"The stock market is a device for transferring money from the impatient to the patient." --Warren Buffett

GDXJ: 48 TO 28 TO 58 (August 25, 2024): It is easy to determine whether to buy or sell precious metals because we have the huge advantage of knowing exactly what the insiders are doing both with the shares of the producers as well as with the futures contracts for the metals themselves. Recently we have experienced the heaviest selling by the top executives of gold mining and silver mining companies since the summer of 2020. The traders' commitments for gold, silver, and platinum show unusually bearish readings where the commercials (including jewelers, fabricators, and miners) who own physical metal have massive ratios of short to long positions. Meanwhile, hedge funds are sporting an all-time record ratio of gold longs (355,551) to gold shorts (64,298). We have also experienced GDXJ far underperforming GLD since July 2020, with GDXJ forming numerous lower highs including the past several weeks while gold bullion and GLD have frequently set new all-time highs.

A combination of recent insider selling of the shares of gold mining and silver mining shares, the shares underperforming bullion, commercials being heavily short gold futures, and hedge funds being heavily long gold futures are likely to be followed by much lower prices for both gold and silver. I expect gold to drop below two thousand U.S. dollars per troy ounce sometime during the next several months, and perhaps below 1800 if past patterns repeat themselves. Silver could drop toward or even below 20 U.S. dollars per troy ounce over the same time period. Almost all technical and fundamental analysts are asking how much higher gold can climb when they should be looking the opposite way.

You can find all of the traders' commitments at this site:

U.S. Government Traders' Commitments for Futures (go to Current Legacy Reports)

GDXJ is a fund of mid-cap gold mining shares.

For U.S. stocks overall, a fund like SPY or VOO represents the largest 500 companies while IWM tracks the Russell 2000 which are companies 1001 through 3000 by market capitalization. For precious metals mining, GDX represents the shares of the world's biggest gold mining and silver mining companies, while GDXJ covers the mid-cap holdings. There is some overlap between the smallest companies in GDX and the largest ones in GDXJ. Currently there is no true fund of small gold mining companies, although it would be useful to have such a fund available for trading.

Gold mining and silver mining shares generally lead gold bullion in both directions.

GDXJ reached a 7-1/2-year peak of 65.95 in August 2020. Since then it has formed lower highs of 51.92 in April 2022 and 49.13 on July 16-17, 2024. Gold bullion is much higher today than it had been at any of these previous times, but the shares of gold mining and silver mining shares have not responded positively. Historically, gold mining and silver mining shares usually lead gold bullion in both directions. For example, in September 2022, GDXJ slid to a 2-1/2-year bottom of 25.80. From September through November 2022, as GDXJ formed several higher lows, gold bullion and GLD kept dropping to lower lows, with gold eventually bottoming in November 2022 at 1621.50 U.S. dollars per troy ounce. Before precious metals can once again move meaningfully higher in tandem with the shares of their producers, we will likely once again see gold mining and silver mining shares outperforming gold bullion instead of underperforming it as it has done in recent years. We will also likely see insider buying instead of insider selling. We should also see the traders' commitments with silver commercials being either net long or approximately neutral instead of being heavily net short as they are now.

Especially whenever the U.S. dollar is strongly rallying against currencies such as the euro over the next several months, GDXJ will likely once again drop below 30 as it has done many times since its inception.

There is no way to know whether GDXJ will bottom near 20 or 30 during the upcoming year, but it will likely be somewhere in between those levels and perhaps near its September 2022 bottom of 25.80. As with all investments, it is essential to use a ladder consisting of dozens or even hundreds of very small good-until-canceled purchase orders placed months in advance to gradually accumulate it, since no one can possibly know with any accuracy when the bottom will occur or at approximately what price. I already have numerous orders to begin buying GDXJ near 29 and to buy it more and more aggressively the lower it drops, just as I have done repeatedly in past decades. I first began buying gold mining shares via the fund BGEIX in 1988 when it was possible to purchase 50 dollars per day of this fund with zero commissions.

Bubble collapses for large-cap U.S. stocks almost always feature initial substantial losses for gold mining and silver mining shares, followed by dramatic percentage gains.

During the previous U.S. large-cap bubble collapse at the beginning of the century for the internet bubble, QQQ topped out on March 10, 2000 prior to plummeting 83.6% by October 10, 2002. Gold mining shares and their indices/funds such as HUI bottomed on or near November 15-16, 2000 which was a little more than eight months later. We can never be sure about timing. However, it seems likely that we began or are about to begin a similar collapse for large-cap U.S. shares for the same reasons of dangerous overvaluation and even more intense selling of their shares by top executives than we had in 1999-2000. Gold mining and silver mining shares will likely retreat to their lowest levels since the autumn of 2022 and perhaps even lower than that, toward but probably above their March 2020 bottoms. The next bottoming process for GDXJ and similar shares will likely be completed either near the end of 2024 or during the early months of 2025.

If we look again at HUI, then if you had purchased its equivalent at its November 2000 bottom then it was multiplied by a factor of more than seven in three years. We can't say for sure how much it might gain under a similar bubble collapse, but even if GDXJ "only" doubles then this would be a superior rate of return. GDXJ has already proven its ability to rebound from depressed levels, having more than tripled within less than one year from its bottoms in January 2016 and March 2020. The key, as always, is to buy something whenever everyone else is despondent and is selling it rather than when everyone is excited about the prospect of additional all-time highs.

Whenever the most people are invested in any asset, it consistently performs the worst; when the fewest people want to own anything, it dramatically outperforms:

Besides being overloved, U.S. large-cap stocks are absurdly overpriced relative to profits, sales, or any other benchmarks:

U.S. equity fund managers have become dangerously overconfident about investors not making future redemptions, thereby reducing their cash percentages to all-time record lows. If investors become worried, they will quickly use up this cash and force these fund managers to sell their stocks to meet higher-than-expected redemptions:

Costco's price-earnings ratio once again surpassed 55.

Instead of focusing on extremely overpriced shares including Apple, Nvidia, Microsoft, Tesla, Amazon, and other well-known tech names, it is even more interesting to look at Costco. Costco can't possibly create a revolutionary new product: its business model is people driving their cars to a huge parking lot, purchasing reasonably-priced items which Costco had obtained with favorable wholesale deals, and then bringing those items home. Costco has been around since 1983 which is more than forty years. The current price-earnings ratio for Costco is "only" about five times its historic average while its profit growth has been very steady through the decades.

There are two possible scenarios: 1) extraterrestrial beings arrive from other galaxies with their minds focused on purchasing as much from Costco as they can get, thereby quintupling Costco's profit growth; or 2) the price-earnings ratio for Costco collapses 80% or more to restore it to its long-term historic average. Take your pick.

In spite of the heaviest insider selling and the lowest put-call ratios in history for the largest U.S. stocks, investors who are not top corporate executives have been doing much more buying than selling.

In hindsight, investors will look back at this period of dangerous overvaluation for popular large-cap U.S. stocks and wonder why they didn't do some selling. The reason is that the media keep brainwashing you into putting even more of your retirement money into the most dangerously overvalued assets. Other assets like residential real estate, high-yield corporate bonds, and cryptocurrencies are also near all-time record overvaluations, but more people are interested in adding than subtracting.

Investors are far too eager to take risks which are wildly out of proportion with the potential rewards. They are not nearly eager enough to desire guaranteed gains with zero risk. The result will therefore be exactly the same as it has been for every bubble throughout history.

There are bargains out there, although they could become even better bargains.

Unlike gold, silver, and platinum, for which commercials have high ratios of short to long positions, palladium shows commercials with an even bigger ratio of longs to shorts. You can buy palladium using the ticket symbol PALL. Other unpopular shares include stocks in countries like China, Brazil, and Vietnam, with Chinese shares having suffered a bear market which has persisted for more than 3-1/2 years from its February 2021 top. Rare-earth metals producers and their funds including REMX are also notably out of favor. As the popular U.S. stocks slide 40% or 50% from their recent highs within a year, these losses will most likely initially spill over into almost all other assets as many investors sell first and ask questions later. However, just as they had done during 1999-2003, investors will eventually differentiate between sectors and will begin to purchase the most undervalued shares. Gold mining and silver mining shares, after they complete much greater losses, could be among the first to complete their bear-market bottoms several months from now just as they had done in November 2000.

U.S. Treasury bills are especially compelling, as Warren Buffett well knows.

Investors have been shunning U.S. Treasury bills of 3 months or less which yield 5% or more guaranteed with exemption from state and local income tax, even though those yields are generally the highest since 2000. They have also been avoiding longer-term U.S. Treasuries which yield more than 4% including the 20-year U.S. Treasury. The main reason is that they think that getting 4% or 5% guaranteed explicitly by the U.S. government is less than the 10%, 20%, or 30% that they'll surely achieve through large-cap U.S. stocks which in their opinion "only go up in the long run." This is the exact same mistake that investors made in 1999-2000, and previously near other peaks prior to severe U.S. equity bear markets. Instead of ending up with a three-year increase of 17% compounded and partially tax-exempt, they will end up with only 17% of their money if they are invested in QQQ.

The U.S. dollar has fallen sharply out of favor and is likely getting ready to move significantly higher versus nearly all currencies except the Japanese yen.

The U.S. dollar has been trading at its lowest point versus many currencies since around the end of 2023. Most analysts expect the U.S. dollar to continue lower, but it will likely rally powerfully within the next three to four years to reach its highest point since its all-time peaks of 1985. This is partly since investors will be fleeing U.S. stocks, cryptocurrencies, and high-yield corporate bonds. Currently unpopular U.S. Treasuries and the U.S. dollar will benefit just as they had done during past bubble collapses including 2000-2002.

The Japanese yen is an important exception, having fallen several weeks ago to its lowest point versus the U.S. dollar since 1986. The yen will likely continue to rebound until it is much closer to fair value. Just as it didn't make sense for Japan to have the most expensive cost of living and housing prices in the world as it did in the late 1980s, it makes even less sense for Japan to have the lowest cost of living of any industrialized country and among the lowest housing prices worldwide as has been the case in 2024.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, August 23, 2024. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 37.44%;

17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long/20-Year: 23.31%;

TLT long: 11.52%;

I Bonds long: 11.10%;

PMM long: 0.01%;

XLK short (all shorts are once again unhedged): 34.49%;

QQQ short: 24.16%;

SMH short: 1.53%;

AAPL short: 0.14%;

GDXJ short: 0.08%;

SARK long: 0.91%;

PSQ long: 0.04%;

PALL long: 1.35%;

Gold/silver/platinum coins: 7.33%;

FXY long: 0.71%.

"Most of the change we think we see in life is due to truths being in and out of favor." --Robert Lee Frost

BUSTING HEDGE FUNDS (December 17, 2023): I had worked at Thomson Reuters for 16-1/2 years; the person sitting next to me had the responsibility of tracking hedge funds and reporting on their behavior. After doing this job for a couple of decades, he pointed out to me how the vast majority of hedge funds which had shown little correlation in their investing behavior through the early 1990s had become increasingly alike by the second decade of this century. The proliferation of hedge-fund conferences where they discussed their "best ideas," combined with nearly identical computer algorithms and momentum strategies becoming increasingly much more popular, almost totally displaced former tendencies toward value investing and identifying compelling bargains.

Although there remain key exceptions including money managed by Seth Klarman, Marc Faber, Jim Rogers, Howard Marks, Ray Dalio, and some others where it is unlikely that you will be able to have them handle your accounts, more than 90% of hedge funds are crowding into identical concepts at any given time. This herd following is especially prevalent at key extremes and has almost certainly caused many of those extremes to become much more exaggerated than they would have been if they hadn't existed. It is also increasingly the case that hedge funds as a group are doing almost exactly the opposite of top corporate insiders and commercials. Thus, tracking insider behavior and the traders' commitments has demonstrated repeated multi-decade extremes where the insiders and commercials are heavily on one side while hedge funds have been piling even more aggressively the other way.

Doing the same as insiders and commercials and the opposite of hedge funds has become an increasingly available and profitable investing strategy which I have been doing more consistently as the 21st century has progressed.

As a result, the most consistently successful strategy in the 21st century has been to do whatever the insiders and commercials are doing at any rare extreme, while going against the hedge funds. During the past year we have already seen several examples of this behavior with hedge funds establishing an all-time record short position in U.S. Treasuries in October 2023. This was followed by the biggest Treasury rally in four decades which intensified during the past week as hedge funds rushed to close out their shorts ahead of all the other hedge funds, and were not particularly successful in doing so. TLT had traded at 81.92 in the pre-market session on October 23, 2022, and less than two months later was trading above 99.

Hedge funds piling into the AI bubble is their latest extremely overcrowded trade, while the top corporate insiders of these companies have done all-time record selling of their shares.

The latest overcrowding by hedge funds has been in being long AI stocks. While most U.S. and global stocks and their funds including IWM have been in bear markets since they had topped out in November 2021, funds which are concentrated in the biggest and most popular megacaps which have generated the most investor excitement in this year's AI bubble have dramatically outperformed in spite of their unimpressive profit growth. QQQ has almost regained its all-time top, while XLK and SMH are among those funds which have experienced the greatest percentage gains during the past year and have achieved new record highs. The top insiders of these companies have never sold more aggressively than they have done during the past few years, while the only time hedge funds had been more committed to any concept was when they had been massively short U.S. Treasuries in October 2023.

This chart, just updated, highlights the amazing recent overcrowding by hedge funds into QQQ and Nasdaq 100 futures which has achieved an overwhelmingly lopsided extreme by a large factor even when compared with 2021 or 2022:

Less historically extreme but still massive overcrowding has created other 2023 situations ripe for busting.

Hedge funds, as is evidenced by the official exchange data at cftc.gov, had never demonstrated a higher ratio of shorts to longs for palladium, thereby leading to PALL plummeting to 85.25 at 12:06 p.m. on December 5, 2023. Since then it has rebounded above 100. Hedge funds piled massively into gold on Sunday evening, December 3, 2023 to reach a spot price of 2137.50 U.S. dollars per troy ounce for the first time in history. Given how hedge fund crowding leads to huge reversals, gold bullion is likely to drop to around 1750 during the next several months before enjoying its next strong rally. The traders' commitments for gold as of December 5, 2023 showed commercials (who are those that own physical gold, such as miners, jewelers, and fabricators) long 103,193 contracts and short 330,138 which is more than 3:1 short to long. Not surprisingly, almost all of those on the other side of this trade were hedge funds and related managed money organizations which the commodity exchange calls "large speculators."

Silver's commitments the same week showed commercials long 40,974 and short 92,988 which was clearly also bearish for silver. Hedge funds were thus aggressively long gold and silver and even more aggressively short palladium. Palladium commercials that week were long 12,814 and short 1,537 which is more than 8:1 long to short.

Hedge funds had done all-time record crowding into shorting the Japanese yen, enabling the yen to fall to its lowest point since July-August 1990. Since then the yen, which trades as an exchange-traded fund via FXY, has experienced its strongest short-term rebound since the Bretton Woods agreement was terminated over a half century ago.

Hedge funds formed a lesser bubble by massively overcrowding into energy commodities and their shares two months ago.

Several times since November 2022 including around the middle of September 2023, hedge funds massively crowded into anything relating to energy while energy insiders sold shares at their most intense pace ever recorded. This was an especially notable reversal for top energy executives who in 2020 were their most aggressive in buying their own shares in their entire history. Starting on September 14, 2023, when XLE reached an all-time dividend-adjusted zenith of 93.685, energy shares and their funds including XLE have been among the biggest losers of all unleveraged exchange-traded funds in any sector.

The media often encourage ordinary investors to do as the hedge funds are doing, which is not surprising since they get a lot of their information from hedge funds which are naturally trying to get others to follow whatever will benefit their own portfolios.

Why have the media suddenly been talking about a "Fed pivot?" It's not because financial journalists have suddenly discovered how to interpret whatever the Fed has been doing. It is because they receive a lot of their data and even more of their interpretation of that data from hedge funds which naturally want to get retail investors to pile into their largest positions. In addition, whenever any asset is especially popular or depressed, the media will seek out stories which will allegedly explain "why" U.S. Treasury yields will keep climbing even when they are at their highest levels since 2000 (as in October 2023) or why AI stocks will keep rising regardless of how overpriced they are (as in December 2023). If you follow the media then you will repeatedly buy near each top and sell near each bottom.

The current U.S. equity bear market is following its usual sequence of sector bottoms.

The Russell 2000 and nearly all related funds such as IWM, along with most stocks worldwide which are unrelated to the AI bubble, have been in notable bear markets since their November 2021 tops, on average losing about 20% of their value during the past 25 months. Before any U.S. equity bear market intensifies, as the current one will almost certainly do soon, we have a sequence of historic sector bottoms which are completed in the following order: 1) U.S. Treasuries which probably completed their nadirs in October 2023 and are in major uptrends; 2) gold mining and silver mining shares which I expect will bottom around the spring of 2024 before initiating powerful rebounds; 3) emerging-market stocks and bonds which will perhaps bottom around the summer of 2024 with Chinese shares notably underpriced and which could thereby become compelling bargains at that time; 4) non-precious commodity producers which might also gain by substantial percentages after they bottom later in 2024; 5) special situations which vary from one bear market to another. In this case, the sectors which could approach multi-year lows in 2024 and thereafter rally strongly might include currently unpopular biotech shares and their funds like XBI along with airline shares and their funds including JETS.

I also plan to be open-minded about other sectors becoming worthwhile for purchase sometime during 2024.

The ultimate bottoms for most AI shares won't occur until 2025 or 2026.

As a general rule, those shares which achieve historic bubbles tend to lose over 80% of their value and to take two to three years to complete their total downtrends. After QQQ had topped out on March 10, 2000, it lost 83.6% of its value by the time it bottomed exactly 31 months later on October 10, 2002 (see stockcharts.com which includes all reinvested dividends by default). If QQQ loses 83.6% of its recent high of 406.5, which could potentially go even higher in the short run, then this would mean an eventual QQQ bottom of 66.666 which looks to me like a very lucky number indeed.

The bottom line: An increasingly profitable strategy during the 21st century capitalizes on the tendency of the vast majority of hedge funds to use momentum methods and to thereby overcrowd massively into various positions. Top corporate insiders and commercials throughout various points in 2023 have been doing almost exactly the opposite of those hedge funds near all key extremes for a wide variety of assets including AI stocks in December (QQQ,SLK,SMH), U.S. Treasuries in October (TLT), the Japanese yen in November (FXY), large-cap energy shares in September (XLE), and all precious metals in early December including palladium (PALL), gold (GLD), and silver (SLV). You can therefore consistently make money, although not always immediately, by following the insiders and commercials and doing the exact opposite of the most overcrowded hedge-fund concentrations during the next several years.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, December 22, 2023. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/Savings/Checking long: 36.32%;

26-Week/17-Week/52-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long: 21.66%;

TLT long: 11.67%;

I Bonds long: 10.54%;

PMM long: 0.01%;

XLK short (all shorts once again unhedged): 28.39%;

QQQ short: 17.23%;

XLE short: 5.15%;

XLI short: 2.77%;

XLV short: 1.69%;

SMH short: 1.01%;

AAPL short: 0.02%;

SARK long: 0.90%;

PSQ long: 0.03%;

PALL long: 0.20%;

GDXJ long: 0.14% (fully hedged with out-of-the-money covered calls);

Gold/silver/platinum coins: 6.28%;

FXY long: 0.17%;

PAK long: 0.03%.