Stocks and Gold

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Today’s investors are in a most unusual position. I say that because I believe we are close to witnessing and living through some of the greatest and momentous changes in world economic history. It will be, historically, tantamount to those of us who fought and lived through World War II.

The two biggest items in America’s economy are (1) Federal Reserve notes, which we laughingly call “dollars.” These notes currently serve as the world’s reserve currency. (2) The US bond market, by far the single biggest securities system on the planet – it includes trillions of dollars worth of Treasuries, corporate and municipal bonds, and various other debt securities.

It is my opinion that within the next year or possibly two years, the dollar will lose its reserve currency status, and the US bond market will crash, taking the stock market with it. I include below a chart of the US dollar – the chart goes back to 2008. The chart depicts a series of declining tops. Declining tops describe a period of ebbing upside momentum – and ebbing upside momentum is always bearish.

The chart below tells me one thing – the world is cautiously and steadily moving away from dollars. We hear about nations agreeing to trade with each other in their own currencies (in order to avoid trading in dollars). We hear about nations moving dollars out of their reserves. I’m predicting that these bearish (for the US) trends will accelerate. These trends are forecasting the end of the US dollar as a wanted store of value.

Below we see an equally bearish (for the US) phenomenon. It’s the Bellwether ten year US Treasury bond. Again we see the bearish series ofdeclining tops. So far, the series has been declining “lightly and politely.” But I predict that we will see the bearish trend on this chart accelerate during the coming year. The US debt is now roughly 90% of our Gross National Product. This ratio is widely considered to be dangerous. The Treasuries are now in a massive bubble while offering almost no yields. All bonds are in a bubble. Even the yield on some junk bonds is down to around 6%. To sum up, bonds are in a gigantic bubble that I expect will burst this year or at the farthest – next year.

So what should we do about all the above? My answer is that we turn to the simplest and most basic, time-tested island of safety. That island of safety is physical gold in your possession.

I believe we have, over the last few months, seen one of the biggest BS “snow jobs” in economic history. Those who want to accumulate gold have joined in a “we hate gold” chorus calculated to knock gold down to a price where it is irresistible. The nonbelievers and speculators and Johnny-come-latelies have all been unceremoniously knocked out of the gold bull market. Only the true believers still hold on to their gold.

This gold-hating propaganda has knocked gild down, and in so doing, it has created a great base for gold. I understand that the US mint has been selling bullion gold coins at one of the fastest clips in recent history. The coming gold rush should, in my humble opinion, be something to see.

Ironically, in the face of the great anti-gold barrage, gold (including today) has closed higher for six consecutive days.

I show a chart of gold below (as of Friday’s close). Here we see the widely-advertised “crash wipe out.” I have identified what I believe is the little rectangle of accumulation. By my calculations, the upside breakout for gold should come at a price of around 1450.

Back to the stock market, and some amazing contrary opinion material. According to Investor’s Intelligence, advisories are now bullish by 47.4% and bearish by 20.6%. I just received Barron’s with its cover in HUGE letters screaming DOW 16,000.

On the inside of Barron’s I read, “The stock market isn’t the only thing that has set records this spring. Barron’s semiannual Big Money poll of professional inventors also is setting a record – for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for US stocks – an all-time high for Big Money going back more than 20 years. What’s more, about a third of managers expect the D-J Industrials to scale the 16,000 level by the middle of next year, notwithstanding a dismal week of selling that left the blue chip index at 14,547.51 on Friday.”

Russell Comment – This is truly an extreme in bullishness on the part of advisors and big money professionals. It will be fascinating to see whether the professionals turn out to be correct.

I’m reminded that seminal Dow Theorist, William Hamilton, wrote that “he had never seen the majority of market experts be correct on the market.”

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