Last week did a great deal of damage to our measures of market internals, suggesting that investors have shifted measurably toward risk-aversion in an environment where risk premiums are very thin. Historically, this combination of unfavorable valuations and unfavorable market action is strongly associated with a negative return/risk profile.
The above title is not a recipe for investment success. But, in this environment we all have less than a coin flips chance of making money on any of the stocks we buy. This week’s update is going to be short. The reason for the brevity is that I want the few paragraphs I write to hit home. As we entered May the market was hitting new highs and 70% of the stocks in the S&P 500 were in good shape technically.
Secretary of Defense Robert Gates gave an address Friday on the future of the North Atlantic Treaty Organization (NATO). According to Gates, NATO has developed “serious capability gaps” and suffers from “institutional shortcomings.” The alliance, he said, needs to be fixed if it expects to remain viable; and then he spoke of the “growing difficulty for the U.S. to sustain current support for NATO if the American taxpayer continues to carry most of the burden in the Alliance.”
Recent economic data show that U.S. job growth in May was negligible, while the official unemployment figure-- at least the figure the Labor Department admits to-- rose to 9.1%. The real unemployment figure, however, as compiled by economist John Williams, may well be higher than 20%.
We have been writing here at The Dollar Vigilante for nearly one year exactly, this coming July 1st, about such things as getting your gold outside of the control of your own government and about how US student loans are an entrapment for, what we believe, will be military conscription.
Attention is constantly being paid online to the silver inventories at the COMEX exchange this week. An important development did occur this past week, but it needs to placed in perspective.
Even with the decline in crude oil prices from recent highs we remain bullish on the energy sector. We think investors are grossly underestimating the impact the shut-in Libyan sweet crude oil production will have on energy markets this summer and fall.
My all-time favorite movie by far has to be Braveheart released in 1995. My Father and I both saw it several times in the movie theaters and the film went on to win the Academy Award for Best Picture and Best Director. The movie was filmed with many vivid scenes and the one that comes to mind is when the English cavalry were bearing down on William Wallace (Mel Gibson) and his fellow Scots.
By taking out the effects of inflation from the S&P 500 it is clearly seen that the overall market is in a downward trend from the 2000 peak. This provides further confirmation that we are currently in a short-term (cyclical) bull market within a long-term (secular) bear market.
Broad market indexes have changed from buy to neutral.