Sell in May and Go Away or Buy in May and Go Away?

Bob Moriarty
Archives
May 13, 2013

Actually you should do both.

Buy Vancouver/Toronto and sit, sell Wall Street and sit.

We have had a major bottom in gold, silver and resource stocks. By all measures investors despise gold and won’t touch it with a ten-foot pole. That’s a really good thing.

Investing is no more complex than buying cheap and selling dear.

Many times I have tried to explain that the chart of the XAU over Gold is the most pure measure of investor psychology in the gold space. When investors love gold, they buy the metal. When investors hate gold, they sell the shares. So you can figure out where you are just by looking at the chart.

Shares are cheaper relative to gold than they have ever been in history. Ignore everything else. Shares are cheap. So buy shares in resources as well as physical gold and silver, you will never again get this opportunity. Buy cheap, sell dear, that’s all there is to it.

The big drop in gold and silver in April stirred up the caldron with wild tales of manipulation and conspiracy. Evidently if you believe in manipulation of the metals, you reject supply and demand and deny correction.

I have read a thousand articles using all the buzzwords, physical vs. paper, fiat, manipulation, conspiracy, J P Morgan, takedown, Comex default but never in a single one of those articles do I read the word correction. Evidently the metals markets are to go up every single day and if by chance a market ever goes down, it’s proof positive of manipulation. And gold/silver markets never correct. How amazing are these markets? Supply and demand means nothing. Manipulation is everything. The greatest reason to own gold or silver is because it’s manipulated. What am I missing?

We are told that overnight there is a giant shortage of both gold and silver and premiums are 25%. I guess we have to ignore all the new ads appearing advertising Silver Eagles at $2 over spot. The facts begin to conflict with our fantasies.

The Sprott Physical Silver ETF has the unique feature that an investor can demand delivery. So at least in theory a well-heeled investor demanding $1 million in physical silver can buy the ETF and arrange a giant silver bar delivered to his doorstep. So when I’m hearing wild tales of silver shortages, I go to see just how the real world premium is for silver.

Guess what? In April the premium for the Physical Silver Trust actually went negative. So at the same time certain pundits are claiming silver premiums are 25%, the premium on the Sprott Silver actually was so low that you could buy silver in quantity at a discount. Hmmm? Someone is confusing their opinions with the facts.

Meanwhile, over in Fantasy Land on Wall Street, the S&P and Dow continue to make new record nominal highs day after day. According to Leon Black of Apollo Global Management, “We are harvesting.” “We’re selling everything that’s not nailed down.” “The financing market is as good as we have ever seen it. It’s back to 2007 levels. There is no institutional memory.” Hmmm? 2007 levels? That may be a bad thing. That’s when markets topped.

In July of 2007 margin debt exploded to a record of $381.4 billion. Today it sits at $379.5. Hmmm?

If you wonder just what is happening with sentiment, Barron’s recently reported a new record high in bullishness consensus on equities with some 96% of money managers declaring themselves “bullish on stocks for the next five years.” Hmmm?

If you wander over to the SPX COTs, you can see a new record speculator long position of $55 billion, the highest since the 2007 record. Hmmm?

Nobel Prize winner James Tobin came up with an interesting concept for measuring fair value of the stock market. He called it the Q Ratio. It compares the total value of the stock market to its replacement value. The numbers come from the quarterly reports on Flow of Funds released by the Federal Reserve.

According to the latest numbers from the Fed the ratio is similar to the 1929 stock market and the 1969 stock market. Hmmm?

If those bits of data aren’t enough to scare you silly, you may want to understand what Brother Bernanke slipped into the news on Friday last. When Bernanke needs to run something up the flagpole to see who salutes, he leaks it to the Wall Street Journal via favorite son Jon Hilsenrath. The piece was titled “Fed Maps Exit from Stimulus.”

In hindsight, we will realize the $85 billion dollar purchase of used toilet paper was probably a really bad idea. But it did manage to pump money into Fantasy Land on Wall Street at an unbelievable rate. While the economy of the US continues to contract and 23% of workers are unemployed, at least the Barons of Wall Street feel no pain. They will start to feel the pain only when the punch bowl is taken away. That’s next month.

Occam’s Razor in simple terms says, “When you have two competing theories that make exactly the same predictions, the simpler one is the better." In other words, simple solutions make more sense than complex solutions.

Markets are far more simple than the pundits want you to believe. You should buy cheap and sell dear. Tops in markets are market by high volumes, bottoms by low volumes. When everyone wants to buy, you should sell to them. When everyone wants to sell, you should buy from them.

The resource shares are hitting record lows because the big stock funds are all in the Fantasy Land on Wall Street casino rolling the dice. Volume is non-existent. What shares being sold are being dumped by the gold funds to fund redemptions. It’s a bottom and no matter if it goes up now or it waits through the summer, it’s going to go up.

The Dow and the S&P are showing every sign of a major top being formed. There have been so many record highs reported that I believe the crash is imminent and will be brutal. All those funds now some 96% bullish on the Dow or S&P are about to come back to the resource sector.

So you should buy in May and go away and you should sell in May and go away.

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Bob Moriarty
President: 321gold
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321gold Ltd