Time to Raise Cash?

April 1st, 2013
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Editor's note: This was written Sunday 31 March 2013.

moneycountingSMALLEuphoria rules the roost in the stock market, but consumer sentiment is Down (to the surprise of the economists). This is an interesting dichotomy. By more than fifteen measures (including the VIX "fear/complacency Index"), the stock market is overbought and preparing to implode. The country has been on a "methamphetamine binge" for decades, and the crash from that "high" will be horrendous. If you can get it, see David Stockman's lead article "Sundown in America" on page 1 of The New York Times Sunday Review today. He is not kind to President Nixon's decision to "close the Gold window."

Follow up:

There is "room" for the stock Indexes to move higher, and they could well do that. While much is made of the S&P 500's new all-time Closing High, in terms of intraday Highs it has not punched above that old record which was set in October 2007. Nor
have the Russell 2000, the NYSE Composite, or the S&P 600 SmallCaps moved above their recent Highs, either.

Actually, I wonder whether the "little guy" - the "retail investor," the "man in the street" - is trying to tell us something. He or she, not the "deep pockets," are more likely to trade the stocks which are included within the Russell 2000 and the
S&P 600 SmallCaps Indexes. The final two 60-minute Candlestick price bars last Thursday in both of them are a "Doji" and a "Shooting Star," respectively. (The markets were closed on Friday). (Please see S&P 60-minute chart, below). ("Doji"
means that the Opening price and the Closing price during the time period which the price bar represents were the same, or very nearly so). Those are bearish warnings. I wonder whether this is a subtle clue that the other Indexes are running out their strings - whether these two are "leading the way."

Click on chart for larger image.


We need to understand that the Dow Industrials at 14578 is a phony number. In terms of "the purchasing power of the Dow" in relation to "real money," which is Gold, the Dow is really way BELOW its 11750 High of January 2000. So, in truth, the Dow has gone backwards since 2000. The stock market is in a "numbers fantasy."  It's a house of cards that could collapse anytime. Don't be deceived by the "news."

The theft of bank deposits in Cyprus is a real-life lesson that financial authority will do to its citizens whatever it takes in order for a banking system to survive. It also is evidence of a growing split between "northern Europe" (led by Germany) and "southern Europe." That which remains in those deposits is denominated in Euros. The new loans to Cyprus are denominated in Euros, and the lenders expect to be repaid in Euros.  If Cyprus were to leave the Euro system and reconstitute its own currency and devalue it in relation to the Euro, those Euro loans would nevertheless remain payable in Euros.  If Cyprus were to decide that it has no choice but to leave the Euro, the lenders would be left holding the bag. Then what? The "one size fits all" currency is now shown to be have been a terrible mistake, from the very beginning. It has worked just fine for countries which are blessed with highly-developed  economies; not so fine for the others.

We've read that sales of existing homes are proceeding very well, to the point where inventory is short; and all of that is being translated as Good News. The difficulty is that Big Money has come into the market, scooping up foreclosed and otherwise available homes at what are perceived as bargain prices, which in turn drives up prices and crowds out many would-be first-time buyers - especially in a tight mortgage market. It might be a good idea to wait a little while before looking for a house. When this new bubble bursts and Big Money recognizes that its impetuousness was misplaced, they will dump - and you'll have your pick, especially if you have Cash.

My first job is to try to help you protect what you have; and secondarily, to add to it. Right now, I think the most important thing you can do is to stay safe. Try to maintain the value of your "Goldies" never-sell stocks in a declining market. As for the others - think about running to Cash.

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