Tuesday, June 29, 2010

Own gold and gold items and cash

My investment strategy is now being voiced or followed by too many major hedge funds. The thinking is that as vanishing stimuli and de-leveraging takes over, the economies of the world pressured by central bank conservatism will force the US and western nations into a double-dip deflationary recession. The response will be to keep rates at zero and open the money spigots wide, wide, wide. This is where ownership of gold "was supposed to" come in.

Then, I ask myself, is this scenario too pat? Is it too popular? There's always a fooler. Where’s the fooler this time? I think the fooler will be the stock market. The stock market will be considerably worse than the smart boys are figuring on. Deflationary pressures will be severe and the need to re-inflate will be more pressing than ever.

Gold will be needed – not as a safe haven against inflation, but as a safe haven against crushing deflation. Deflation will flatten everything in sight including base metals, commodities, housing, job creation. The single island of preserving wealth will be gold. Unlike junk fiat currencies, gold cannot be devalued.

As I look ahead, the area that the experts do not understand is the stock market. Almost all the current opinions revolve around stocks remaining in a high-level trading range. This will prove to be an horrendous miscalculation.

Why do I think the stock market will be so rotten? Here's why. Look at the chart of the Dow in the current issue of Barron’s. Or study the chart of the Dow below. If this isn’t the mother of all head-and-shoulder top-formations, I’ve never seen one. If this formation falls apart, I expect the break to signal a the start of a brutal decline in stocks. The first area of support is Dow 10,000. The base of the entire formation comes in at Dow 9800. If the formation breaks down, I think all previous plans, scenarios and strategies will hit a stone wall. Wall Street and public sentiment will turn black-bearish. Consumers will head for the storm cellars and once in, they'll shut the door above them and lock it.

Question -- you keep talking about institutional selling. But from every corner, we hear how rapidly the economy is improving. I don't get it, if the economy is improving, why in hell would the smart money be selling stocks?

Answer -- First, you must understand that Wall Street is interested in only one thing -- MONEY. Wall Street feels no shame, no sorrow, no guilt, no remorse. Wall Street only has feelings for money. If the Street is truly bearish, if the institutions are negative, then their best strategy is to try to stir up optimism. And that's exactly what they're doing. Every plus in the economy, every improving statistic is blown up and fed to the media. You need an optimistic retail crowd to sell in to.

So shameless Wall Street creates the ideal background for selling stocks. Here look at the tell-tale evidence. "Distribution days" are days when volume expands on down markets. The profusion of distribution days is one of the studies that turned me bearish.

Here are the latest distribution figures covering the action of the last two weeks -- 3 for the S&P 500, 2 for the Dow and 2 for the NYSE Composite, and 1 for the NASDAQ.

So what's going on? Simple, the big money is unloading stocks all the while telling the public that the economy is improving. In the meantime, read Barron's, read Smart Money Magazine, read Fortune or Forbes. And what are they writing about? Stocks, stocks, stocks to buy. This is clearly against my advice which all along has been -- "Get the hell out of all stocks (except gold mining shares).

My position -- Own gold and gold items and cash. Write this on your blackboard ten times.

2 Comments:

Anonymous Research Term Papers said...

Another great article. I like that you are very honest and direct to the point.

2:27 AM  
Blogger Willie Sager said...

Nice post with awesome points! Can’t wait for the next one.

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2:35 AM  

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