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I still
remember December 2012 and how petrified CNBC was trying to make people of
the fiscal cliff. They had a fiscal cliff countdown for an entire month
as if when it expired the stock market would explode. Everyone on there
was scared and telling you to sell stocks because of the uncertainty
surrounding the fiscal cliff. I remember one of their analysts got on
and proclaimed for the first time since he was on TV, he didn't own any
stocks. I thought this was pretty ironic considering he always had a
stock to tout and tell you how awesome it was. But even he succumbed to
the fear of the fiscal cliff emanating from CNBC. Funny thing is, it
was the exact wrong thing to do to be scared of the market coming into 2013.
See the
S&P 500 didn't really do much from early 2011 to the end of 2012.
It did a sideways grind for all of 2011 basically. By the middle
of 2012 it still hadn't gone anywhere. Then it had a rally into about
October of 2012, followed by a pullback to the end of the year. That
made the entire two year span just mostly a big consolidation, which really
is what setup the potential for what we've seen in 2013.
 
Now
recently we get a headline from CNBC titled "Embrace the Selloff".
Remembering what they were saying back in December 2012, I thought this
was pretty funny.
This
all boils down to psychology and how people react given what has happened in
the recent past in the markets. Back in December 2012, they were scared
of the fiscal cliff, not only for the fiscal cliff's sake, but REALLY because
the market had barely gone anywhere in 2 years. So the fiscal cliff
represented another reason for the markets to go down and make everyone
miserable, and they hopped on that bandwagon and made sure everyone felt the
fear.
Now
that the S&P 500 has gone up 400 points, people are much more comfortable
with it. Which is why we get headlines talking about embracing
pullbacks or talk of the Fed tapering. Instead of fear, they are saying
"bring it on" because we've got profits, and this market is still
going higher. This is all nonsense though because in reality the higher
an asset class goes in price the more risk is built into it.
Which
brings me to everyone's favorite asset class to hate: gold. What's
ironic about gold is most of the risk in gold has probably now been removed
from its price after a 2-year+ cyclical bear market. Yet hardly anyone
will believe that, because all they remember right now is pain. But
bear markets remove risk, which is why you need to embrace the panic.
Of
course you can't take advantage of a bear market until its over, that's the
key problem with the gold market. It looked for a second like the gold
bear market was over in 2012, but that didn't turn out to to be the case.
Now that we're ending 2013, it's MORE LIKELY the gold bear market is
over, but maybe it still isn't.
The
best thing we can say about gold is it isn't going down as fast as it was
earlier in the year. Ironically, people are about as or even more
bearish on it now than they were then. Gold is starting to set up a
base which is what you want to see for a market to bottom and transition back
into a bull market. We could even make a new low on gold here and have
a positive divergence in momentum, and still have the type of basing pattern
necessary for a real bottom.
Gold
stocks on the other hand are still trading horribly. The only positive
thing you can say is even though they've made another new low, there is a
positive divergence setting up. If they do get a rally from here it
will also re-establish the base that would eventually then usher in the next
bull market in gold stocks.
More
than likely CNBC and the media will go into 2014 looking for more reasons the
stock market will go up and shake off bad news. But their optimism was
only gained because stocks had a great year in 2013. Eventually the
pessimism in the gold market will be just as ill-founded as the pessimism in
stocks was to start 2013.
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