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Time For A 90-Day Pause in the Bernanke Asset BubbleBy
Monday, September 24, 2012
Just a little "heads up" today...
Conditions are in place for a one- to three-month "pause" in the Bernanke Asset Bubble...
As you're about to see... a potentially swift and severe downward move in stocks and precious metals should start very soon.
What's the best thing you can do? The answer is...
... NOTHING. Simply sit on your hands. Let me explain...
In short, we have extreme bullish conditions in stocks and precious metals.
I turn to Jason Goepfert to keep an eye on investor sentiment. Jason is my go-to source for tracking market sentiment. If you want to stay up to date on this important indicator, check out his website, SentimenTrader.com. (We get no compensation for mentioning SentimenTrader.)
As of last week, 40% of Jason's sentiment indicators suggest the market will go down. And 0% suggest the market will go up. This rarely happens (only four times since 2010). And it means that most investors expect the market to go up and up from here. When investors are overly optimistic like this, it often means a rally is "stretched." And it could signal a near-term decline.
This is no guarantee. Two of the last three signals did not result in a large market decline. But we need to be cautious. In April 2010, Jason's extreme condition started a quick 16% selloff in stocks.
And I think history is about to repeat itself.
Right now, too many people have come onboard stocks and gold too quickly in the last month. This has created an extreme in optimism. These newcomers will likely get "swatted" back out of the markets sometime soon – probably within the next two months.
So be prepared. We could see a swift and severe move down.
How you handle moves like this will determine if you will make a fortune in the rest of the Bernanke Asset Bubble... or if you will lose money...
The investors who sell out in a correction don't fully believe in the power of the Bernanke Asset Bubble. They don't have conviction – they were just hopping on the bandwagon.
They won't make much money that way. We have conviction. We know the market doesn't go up in a straight line – instead, it pulses higher in waves.
We know our portfolio value will fluctuate. We know the market will dole out swift and severe punishments on occasion. And we accept that to capture the longer-term gains.
We believe the Bernanke Asset Bubble can take asset prices higher than anyone can imagine. And we want to position ourselves to capture as much of that as possible. Selling out in a correction won't allow you to capture the total gains.
Since I believe we're at an extreme in investor optimism, you might wonder why I don't sell now and try to get back in after the extreme has passed.
In short, that is too hard for me to do.
How do you know exactly when to sell? And how do you know when to buy back in? I don't know these things...
Heck, I can't even guarantee that we'll see a correction within the next 90 days... I'm just calling for a "pause" in the Bernanke Asset Bubble because of the current extreme in sentiment.
What I do know is – when it comes to sentiment extremes – when everyone is scared, the bottom is usually near. But when everyone is optimistic (like now), you don't always get a correction.
So let's call it a "pause"...
We've had a heck of a run recently. Now investor optimism is at an extreme. So there's no need to go crazy and buy stocks or precious metals today. We need to let all this excitement "burn off" before going on a buying spree.
Hold what you have... There's no point in selling. And there's no point in buying more right now either. The right thing to do is sit on your hands.
I will let you know when "the coast is clear" for buying again...
Good investing,
Steve
Further Reading:
Catch up on some of Steve's most recent advice here...
This country has flown under the investment radar for years... But if you want to generate wealth, this is the place to have some money working for you.
It's possible you're already receiving these "stealth dividends." If you are, you're participating in one of the world's greatest investment strategies... even if you don't know it.
Market NotesA NEW MILESTONE IN THE GOLD BULL MARKET The big bull market in gold just hit a new milestone.
Regular DailyWealth readers know there are always two sides to a price. On one hand, you have the asset, product, or service being measured. On the other, you have the measuring "unit"... which is typically a paper currency – like the dollar, euro, or Swiss franc – or a "real money" currency – like gold. Keeping the "two sides to a price" idea in mind lets you see things others do not.
For example, when priced in U.S. dollars, gold is still below its 2011 high. But when priced in euros – the currency used in the world's largest economic bloc – gold just struck an all-time high.
Europe's leaders know the only way out of their massive debts and unfunded liabilities is to print more euros. This makes the euro decline against gold, the only currency that can't be debased by bureaucrats. Whatever measuring stick you want to use, stay long gold.
– Brian Hunt
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