Markets – PMs vs Stocks

cropped-bob-shapiro.jpg   By Bob Shapiro

Precious Metals have been referred to as the Anti-Stock Market. It’s easy to see, looked at over long periods of time, that when Stock indices are in Bull Markets, Gold & Silver generally move downward. And, when stocks go into Bear Markets, the Metals shine.

Surely, this relationship is not ironclad, but it does hold more often than not. So, looking at Stocks can provide an edge when trying to tell the future direction for Gold & Silver.

spx-20year

Over the last 20 years, the S&P 500 has bounced around quite a bit. It was up until 2000, fell in half three years later, doubled again into 2007, fell in half again 2 years later, and has risen almost continuously these last 7 years, by around three times!

With a Marxist in the White House since 2008, with enthusiastically anti-business policies, the US Economy tanked. Though the official Unemployment Rate has gotten back below 5%, there are 10 million Americans who have given up hope of landing a job (or who have settled for 1 or 2 part time jobs).

The FED, which didn’t raise interest rates for 10 years (with many of those years at Zero Percent!), still was able to push the stock markets toward Bubble territory.

Since the election in November, the markets have tacked on another 10%, expecting that a President Trump will undo a lot (or at least some) of the damage from outgoing President Obama. The effects of those changes may be slow to manifest, and in the meantime, other factors can hold sway.

dollar-35year

The Dollar has been in a downtrend for 1/3 of a Century. From the peak in 1980 to the top in 2001, the Dollar fell by a third, and at today’s recent high, it is down another one-sixth. With the US continuing to run Trillion Dollar Trade Deficits, and with the Dollar soon to lose Currency Reserve status, the likely direction is down for the Dollar for several years.

The CPI is headed upward. The soon to be released number should show a 2.1% gain y/y. The Dollar’s rise has had a slowing effect, so a falling Dollar will push the CPI numbers higher.

Higher CPI numbers will force the FED to make good on some of those promised rate hikes this year. Rate Hike trends are notoriously bad for stocks, and this time shouldn’t be any different.

And then there’s social turmoil. The temper tantrums over the surprise Trump victory likely will continue. The little Marxists would rather not go to class anyway, so demonstrations and disruptions should continue, at least for a while.

Now, turmoil is not necessarily awful for the Economy, but it sure can do a job on sentiment. Expect the market to fall.

But, by how much?

Predictions are very difficult, especially about the future.” – Yogi Berra.

In 2000 and 2007, the Stock Market fell in half. The latest runup has tripled the Indices, so a 2/3 fall is not out of the question. But the last 10 years has seen an insane FED and Anti-Business government activity.

I’ll be planning for a possible market fall of 75% from today’s levels. The PE Ratios by then should have returned to severe undervalued levels around 7. ($1 of earnings would be priced at only $7 a share!) As the coming Bear Market develops over the next 3 years or so, I’ll have plenty of time to re-evaluate where the bottom may be, but a target range of down 50% – 75% should hold me in good stead.

In the meantime, I’m comfortable riding the Anti-Market of Precious Metals and their mining stocks well to the upside. Time will tell.

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