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Big news this week was the market climbing to even higher record-highs, the European Central Bank (ECB) announcing negative interest rates, and Apple (AAPL) laying the foundation for major changes later this year.
The stock market continues to climb as it has for over five years now since the canyon-like bottoms of 2009. Thanks for unprecedented help from the U.S. Federal Reserve through Quantitative Easing (QE) and super-low interest rates, there has been lots of money flowing into stocks. Key economic data appears to be improving, particularly for manufacturing and employment. We continue to maintain that the employment numbers used, such as unemployment rates are not a good indicator of true economic health, but the broader market and Fed officials have yet to ask our opinion.
We continue to maintain our Yellow Alert on stocks, but there appears to be gathering momentum to the upside. Around 85% of stocks are above their 10-day moving average. This means that 85% of stocks are moving up as opposed to a few big names dragging along the rest. Assuming the Fed continues keeping money easy, we are beginning to feel more and more at ease with stocks. Perhaps the Yellow Alert will be lifted again before too long? On that note, unrest in Ukraine, Thailand, and the grumbles around China continue to keep us from relaxing too much.
We continue to observe that many average Americans are still living in fear of another wealth destruction event like the two experienced in the previous decade (2000 and 2007). This fear continues to lead many to keep their money in cash and avoid stocks in any meaningful way. This is setting the stage for the blow-off euphoric market rush we have been warning of. As the market climbs higher and higher, eventually the fear of missing out will outweigh the fear of loss and people will jump back in. The market will then be driven on, not by Fed money, but by money from main street USA. Unfortunately, this will likely drive markets to unprecedented highs before leading to another wealth destruction event. Avoiding events like these are one of many reasons we study investing and human nature. Emotions are not the friend of the investor.
What does it mean that ECB has set negative interest rates? When you put money in a savings account, the bank pays you a small amount of interest for allowing them to have and use that money. A negative interest rate would mean that you have to pay to keep your money there. European banks that want to keep money at the ECB will now have to pay -0.1% to do so. Why would they do this? European officials are terrified of deflation. Their hope is that penalizing banks for storing money will drive more money into the economy and provide some form of stimulus. As we have mentioned before, Japan is proof that ultra-low rates are no sure-fire cure for deflation.
On our side of the pond, the Fed should keep rates low at least into 2015 and we expect them to continue to taper QE. Money-printing is currently at $45 billion per month and they will likely decrease that by another $10 billion in June.
Apple held their Worldwide Developer's Conference this past week. Many had hoped for the announcement of much anticipated new products, such as the iWatch, iTV, or the new iPhone 6. All these hopes led to disappointment. What was announced was major software advancements. This may not sound exciting to the average person, but if you use Apple products you should expect major advancements in the operating systems of all your favorite tools and toys. If that doesn't bring a smile to your face, we expect the iPhone 6 and iWatch will when they are announced, something we expect well before the end of 2014.
Apple has updated their App Store review guidelines to state apps "may facilitate transmission of approved virtual currencies provided that they do so in compliance with all state and federal laws for the territories in which the app functions." This could lead to a much wider acceptance of Bitcoin and other virtual currencies. Perhaps this is one of the reasons why the currency has jumped almost 50% over the last month?
First-time home buyers are struggling. Young adults with little savings, facing a tough job market, and student debt are struggling getting the credit they need to buy their first home. This is another way the lack of needed growth in the job market is hurting the housing market.
Google is planning to extend Internet access to new regions of the world via satellite, in an effort to add new internet users, and boost revenue and earnings. The new project will start with 180 small, high-capacity satellites orbiting Earth at low altitude. Google's (GOOG, GOOGL) previous projects to extend connectivity involved high-altitude balloons and solar-powered drones.
Tesla (TSLA) CEO Elon Musk said he plans to remain CEO for at least four to five more years. "It's quite difficult to be CEO at two companies," said Musk in response to a shareholder question. "I will stay four or five years, then it's TBD after that." For the time being, Musk is committed to be in charge through the start of high-volume production of Tesla's coming 3rd-generation car, which is hoped to begin production in late 2016.
What does all of this mean for the investor? The timidity in the market has not gone away since we announced our Yellow Alert earlier in the year and it will likely hang around until correction fears dissipate more. The summer is often a time of lighter trading and historically not the best time to be invested. That said, we do not see these as reasons to change our stance or positions in any way. It's possible the corrections we have been waiting for are now in the past for much of the rest of year and we could have a period of sideways movement in prices leading up to another big surge like we saw in 2013 as we usher in 2015.
Current Market Outlook: YELLOW ALERT
The Current Market Outlook is like our traffic light for investing. Green means all systems go, yellow means to be cautious, and red means we believe there are major reasons to be concerned.
Our opinion on gold and silver holds firm. As we have said for some time now, we are still looking for one more big drop. We made some small purchases as prices fell this week, but are remaining disciplined for the expected lower prices. Gold below $1200 is a good range for us, but we are hopeful for even lower toward the $1000 range. As always, we prefer to spread out our buying to get a better average cost. It's possible these lows could come before the end of June, but we are holding that expectation lightly.
That said, if we did not own any physical gold or silver, we would consider the current prices to be a very good entry point for long-term investment. One of our favorite gold sources recently said that he expects the metals to at least double from current levels in coming years calling this a "generational buying opportunity." It is important to reiterate that we are talking about owning physical gold and silver coins and bars, not stocks or ETFs. Our favorite coins are U.S minted Silver and Gold Eagles, they are universally recognized and offer tax protection. For information on how to buy gold and silver, please see "How To Buy Gold And Silver."
Bitcoin is sitting at around $656.88, up nearly $40 for the week and 47.5% over the last month. After a long period of sluggishness, something has lit a fire under the currency of late. At the same time, it appears that major players like PayPal (EBAY), Ebay (EBAY), and Apple are beginning to take Bitcoin more seriously. Acceptance on these levels could be exactly what the currency needs.
We continue to urge caution as we still think Bitcoin is a lottery ticket that could grow 10-100x or more and could even more easily go to $0.Caution and small amounts of money are strongly advised. For information on how to buy Bitcoin as well as our views on investing in it, please see our article, "How To Buy Bitcoin."
Disclaimer: This article is for information purposes only. There are risks involved with investing including loss of principal. All readers must be responsible for and make their own investing decisions. Each reader bears the full responsibility for any decision to buy, sell, or hold any securities, precious metals, real estate, or other asset class as well as any decision regarding the starting or running of a business. Nothing in this newsletter is to be considered a formal recommendation. Investor in the Family LLC makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Investor in the Family LLC will be met. Please see full Disclaimer.
Disclosure: I am long AAPL.
Additional disclosure: We own gold and silver coins and bars as well as some Bitcoin.