"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%.

"It's very hard to go against the crowd. Even if you've done it most of your life, it still jolts you." --David Dreman

WINTER FOLLOWS AUTUMN (June 30, 2024): Many investors have embraced the mythical "soft landing" scenario. Every multi-year bull market in U.S. history, with steady growth and low inflation, eventually becomes overheated with above-average inflation, just as every moderate spring season is followed eventually by a hot humid summer. This overheating is followed by a choppy, dramatic slowdown during which inflation unevenly declines while GDP growth decelerates and eventually goes negative. It is similar to summer being followed by autumn. Then, just as autumn must lead into winter, negative GDP growth--also known as a recession--is accompanied by an equity bear market. As often as this scenario has repeated itself in the United States since the 1700s, many people today are convinced that we're going to magically transition from colorful falling leaves directly into blossoming flowers and warming temperatures.

The weather doesn't work that way and neither does the economy or the stock market. The Russell 2000 and many other consistently reliable leading indicators have been in bear markets since 2021, with numerous lower highs along the way. After the leaves have reached peak color in November, the next month isn't going to be April or May. Instead we get December, and usually an even colder January, and then a volatile February. Winter is approaching. You can dream of spring eventually returning, but to expect it to happen immediately after autumn is fantasy.

Top corporate insiders have been selling at an all-time record pace, not only in the popular AI shares but in numerous absurdly overpriced U.S. large-cap stocks.

We can spend hours or days debating whether or not Nvidia is overvalued, but let's instead look at a more clear and revealing instance of the current U.S. large-cap bubble. For four decades, Costco (COST) has been growing its profits at 10% or 11% per year, with its price-earnings ratio fluctuating from high single digits to low double digits. Recently Costco has sported a price-earnings ratio of 53.8. There are many possibilities about what the future might bring, but Costco growing its profits at a 50% annualized pace will never happen even if we are invaded from other galaxies and the invaders are eager to buy all of their supplies at Costco. If you didn't flunk kindergarten then you can calculate how much Costco's stock price has to drop to return to its long-term valuation.

Each time that analysts cheer allegedly "great" earnings from any company, the stock price usually immediately surges higher. Within a day or two the top executives usually make massive sales, taking advantage of the irrationally high valuations. Either 1) these insiders are correct by doing their heaviest selling in history by a wide margin, often selling years' worth of accumulated shares; or 2) the least-knowledgeable investors are correct by making all-time record inflows into the U.S. stock market. I know which side I'm betting on.

While top corporate insiders have done their heaviest selling in history during 2024, ordinary investors have done their most aggressive buying in history. Which group is right? History shows us the clear answer.

Ordinary households recently set a new all-time record allocation to the U.S. stock market, about four times their lows from the early 1980s and significantly higher than at the 2000 internet bubble top:

Overconfident investors have also set new records by piling into leveraged long U.S. equity funds, while bailing out of leveraged short funds in their certainty that a significant percentage loss for the U.S. stock market won't happen any time soon:

Other assets including residential real estate have become dangerously overpriced, although they are generally not as wildly overvalued as large-cap U.S. stocks.

Real estate worldwide had been reasonably priced for decades until 1997. Since then, we have experienced housing bubbles worldwide to varying degrees, with the U.S. reaching a bubble peak in 2005-2006 and an even higher bubble zenith in 2022-2024. Here is a chart of U.S. real residential housing prices from January 1976 through June 2024:

While U.S. houses are about twice as high relative to household incomes as compared with their long-term averages, Canadian real estate in early 2022 had reached triple fair value. Whenever any asset is fundamentally very under- or overvalued it must experience a volatile price adjustment in order to return to fair value.

The primary argument for owning any cryptocurrency is that a famous person also owns it and endorses it (and we would be shocked, shocked to hear that such a person is being paid for doing so).

With cryptocurrencies we don't even know what fair value is, because there is no proven history. Bitcoin is the oldest cryptocurrency which was invented in 2009, when the previous severe bear market was ending. Therefore, we have no clue as to how these will perform in another true bear market. It is like buying a rare tropical plant, putting it in your back yard in a place where it goes below freezing numerous times each winter, and assuming that it will thrive. It might be in wonderful shape by August or September, but it may not be in prime condition several months later. Why anyone would want to own such an unproven asset is beyond my limited ability of comprehension.

High-yield corporate bonds have mostly been approaching their lowest-ever spreads relative to U.S. Treasuries.

There are times when U.S. high-yield corporate bonds are at incredibly undervalued levels, such as they had been in years including 1932-1933 and 2008-2009, and there are periods like 2024 when their spreads to U.S. Treasuries have approached or set all-time record lows. Investors love to buy near all-time highs because they perceive elevated prices as proof of any asset's superiority, whereas they end up selling in disappointment near multi-year bottoms since all they hear about is how prices will keep on dropping.

A surprisingly diverse range of assets have quietly become absurdly undervalued, including some major emerging-market equity bourses.

While the price surges for stocks, real estate, cryptocurrencies, and high-yield corporate bonds have resulted in unsustainably overpriced levels being achieved, there are numerous assets which are trading well below fair value. Most emerging-market securities have been trading near their lowest relative valuations in years or decades, with stocks in countries including Brazil, China, Indonesia, and the Philippines being especially worthwhile bargains. Because the early stages of any severe bear market tend to be accompanied by a high degree of correlation, these bargains will probably become even better bargains during the upcoming year which makes it important to be patient before jumping in too soon.

Several less-heralded assets have been or will soon be completing multi-decade bottoms.

Other assets have become cheap enough to be worth purchasing immediately without waiting for lower prices. During the past several months we have had repeated downward spikes for assets as diverse as long-dated U.S. Treasuries (TLT), palladium (PALL), and the Japanese yen (FXY). U.S. Treasuries and their funds including TLT probably completed two-decade bottoms in October 2023 and added key higher lows in April 2024, while PALL may have bottomed in February 2024 at 78.50 and recently slid almost all the way back to higher lows just above 80. The most recent in this group to make new lows has been the Japanese yen, which during the past week touched its lowest level versus the U.S. dollar since 1986.

Funds of precious metals shares including GDX and GDXJ will eventually become compelling buying opportunities, but history and the traders' commitments tell us clearly that we must wait several months or longer before taking action.

QQQ dropped 83.6% from its peak on March 10, 2000 to its bottom on October 10, 2002. Meanwhile, HUI, an index of gold mining shares, completed a key bottom on November 15-16, 2000 and before the end of 2003 was worth more than seven times as much. Therefore, wait several months after QQQ has begun a major bear market and then get ready to aggressively purchase gold mining and silver mining shares. Be patient and don't act too soon.

One way we can be certain that it is too early to buy GDX or GDXJ is that the traders' commitments are especially bearish for gold, silver, and platinum. Commercials (see cftc.gov) such as miners, fabricators, and jewelers who own physical gold are long 86,551 and short 358,039 contracts which is more than 4:1 short to long. Non-commercials (primarily hedge funds) are long 284,885 and short 38,656 which is more than 7:1 long to short. Regardless of how much gold China's central bank does or doesn't buy, these are unsustainable speculative longs which will be dramatically flushed out over the next several months. Gold bullion will drop below two thousand U.S. dollars per troy ounce and could eventually fall below 1800 before powerfully rebounding afterward.

The bottom line: it's not different this time. Don't fall victim to the soft-landing myth. As well-known stocks including Apple (AAPL) and Costco (COST) have been have been trading for roughly five times their long-term average price-earnings ratios, the only realistic possibility will be massive percentage losses for large-cap U.S. stocks during the next few years. Following bubble peaks, stocks don't just retreat from overvalued levels to fair value and stop dropping; they usually end up with undervaluations of 35% to 60% as we had previously experienced frequently including 2008-2009 and 2002-2003. U.S. Treasury yields have been close to their highest levels in more than two decades and will serve as an irresistible magnet once U.S. stocks have fallen enough to make some investors nervous about continuing to be so heavily overinvested in the most popular big U.S. companies.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, June 28, 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) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 37.24%;

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: 22.91%;

I Bonds long: 11.01%;

TLT long: 10.75%;

PMM long: 0.01%;

XLK short (all shorts are once again unhedged): 34.84%;

QQQ short: 23.78%;

SMH short: 1.61%;

AAPL short: 0.12%;

SARK long: 1.00%;

PSQ long: 0.04%;

PALL long: 1.10%;

Gold/silver/platinum coins: 7.12%;

FXY long: 0.58%.