Thursday, February 23, 2017

Another bubble? Bring it on!

Anytime the Dow makes a new high you can be reasonably assured of hearing the B-word bounced around in the media.  Memories of the last bubble are still vivid and painful enough to trigger flashbacks of the bubble’s collapse.  It’s only natural then that investors fear a return of irrational exuberance.  Despite these fears, the evidence of a newly formed bubble is surprisingly lacking, as we’ll uncover here.

Asset manager Jeremy Grantham famously defined a bubble as any asset whose price has moved at least two standard deviations above its longer-term statistical mean, or norm.  This definition is too rigid, however, and can sometimes be misapplied to see bubbles where none actually exist.  Markets can sometimes exceed the 2 standard deviation rule in non-bubble environments, as when the utilities sector last year experienced a 3 standard deviation event. 

This definition also is overly reliant on statistics and is lacking in the psychology department.  Investor psychology, after all, is a primary driving force of the pricing mechanism in all free markets.  What Grantham’s 2 standard deviation event rule fails to consider is that if a market experiences a record-breaking and sustained run-up, it can sometimes occur without widespread participation by small traders and investors.  And without large scale participation among retail traders the psychology of a bubble is lacking, i.e. there is no bubble.

The latest rally in the major stock market averages has once again fueled talk of a mania for equities in the popular press.  As discussed in previous commentaries, though, there is as yet no evidence of widespread direct participation in the equity market by small investors.  Much of the movement behind the rally to new highs is courtesy of institutional activity, with the public participating only indirectly via retirement savings funds.  Nowhere to be seen is the incessant preoccupation with day trading, swing trading and stock picking which were symptoms of the last two bubbles. 

One explanation for this startling lack of bubble psychology despite the all-time highs in stock prices is the K-wave.  Readers of this commentary should be familiar with this most basic of all long-term economic cycles, which answers roughly to the 60-year equity market cycle.  The K-wave deflationary descent bottomed in 2014 based on the Kress cycle count.  K-waves are often divided into four sections or “seasons” with each section being assigned a season of the year (e.g. winter, spring, summer, fall).  The following graph was devised many years ago by P.Q. Wall and does an admirable job of describing the K-wave seasons.
                                                                                                                            

If we assume that K-wave winter season ended in 2014, we’re now in the early phase of K-wave spring.  Early spring can easily be confused with winter due to the occasional freeze or snow storm that sometimes happens during the transition period between the two seasons.  But as the season progresses the signs of new life and warmth that always accompany spring gradually become more evident.  In that same vein, the last couple of years might easily have been confused with winter due to periodic outbursts of deflation in the global economy.  Yet we’re starting to see unmistakable signs that K-wave spring has truly sprung, even in the weakest performing foreign markets. 

To take one example, China’s stock market is starting to show renewed signs of life after being in a bear market the last two years.  China has also recently begun trying to increase its economic growth by providnig plenty of credit.  As Dr. Ed Yardeni has observed, “During January, total ‘social financing’ rose by a record $542.3 billion.  That’s not on a y/y basis, but rather on a m/m basis!  On a y/y basis, social financing totaled $2.7 trillion over the past 12 months through January.  Bank loans, which are included in social financing, rose $335.7 billion during January m/m and $1.8 trillion over the past 12 months.”

The emerging markets have experienced a similar rebound along with several euro zone markets.  As the U.S. leads the rest of the world out of global recession, there can be no denying that the K-wave is beginning to work its spring-time magic.

The aggressive policy stance by China’s central bank has led to worries that China’s real estate and stock markets may soon experience another bubble.  This in turn has added to fears that the U.S. will soon experience another bubble event in the stock market.  This need not concern us, however, since painful memories of the credit crisis are still strong enough among central bankers to prevent a bubble from forming, let alone get out of control.  Even China’s last taste of an equity market bubble ended prematurely when frightened policy makers quickly tightened money and credit in fear of the consequences. 

Now let’s assume for a minute, though, that a bubble was allowed to form in the U.S. equity market this year.  Would this be such a bad thing?  Considering that the biggest advances in technological progress and development, to say nothing of widespread prosperity, have occurred during bubbles it’s easy to answer that question in the negative.  While the naysayers focus on the negative aspects of a bubble’s implosion they neglect to mention that even after the inevitable popping, society is still immeasurably better off than before the bubble began.  Indeed, a bubble might be just what is needed to put the U.S. economy back on the right track for vigorous growth.   

It should be added that when it comes to economic policy, it’s always best to err on the side of too much growth than on too much austerity.  The events in Europe of recent years serve as a stark reminder of this fact.  Thus whenever fears of a bubble are discussed, it would do policy makers well to consider that the benefits of a loose monetary policy always outweigh that of a tight one. 

Probably the biggest argument used by the bubblemongers right now is the chart of the NASDAQ 100 Index (NDX).  This chart can easily be used to justify the fear of an incipient bubble, yet the investor psychology and mass participation factors are curiously missing right now. 


Before we arrive at the bubble stage, we should see increased interest bordering on obsession among small investors as the stock market becomes a primary focus among the masses.  As this hasn’t yet happened, the inescapable conclusion is that the long-term bull market hasn’t reached bubble proportions yet and therefore has a ways to go before expiring.    

Tuesday, February 14, 2017

The bull market no one believes in

The stock market continues to make new highs, yet none of the signs which accompany a market bubble are evident.  Investors are asking, “When will the Dow finally correct?”  By “correct” they mean “decline.”  However, a market correction doesn’t always entail a decline for the major averages and can sometimes take the form of a lateral consolidation or trading range.  That appears to be the case for the 2-month period from December through early February when the Dow and S&P made little headway.

In fact, in January the Dow Jones Industrial Average (DJI) recorded its tightest trading range of only 1.1% in over 100 years.  This continues a prolonged sideways pattern in the Dow and other averages since mid-December when the post-election rally reached a plateau.  The question everyone was asking was whether this plateau was merely a temporary “pause that refreshes” in an ongoing rally or the end of the rally and the prelude to another market setback.  The Dow provided the answer to that with the last week’s breakout above the top of the trading range ceiling.  It has rallied each day since, putatively on the hopes generated by President Trump’s forthcoming tax-related announcement.


While the bull market in equities continues, a surprising number of investors are either mistrustful of the rally or outright bearish.  According to a recent article in BBC News, there are a growing number of wealthy and politically liberal U.S. citizens who are doing things in the wake of Donald Trump’s election that were commonly seen by politically conservative citizens during the Obama years.  That is, they are buying guns, becoming survivalists, and preparing for an impending catastrophe related to the Trump presidency, the article reported. 

It was also reported that a number of wealthy Americans are preparing for what they believe is the apocalypse.  According to Business Insider, some have purchased underground bunkers while other wealthy individuals are planning to emigrate to New Zealand.  “Saying you’re ‘buying a house in New Zealand’ is kind of a wink, wink, say no more,” said Steve Huffman, CEO of the Reddit web site.  “Once you’ve done the Masonic handshake, they’ll be, like, ‘Oh, you know, I have a broker who sells old ICBM silos, and they’re nuclear hardened, and they kind of look like they would be interesting to live in.” 

The common denominator in these accounts is fear among the upper class.  The dread of an uncertain future which was pervasive among America’s middle class for much of the last eight years has now been transferred to the upper class.  While it might be premature to ascribe this to the recent rush back into gold, bond funds and other safe-haven investments, it would seem that there is just enough uncertainty among the upper crust to account for the lack of movement in the major stock market indices since December. 

Tight, narrow trading ranges in the major indices are launching pads for major moves in either direction.  In the context of a bull market, they typically represent rest and consolidation before the next move higher.  The odds technically favored this outcome, yet a substantial number of investors still don’t believe in the strength of the bull market.  This is reflected in the manifestations of fear among the upper class mentioned above, as well as in the path the market rally is taking. 

There is talk among some observers that the market is undergoing a “melt-up”.  This is an erroneous application of that term.  A classic melt-up is characterized by a runaway, almost straight-up and sustained market rally on high volume with widespread participation.  The trajectory of the major indices since November can hardly be described as “melting up.”  Rather, the market’s path has been measured and well-ordered, as the daily chart of the NYSE Composite Index (NYA) attests. 


The real melt-up phase of this bull market hasn’t even started yet.  We’ll know it has arrived when we see runaway stock prices coupled with increased participation among the legion of retail investors still on the sidelines.  Even institutional investors are surprisingly tempered in their usual optimism, as expressed in their collective 2017 forecasts.  Melt-ups have a way of surprisingly even the bulls in how high they carry the market averages before peaking.  For now, though, a combination of fear and cautious optimism holds sway among investors and this alone is enough to argue that the bull market still has legs.

Monday, February 6, 2017

The danger of being bearish in a bull market

One of the biggest contributors to losses for traders in the financial market is the temptation to sell short.  Borrowing shares of a company that are not owned by the seller in the hopes of making a massive profit has shipwrecked more traders than probably any other factor.  With stories abounding of the quick and easy profits to be made in selling stocks which are supposedly on the verge of plummeting, it’s no wonder that the allure of “shorting” is so irresistible to so many. 

Selling short is a simple enough proposition: place a short sale order with your broker for a company whose shares you believe are overvalued or technically “overbought”.  Then just sit back and wait for the profits to start rolling in.  If only it were that easy!  The trouble with selling short is that in most cases the odds are against the short seller.  This is due to a number of factors, some of which we’ll examine here. 

Perhaps the biggest risk for short sellers is the crowded short trade.  A high-profile example of what happens when too many traders pile into a single stock on the short side occurred recently – a cautionary tale if ever there was one.  It involved the loss of one man’s entire fortune due to a misguided attempt at selling short one of the most widely traded U.S.-listed stocks.  It’s a textbook case of what can go wrong when attempting one of the most dangerous of all trading maneuvers. 

According to MarketWatch, Canadian investor F.S. Comeau bet his last $249,000 against Apple Inc. (AAPL) in an attempt to reclaim $2.5 million lost in poor investments.  At the time of the trade, shares were valued around $122, and MarketWatch reported that an increase of just $6 would deplete Comeau’s savings. 

Apple shares screamed higher last week when the tech giant released an impressive Q1 earnings report and Comeau lost substantially.  As of this writing, AAPL shares had risen to a 52-week high of $130.50.


Before Apple released its earnings report, Comeau, who live blogged his reactions while wearing a wolf mask, acknowledged the capacity of investors aware of his short position to fade his trade.  “With 14,000 people watching, you guys could really mess with me,” he said.  When the company released its report his reaction was terse but poignant: “Oh, no.”

YahooFinance described Comeau’s reaction to Apple earnings as follows: [Comeau] kept howling.  And crying.  And throwing his pre-popped, celebratory champagne bottle.  There was a timeless stretch of blank camera stares, and then the sound of dry heaving. With mask still on, he pulled out a trashcan, and vomited more than his life savings.”

This misguided trader can perhaps be excused for his desperation born of inexperience.  What’s inexcusable, though, are the far more experienced trading advisors who gave assurances to their followers that Apple was a prime short-sale candidate despite all the technical and fundamental evidence to the contrary.  This misleading advice undoubtedly led to many hundreds of traders making the same mistake as Comeau. 

More than anything, the Apple experience provides a wonderful cautionary tale for all would-be short sellers.  The lesson here is that in an established bull market it’s best to avoid selling short altogether.  Trading against the prevailing trend is especially dangerous when one considers that short interest can quickly reach critical levels, thus the slightest bit of contrary news can catalyze a massive rally.  Short-covering rallies tend to involve wealth-destroying upside gaps, as the latest Apple stock experience proved.  These gaps are products of the urgency among short sellers to exit the trade.  They frequently represent losses on an unimagined scale.

Since naked short selling involves borrowing, the debt component of this trade ensures that the volatility factor will be greatly magnified vis-à-vis buying outright.  While this can sometimes work to a trader’s advantage in a bear market, it can prove catastrophic in a bull market.  The best policy is to avoid shorting unless a major bear market is underway and downside momentum has been thoroughly established.  Even then, your timing must sometimes be perfect. 

In a bull market the trend is truly your friend, and trading against the grain is usually a fool’s errand.  Best leave that to the men wearing wolf masks.  

Thursday, February 2, 2017

Financial Sense News Hour

I was recently interviewed by Cris Sheridan of the Financial Sense Network (www.financialsense.com).  The interview can be downloaded at the following link:


In it we discuss the possibility that 2017 will witness an extreme "blow-off" in the stock market followed by a major sell-off later in the year.  Special thanks to Cris and everyone at FSN.

Why stock market analysts will be wrong about 2017

We’re already a month into New Year and there has been an ample amount of sentiment data to suggest that investors, both retail and institutional, aren’t terribly enthusiastic on the stock market outlook for 2017.  Granted that institutional analysts are still bullish, as per usual, but in the round table type opinion polls I’ve seen they’ve apparently lowered their expectations.  Everyone seems to be preparing for a somewhat disappointing year based largely on the assumption that after eight years of a bull market, surely another major rally is out of the question.

The decennial rhythm we discussed in an earlier commentary argues against these diminished expectations.  Indeed, seventh year of the decade tends to be one of unusual volatility for stock prices.  While it’s true crashes, corrections and panics are quite common in the seventh year (e.g. September 1987, October 1997, February/August 2007), the seventh year also sees a pronounced tendency for sustained rallies in the first seven months of the year.  Accordingly, 2017 could be a year filled with tremendous opportunity for making money in the stock market – in both directions. 

For 2017, the 10-year rhythm equates to 2007.  As you recall, 2007 was a momentous year characterized at once by great volatility alternating between great fear and euphoria.  It was the year that saw the last major stock market top and also the onset of the credit tsunami which overwhelmed the market the following year.  If the decennial pattern holds true, 2017 should witness both a meaningful rally to new all-time highs as well as a decline of potentially major proportions.  In short, it could turn out to be a big year for the bulls as well as the bears.

As for the idea that the bull market is getting “long in the tooth” and has therefore exhausted its upside potential, consider that the previous two years could well be characterized as a stealth bear market.  The major large cap indices essentially went nowhere in 2015-2016 while the Russell Small Cap Index (RUT) experienced a 25% decline.  That’s a bear market by anyone’s definition. 

Retail investors have also been quite pessimistic since 2015 in the overall scheme of things.  From the start of 2015 up until the election, more than $200 billion was pulled out of U.S. equity funds and ETFs, while a bit more than that was funneled into bond funds and ETFs.   That two-year stretch of risk aversion, however, is apparently ending as investors have gradually embraced more risk tolerance since the election.  Since the election nearly $46 billion has flowed into U.S. equity funds, while nearly $3 billion has left bond funds, according to money flow statistics.

The evidence strongly suggests that the past two years served the purpose of clearing out the excesses generated by the long-term bull market which began in 2009.  In other words, the market is rested and ready to resume its potential as we head further into 2017.

Another concern among investors is that the rise in interest rates since last year could stifle the stock market’s upside potential.  While it’s true that sustained periods or rising Treasury yields have often proved a hindrance to higher stock prices, there is an exception to that rule.  According to LPL Research, there have been 11 periods of rising interest rates (at least a 1% rise in the 10-year Treasury note) since 1996, each lasting an average of six months.  During those times, the S&P 500 rose an average of 5.44%, thus proving that in the early stages of rising interest rates stocks and yields often rise simultaneously.

We’re at a point in the long-wave credit cycle where interest rates are ready to rise after being depressed for years.  According to K-Wave theory, after the 60-year economic cycle bottomed in 2014 we should see a gradual increase in rates as the economy recovers its former vigor.  Of course this process will take a long time to complete – possibly decades – but we’re likely at a point in the newly formed 60-year cycle where even a temporarily sharp run-up in rates won’t damage the economy or even necessarily hinder the stock market.  In fact, rising rates at this point indicates increasing demand for credit and a corresponding improvement in the economy. 

Following is a 10-year chart of the 10-year Treasury Yield Index (TNX).  The double-bottom in the interest rate is clearly visible between the years 2012 and 2016.  I believe this marks the long-term low in interest rates for the previous long-term cycle.


As long as rates don’t rise too high, too fast it’s very possible that stock prices will rise along with Treasury yields without much interference along the way.  An added bonus to the rally in T-bond yields is that bond prices are now in a downward trend.  This should serve to discourage investors who piled heavily into the bond market in the last few years.  It should also cause them to look more closely at stocks as a long-term investment once again, especially as painful memories from the 2008 crash gradually wear off.  The underperformance of corporate debt vis-à-vis equities should also encourage investors to take a second look at the stock market.  Below is the 1-year graph of the Dow Jones Corporate Bond Index.


The bottom line is that 2017 should see an increase in business activity across the board as the U.S. returns to a normal business cycle after being artificially suppressed by the actions of central banks for years.  Moreover, the decennial rhythm suggests that except for a period of potential weakness in the August-October time frame, year 2017 will likely prove to be a memorable one especially from the standpoint of the upside potential in both the equity market and the U.S. economy.

Thursday, January 19, 2017

Dow 20,000: A new beginning…or the beginning of the end?

After touching the benchmark 20,000 level last month, the Dow Jones Industrial Average has spent the last five weeks in a tight, narrow trading range just under this level.  Famed trader Jesse Livermore theorized in his pseudonymous book, Reminiscences of a Stock Operator, that stocks are attracted to major round number levels.  In the case of the Dow, the 20,000 level has generated more press and speculation among investors than any number since the formerly mythical 10,000 level was crossed in 1999.  Clearly Dow 20,000 carries a tremendous psychological significance, even if it’s a simple case of self-fulfilling prophecy. 

While the technical significance of Dow 20,000 can be endlessly debated, the action of the Industrials in the weeks following the first test of this level is of more immediate concern.  To wit, does the action of the last several weeks represent a normal consolidation (i.e. a “pause that refreshes”), or is it indicative of distribution (i.e. informed selling)?  The NYSE tape doesn’t suggest distribution since the new 52-week high-low differential has been mostly healthy in the last few weeks while market breadth has also been confirming, and in some cases leading, the advance.

It’s possible, however, that the extended effort to push above Dow 20,000 could be the prelude to a distribution phase.  In an earlier commentary we discussed the distinct possibility – based on the “echo” of the 10-year cycle – that the coming months could witness a blow-off interim top, followed by significant decline at some point later in the year.  Historically such declines have occurred in the late summer/early fall months, particularly in the seventh year of the decennial rhythm. 

A run-up above the Dow 20,000 level, should it occur, would undoubtedly generate lots of enthusiasm among the hold-outs in the retail investor camp.  There’s still a huge amount of money on the sidelines right now with small investors still skittish about buying stocks at current valuations.  But greed is a persuasive argument, and if the Dow breaks out decisively above 20,000 in the coming weeks it would serve as a magnet for sidelined money.  One thing that investors can’t stand more than anything else is watching an historic rally while they’re sitting in cash and not participating.  A breakout above 20,000 would likely trigger the primal instincts of these non-participants. 

Although the 20,000 level carries great psychological significance its technical significance hasn’t yet been cemented.  In order for 20,000 to become technically significant it must be established as a “seldom crossed line.”  A seldom crossed line is a concept developed by the late market technician P.Q. Wall.  Wall emphasized that when an individual stock or market index crossed an important price level only a few times in its history, the level takes on added significance as both a support and resistance level.  He wrote:

“If cycles exist at all there must by that very fact be equidistant lines of price on a vertical scale that rise as more energy enters the market.  These should be seldom crossed lines between which price tends to cluster about equilibrium points that mathematicians would call strange attractors but that we call magnetic midpoints….Electrons in an atom rise and fall in just such stair steps.”

Take for example the chart of the Dow Industrials shown below.  While many investors touted Dow 10,000 as a critical level back in the late ‘90s and early 2000s, that particular level was actually crossed many times on both the upside and the downside.  By Wall’s reckoning, this invalidated the 10,000 level as having major significance as a long-term support or resistance level – as history subsequently proved. 


Wall believed that when a stock’s price encountered resistance at a key level without breaking above it then finally succeeded in breaking out the rally that followed would be noteworthy.  For the Dow, the closest thing to a seldom crossed line is the 14,000 level.  This was established as a pivotal level when the Dow broke out above it in 2013, then proceeded to rocket all the way to the 18,000 level before wavering.  In the future, any major decline that tests 14,000 is likely to be turned back due to the established technical significance of this level.

As for Dow 20,000 you can see in the following snapshot of the last three months’ worth of trading action that the level in question hasn’t been penetrated on the upside yet.  This is an important first step toward the establishment of a seldom crossed line.  The Dow has yet to lay claim to this important designation of the 20,000 level, however.  The key ingredient here is time and the reaction of the Dow’s price line to this pivotal level in the coming days.


If Dow 20,000 turns out to be a seldom crossed line then the next attempt at breaking above this level should see an explosive rally with no immediate reversal.  In other words, it should cross above 20,000 only once and not look back for a while.  Accordingly, the next few weeks should be quite interesting and potentially historic depending on how the market behaves once 20,000 is finally crossed.

Thursday, January 12, 2017

Biggest challenge of 2017 directly ahead for gold, stocks

If you thought the pace of the head-spinning political events of the last two months couldn’t get any faster, think again.  One of the most critical decisions of President-Elect Trump’s reign will soon be decided.  The final verdict will have a direct impact on the direction of stocks, gold, and the economy in the months to come.

The decision in question is the Congressional challenge being made against the Affordable Care Act (ACA), also known as Obamacare.  Specifically, the requirement that individual Americans carry health insurance or else pay a stiff financial penalty is being challenged.  Earlier this week, Trump directed the Republican-led Congress to begin efforts at repealing and replacing the health care law “very quickly.”

The mainstream news media is sparing no expense in its efforts at turning public sentiment against a repeal of the healthcare law.  CNBC reports that “the number of people who owed Obamacare fines last year dropped by about 20 percent, while the number of Americans who benefited from financial aid for Obamacare plans grew to more than 5 million.”  The latest data was culled from 2015 tax returns to the Internal Revenue Service. 

IRS Commissioner John Koskinen said the number of people receiving Obamacare subsidies was up from 3 million in 2014.  For that year, customers got more than $10 billion in tax credits, with an average subsidy of $3,430 annually, according to the IRS.  Obamacare subsidies are available to wage earners with low and moderate incomes.  People who earn less money get more in assistance than higher earners.

Koskinen wrote that about 6.5 million taxpayers last tax season reported owing a total of $3 billion in such tax penalties for failing to have coverage in 2015.  In contrast, about 8 million people owed an Obamacare fine for lack of coverage in 2014.  Fines related to lack of coverage in 2014 totaled $1.6 billion.

CNBC reported that some 12.7 million people claimed one or more exemptions from the ACA-coverage mandate when they filed their taxes last year.  “The exemptions are wide ranging and can include having very low income, being incarcerated or having a close family member die recently,” according to CNBC. 

While pro-Obamacare media outlets such as CNBC are touting this news as confirmation that the ACA is “working,” the gorilla in the room is conveniently ignored.  The reason for the decline in Obamacare fines last year is that millions of Americans experienced a significant drop in income, which ironically is a direct result of the economic damage inflicted on businesses by the financial strictures of the ACA. 

CNBC also reported that the Republican-led Congress last week began taking steps toward repealing key parts of the ACA, which include the funding of premium subsidies and the individual mandate.  For the middle class’s economic sake, let’s hope the effort is successful.

You may be asking what all of this has to do with the price of gold or the stock market.  The answer is “everything!”  Repealing the individual mandate would serve as a huge catalyst for the U.S. economy and financial market.  It would lift a grievous burden from the shoulders of working-class Americans and would serve as a stimulus to consumer spending.  Economics 101 establishes that when wage earners are allowed to keep more of their income, they’re less likely to think twice about spending and investing it. 

One of the big reasons for the Nowhere-ville sideways trend in stock prices in the last couple of years is because people have been forced to think twice before spending or allocating money into investments due to the constraints of the ACA.  Pollsters have consistently underestimated the number of healthy individuals who choose not to carry expensive health insurance because they don’t consumer healthcare services.  Now those healthy individuals are being punished for their lifestyle choices by being forced to pay upwards of $1,000 per year in the Obamacare tax simply because they choose not to be insured.  This is an assault on personal liberty and common sense, and it has created a massive obstacle to full economic recovery. 

What can investors expect if the Obamacare tax penalty is soon repealed?  First, there will be an immediate uptick in consumer spending and overall economic activity.  Americans are always looking for an excuse to spend, and if they’re provided with what amounts to a massive tax cut they’ll express their relief by purchasing the items on their wish list that they’ve held off on buying due to personal budget constraints.  Businesses, moreover, will begin to pick up the pace of hiring since the healthcare mandate is no longer acting to suppress business investment spending.

A repeal of the ACA’s individual mandate would also revive the fortunes of publicly traded companies which serve the middle class.  Many of these companies’ stocks are components in our Middle Class Index (below).  The Index has been languishing for the last two years, but I’d venture that an upside breakout from the lateral trading range would shortly follow an Obamacare repeal.


As for gold, a repeal of the individual mandate would also likely have far-reaching consequences.  Gold’s fortunes would be helped, ironically, by success in getting the Obamacare tax removed.  While gold is primarily a safe-haven asset which feeds off investors’ concerns about the economic and political outlook, gold’s moves over the last two years have been closely correlated to the direction of the Middle Class Index.  As the fortunes of companies which serve middle class consumers have risen, so has gold’s price.  Conversely, last year’s major peak and subsequent decline in the Index has coincided with the July 2016 peak in the gold price and corresponding mini-collapse.