There’s no escaping the fact that for those paying attention, with the ability to interpret chart signals, we have reason to be concerned. I’ve shown you many already. Repeatedly. Stock markets showing signs of a reversal having failed to reach previous highs whilst simply carving out large bearis rising wedges. Banks doing exactly the same. Gold and silver breaking down significantly. The US 10-year yield blasting through the ‘pain line’ to enter a new paradigm after 40 years of declines. If Japanese bond yields are a factor (and many economist suggest that if they rise significantly we’re in BIG trouble), then we need to hold on tight. Here’s that chart…
That’s ‘end of an era’ stuff right there. Speaking of which, here’s the US 10-year yield as it was almost 3 years ago, along with my prediction at that time…
Fast forward to today, and how did that prediction pan out? Well, here’s the chart as it looks today, with comments and annotations that I’ve added over the last couple of years…
So, hopefully you get the idea that we saw this coming. That tells us we’ve been on the right track in terms of assessing the weight of evidence and ignoring the consensus these past 3 years. It’s an important lesson and reminder that narratives should be ignored in the face of scientific evidence. So what does it all mean?
The end of the last era of investing was marked by the Covid shock. It created spike lows across multiple markets and ended the fairytale of ever falling rates/yields. It also blew out of the water the ide that interest rates and bond yields could be held at 2% or less on a permanent basis. Key to what comes next is understanding the dynamic that occurs between long and short dated debt…something that’s often referred to as ‘yield curve inversion’. I’m not going to go into detail here, because you can just Google it. What I am going to focus on though, is the chart evidence that comes from that ‘inversion’.
If you examine the following chart, you’ll see that it’s the US 10-year yield minus the US 2-year yield. Usually it’s above the zero line, but occasionally it ‘inverts’. That means the interest paid on 2-year debt is higher than the interest paid on 10-year debt. Short term inflation concerns are greater than long term inflation expectations. Here’s the chart…
We’ve just seen the deepest inversion in 50 years. History tells us that the unwinding of that inversion (around about the time it rises back above the zero line) will break something. Government and banking institutions know this and will be setting the scene, preparing a narrative that we’re all expected to accept. Engineerd or not, this is simple statistical, mathematical fact.
You’ll notice the faint gold coloured line/arrows on the chart. That’s the gold price (scale on the left). It strongly suggests the longer term trend, as a result of all this will be a large upside move. How you play this is up to you of course, but I can tell you how we’ll be playing it for the purposes of the Trade Tracker, and that might help you to formulate a plan.
In broad terms, gold, silver, platinum and associated miners are hated and undervalued vis-a-vis the stock market. That is evidenced through the ratio charts. We have to be careful though…they can get more hated and ‘undervalued’. In fact I think they probably will, and I want to see evidence of total capitulation to increase confidence levels. A plunge to $1600 gold or less, with Silver at $18 or less would do it. If it happens, it needs to be very brief with a large intra-month reversal. That would be the signal to take 1% NAV risk positions in the metals and mining indices. We’ll look carefully at doing that if the conditions allow. Failing that, it comes down to something I’ve suggested a few times. Below the final breakout levels (which we’ll communicate to you when we reach them), it’s really for ‘stackers’ only (those who have a long-term view and conviction). Once the weight of evidence is gained at the final breakout, we get the long-awaited traders entry for those wishing to have a higher confidence entry for making good returns within a reasonable timeframe.
In terms of our current TT positions, we’re already protected from seeing our overall NAV turn negative by our risk & money management protocols (stop losses/position sizing), and I trust you’ve done something similar. You should never be in a position where you can see your NAV wiped out by 50% or more. Quite a large part of our NAV risk is in the uranium sector, so I’ll be keeping an especially close eye on that.
Our current NAV risk is somewhere near 38% (that would be the drawdown if we got stopped out of every trade). If that happened, the overall NAV would still be up over 30%, so it serves to illustrate how carefull risk & money management can help you to sleep at night. In situations like that, it’s also beneficial to be invested in highly liquid (large cap) stocks and indices. Micro cap stuff can be impossible to exit at your stop-loss level in a liquidity driven sell-off. That’s something else to factor into your stock choices of course.
So, in a nutshell, mentally prepare now and have a plan of action, so that you don’t make panicked decisions that you may later regret.
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