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Take insurance against very powerful men

One one side, you have the powerful Central Bankers who print money like there is no future consequence. In 8 years at the head of the European Central Bank, Mario Draghi never ever raised interest rates, having for consequence the abnormal 30 years german bond paying negative 0.11%. Yes, you have to pay the German state to lend them money over 30 years. Or the negative mortgage in Denmark as we saw recently. On another side, you have the powerful Kings of their competing empires...

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You will never have enough education. Here I share my views of the financial market in general, and from time to time, how to profit from it.

If you like the content of this blog, make sure you read Out of the Rat Race, the book as you will find many eye opening facts and stories which I gathered over 25 years of learning.

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As I explained in Out of the Rat Race the central Bankers create new money and therefore mechanically increase the value of most assets (properties, shares, commodities...). But meanwhile, as they go to their daily job of printing money, the elected and non-elected politicians (our Kings) have decided to embark on a trade war.

The combination of 10 years of money printing with ever diminishing returns and the weekly escalation of tariffs is a potentially explosive cocktail. To understand this, I have three graphs for you.

The first graph is the daily chart of the SPX over a year. It basically depicts how well the 500 most powerful public companies listed in the US have performed over a year.

The purple triangle (clear uptrend from early 2019) has been well and truly broken early August 2019. A smaller an flatter triangle (the pink one) has recently formed, and is under threat to be broken next Monday.

Why is this important you ask? Well, look at the next picture. This is the same SPX, now on weekly chart over 2 years. We can see a larger megaphone structure forming from early 2018 (between the down red line and the up green line), and we are at the top of it.

Again, from the small pink triangle, we can see that next week is key. Even potentially Make or Break.

We have broken the 2019 uptrend, and we are about to accelerate the downtrend if nothing extremely positive happens very soon (such as a counter tweet saying "Oh no, I waive all tariffs until 'my' end of 2020 re-election").

For your benefit, I have added an orange dashed zone, which represents our risk. Basically a downtrend to SPX 2200 hitting us by end Q1 or early Q2 2020. That's roughly a 25-30% hit. If it happens, we re heading to a recession and further consequences on economic stability, jobs, et al... This is not a prediction. It is just flagging a risk which is more and more prominent.

We have to admit that the power has just shifted from the Powerful Central Bankers who cannot do much more (how much more negative should the interest rates go!) to the Powerful Kings and their mood of the week. That leads us to the last chart. Here is the same SPX, now monthly over 10 years.

Look at my orange risk zone. Does this 25-30% tumble seem unreasonable to you seen this way?

As I said recently, I have taken and I continue to take insurance against this risk. I cannot judge for your personal situation, but maybe you'd like to insure yourself a bit too. This can be done rather passively by adding a bit of precious metal to a portfolio. Either directly Gold or Silver paper (GLD or SLV) or some leveraged miners (typically RGLD or WPM are the best in town, although they are not cheap as everybody seems to insure themselves at the same shop!).

Disclaimer: I have SLV, WPM and a few other precious metal miners in my portfolio, and I also insure myself more aggressively at another shop (the PUT options one).

To your journey!

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