
There is no question as to whether or not the above three markets are top performers. All one has to do is to look at a chart of gold or silver, oil and related fields, or the CRB index to confirm this view.
You will find that all three charts have a bullish signature: they start at the bottom left hand corner of the page and progress up to the top right hand corner of the page in a series of higher highs and higher lows.
Investments in any of these primary trends over the past few years have returned significant profits. All three of these trends have the same overall fundamental paradigm supporting them.
Paper and financial assets are losing their favored position and slowly becoming out of favor.
Hard or real assets are becoming the choice of investors: precious metals, energy, and commodities.
The U.S. Dollar is in a long-term bear market. It appears that the bond market is just embarking on a long-term bear market as well. Both the dollar and bonds are pieces of paper – receipts for debt and nothing more.
In other words, they are not real tangible commodities or goods – as are the precious metals, energy, and commodities as represented by the CRB Index.
The U.S. Stock market is in a long-term secular bear market. Presently it is in an intermediate-term counter-trend rally that is very extended, and closer to its end then beginning.
The bond market has been in a long and extended bull market. Presently it is slowly shifting direction into a bear mode. Once again, this fits in to our overall paradigm themes – paper (debt) is out and real (commodities) are in.
Real estate is a real and tangible asset, however, in the last several years real estate has entered into an inflationary bubble due to the excess proliferation of any kind of imaginable credit and debt the New World Order Wizards of structured finance can concoct to make a quick buck.
Real estate is an accident looking for a time and place to happen. If bonds keep going into a bear market, it will be due to long-term interest rates rising. Rising rates will be the death-knell to the real estate market.
Consequently, is does not appear that real estate will perform in line with other hard assets, because it is joined at the hip to the debt market. The existing debt is the curse of a paper fiat monetary system. It is the price one pays for accepting the unacceptable.
Paper fiat debt-money, especially the U.S. Federal Reserve Note, is already coming under fire as to its viability as the reserve currency of the world. This is because it does not retain purchasing power or wealth.
The recent G-7 meetings and statements from the IMF and BIS have questioned the role of the US Dollar as the reserve currency of the world. This will only get worse with time. Such is the fate that awaits paper fiat.
Gold is in a long-term bull market, but appears to be getting ready to enter an intermediate term counter-trend correction. The signals remain mixed, as the stocks are out of sync with the metal. One of the two will realign itself with the other in an intermediate term move up or down.
Silver is in a long-term bull market as well (platinum too). Silver is presently acting very volatile with significant intra-day moves. Silver has been outperforming gold recently.
Energy is in a long-term bull market. It corrected early in the year and then rallied to new highs again – and once again, it has begun to correct. Corrections are just part of the course of all bull markets and this one is no different. The world requires energy. Demand for energy will not decrease over time – supply most increase.
It is hard not to be long-term bullish on the energy markets, both on fundamentals and technically. However, we have also mentioned intervention and if there is a market subject to intervention oil is high on the list, with the precious metals for company. Come to think of it – several markets fit the BILL.
Commodities are in a long-term bull market. Presently they are overbought, and an intermediate-term correction is due. For the long-term – prospects look good. A currency debacle could, however, over turn the trend.
Although gold, silver, and oil are commodities, they are a bit different then the rest of the commodities. Gold and silver have an ancient history of being the best currency or money. They have a monetary value or use along with their standard commodity value or use.
Oil is the most important commodity because of its unique position of being the main source of energy. The modern world runs on energy. Without it the world economy would not keep running. This makes oil different then the other regular commodities.
The above themes or trends are what we want to align our investments with. It is almost impossible to align one's portfolio with all of the themes at the same time, nor is it necessary to do so.
Because of the intermediate and short-term trends that our within the long-term trends, one market or asset can be trending down, while another is trending up.
An aggressive portfolio seeks out the intermediate-term trends and adjusts to them accordingly. A moderate portfolio does so but to a lesser degree – it also employs the buy and hold strategy. A conservative portfolio simply buys and holds.
By buying into intermediate-term weakness and selling into intermediate-term strength, one can take advantage of the secondary trends of the market. It is imperative that the market or asset under accumulation is in a long-term bull market. The primary trend is most critical.
Using the intermediate-term trends to buy and sell can be a very powerful form of compounding. However, with the additional opportunity for increased profits comes additional risk as well. Timing is of the essence.
Buying on weakness and selling into strength are a contrarian approach to investing. It is not easy to buy into weakness, and to sell into strength. It seems to be counter-intuitive, but it is not.
It is, however, one of the reasons why most people are not successful in the markets. To be successful one needs to go against the grain, against the crowd, against the herd instinct.
To go against the herd instinct requires self-confidence. True confidence only comes from developing the skills needed, and more importantly - using them. Practice makes perfect. Experience is the required guide.
What you know is of little consequence if it not put to work. Knowing by itself is not enough - action based on knowing is required.
Implementation of a plan is imperative. Choosing the portfolio best suited for your needs is a start. Determining the primary trends comes next. Presently there are three (3) major bullish primary trends: precious metals, energy, and commodities.
There are also some bearish primary trends: the dollar is unquestionably first in this category, the overall stock market is in a primary bearish trend, and bonds appear to be turning from bull to bear.
We do not recommend playing the short side of the market, meaning trying to play the downside action of a bearish trend. This is best left to very experienced investors. However, there are ways to take advantage of a bear market without playing the short side.
For example: the dollar is in a bear trend. One of the best ways to take advantage of that knowledge without shorting the dollar is to buy gold and silver. The precious metals do well when the paper currency does not.
If interest rates continue up bonds are going to take a hit. Rydex mutual funds have an index that tracks bonds to the downside. This is in essence a short play, however, it does not involve you directly with futures or options, or margin calls, etc. We would only suggest this in the aggressive portfolio.
The same is true for the bearish long-term trend of the stock market. Rydex has several funds that track various indexes to the downside. Once again, this is in essence a short play but without you dealing with puts and calls, and margin, etc. It would only be appropriate in the aggressive portfolio.
One of the best ways to play the bearish trend in stocks and bonds is to simply be out of them during the downdraft. It is not always what you make that counts – what you do not lose is just as important. Do not take the big hit. This is what beats most market players, as it is hard to recover from a big loss.
Then when the market bottoms you have plenty of cash to take advantage of the much lower prices. Over the long-term this strategy is hard to beat.
For those that choose to play the intermediate term trends the method of buying and selling is very important. To buy into weakness during a bull market and to sell into strength can be very powerful, however, money management and asset allocation are very imperative.
We do not suggest buying a position all in one fell swoop. Buying incrementally allows you to make up for any timing mistakes, which are very easy to make.
During a bull market, when a stock or asset gets within 10% of its 200-day moving average, it is a good time to start accumulating new positions. Unless the primary trend completely changes, most markets do not correct much beyond their 200 dma, if the bull remains intact.
Choosing the strongest markets to invest in – those in primary bullish trends, is the first step in implementing an asset allocation plan. This will depend on each individual’s needs and situation. Only you can decide what is best for you – unless you hire a certified investment advisor, which is a good idea.
Money management begins with how much money is going into any particular markets. Determine how much money you have to invest, and allocate so much to each bullish market. You or a professional that knows you well are the only ones that are qualified to make such decisions.
Buying on weakness and selling into strength is a form of money management, especially when coupled with an incremental accumulation plan. Selling into strength is another form of money management as well.
To reiterate: the three (3) primary bullish trends are:
The main paradigm theme is that debt and financial papers of all kinds are just receipts for debt that is losing value day-by-day; and that real tangible assets are performing the best – by gaining value day-by-day.
We envision that a huge transfer of wealth is slowing taking form and will play out over the next 5-10 years. Debt will be seen for what it is: servitude to the master. Tangible assets will be seen for what they are: real assets.
Get out of debt and invest in yourself and the primary trends. Of all choices, we consider physical gold and silver to be the safest risk to reward position there is.
Be aware not only of the major bullish trends, but the bearish trends as well. These are:
Remember the following:
Soon we will be offering the three (3) portfolios in detail.