summer goldrums 29 may 2014 war room. hiddenlevers war room open q + a macro coaching archived...

Summer Goldrums29 May 2014

War Room

HiddenLevers War Room

Open Q + A

Macro Coaching

Archived webinars

CE Credit

Idea Generation

Presentation deck

Product UpdatesScenario Updates

I. Market Update

II. Gold Scenarios

III. Gold 101

IV. Gold Macro Picture

Summer Goldrums

HiddenLevers

MARKET UPDATE

Market Update

EU Deflation = QE Reborn

World Cuprising

EM regime changes

US-China Tensions

sources: HiddenLevers, Marketwatch, New Yorker, Wikipedia, Reuters

Macro Snapshot

Endless bull? VIX + UI claims at 2007 levels, and 10Y diverging southward

SUMMER GOLDRUMS – SCENARIOSHiddenLevers

Review: Gold Crash Scenario – Aug 2011

Solid analogyGold 2011-13Oil 2008-09

gold miners distinction

was key

start of HL risk parity

ethos

Gold Crash Amidst Uptrend100% priced in

Aug 2011

Dec 2013

-33%

Slide from Aug 2011 War Room

sources: HiddenLevers

Ugly: Gold signals Deflation

caveatgovt price controls

MDD 700usd/ounce

fiat currency1930s

analogiesinvalid

USDpurchasing

power rising

1929-41

CPI

Gold Standard

sources: HiddenLevers, MarketWatch, USAGold.com

Several precedents on- 40-50% MDD

Bad: Gold 1k driftdon’t confuse

bounce for long term investment

Fed sees no inflation risk,

continuing taper

MDD1000usd/ounce

-40% dropfits into usual

MDD paradigm

technical support

at 1k

$1000/ounce

Good: Gold Rebound

Bounce off technical

support at 1k

QE ending priced in, so is gold bottom

Safe-harbor during EM chaos

Russia, Ukrazy escalation

India/China demand surprise

sources: HiddenLevers, Forbes, WSJ, John Holt

Scenario: Summer GoldrumsGood

Gold Rebound

BadGold 1k Drift

UglyGold Signals

Deflation

Rising inflation could drive gold prices back up – if a source of inflation can be found.

Typical gold decline is 40-50% from peak, 1900 -> 1000 in this cycle. This could occur while S&P continues its steady climb.

A deeper gold crash could be a harbinger of deflation, which is negative for both equities and gold.

HiddenLevers

SUMMER GOLDRUMS – GOLD 101

Gold 101 – Overview

Gold trading below long term oil-gold ratio, as it did for most of ‘00s

Median Ratio = 15

Silver follows gold – precious metals moving together

Gold demand down 3 years straight

sources: HiddenLevers, World Gold Council

Gold 101 – Interest rates + Inflation

source: HiddenLevers, Reuters

Gold price returns follow

inflation…

And by extension rates as well.

Gold 101 – Historical Comparisons

source: Bloomberg, HiddenLevers, Principes de Science Economique

Gold Era Max Rise MDDJan 1973 – Dec 1974 +197% -

Dec 1974 – Aug 1976 - -44%

Aug 1976 – Jan 1980 +551% -

Jan 1980 – Jun 1982 - -48%

Mar 1985 – Dec 1987 +70% -

Dec 1987 – Apr 2001 - -47%

Apr 2001 – Sep 2011 +637% -

Sep 2011 – present - -35%

• Real commonality between events driving gold: Inflation

• Gold has experienced numerous bull/bear cycles, with typical Max Drawdown over 40% before new cycle begins

• Gold 10y standard deviation almost 20%, greater than S&P 500

Gold 101 – Recap

worldwide demand down3 years running

typical Gold drawdown = - 40-50%

volatility: Gold > S&P 500inflation = key driver of Gold

HiddenLevers

SUMMER GOLDRUMS – MACRO PICTURE

Macro Picture – India

source: HiddenLevers, WSJ, CNN

Post 2014 election• BJP govt relaxing import laws• Investors selling, prices weaker• Shortage of gold over• Jewelers not buying for long-term

2013• Rupee tanks• Stocks rally to record• US recovery boon to software + exporters• State-run Gold importers only• Gold performance = -28%

Rupee strong, diverging

Macro Picture – China

source: HiddenLevers, Economic Times, Shanghai Daily

Yuan USD fix over

2013 ---> 2014• Jewelry demand up 9%• Investor demand down 17% 2013

China CPI vs Gold

Macro Picture – Bitcoin + Other Alternatives

History

Gold: 5000y

BTC: 4y

source: Coin Market Cap, Only Gold

Bitcoin

Gold

0 1000 2000 3000 4000 5000 6000 7000

Market Cap in Billions of USD

Market Caps

Gold: 6500 B

BTC: 7.3 B

Crypto-currencyMarket

7.8 B

Similaritiesdivisible, durable, known/limited supply, transferrable.

Macro Picture – Global Deflation Risk

sources: HiddenLevers, Economist

technology automation

commodities sinking

first world baby bust decreasing birth rate

sluggish GDP growth

If you believe inflation will return, buy Gold. (we don’t)

China + Goldjewelry, not investment

global deflation = quicksand

India no longer worships gold

Macro Picture – Recap

Bitcoin – the new girl in school

HiddenLevers Use Cases

scenarioEnd of QE

scenarioGlobal Deflation

scenarioGold Crash

Summer Goldrums

Data CenterCommodities

Data CenterCurrencies

• Annuities Support (Fixed / Variable / Equity Indexed)

• Advisor Fees Support

• Index Correlations

• Options Support – Call Writing

Integrations:

BlackDiamond

WealthAccess

Product Update