Q: Jesse,

The GMO highlight this week made me wonder…do you have a list of managers and/or letters you read?

J: I do. I regularly read everything from GMO but also Jeff Saut, John Hussman, Howard Marks, Jim Paulsen and, of course, Warren Buffett’s annual letters. I can’t think of any others off the top of my head.

Q: Hello Jesse

I dont have a position in HLF yet. Can you advise on technicals, price points or other factors to watch for timing a buy on this.

I was thinking that I should wait till there is a significant correction in the market over next few months and take advantage of the downtrend.

Thanks

J: The way I would handle this is to buy a starter position right here. Then, if we get a poor reaction to earnings or some other catalyst for a selloff, I would use that as an opportunity to take a full position.

Q: Jesse,

Greetings,

Observed on CNBC (I know I should have probably stopped there), a S&P 500 market call of 3,200 within 2 years by Laszlo Birinyi. Obviously no Warren Buffet, but seems like the same bullish calls that happened around 2000 of the Nasdaq ‘going to the moon’.
– just saw your tweet on that one, nevermind

A little more perplexed by Humble Student’s call (Cam Hui, CFA) in his blog on Sunday, August 2 “Bullish and bearish over different time frames” where he sees a ‘small’ correction this fall (Sept-Oct) but is bullish long term because – 1) “US stocks (compared to global equities) remain in a well defined uptrend” 2) “bear markets are caused by either recessions -none on horizon- or overly aggressive Fed tightening -not apparent now- so therefore this equity bull still has a long way to run” & 3) age demographic forecasts.
– seems 1) no Asian contagion ? 2) seems purely technical driven and separate from valuations & 3) hard to believe any age group will have greater effect on market than draw down by baby boomers over next decade

Also per Meb Farber’s 3 year down correction thesis, would you consider oil stocks sometime in 2016? or different time frame for this sector?

J: I really like Cam’s work and his process. Having said that, it sounds like he really doesn’t have much conviction either way right now.

1) This is true but when the trend changes it could send a massive amount of quantitative money running for the hills.
2) I think you could make the case that it sometimes the other way around: bear markets can cause recessions.
3) The Fed study he references is FAR less bullish than he is. See my post on it here: https://thefelderreport.com/2015/03/24/this-simple-indicator-explains-persistently-high-equity-valuations-for-now/

The main thing I’m looking for in energy is some real insider buying. Until the insiders get confident that their companies aren’t going out of business, how can I?

Q: Uh oh…

http://www.cbc.ca/news/business/low-interest-rates-prompt-savers-to-borrow-to-invest-1.3172662

J: Uh oh is right.

Q: Hi Jesse,

I know you are bullish treasuries, but can you give me your feelings about the higher yielding corporate bonds?

I have LBNYX through my wife’s 401k, but this seems to be performing more like JNK than TLT. Any thoughts on this going forward?

J: I really don’t like any sort of corporate bonds right now. I believe the credit cycle has already peaked and fundamentals will only deteriorate from here. Technically, the asset class also just entered a downtrend. All in all, there’s really no reason I see to have any money at work here right now.

Q: Any thoughts on NGDs slide ?

J: False breakdown with a nice bullish reversal today. This sort of move leaves trapped shorts which is even more bullish.

Q: Hi Jesse,

I am a new subscriber. I fired my “advisor” at the beginning of the year. I moved my retirement accounts to vanguard target date accounts. I moved some of my taxable accounts to vanguard index funds. However, I can’t bring myself to invest the rest and it is sitting in a vanguard money market. I used my bonus this year to buy a townhouse (paid 180k, owe 130k. Renovation 50k. Haven’t decided if I should pay it off, rent it out for 2k/month, or sell it and invest the money.).

My husband and I are 45. We make good money now but who knows in the future. We have one child and have 50k in a 529 account and 50k in a target date vanguard fund UTMA account.

Where do I start. I can’t bear to throw it in the market while you still have a beard.

I bought three stocks so far. WFM, DIS, UNP. So I am not a good stock picker.

Thanks!

J: While I can’t give you personal advice I can tell you I generally think that cash is a good thing right now. There really is no compelling reason to put it to work right now in the markets. When that is the case, the smart money usually just hangs out in cash until there’s something compelling to do with it. As for the stock picking, I view losses as tuition at the school of trading. If you learn something from them they will prevent you from losing much more down the road. Best of luck.

Q: Hi Jesse –

I’m assuming I know what your answer will be, but what are your thoughts on El-Erian’s article on Gold (I believe you posted it), or Peter Brandt saying “no reason to not be short Gold” today. Brandt flip flops all over the place, although he is apparently a highly successful commodities trader. El-Erian’s article was actually more surprising to me, coming from such a strong investor. When a guy like that talks, I feel I have to listen, but to me his thoughts focus too much on what HAS happened and not what WILL happen (even though he does say he thinks Gold will continue to languish). Hard to believe a smart investor would want to be short gold right now, but I guess that’s what makes a market.

“Assessing the cyclical versus secular/structural balance of these seven factors, it is hard not to conclude that gold may well be experiencing an erosion in its positioning as a core holding in diversified institutional and retail investment portfolios. The more this happens, the more enticing it will be for “fast money” to short the metal as a way of inducing even greater sales by disappointed core holders.

This situation is unlikely to change soon but it need not be terminal. A shift would probably require a broader normalisation of financial markets, including a diminution in the direct and indirect role of central banks in determining asset prices and their correlations. Until that happens, the glittering metal is likely to continue to languish.”

Also, I know you don’t like energy plays, but good grief, what about FCG at this point. It’s starting to look tempting…

Sorry – one more. If Fed initiated QE4, how do you think it will impact prices (obviously hard to predict given the unknown timeframe)? Would it turn you bullish at all ST?

J: “to me his thoughts focus too much on what HAS happened and not what WILL happen” – absolutely. This is just what peak bearishness/short selling sounds like.

I know nothing about FCG. I have been seeing some insider buying in some of the midstream MLP’s but outside of that energy is just not compelling to me. There’s just not nearly as much “blood in the streets” as in the gold market right now. There could be lots more downside for these energy names or they could bottom. I just don’t see any real edge either way.

It all depends on the context. QE4 on its own would not make me bullish. As John Hussman has written extensively, the Fed has very little power to support the market once risk appetites have turned. This is what we are seeing in China right now. They are spending an incredible amount of money just to try to hold the market flat. When they reach the point where they can’t afford to continue stocks over there will plunge again.

Q: Jesse, have you read “Prosperity in the age of decline” by Brian and Alan Beaulieu, Wiley? http://www.amazon.com/Prosperity-The-Age-Decline-Business/dp/1118809890

J: No. I’ll check it out.

Q: http://www.newsmax.com/Finance/RobWilliams/Albert-Edwards-gold-rally-inflation/2015/07/30/id/659669/

Why the plunge baffles me.

Would you wait until the jobs number to see how the market reacts to that to build further positions? I bought some stock as I told you last week but it keeps going down. Fleck apparently stopped buying last week after he bought a little more. Do you wait to see the market start to regain its footing even though you’re paying a little higher. Do you know Greg zuckerman the Wall Street Journal covers hedge funds. If not if you want to talk to him I could introduce you. May help to get quoted to help the newsletter get more circulation. Keep up the good work.

J: The plunge shouldn’t be baffling. Prices can and do regularly diverge from reality on a regular basis. These shouldn’t be looked at as painful events so much as opportunities. It may pay to remember that bottoms, just like tops, can be a process. It feels to me like last November was the equivalent of the 2008 lows in the stock market. This recent selloff was the gold market’s version of March 2009. We will soon find out if this is the case.

I haven’t bought any more GG or NGD since the last alerts a couple weeks ago. I have looked at AEM and almost pulled the trigger there.