Market Mania

Guest Post by Bob Livingston

The mania in the U.S. stock market continues. The public simply loves a market top. They are throwing their pension money at it with both hands with investors pumping $14.5 billion into U.S. equity funds for the week ending last Wednesday, according to EPFR Global. That represented the largest weekly inflow into such funds since the middle of March.

Last month, equity-based ETFs raked in over $18 billion, and another $10.2 billion flowed into fixed-income products. Stock ETFs have more than $2.7 trillion in assets, compared with $587.6 billion in bond funds. According to MarketWatch, only one asset class had outflows last month, with $1.2 billion being pulled from commodity funds. Is Russia the only entity buying gold instead of paper assets?

Unless human nature has changed, the crowd is always wrong. This time is no exception.

What is the nature and definition of a market top? It is a time of distribution when stocks move from strong hands to weak hands, causing large volume but small net movement up or down. This is the meaning of a broad topping pattern as is going on now.

How long will this topping continue? It is as dangerous to predict this as it is to buy stocks at this point. The mania will continue until the distribution of stocks to the euphoric public is complete. If the oversold bond market rallies, most likely the stocks will also rally once again.

Even if you are the most optimistic bull, you should consider putting stops under your stocks to limit down price action. The reason is that the market could seesaw down in such a way that the public will not become aware that they are in a bear market until they have big losses. Manias always reverse to the extreme. The coming huge losses will make the public sick of stocks for a long time to come.

The illusion that still adds to the great mania is that we are told there is full employment and what most people now view as stable prices of most goods (although the Fed’s innocuous-sounding 2 percent inflation target per year means around 20 percent higher prices per decade).

In fact we have pronounced deflation in technology. Since when have prices on televisions, computers and such gone up? This is exactly what we had before the 1929 stock market crash. The backdrop then as now is wild monetary expansion or inflation. The Fed is always creating vast amounts of credit money. In 2008, a small downtick in the growth of credit almost crashed the world’s economy. When the debt pyramid collapses, liquidity vanishes and depression is self-feeding.

Every financial crisis in the last 200 years has come out of over creation of credit/debt. And everyone has also ended in a bust. Any time debt outruns production, there inevitably follows a crash or at least a significant adjustment. Purchasing power based on debt has to be periodically destroyed to restore the equilibrium of production and money.

When the prudent man begins to observe the creation of excessive debt and credit, he begins to reduce his debt to zero as fast as possible. Hard assets that are a store of value will persevere, which is why gold and silver are the most important hedge. You will not hear this on the “news.” Gold is always beaten into the ground by the controlled media. If anybody can believe it, modern Americans had far rather have paper money and credit cards than real physical wealth.

When we do get a buy signal for gold, the stock market will be crashing and there will be black pessimism on gold. Therefore start thinking and planning now as prudent people always do.

Your reasons for buying gold remain the same regardless of the dollar price. Gold is private money. It is barter and has been for centuries. Gold held in your possession is an asset out of reach of bureaucrats who seize everything and anything under any pretext.

Gold is not a traceable asset if you first acquire it privately. This may not be always possible. Barter is outside the system.

I mentioned this in a recent Bob Livingston Alert, and so many readers responded that I feel I should reiterate: if you want my best and most complete advice on buying and keeping gold and silver, I’ve put all the details in an exclusive report detailing how you can protect yourself from hyperinflation, which you can get by going to the bottom of this page. If you buy gold stocks, be sure to take possession of your stock certificates the very same as you would physical gold.