What do I mean by indicators?… okay, we have got a bunch of them… there is all kind of technical and fundamental information that we use to inform our world view about the economy and the market.. and you know if you do not have a world view, then you are not going to be able to invest well… you will always need a sense of where things are and where they are headed… based on the available facts at any given time… and I am talking about interest rates, unemployment, oil prices, domestic product growth… or you may look at some of the technical indicators… the volatility index, or one of my absolute favorites… the oscillator, I use the S&P’s… which tells you how overbought or oversold the market is… whether there is too much buy pressure, too much sell pressure… people are selling too quickly, buying too quickly… that is a handful.

Unfortunately, you cannot just figure out which indicators are the most important and then always look at them when you are trying to divine the markets future… oh, it no longer works that way… this is as much now an art as a science.. the most it has ever been since I have been trading, which is 1979... there are always new important indicators popping up, that you never cared about… and the old ones out of usefulness faster than ever before… even though people cling to them like totems… at least in the way that you are used to extrapolating them… learning how to construct your world view when it comes to the market is like learning how to fly a plane… over, and over, and over again… it is not like being a pilot, where your instrument panel with all of the indicators that you rely on, all in the same place, meaning the same things… no, frankly it is just the opposite… every time you go up and try to get a fresh view of the direction of the economy in the market… you got to learn to fly all over again.. because the indicators that you are using, the various pieces of information, with some kind of predicted value… will not always tell you the same thing twice.

Sometimes they will stop telling you anything useful at all… if you know what I am talking about and subscribe to this rule… you will just think that it is same old, same old… some will be more important… some will be less important… you have got to try to keep a hand on which ones are becoming more or less relevant… and try to know why… you have got to be flexible… despite the desire of some analysts and portfolio managers, especially the technicians who love to analyze charts, we can never put our portfolios on auto pilot.

So how do you make sure that the indicators that you are still using are doing what you think they do… alright, now listen, here is what happened... your thinking about what is going to happen after you see the indicator and it is not happening anymore… okay… we only use something as an indicator in the first place, if we think there is a decent correlation between the indicator and something that we think is worth measure… alright, it is historically gold… this was always, for 30 years, one of my key indicators… it was always about how frightened investors are… it is about economic instability… it is also about a predicate of inflation… when we are scared we buy gold because it represents safety… especially since gold prices tend to increase when everything else goes down… and I have to tell you, for years at my old hedge fund, gold prices were a fantastic indicator of the level of fear in the market, chaos… but you know what… none of this is true anymore… oh, it has got a little bit of a tinge… but over the years since I have retired, gold gradually stopped being a good stand in for terror… and eventually reached the point where it moved higher… hardly told you anything at all... we have had tremendous deflation… gold has gone higher.

What has changed… what changed was the actual physical demand for the gold… more demand from newly developed nations… you start making money, you start buying gold jewelry… more investors buying gold to hedge the once old mighty dollar… whole countries where they are worried about the government… so as soon as they get money they buy gold… more commodity hedge funds trying to invest in gold as an asset class all by itself… pension funds too… like they are doing gold like real estate or bonds… then there are the ETF’s that are buying the bullion up directly… a move in gold might be caused by any of these things… and that means that gold is no longer a reliable indicator of anything… not of fear, not of stress, it is just not any good… now it is still a good investment as insurance… because it does go up when we get hit with a bout of inflation or economic chaos… but it is not a predictor of those… it does not mean that those are the causes every time it goes up… if you are trying to determine which direction the stock market is heading… then gold is far more likely to confuse you as it did all of the beginning of 2009... then it is to impart anything close to useful information.

Anyone who watched gold’s run up in 2009, made the mistake of thinking that it was an important sign, would have been selling… would have been shorting… would have been dumping… would have gone into cash… precisely when the opposite was called for… at the bottom of early March, when we were at Dow 6500... yeah you would have missed a huge move in stocks… because the rules did not apply anymore… the old rules that followed gold, took you to an illogical conclusion… that is not different from the pilot flying thru heavy fog who relies on the instruments to maneuver… only to discover that someone replaced the optimeter with a random number generator… and almost crashes into the ground… except the investors who took the wrong cue from gold… have no excuse for relying on an indicator that has not worked now in multiple years.

How about some new indicators that are working… okay, China becomes a global economic super power… I have mentioned this… I have already explained… Chinese communists have replaces us as the worlds economic top dog… you have got to pay attention to shipping… you have got to figure out what they are buying… you have got to pay attention to the Baltic Dry Freight Index… that tracks shipping rates around the world… I regard it as a stand in, that is better than the Chinese stock market which often seems manipulated, it is a better stand in because anything that can be carried in a dry bulk ship… like iron ore, or coal, or grain… is probably ending up going to China… how important has this one stole indicator become… it has been around for years, I used to follow it in the ’80’s… in March of 2009, the bottom was not reached by looking at the Chinese stock market… it was called by the Baltic Dry Freight Index… once in a generation bottom as my friend Doug Cass would say… it turned and rallied well ahead of the bottom of our stock market… and if you knew to look for something that would measure Chinese trade with the rest of the world… this was the index… it gave you a great edge… even better than tracking that stock market.

You had probably never heard of the Baltic Dry Freight Index before a few years ago… I guarantee that you will all be paying very close attention to this index for years, and years, and years to come… because it is really the best way to track the imports to China… which is therefore the best way to track world trade… even if you did not pick up on the importance yourself… you have to be flexible enough to realize that just because something it unfamiliar does not mean that it will not become significant… I have many friends who refuse to pay attention to this index… because they have never paid attention before.

Many other industries flitter in and out of attention… the VIX, an index that measures volatility, people stuck with that way too long… that does come into play when the system is stressed… a high reading telling you to be careful, but it stayed high the whole time the market rallied so that did not help… on the other hand, if the system is not stressed people do not even bother with the VIX and it comes off of the instrument panel… and above all the others, I still favor any index that measures the number of stocks that have gone up vs. the number that have gone down… the Advanced Decline Index is the only thing that has worked consistently thru the years that I have been involved in investing and trading… it shows the total difference between the number of stocks that are advancing and the number that are declining… every day… but unlike the Baltic Dry Freight Index, which predicted a return to world trade… an Advanced Decline test, unfortunately, and this is why it is not a procrastinator… it simply confirms what you already know.

The bottom line…