Note: This is not financial advice. I’m not a financial advisor and I’m wrong 100% of the time. Investments are risky and nothing mentioned here should be considered financial advice. Invest at your own risk.
I need to once again iterate this is NOT financial advice. I am looking at this right now in a sense like I’m picking fantasy football. Not all picks of mine will work out for me. What I’m trying to do is communicate to a few how I’m looking a the “big picture” of the financial landscape, and how I’m making an attempt to try and preserve any form of crumbs I have during this event – and maybe help them grow.
Strategy versus tactics
I’m looking at this at the MACRO level (a strategy over years) and a MICRO level (executing tactics over the short term). The difference here is the macro is the big picture to guide the cruise ship over many years. This plan may be a 20-40 year plan. Phases may 2-5 years, and there is no set date to make a move. There are conditions to look for, and math to compare items again. On the micro level, this is the daily and weekly evaluation of assets to determine performance. Currently, I’m looking at means of trying to measure items against one another. Mike Maloney has done some of this already, but the WANT here is to develop a “trigger” or “danger zone” where one starts to move out of a phase and into another.
There are three types of asset classes:
- real estate
- commodities (this is where silver/gold are)
What currency is (cash) is a means of exchanging these goods. Cash, by design, loses value over time. In fact, cash has lost 97% of its value since 1965. For example, in the 1920s, if you had $2,000 in cash, you could have bought a nice family home. 100 years later, and you need $200,000. Did houses get that much more valuable, or did the cash lose its value and more and more cash was needed to purchase it?
So – it makes sense to put this cash into assets that grow over time.
Mike Maloney does a video which shows the importance of moving VALUE between asset classes. He mentions that if 100 years ago, you took that $2000 and bought a home, and switched that value between asset classes, you could have $15 million right now. Had you held on to the $2,000 – back in 1928, that would have bought you a house, now it buys you a 15 year old used car. Had you just had the house, maybe it would be worth $200,000 today. But had it moved through asset classes, you’d be many millions richer.
Financial investment and financial advisers
I believe most financial advisers will talk to you about the right kind of stocks or mutual funds to pick for the long term. They talk about diversification of portfolios. Risk levels. Returns on investment over the long term. What they don’t do is tell you to take your money out of them and put them in metals or real estate. They make money while your money is with THEM. So – why would they tell you to take your money out of them? They won’t.
Just understand – in the BIG picture, these guys have their place in managing one of your asset classes – stocks/bonds. These guys are very knowledgeable about the products they are to push to you. They do sales. I don’t begrudge them – they have a valuable service to provide. To take your money and invest it to make more.
But I need to really ask you this. Early this year, everyone knew everything in the stock market was over valued. Everyone. Did they advise you not to invest with them? No – they tell you over 40 years, it all averages out, there are peaks and valleys.
Just understand what they do in the grand picture. They manage one form of asset class.
With that all being said – I’m NOT a financial adviser.
The general feeling out there is that this is the “everything” bubble. The housing crisis of 2008 wasn’t fixed. Bernanke sort of pasted it over with shit, and this created another bubble. Everything – with the exception of metals.
My thesis the last few months is that we will see a double bottom. I’m hoping this is not the case, but everything is pointing towards it. Bankruptcies are beginning. This will lead to weaker companies failing.
My personal belief is that there are some companies out there that are still undervalued. I believe a lot of money will leave those that are failing and the lone strong companies out there may get an influx of cash. I’m going to discuss one of these below. That being said, I also see a lot of money going to the metals and mining stocks – I’ll address a few of those below.
With the “double bottom” there could be a strong recovery out of that, but this could be a few years down the road. What makes this extremely interesting from an academic side is that this run down should have taken 1-3 years, and it happened in about 2 weeks. So it’s possible that it’s not a perfect “W” formation – the second drop could be a lot more sustained over the next 12 months. I don’t think it’s going to fall off of a cliff. It’s going to be a steady stream of “J.C. Penney declared bankruptcy” and “Norwegian Cruise Lines gets billions in loans”. These restructuring and loans may keep the companies afloat longer. But are you really investing in J.C. Penney? A few years ago, their stock was $87 per share. Now it’s $.23. Companies like this are dead, they just don’t know it yet. With the double bottom, my hypothesis is that these companies may actually fold.
Jobs? This is also different than the Great Depression. Those massive job losses were sustained over years. The problem then was the dollar was pegged to gold and there was ZERO liquidity. THIS caused the eventual problems that cascaded from the initial crash. Our job loss numbers now are horrible, but when we eventually re-open everything, they will be a tiny fraction of what they are now.
These are NOT stock tips to give to you. This is me evaluating items for MY portfolio based on MY risk tolerance. My buddy gave me a few companies he liked, based on the books and valuations. I’m not great at looking at the books of these companies, I’ll admit. I had several accounting and finance classes, but the big boys can shape books to look however they want. Right now, I care about things like how much is a company worth versus their stock price and overall debt.
- Mastec and Fluor – both of these are infrastructure companies that build things. I invested in both. I made a few bucks on both, and I lost money on both. I’m liking MTZ for the long term but keeping an eye on FLR.
With MTZ, I saw an opportunity with what is called the “ascending triangle”. This is what it looked like.
I bought a bunch of options and stocks at the 3rd bar from the right. I bought on that orange item. It looked like a clear path up!!
Here’s what it did.
While I still felt strongly in the company, I didn’t understand why it was going down? Well, at the bottom, it almost stopped me out. I used the Fibonacci retracement to set my stop loss. See that red line? It almost hit it, and when it reversed, I bought more to reduce my dollar cost average.
My mistake? Not putting this in the context of a WEEKLY chart.
Now, take a look what happened yesterday on the daily. another rise!!
It seemed to veer out of the ascending triangle. But when you look at the weekly? It still is within the triangle.
Now, as I’m learning – this triangle is predictive 70-80% of the time. Meaning, it can go the other way 20-30% of the time. As John Howell on youtube says – this game is a game of statistics and probability. So – if you have 10 trades that look like this, and 8 out of the 10 pan out, you’re good.
This is PRICE INFORMATION only. There hasn’t been news on MTZ that I can tell. The last real news on it is that it beat quarterly earnings.
Why am I bullish on them?
- The ascending triangle has piqued my interest.
- They are listed as “undervalued” on many charts. Buy, strong buy, outperform.
- They are an infrastructure company that builds things. I feel a stimulus package will come out that is the mother of all infrastructure bills. These guys could profit from this.
So companies like this may break out past the resistance line. They might. It’s a calculated risk.
With FLR – some of the same things are at play with what they are, except the ratings companies don’t like them. They have had accounting issues, lawsuits. And – if you look at their earnings versus revenues, it’s tiny.
FLR was in a “channel” pattern, but seemed to be trending to veer outside of the channel. I bought in and sold making 6% in 2 days. I last kicked myself because last Friday it rallied to $10.40 and I stopped out at $10.25. Well….good thing. FLR went on to hit $8 this week.
Look at the dailies for this, and how it falls outside of the channel. Then – the weekly.
So – had I had the money laying around, I would have bought FLR at $8 on the retracement, but I have scarce resources and MTZ is stronger in my eyes. FLR has all kinds of problems, and they have some good news coming out, but also lawsuits and investigations. I may keep an eye on them, but this is using more than price information to determine where to go.
2. GDX, GDXJ, SIL, SILJ. I believe all of these may be making the case for strong moves upward, but they are all due for retracement soon. I don’t know what kind of pull back they will see, but it has to happen. Take a look at GDXJ. All of these seem to be in sort of the same pattern, so I’ll use this one as my guide. This is the GDXJ for the weekly. The MACD has it still in the buy phase. Using the “rising wedge”, it appears at some point there’s a pull down and to the right going to happen.
Anyone else see the “rising wedge”? just like the ascending triangle – these are probabilities. About 70-80% accurate depending on what source you are looking at. This is PRICE information only, no underlying news has been released to change the items. This is the free market in PRICE DISCOVERY, and these are BEHAVIORAL patterns. The purple colors on this are the Fibonacci retracements – another behavioral factor with this. If its a STRONG bull run, you may only have a pull back to the 21.8%. If it’s less strong, a pull back to 38% may happen. Less strong is 61.8%, and so on. This is why I set my stop loss lower on MTZ – I didn’t see a STRONG bull market with it, but an upward trend.
With the mining stocks, I might set stop losses at 25% of the top part of the move. This might allow it to dip a little below the 21.8% retracement, but catch it prior to the 38.1% line.
The GDXJ daily chart shows something a little different than the weekly. This shows a sideways pattern for awhile and then a breakout. Both silver and gold have been going sideways for a few weeks and one of the technical guys I watch suggested this is a holding pattern waiting to explode upward. Damn he was right!!
This sort of bothers me though because it’s on the lower end of that channel. Stronger and stronger gold/silver prices are needed to sustain this.
Some suggest with the downturn of markets this coming week that big money may flood towards gold and miners – so I’m going to continue to ride the wave. However….I think my stop losses are going to be set at 25% or so of the top. I feel these pullbacks may be side to side moves with then another move up. What I don’t want to do is get stopped out too tight, then I miss the move up. I just did that a few days ago with MAG. Idiot me forget my stop was set so tight. At the beginning of the session, I got stopped out and then it rallied over $1. Stupid.
That being said, I’m buying when these pull back. I’m not necessarily selling on pull backs unless it’s below my 25% or so.
3. AG – very similar to what’s going on, early last week I looked at my charts and predicted $9 for AG by yesterday. It hit $8.86. Below, you see the rising wedge and predicted pull back on its way to $9.
Here’s how it played out. I cashed in some $6 options too damn early, but I’m sitting on some $8 options for October that I’m holding for a bit.
So – the retracement was shorter than expected, and more violent upwards than expected. But – the price information alone, with the price of silver, helped move it.
Looking at the weekly? I still think there’s a strong pullback coming. Even with silver prices increasing, I think people are going to sell to bank short term profits and then ride the wave back up.
My “red line” there had me stopping out at $7.30, and it almost hit it this week. I would have missed a strong upward move. The lesson here is allow a decent pullback on these things and not stop out too early. That’s what I was doing early on. I was also buying at the peaks rather than waiting for pull backs.
The “big picture”?
Gold/silver and miners is not a “forever” move. You ride these until they swell in size and other asset classes become more affordable relevant to them. Some people are predicting the metals will be on a bull run another 18-24 months and this is the very beginning.
The “strategy” at that point may then bank winnings into cash and perhaps converting into real estate or stocks. Maybe in 18 months, it’s the bottom of the second part of the W. Maybe when things start moving, I then invest in equities for 5 years and ride the wave up. If I invest in those equities now, they risk the downward move and it would take me 5 years to break even.
Also – I do own real estate. Maybe in 12-18 months I’m able to refinance items at lower rates and convert some of my profits into more down on the houses, or even look towards buying more houses? In times like this, like in 2008, there may be a deflationary period in houses. People may have to sell them in a hurry, and with a glut of houses on the market with no buyers, you may be able to get a deal.
With this real estate, you then may be able to generate monthly profits which then go into equities. In 8-12 years if the same thing happens, perhaps convert equities to metals and rinse and repeat?
I hope this entertains a few of you, and gets you out of thinking about ONLY buying one asset class.
Warren Buffett doesn’t like gold. He says, “it just sits there”. Well, he’s wrong. In 1971, gold was $35 an ounce. Had you bought $10,000 in gold in 1971 and sold it in 1980, you would have had $240,000. Then, in 1980, convert it to stocks or real estate.
So…any questions? Feel free to email me at email@example.com. I love talking shop on this stuff!
My next “plan” is to try and devise some measurements and ratios so I can monitor what is overvalued versus undervalued. This helps to then paint a picture of when to get out of certain asset classes!
Update on Colony:
This is one that was setting up to make a big move upward. It has a VERY nice ascending triangle forming. Remember the 70/30 or 80/20? That is PRICE INFORMATION ONLY. What happened to Colony was last week on Saturday they had their Q1 profits, discussions on $3 billion in defaults, and then a lawsuit came out based on Q3 issues with the books. Lots of negative press. Before I loaded up on options – I wanted the triangle to move further along. I needed more time and needed to watch the signals. However, I waited until AFTER the Q1 results and watched the news this week. THIS drove the price down. Will it recover? I don’t know.
Not all real estate companies are the same. I was worried about commercial real estate – think of malls being empty and big box stores going out of business. But they also have things like warehouses and data centers. So – not all of their portfolios are junk.
As of this writing, I’m up 11% on stocks this year. I made some poor trades early on as I was getting used to things and have been getting better as of late.
Some of my early mistakes:
- Selling options at “market” instead of limit. Cost me about $800.
- Setting stop losses too tightly, which got me out of rallies later in the session.
- Trying to buy on the way down, rather than letting it find the bottom (BNO).
- Not setting stop losses at all. I had bought Norwegian at $11.50 and it got over $18. It then went back down. Cost me about $800.
- Pulling the plug on options too early because I didn’t understand how the markets went up and down a lot.
- Buying options at a peak rather than at a valley.
For other portfolio items (metals), I’m up 26% as of this morning. Overall, for the year, I’m up 20%. As the metals rise, I will get higher. If they fall and melt away, I’ll do worse.
So with all of those mistakes, I’m up 20% in a few months during the worst financial disaster in 100 years. I’ll take it.