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Pretty wild out there, eh? But as ugly as it all looks …
I reaffirm my views: Nearly all markets are bottoming in what will ultimately prove to be buying opportunities of a lifetime.
Am I some kind of permabull or eternal optimist? Hardly. I was bearish on stocks in ’87 … I called the top in 2000 … and the top at 14,000 in the Dow last year. I was bullish on the buck in the ’90s … and bearish on gold for nearly 21 years . So I’m as far from a permabull as one can get.
And do my current bullish views mean there’s easy money out there? Far from it. Wild and dangerous swings are going to become commonplace for all markets. Plus it certainly takes big kahunas to step up to the plate and invest or trade right now, either long or short.
But just keep in mind what every professional investor or trader who’s worth his salt knows …
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| History has shown that the time to buy is when things look the worst. |
A. Many of the lowest risk, most profitable investments and trades are made when things look the scariest … or as better said, when it’s darkest before dawn. And …
B. Like sheep being led to the slaughterhouse, no one ever gets rich following the crowd in the markets.
So with the above in mind … and with almost everyone I know still very bearish and caught in the emotions of these times — I thought it best for this column to answer four of the most popular questions I’m receiving. That way you know exactly what I’m thinking … what my analysis is … and what my signals are saying.
And then, I’ll give you some suggestions on how to get positioned for some very big profits. So let’s get started …
Question #1: Larry, the Dow broke its October 10 low, which you said was “the low” for the bear market. So obviously, you were wrong. Does that mean stocks are going a lot lower?
A: True, the Dow, Nasdaq, and S&P 500 Index all broke their October 10 lows.
But the Dow held its October 10 inflation-adjusted low in terms of real money. The Dow/gold ratio of 9.6 on October 10 remains intact. In other words, the real value of the Dow did not make a new low.
That’s critically important to understand. Reason: Nominal values, the numbers you see quoted every day (for all assets but gold), are not their true values in real money.
That’s because the value of money changes every day, and often, significantly. So unless you have a benchmark to measure values, you simply cannot — I repeat — cannot truly understand what’s happening.
On October 10, in inflation-adjusted, honest money terms, the Dow hit about 2,550.
Today it stands at nearly 2,900 in real terms, a gain of almost 12%.
To drill down and understand the importance of this, let’s take a look at an individual Dow stock, such as General Electric. In nominal terms, GE plunged from a record high of $60.75 in September 2000, to as low as $12.58 last week, a 79.3% plunge.
But in terms of the value of the money that a share of GE represents, it’s lost even more. That’s because the value of the dollar has plunged as well.
For instance, in September 2000 at its all-time high at $60.75, GE would have bought you a little less than 1/5 of an ounce of gold.
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But at its recent low of $12.58, a share of GE would have bought you just 1/50 of an ounce of gold. That’s less than one-tenth its former value, or a loss of over 93% in terms of GE’s true purchasing power!
Let me put it another way. Suppose that in September 2000 you bought 1,000 shares of GE for $60,750. That $60,750 was equivalent to 222.52 ounces of gold.
At last week’s low in GE, your 1,000 shares were worth a mere $12,580 — equivalent to just 15.9 ounces of gold.
That’s nearly 207 ounces less gold. 93.34% less, to be precise.
In other words, GE is now worth less than one-twelfth what it was at its peak nearly nine years ago.
Many will question my use of gold as the benchmark for the real value of money. Let them.
In the end I will be proven right. The price of gold has stood the test of time — for over 5,000 years — as a benchmark for the value of money. That’s not about to change.
Indeed, if you read my last two columns in Money and Markets, then you know that gold is about to take back a very significant role in the world’s financial system — as central bankers around the world prepare to change the rules of the game (the value of money) to help alleviate the burden of all the debts gone bad today.
But I’m getting ahead of myself. The fact of the matter is that only when you start looking at asset values in both nominal and real terms as reflected by the price of gold — only then will you truly understand what’s happening today.
And in that regard, I believe the Dow has bottomed and is about to start reflating … big time.
The first stop higher for the Dow: It will soon get back to the 10,000 level (in nominal terms). And if it closes above 10,000 on a weekly or monthly basis, it will then rally to over 12,000.
And in about 5 or 6 years from now you could be staring at a Dow that’s in the 35,000 range.
Gold will also be shooting to the moon, right along with stocks.
Most analysts and investors will say I’m crazy to expect gold and the stock markets to rally together. But that’s what I see happening.
Savvy investors and big money both realize what I’m telling you — that the value of real money is falling dramatically … will continue to slide for years to come (or will be forcefully devalued by authorities, by decree) … and that asset values will be floated higher to compensate.
This is precisely what’s happened over the years in so-called third-world countries like Brazil, Argentina, and many South East Asian countries that have experienced currency devaluations. The difference this time is that it will happen to the First World.
Mark my words. You read it here first.
Question #2: Gold is surprising a lot of analysts here and holding up nicely. What’s your latest on gold?
A: Gold’s strength is not surprising to me. It’s entirely consistent with my views and theories.
Gold is still very strongly entrenched in a major long-term bull market — on the charts, cyclically, and in terms of fundamentals. I’ll review all three for you now …
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1. The gold chart: Take a look for yourself. Does that look like a bear market? Gold is still well above its long-term uptrend line, and even above support derived from the 2006 and 2007 highs.
Bottom line: The chart action shows an extremely successful test of major support in gold, and the beginnings of a new leg up.
That’s not to say there won’t be further retests of major support. There will be. But I believe that gold is consolidating now … and preparing for another major upleg.
2. Gold Cycles: Based on my studies, historically, bull markets in gold tend to last at least 11 years. That means gold is not due for a major top until late 2011, early 2012. So long-term cycles continue to point higher for gold.
3. The fundamentals underlying gold. There are actually two issues here when talking about gold …
A. Straightforward supply and demand issues. And …
B. The value of the dollar.
Naturally, they are related. But let’s look at them separately …
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Gold demand is at record highs. For the third-quarter ending September 30, 2008, total gold demand soared to a record 1,133.4 metric tonnes, up 18% over a year ago. The biggest factor: Investment demand, which soared 56%.
To the surprise of many, jewelry demand also jumped 8% to a quarterly record of $18 billion, led higher by a 65% surge in India. Jewelry demand in the Middle East, Indonesia and China all soared more than 40%.
Investment in gold exchange traded funds (ETFs) also surged — to a record quarterly inflow of 150 metric tonnes of gold, up 8% over the same period last year, and up a whopping 31% year-to-date compared with 2007.
Meanwhile, total available gold supplies plunged 10% on year-earlier levels. The biggest reduction in supplies came from a huge drop in central bank sales of gold (note that this is consistent with my earlier Money and Markets columns and my contention that central banks will soon start hoarding and even buying gold).
Clearly, the fundamentals support the ongoing bull market in gold.
Meanwhile …
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The dollar remains in a long-term bear market. There are a lot of people who don’t agree with me on this one either.
But the long-term monthly chart of the Dollar Index speaks for itself.
Does this chart look like the dollar is doing anything but bouncing? I don’t think so.
The dollar index hasn’t even made it back above the 93 area. That level must be breached — and then successfully retested as support — before anyone can say with any certainty that the dollar is in a long-term bull market.
Heck, the buck hasn’t even exceeded its 2004 and 2006 highs!
At best the dollar has merely staged an extraordinarily weak counter-trend bounce, recovering less than one-third of its losses since 2001. It has not undergone a major trend change.
In addition, consider the following:
Combined, the Treasury and the Federal Reserve have injected, promised and/or guaranteed over $7.8 TRILLION to save the financial system. That number is likely to grow even higher in the months ahead, to $10 TRILLION, or more.
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Now, ask yourself one very important question …
Where the heck is all that money going to come from?
It is sheer insanity to think that the dollar can ever regain its past purchasing power going forward. Sure, there will always be rallies and bounces in the dollar, if merely by default, as other countries deal with their own versions of the global financial crisis.
But it is only a matter of time before investors wake up to the fact that the U.S. is broker than broke, and the dollar will continue its long-term decline.
And most importantly …
Authorities in Washington already know they will never be able to make good on all the financial commitments they’ve made. So along with other governments and central banks around the world, they will start the process of a systemic devaluation of nearly all currencies.
In other words, they’ll start devaluing money.
Bottom line: Gold remains in a powerful, long-term bull market.
I reaffirm my forecast that gold will reach $2,270 at a minimum. And quite possibly, even as high as $5,300 an ounce.
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| I see gold possibly hitting $5,300 an ounce. |
Question #3: Larry, is the bull market in oil and energy over?
A: No, it is not. In fact, because the financial crisis has shuttered the capital markets causing new exploration and capital investment in oil and gas to virtually disappear, I believe energy prices could ultimately be headed even higher than I originally forecast ($200 a barrel for oil).
But that’s not going to happen overnight. Right now the important thing to understand is that like gold, the price of oil is bottoming and will likely soon resume moving back up.
I would not be surprised, for instance, to see oil back above $100 a barrel in the next few months.
Keep in mind that in terms of fundamentals, all of my research indicates that the world has effectively reached “peak oil” — and that supplies are now in an almost perpetual state of decline, save an occasional new oil find here or there. Peak oil is going to be made a heck of a lot worse by the sudden collapse in the financing of exploration and production that I just referred to.
Additionally and unfortunately, supply constraints and disruptions from terrorism and wars will continue, adding to the upward bias in energy prices. Renewed upward pressure on energy prices will also be created when the dollar resumes its bear market.
So while we’re getting some relief in energy prices now, don’t count on lower oil and gas prices being around for long.
Ditto for dirt-cheap oil and energy shares, many of which I am soon going to start recommending in my Real Wealth Report.
The same can be said for virtually all natural resources. The decline in demand that you’ve seen is short term, not a long-term trend change.
In addition, when the world comes out of this financial crisis, and it will, sooner rather than later …
… the supplies of many natural resources will be even tighter than they were prior to the crisis — setting the stage for a new explosive upleg in natural resources.
Question #4: Isn’t Asia slowing dramatically? Everyone else says it is.
A: Everyone else isn’t on the ground in Asia, like I am.
In the past three months I’ve been to Singapore twice, Hong Kong twice, to Macau, to Shanghai, and to Hua Hin and Chiang Mai, Thailand.
And yes, there is some slowing. Most notably in Thailand, which is very unstable politically.
But I did not see any major evidence of slowdowns in Hong Kong, Shanghai nor in Macau. And in Singapore, I was amazed at how busy the shops and restaurants were, and how resilient the property market is.
So don’t let anyone fool you about Asia — it’s in far better shape than most are claiming and it will bounce back faster than any other region in the world.
Keep in mind that most Asian countries have current account surpluses … healthy, strong banks … and large foreign reserves. They are also slashing interest rates … cutting taxes … and have loads of cash on hand for fiscal stimulus.
China will lead to the upside, soon. Followed by India, which despite the terrible Mumbai terrorist attacks, is looking like its stock market is making a major, multi-year bottom.
So What Should You be Doing Now?
You should be preparing for what I’m calling “The Great Re-Inflation.”
I suggest …
- Keeping up to 25% of your investable funds in gold investments, such as the SPDR Gold Trust (GLD).
- Keeping the other 75% of your investment funds ready to be deployed on a moment’s notice. I am getting very close to buy signals in oil and energy shares … in food processors … in wood product manufacturers (yes, housing will soon rebound) … and in aggressive positions in Asian stocks, most notably in India and China.
You are about to witness the greatest redistribution of wealth in the history of civilization — from savers to debtors … from creditors to borrowers.
It will occur via systemic currency devaluations. And your only chance of financially surviving it is to understand why it’s going to happen … when it’s going to occur (sooner rather than later) … and how it’s going to impact investments.
Best wishes,
Larry
P.S. My mission is two-fold: To help you protect your money and make gobs of moolah as well.
But I can’t do either one unless you’re an active member of my inner circle — a subscriber to my Real Wealth Report. With so many profit opportunities coming up, why not become a member today?!
For a mere $99 per year, you get 12 hard-hitting objective monthly issues covering virtually all markets … all of my recommendations … all of my flash alerts … and 24/7 access to my Web site and blog.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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