Negative Interest Rates are Coming: Are You Ready?

• The amount of negative-yielding debt in the world is going parabolic.
• There’s a correlation between negative interest rates and safe-haven assets.
• Although asset prices have been climbing for the last decade, economic activity hasn’t been keeping pace.

Chances are, you’re not ready for what’s happening or what’s coming. The full realization of what it means to have negative-yielding debt going parabolic has yet to hit the average investor.

The smart money has been on the move for some time, though. We can see this in the skyrocketing gold price against most fiat currencies around the globe (gold has hit all-time highs in at least 72 different currencies so far in 2019). It’s also apparent in the cryptocurrency market growing from seven billion USD three years ago to now being valued at several hundred billion.

In addition, there's a growing correlation between the amount of negative-yielding debt outstanding, the price of gold, and the price of bitcoin. All have been going up in lockstep.

The Connection Between Debt, Gold, and Bitcoin

If you look at trendlines for the support levels of negative-yielding debt and gold over the last six months, the angle is quite similar. The same thing goes for the resistance trendline for BTC/USD.

Given that bitcoin still has a large base of speculators in its market, it makes sense to follow the resistance rather than support. Big profit taking tends to happen on any price increase to a degree not present in the gold market.

Bitcoin also has the added variable of new miners coming online, who tend to take profits in fiat to cover their operating costs. The bitcoin hash rate hit a new all-time high in July. This is supportive of prices in the long-term but maybe not in the near-term. 

Now, here's the trend of increasing amounts of negative-yielding bonds:

The trend for the price of gold as measured in dollars:

And the trend for the price of bitcoin as measured in dollars:

As you can see, the rate of increase is almost identical for all three. 


The timeframes are slightly different – the trend with negative-yielding debt is almost a perfect 45-degree slope upwards since September 2018. Gold and bitcoin have only seen such steep rises since around April or May, however.

So, there has been at least a seven-month lag between the time interest rates go deeper into negative territory and the time at which investors flock to safety. This makes sense when you consider that it takes time to realize what’s going on, liquidate assets, and move capital. But now that the process has begun, things will accelerate much faster going forward. 

Investors who have suddenly realized they are at risk of having their money stolen from them are seeking refuge in safe-haven assets. Gold is the go-to safe-haven asset. It always has been and always will be. And while bitcoin’s status as a safe haven may still be debatable to a degree, the price action of gold and bitcoin have been increasingly correlated as of late.

My argument is that it doesn’t matter what you believe about bitcoin, its economics, or even the blockchain technology that powers it. Investors have begun perceiving BTC as a safe haven, and that perception becomes a self-fulfilling prophecy.

Keep in mind that the negative-yielding debt chart from Bloomberg (the first chart shown in this article) only goes up until March of this year, at which time the total figure was under $10 Trillion.

Since then, the trend has been going parabolic (vertical even), with the total now reaching beyond $16 trillion (this number is hard to keep up with. By the time you read this, the figure could easily be one or two trillion higher).

It’s hard to make connections between negative interest rates and anything happening in the economy because this has never happened before. Negative rates are without precedent. The fact that the correlation between rates/gold/bitcoin is so striking says a lot about what’s happening and what’s coming.

The Crash Isn’t Coming - It’s Here

You’ve probably been hearing about a historic crash coming for a long time now (especially if you read Zerohedge). And you’ve certainly been hearing rumors of a possible recession from every financial news media pundit and their mother over the course of the last six months.

Here’s what you haven’t heard: they’re all wrong. The crisis isn’t far away in the future. It’s here and now. While it may be some time before things get so bad they can no longer be hidden and most media outlets admit this, the data doesn’t lie.

What data am I talking about? Well, the charts I just showed you, for starters. Those indicate that sovereign bonds, once the ultimate safe-haven asset, are now becoming much worse than just a risk asset - they're becoming a guaranteed loss. As such, money has begun flowing out of fixed-income assets and into fixed-supply assets, i.e. gold and bitcoin, which have a finite and a fixed supply, respectively.

But the final nail in the coffin for the global economy in terms of data illustrating its demise is M2 velocity of money. The velocity of money is sometimes referred to as the pulse of an economy. And the patient is dying.

M2 money velocity is a measure of the rate at which currency changes hands throughout the economy. As you can see, money in America has been moving slower and slower for decades. As the Fed ended its zero-interest-rate-policy (ZIRP), M2 money velocity stopped tanking and has begun to flatline instead. Progress!

Some might say this is a myopic view and that only looking at a single metric doesn’t give a clear picture of economic activity. I would argue that it does because this one metric invalidates so much of the “everything is great” narrative we have been bombarded with for the greater part of the last decade.

If unemployment is low and main street is doing just fine, why has money velocity been trending lower for decades?

 If banks are lending to businesses who are buying and selling things, how has that not caused the velocity of money to pick up in earnest? If increasing asset prices indicate a strong economy, why has this not been reflected in the velocity of money?

This Wasn’t Supposed to Happen

Quantitative Easing and lower rates were supposed to be a temporary, one-time thing. They were intended to prevent worldwide economic collapse. Instead, these policies ensured that the real economy that died in 2008 would appear healthy until more debt and currency printing couldn’t cover the rotten corpse any longer.

Stocks in the US are high because of corporate buybacks fueled by corporate debt borrowed at zero interest. Unemployment is low because people have dropped out of the labor force. Banks have remained solvent because the Fed printed trillions of currency units and gave it to them for free (at zero interest) to keep their balance sheets propped up. 

Negative-yielding debt going vertical isn't so much a canary in the coal mine or a black swan as much as it is a mass die-off. After years and years of monetary stimulus, the diminishing returns it provides are no longer working. In fact, the returns are becoming negative.

Investors have begun to understand this and are acting accordingly. The entire monetary paradigm is shifting.  

Are you ready?

What do you have to say about this?

Do you think negative interest rates have begun altering the financial system in a fundamental way? Or will none of this change anything?

Leave your thoughts in a comment below.

[Update on 9/5/19 – Former Fed Chairman Alan Greenspan says "it's only a matter of time" before negative rates come to America.]

Global Economic Slowdown 2019 Continues – Protect Yourself and Profit by Taking These Simple Steps

Financial headlines around the world seem to have taken a liking to the phrase “global economic slowdown 2019.”

Everywhere you look, data about declining trade, failing currencies, or falling stock markets abound. Bloomberg, Forbes, Business Insider, CNBC, RT Business, and The Washington Post are just a few of the mainstream sources now acknowledging that something is seriously wrong with the global financial system.

While there are almost endless ways to cover this story, here we will focus on a few main points:

• There is a massive slowdown in global trade occurring. FedEx and the Baltic Dry Index prove this. The inverted yield curve is also suggesting that a Recession may be ahead.

• The Fed may slow down on rate hikes this year, but has the damage caused by higher rates already been done?

• Global stock market growth has been good in the US, but the rest of the globe has suffered. Why is this the case? Have corporate share buybacks distorted market prices?

Global Growth Not Looking Good in 2019

There are too many indications of a global slowdown in growth for 2019 to count. Everything is pointing toward signs of another serious economic meltdown coming in the near future.

And this time around will be much worse than in 2008. There has never been more debt in the system and interest rates have never been this low for this long.

Stock markets around the world have been declining since October 2018, as we covered here at GSB. But the US has bounced back for some reason. How can this be?

Corporate Buybacks Boost Share Prices

It’s no secret that the huge rally in stocks over the last decade has been fueled by quantitative easing and corporate share buybacks. There’s a reason that corporate debt has become one of the many big debt bubbles in the US economy.

With interest rates at or near zero, corporations can borrow money for free and use it to purchase shares of their own stock. The result is increasing share prices without any real underlying economic fundamentals to justify those share prices.

It’s worth noting that share buybacks began tapering off just months before the sharp selloff during Q4 2018.

FedEx Reports Weak Earnings, Issues Warning to World About Global Economic Slowdown 2019

International shipping giant FedEx (FDX) has issued a warning that the entire world economy is slowing down.

CNBC reports:

Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue,” Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, said in statement.

FedEx reported weaker-than-expected third-quarter earnings and revenue after the closing bell on Tuesday, and cut its full-year guidance. Shares fell more than 4 percent in after-hours trading.

And it’s not just FedEx that has been hurting. Looking to other indicators of global trade, it becomes obvious that there’s more to the story here than just a single economic bellwether suffering lower revenue.

Baltic Dry-Index Further Validates FedEx’s Warning

The Baltic Dry Index is considered to be the hallmark indicator of global trade. The index is currently hovering around a 1 year low and is not far from its all-time record low reached in 2016.

The fact that the Baltic Dry Index has been doing so poorly is a clear indication that things are not going well at all.

Curiously, we don’t hear this indicator mentioned much by most mainstream economists. But what’s been happening with treasury yields is perhaps even more ominous.

The Yield Curve is Inverting

One of the most surefire indicators of a recession is what’s known as an inversion of the yield curve. This happens when the yield on short-term debt becomes higher than the yield on long-term debt.

This happened leading up to the dotcom bubble bursting in 2000. It happened before the 2008 global meltdown. And it’s happening again now.

Historically, a recession has followed within 14 – 34 months of the yield curve going upside down. This has happened every single time for the past fifty years.

Federal Reserve Reverses Rate Hikes

In what has become a classic move for the Fed, Jerome Powell reversed course when he announced on Wednesday that more rate hikes may not be coming this year after all.

Recall that for several years leading up to the first rate increase from a federal funds rate of zero in December 2015, the Fed claimed it was getting ready to raise rates at almost every single FOMC meeting.

Will we see the opposite trend take hold beginning this year? Will the Fed continue to raise rates despite Powell’s comments to the contrary?

Given the central bank’s track record, no one can say for certain. It’s almost as if the Fed intends to confuse people and prevent any kind of predictability from entering the markets (I’m not saying they’re doing that, but they couldn’t possibly do a better job of it if they were).

On the one hand, if the trend of the past decade were to continue, markets should rally as a result of the Fed turning dovish, or at least claiming to.

But things don’t look so rosy this time around.

While US stocks rallied on Thursday, they tanked again on Friday, with the Dow falling 450 points at session lows and the S&P 500 having its worst day since January.

The QE punchbowl has been taken away and the party is ending. Even a modest increase in interest rates has pricked the massive debt bubble that has been inflated through years of accommodative monetary policy including a $14 trillion global bailout of banks in 2009. The Federal Reserve alone has printed over $4 trillion and now claims its intention to pause the unwinding of its balance sheet.

How do the rest of us cope with the results of this never-before-seen monetary experiment that is beginning to go horribly wrong?

How to Best Position Yourself for the Ongoing Global Economic Slowdown in 2019

Things keep getting worse for most of the financial world. The global economic slowdown of 2019 appears to be accelerating. But those who subscribe to the GSB newsletter aren’t feeling the pain.

As usual, there are a few surefire ways to protect yourself from the increasing chaos engulfing the globe:

• Physical precious metals
• Quality gold and silver mining stocks
• Short selling select overvalued stocks or using inverse ETFs
• Bitcoin and other cryptocurrencies that offer non-correlation to stocks
• Undervalued cannabis stocks experiencing triple-digit growth

These types of proven strategies can help investors protect and grow their wealth, even during a stock market decline.

The GSB portfolio is already outperforming in 2019, up double-digits with over 80% of our positions in the black year to date.

And just as mainstream headlines have begun validating what GSB has been saying for years, so too has one of the top performing hedge funds of 2018 profited by adopting similar strategies.

As Bloomberg reports:

“One of last year’s best-performing hedge funds says the “trade of the century” is to buy gold and sell stocks as risk assets are due for another meltdown.

It’s only a matter of time until the bearish bet pays off big, according to Crescat Capital LLC”

Subscribe to the GSB newsletter to get in-depth monthly market analyses, our real-time portfolio, top-rated newsletter, plus weekly trade alerts and updates. For a limited time, you can get instant access to our top picks starting at just $55.

[This post was originally published on GoldStockBull.com on March 25th, 2019.]

The Unemployment Lie: Why the Unemployment Rate is Inaccurate and Paints an Incomplete Picture of Reality

Numbers are great. Quantitative analysis and related methods of inquiry into our world can yield startling insight into objective events.

Every great technological and scientific advancement in history has manifested through numerical understanding. An increase in mathematical comprehension can lead human beings to heal diseases, communicate across vast distances, conquer the stars, and more.

Yet even Albert Einstein once said that:

“Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”

The point is if you can’t see past a simple figure, you’re missing quite a lot of the picture.

In order to begin to understand what numbers really mean, especially with regard to economic and financial numbers, it’s necessary to look at the fundamental factors underlying those figures.

Drawing a conclusion from a single number like a percentage point is like trading a stock, currency, or commodity by looking at a single variable like a moving average, Fibonacci retracement, or Bollinger band. Without considering the actual fundamental features of the underlying asset (market cap, quarterly sales, price-to-earnings ratio, etc.), you have no idea what’s really going on. You’re throwing dice at a craps table with a blindfold on.

Yet you have better odds of winning while gambling blindfolded than you do of discerning economic reality by reading official statistics.

When Keeping It Quantitative Goes Wrong

In modern Western culture, we place a high value on numbers. They provide us a quick and easy means by which to assess things that matter to us.

However, we seldom stop to think about how quantitative reasoning can be blended with rhetoric to conflate, confuse, conquer and divide entire populations.

Here’s why the official unemployment rate is inaccurate.  

1) “Employment” Definition

What does it mean to be employed? According to the Bureau of Labor Statistics,

Employed persons (Current Population Survey)
Persons 16 years and over in the civilian noninstitutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.

There are so many things wrong with this definition.

To begin, “the reference week” refers to a week when the people at the BLS decided to conduct a phone survey. That’s the source of these magnificent numbers everyone is clamoring about – random phone calls.

And if someone worked a single hour on a family farm and got paid for it, or worked 15 hours without pay during that week, they’re counted as employed. But that’s not the most important point.

2) Labor Force Participation

The labor force has been shrinking precipitously for the past ten years. 

And no, baby boomers retiring do not account for this dramatic downward shift that just happened to begin following “The Great Recession.” Many baby boomers can never retire in the first place, having to deal with soaring costs of living while also being robbed of any earned interest on savings, CDs, or treasury bonds thanks to central banks lowering interest rates into oblivion.

How does the BLS define workers who are “not in the labor force?”

In a nutshell, workers who are no longer drawing unemployment income, haven’t worked in 12 months, and have given up looking for work.

Not in the labor force (Current Population Survey)
Includes persons aged 16 years and older in the civilian noninstitutional population who are neither employed nor unemployed in accordance with the definitions contained in this glossary. Information is collected on their desire for and availability for work, job search activity in the prior year, and reasons for not currently searching. (See Marginally attached workers.)

Here's where things get really revealing. Pay close attention to this last definition.

Marginally attached workers (Current Population Survey)
Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached. (See Discouraged workers.)

Furthermore, “discouraged workers” are defined as:

Discouraged workers (Current Population Survey)

Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

So, in the end, people who gave up looking for work a long time ago are not considered to be unemployed at all. Does this really sound like a reasonable method of counting the unemployed segment of the population?

In addition, there is nothing to be said in the numbers about the quality of employment. Even if it were true that unemployment is at a 49-year low, does that translate into economic prosperity for all?

Working three jobs, say, at Target, Wal-Mart, and McDonald’s counts as being employed.

Can you pay your rent? Maybe. Maybe not. You might be living in your car and reading this from a desktop computer in your local public library.

But hey! You’re employed. Happy days are upon us.

While many prefer to blame things on this politician or that political party, that kind of dichotomous thinking has no real significance when looking at long-term trends.

Economic Reality Transcends Political Ideation

In conclusion, the official economic numbers put out by the government, as Peter Schiff puts it in his book The Real Crash, are

 “Pure propaganda, plain and simple.”

A brief analysis of the methods used to create these numbers confirms this assertion beyond any reasonable doubt. It’s not hard to see why the unemployment rate is inaccurate.

This holds true across administrations.

It’s true for the Trump administration.

It was true for the Obama administration.

G.W. Bush, Clinton, Bush Sr., Reagan, Carter, and every previous administration conducted business in the exact same fashion, going back all the way (at least) to President Woodrow Wilson, who signed The Federal Reserve Act into law on December 23^rd, 1913.

Speaking of which, what did Wilson say about America’s system of credit after he signed this ruinous law?

Just over 100 years ago, in 1916, President Woodrow Wilson said the following, according to official Senate documents:

“A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men ... We have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.”
 

Panic Selling, Investor Psychology, and Why Contrarians Are the Biggest Winners

So far, 2018 has seen some dramatic panic selling across almost all financial markets.

Metals have tanked. Stocks have become volatile and have declined about 10% from all-time highs. The bond market has taken a hit as central banks have begun slowly raising interest rates (for now). And the total market cap of all cryptocurrencies has fallen by almost $600 billion dollars.

This means that many assets are currently underpriced. While most people perceive catastrophe, successful investors see opportunity.

Q3 2018 might one day be looked back upon as one of the greatest buying opportunities of the decade.

Let’s look at the severity of the recent declines in precious metals, mining stocks, cryptocurrencies, and cannabis stocks.

Precious metals

The quintessential safe-haven bids have provided investors little shelter from the recent market carnage. Rising rates, quantitative tightening, a stronger U.S. dollar and the risk-on trade have contributed to the demise of the metals this year. Gold has broken key support and silver has seen steep declines.

Gold

After trading between $1,300 and $1,400 through May, gold has broken beneath support at $1,200. It dipped as low at $1,167 before bouncing back to the current price of $1,195. Gold needs to reclaim $1,250 and ideally climb back above the 100-day moving average at $1,280 to turn bullish again. The RSI momentum indicator was oversold this past week until bouncing a bit in the past few sessions.

Silver

After appearing to hold steady above $16 for at least nine months straight, silver has fallen below $15 and is rapidly approaching $14. The $13.50 price level should offer strong support if the dip continues. The silver price needs to bounce back above $16 soon for our outlook to turn bullish.

Silver is the most volatile of all the metals and has been known to make rocketship-like rebounds. Q1 2016 saw silver soar over 50% in little more than a month. Roughly 50% of silver’s demand comes from industrial applications, so the strengthening economy should increase demand for physical silver.

GDX

Leverage cuts both ways and GDX has been hit especially hard. The gold miners’ ETF is down 6% in the past week and 14% over the past month. The RSI has become deeply oversold, offering an opportunity for short-term traders and long-term holders alike.

The month of August has seen an even more dramatic decline in GDX than the months that preceded it. Value investors now have the opportunity to pick up shares in quality mining stocks that are deeply undervalued. The GSB portfolio is well-positioned in junior and mid-cap mining stocks. We plan to increase exposure over the next few weeks by purchasing a few of the miners currently on our watch list.

Cannabis Stocks

While the marijuana index has seen steep declines over the past six months, a weekly bounce of over 10% from the 6-month low of 224.61 shows how quickly things can turn around. Prior to this bounce, most cannabis stocks had dropped at least 30% from 2018 highs. If this bounce continues a few more sessions, it increases the liklihood that we have seen the bottom for the cannabis sector sell-off.

The cannabis sector is still so young, there’s plenty of time to become an early adopter, even after this bounce. With legalization sweeping the United States and gaining momentum globally, investing in cannabis stocks now could be like buying Microsoft, Apple or Google back when they weren’t yet household names.

Cryptocurrency Panic Selling

The cryptocurrency market as a whole has seen more than half a trillion USD of market cap vanish year-to-date.

Bitcoin, the largest cryptocurrency by market cap, is down more than 60% from its all-time high of over $18,000 in January 2018. XRP, the token of the Ripple network, has collapsed by 90%. Ether, the native token of the Ethereum network, has lost about three-quarters of its dollar value since the year began.

Ethereum

Ethereum has seen very sharp declines amidst this recent sell-off. Panic selling has driven ETH down 75% from 2018 highs around $1,200, all the way to just below $300.

Given that ETH was trading around $7 in Q4 2016, the native token of the Ethereum network still looks to be doing pretty well for early investors.

XRP

XRP has tanked through the floor, falling almost 90% from the high of over $3.00.

The XRP token was truly in bubble territory, having climbed from less than half a penny in early 2017 to its record highs just a year later. We view it as a centralized, pre-mined, bankster coin, that will always be inferior to more de-centralized and fairly-distributed solutions.

BTC

Bitcoin has been the most resilient of the bunch, being the safe-haven bid of the crypto world.

So far, the BTC/USD ratio has kept in line with my previous prediction of holding a narrow trading range close to the $6,000 mark for some time. This could continue for a few more months before a breakout. Historically, the moon months for crypto have always been in the fourth quarter.

While Bitcoin may be down year-over-year, it still represents the gold standard of crypto and has held its own amidst much steeper declines in altcoins over the past few months. In fact, Bitcoin dominance (market share) has rocketed from 35% in May to 52% currently. Bitcoin is currently worth more than all other coins combined. Altcoins are more speculative, so they tend to suffer sharper declines during corrections, but also tend to enjoy greater gains during bull runs.

Investor Psychology 101 and Panic Selling

The average investor gets washed away in the tides of sentiment. When asset prices rise, people tend to take notice and think they just have to get in on the action right away. When asset prices fall, it feels like the sky is falling and it’s time to panic sell.

It’s no secret that this is a loser’s strategy. To make good decisions in finance, it’s necessary to remain calm and act from a place of discipline and rational restraint.

When it comes to mining stocks, cannabis stocks, precious metals, and cryptocurrencies, people tend to have even stronger emotions than usual. They can become mentally “married” to a particular asset class, stock, or token, meaning they refuse to change their position no matter what happens.

This is the definition of delusion.

1a : something that is falsely or delusively believed or propagated. 

b psychology : a persistent false psychotic belief regarding the self or persons or objects outside the self that is maintained despite indisputable evidence to the contrary. 

The sad truth is most investors live in a constant state of delusion when it comes to their assets. Instead of examining trends and evidence in order to come to a rational conclusion, it’s more common to create the desired conclusion and discount any evidence that contradicts that conclusion.

Panic Selling is Not the Answer

In order to buy low and sell high, you have to swim against the tides of bearishness and bullishness. August of 2018 represents the best buying opportunity of the year so far for almost all asset classes. But do most people perceive things this way? No. The more common view is that the end is nigh and all hope has died.

Like clockwork, once asset prices begin to rise, the bulls will begin screaming that now is the time to buy. But by then it will already be too late. The bottom may already have been reached by the time you read this, whatever asset class you choose.

Keep in mind that trying to time the absolute bottom or perfect peak is also a mistake. While you want to buy at a low, waiting for the very pit of a dip is impossible. It causes you to wait so long that the inevitable bounce comes before you were able to seize the opportunity.

Likewise, selling near a high is great, but waiting for the tip-top of a meteoric rise leads you into the same trap. By the time you take profits, a correction will already have hit.

Easy Ways to Mitigate Risk

For the sake of this argument, we’ve been discounting two ways to get around the typical herd mentality that causes most people to lose money. These include stop-loss orders and buying and holding.

Stop-loss Orders

First, you can place stop-limit and stop-loss orders. These give you the option to minimize your losses and lock in your gains without having to keep a constant eye on the markets.

Buy and Hold

Alternatively, you can buy and hold for the long-term. This strategy is much easier for the average person and can lead to the largest gains.

Don’t fool yourself into thinking you’re some master day trader that can make millions trading penny stocks in a couple of months. Arrogance is another fatal flaw in this regard.

Case in point. I once had a friend who lost over $10,000 in less than a year because he kept making massive bets on penny stocks based on news reports or a single technical indicator. This never worked. Using this kind of method is not falling victim to the investor herd mentality, but is pure gambling.

A much better method is to take the contrarian perspective and act accordingly.

Panic Selling and the Contrarian Perspective

Contrarian investing involves doing the opposite of what everyone else is doing. Capitalize on the momentum of the herd instead of being trampled by it.

Consider the following definition of contrarian investing courtesy of Wendy Connick of The Motley Fool:

Contrarian investing is the practice of bucking the herd. Contrarians buy stock when everyone else is panicking and selling theirs, because they know that a flood of stock sales means that the market is near, or at, its bottom and will soon begin to recover. They sell whenever investors become extremely optimistic, because when everyone is buying that usually means the market is at or near a peak and is about to take a dive.

Contrarians take action that contradicts prevailing investor sentiment.

For example, the doom and gloom that this article has so far focused on might make you think that now is not the time to get into crypto, stocks, gold, or anything else. But in reality, nothing could be further from the truth.

A buying opportunity like this will probably not come around again for quite some time. While the broader stock market is still mostly overvalued (particularly tech stocks), mining stocks and cannabis stocks still have significant upside potential going forward.

For those who are betting on much greater U.S. stock market gains ahead, please realize just how overvalued the market is currently (it’s worse than in 1929!). The odds are against much further gains. You need to be realistic. https://t.co/UUu9ltAzyw pic.twitter.com/yHDcYofXID

— Jesse Colombo (@TheBubbleBubble) February 14, 2018

Panic Selling is for Weak Hands

In the financial markets, investors or traders have weak hands when they lack either the conviction to stick with an investing or trading plan or they lack the resources to carry them out. Their are usually small speculators exhibiting predictable behavior. They buy near tops and panic sell at bottoms.

Don’t be the weak hands that panic sell at the worst moment. It’s easy to freak out and feel like you’d better cut your losses before they become even deeper. But what you usually wind up doing is depriving yourself of future gains instead. If you are involved in short-term trading, utilize stop-loss orders to take the option of panic selling near a bottom off the table.

When the world is panic selling, take the contrarian perspective. Buy what you can while it’s still undervalued and wait for the bulls to begin running again. Whether you’re trading for short-term gains or holding for long-term profits, it’s times like these that represent monumental opportunities.

Join us now for just $55 to follow our trades, see which stocks we believe will outperform, discover under-the-radar cannabis companies prepping for huge growth, get our take on the cryptocurrency markets and our top crypto picks for the next move higher. 

[Originally published on GoldStockBull.com on 8-21-18]