Whats next?

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Precious Metals Blog

Wednesday, October 08, 2008

Whats next?

Hello,

It’s been awhile. I have been too busy to write lately but wanted to give everyone an update on what I am seeing and expecting.

1. The Stock Market – We have no clue. Paper is not the place to be. We may have a “dead cat bounce” but fully expect the Dow Jones to decline below 8,000. AVOID

2. Gold – Look out above! The Fed policy of bailing out Wall Street is effectively going to add liquidity to the market over years to come. It will work. That’s the good news. The bad news is that the growth in Stocks will be far below the rate of depreciation of our dollar and the inflation resulting from mass creation of dollars. You can not create more of something on a mass scale and make it gain in value.

3. Initially we are in deflation, all assets are dropping in value as liquidity is non existent. The dollar rises as stocks are liquidated. Remember this, when you sell stocks you move it to cash initially. So, in essence you are buying the dollar. Next will come the dollar drop as the money makes its way through the system and into the streets. It will devalue its worth. Major players already know this will occur and have already begun buying Gold. That is why Gold has been rising even as the dollar is rising.

4. Interest Rates will be kept at historical lows to allow growth to. This means deposits will earn record low yields, the dollar will drop in favor of higher yields.

5. Inflation will be a fact of life for many years. Even at 5% it will KILL you. The dollar will drop at approximately 5-7% for several years due to mass creation and low yields.

6. Reality- If you deposit in a bank and get a 1-2% yield and the dollar is dropping by 5-7% and inflation is 5-7% you are losing 9-13% of your buying power PER YEAR! Gold is the anti-dollar it traditionally moves in the opposite direction and has been averaging over 20% a year and YES, we expect this to accelerate as supplies are almost non-existent and demand is and should continue to far exceed supplies.

7. The case for 14,000.00 Gold? Lets look at 100 years of data that suggests this possibility. In the 1920’s the stock market went to 35! This was the roaring 20’s and excess was the rule, it led to the 1930’s CRASH where Gold became king and exceeded $35.00 per ounce. In the 1960’s the stock market boomed to 1000 everyone was making money, mutual funds were all the rage and gold was viewed as an ancient relic. In the 70’s the market crashed to 350 as excesses were laid to roost. During this time Gold ran from $50.00 to what was deemed impossible years earlier - almost $1,000.00!!! Today the stock market is now in a bear market. It hit 14,000 at its peak and if history has anything to do with it Gold could possibly do the impossible yet again. As it has in previous cycles over 100 years it could very well top out very near the $14,000 peak.

8. The reality is that both the 20’s and the 60’s excesses were in a time that was very different. You had to have a good reputation to get a loan. Even then bankers were leery. People didn’t have home equity lines of credit, or 125% loan to value loans on homes. They also didn’t get twenty credit card offers a month in the mail. My point is that this could very easily make the problems of the 30’s and the 70’s look like a Sunday walk in the park. Gold is the insurance policy. Don’t wait. Accumulate!

JMC

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