This blog post is a modified excerpt from a TSI commentary published a week ago.

Among other things, good money management involves trading around a core position, with the core position being in synch with the long-term trend. In particular, during a strong intermediate-term rally it involves 1) maintaining core exposure in line with the long-term bull market and 2) methodically scaling back to core exposure as prices move sharply upward.

BOTH of the aforementioned tactics must be used to mitigate the risk of suffering a large loss AND the risk of suffering a large opportunity cost. For example, if you don’t sell anything during a strong rally then you are guaranteed to suffer a large loss once the inevitable ensuing decline occurs and you won’t have either the financial or the emotional capacity to take advantage of future buying opportunities. For another example, if you sell everything when you think that the market is close to a top then it will just be a matter of time before you find yourself on the sidelines with no exposure as prices move much higher than you ever thought possible.

In more general terms, good money management involves embracing the reality that while it is possible to measure — by looking at sentiment and momentum indicators — when a market is stretched to the upside or the downside, it is not possible to RELIABLY predict market tops and bottoms. It is not even possible to reliably identify important market tops and bottoms at the time they are happening. Fortunately, and contrary to what some self-styled gurus will tell you, achieving well-above-average long-term performance does not require the reliable prediction of tops and bottoms.

With regard to my own money management, this year’s rally in the gold-mining sector was the first rally in years that was strong enough to prompt scaling back all the way to ‘core’ (long-term) exposure. This entailed selling almost half of my total position.

I might do a small amount of additional selling if there’s another leg higher within the next few weeks, but I have built up as much cash as I want so my next big move will be on the buy side. However, I will not do any buying into extreme strength. I will, instead, wait as long as it takes for the market to reach a sufficiently depressed level, secure in the knowledge that my core exposure covers me against the possibility of ‘surprising’ additional short-term strength.

Here are a few of the charts that currently have my attention.

1) The Canadian Dollar (C$). The C$ usually trends with commodity prices, so the owners of commodity-related investments should view the C$’s recent performance as a warning shot.

2) The Dow Trucking Index. The huge rebound in this index from its January low is a little strange given the evidence that the trucking industry is in a recession that is a long way from complete.

3) The gold/GYX ratio (gold relative to industrial metals). This ratio is a boom-bust indicator and an indicator of financial crisis. In January of this year it got almost as high as its 2009 peak (its all-time high) and remains close to its peak, so its current message is that an economic bust is in progress and/or that a financial crisis is unfolding.

I think that gold will weaken relative to industrial metals such as copper for at least 12 months after the stock market reaches a major bottom, but in the meantime a new all-time high for the gold/GYX ratio is a realistic possibility.

4) The HUI with a 50/20 MA envelope (a 20% envelope around the 50-day moving average). Although I think that the current situation has a lot more in common with the first half of 2001 than the first half of 2002, the way the HUI has clung to the top of its MA envelope over the past few months looks very similar to what it did during the first half of 2002.

5) The HUI/SPX ratio (the gold-mining sector relative to the broad US stock market). Over the course of this year to date the performance of the HUI/SPX ratio has been similar to its performance from November-2000 through to May-2001.

6) The S&P500 Index (SPX). The SPX is standing at the precipice. The probability of a crash within the next two months is almost zero, but a tradable decline looks likely.

7) The SPX/USB ratio (the broad US stock market relative to the Treasury Bond). Notice the difference between performance following the 2014 peak and performance following the major peaks of 1999-2000 and 2007.

A TSI subscriber recently reminded me of an indicator that I regularly cited in ‘the old days’ but haven’t mentioned over the past few years. The indicator is the bond/dollar ratio (the T-Bond price divided by the Dollar Index).

The bond/dollar ratio not only does a reasonable job of explaining trends in the US$ gold price, it does a much better job of explaining trends in the US$ gold price than does the Dollar Index in isolation. As evidence, here is a chart comparing the bond/dollar ratio (USB/USD) with the gold price followed by a chart comparing the reciprocal of the Dollar Index with the gold price. The first chart indicates a closer relationship than the second chart.

From a practical speculation standpoint, an inter-market relationship is most useful when it has a lead-lag aspect, that is, when one market usually reverses trend in advance of the other market. Unfortunately, that’s not the case here, in that gold and the bond/dollar ratio usually change direction at around the same time. For example, they both reversed upward late last year. The simple relationship does, however, help foster an understanding of why the gold price does what it does.

At the risk of casting aspersions on a good manipulation story, I note that the first of the above charts points to the US$ gold price generally having done what it should have done each step of the way over the past 10 years.

Now that Donald Trump has managed — against the odds and much to the chagrin of ‘war party’ loyalists — to become the Republican Party’s nominee in the Presidential election to be held in November, it is worth considering what a Trump presidency would mean. Here are some preliminary thoughts.

First, I expect that with the Primary campaign out of the way Trump will start to downplay some of the most hare-brained ideas he has spouted to date, such as building a giant wall along the US-Mexico border and banning all Muslims from entering the US. It’s unlikely that these wildly foolish ideas will ever be turned into actual policies, and in any case even if President Trump tried to implement them it’s unlikely that he would obtain the required parliamentary approval.

Second, I doubt that President Trump would go ahead with his threat to implement hefty tariffs on imports from China, because I don’t think he is stupid enough to believe that imposing such restrictions on international trade could possibly benefit the US economy. My guess is that when he uttered the protectionist nonsense he was pandering to voters who are struggling economically and willing to believe that their problems could be quickly fixed by someone capable of doing smart trade deals with other world leaders. But if I am over-estimating his acumen and he genuinely believes what he is saying on this matter, then President Trump would effectively be pushing for similar trade barriers to the ones that helped make the Great Depression greater than it would otherwise have been.

As an aside, just because someone relentlessly promotes himself as a great deal-maker, doesn’t mean he actually is. Also, the problems facing the US have almost nothing to do with poor deal-making in the past and could not be solved by good deal-making in the future.

Third, I doubt that the result of the November Presidential election will have a big effect on the US economy. The way things are shaping up, whoever gets elected this November will end up presiding over a sluggish economy at best and a severe recession at worst. This is baked into the cake due to what the Fed and the government have already done.

Furthermore, both Trump and Clinton appear to be completely clueless regarding the causes of the economic problems facing the US, which means that economically-constructive policy changes are unlikely over the years immediately ahead irrespective of the election result. For example, Trump has expressed a liking for currency depreciation and artificially-low interest rates, which means that he is a supporter of the Fed’s current course of action even though he would prefer to have a Fed Chief who called himself/herself a Republican. Trump has also said that he would leave the major entitlement programs alone, even though these programs encompass tens of trillions of dollars of unfunded liabilities.

Fourth, it currently isn’t clear that any major financial market will have an advantage or disadvantage depending on who is victorious in November. For example, regardless of who wins in November it’s likely that evidence of an inflation problem will be more obvious during 2017-2018 than it is today, resulting in higher bond yields (lower bond prices). For another example, how the stock market performs from 2017 onward will depend to a larger extent on what happens over the next 6 months than on the election result. In particular, a decline in the S&P500 to below 1600 this year could set the stage for a strong stock market thereafter. For a third example, gold is probably going to be a good investment over the next few years due to the combination of declining real interest rates, rising inflation expectations and problems in the banking industry. This will be the case whether the President’s name is Trump or Clinton.

Fifth, based on what has been said by the two candidates and on Hillary Clinton’s actions during her long stretch as a Washington insider, every advocate of peace should be hoping for a Trump victory in November. The reason is that a vote for Clinton is a vote for the foreign-policy status quo, which means a vote for more humanitarian disasters and strategic blunders along the lines of the Iraq War, the destruction of Libya, the aggressive deployment of predator drones that kill far more innocent people than people who pose a genuine threat, the intervention in Ukraine that needlessly and recklessly brought the US into conflict with Russia, the inadvertent creation and arming of ISIS, and the haphazard bombing of Syria. Based on what he has said on the campaign trail, a vote for Trump would be a vote for foreign policy that was less concerned about regime change, less eager to intervene militarily in the affairs of other countries, and generally less offensive (in both meanings of the word).

Summing up, a Trump presidency would probably be a significant plus in the area of foreign policy (considering the alternative), but there isn’t a good reason to expect that the US economy and financial markets would fare any better or worse under Trump than they would under Clinton. At least, there isn’t a good reason yet.