U.S. Stock Market - I said going into Thanksgiving week the stock market was at oversold levels normally seen at or near a bottom. In fact, I was looking to get back in if there was a washout the Friday before turkey day. I noted both the week of Thanksgiving and the month of December is a highly favorable seasonal time for the market. However, with the economy getting bleaker by the day, I remained on the sidelines. People are asking me did I miss the bottom. My response is you can go broke trying to catch it. From 14,000 down, widespread calls for a bottom were a daily occurrence and if the previous low held for more than a few days or weeks, the street said that the bottom was in. They continually marveled how the market ignored bad news (like today) only to eventually take out the previous lows. Now the low around 7500 is being hailed as the bottom. For the rest of 2008 and perhaps as long as into March, it may hold. Most of the distress selling appears over for now. Despite a bad year, the Santa Claus rally will be the theme for the next couple of weeks. Then in January, all eyes will be focused on the inauguration of Obama. The natural human response will be a sense of renewed hope and the “Don’t Worry Be Happy’ crowd will play that up big time.
But before you break out the party hats and horns, let me play Scrooge and bah-humbug happy days are here again.
Much of the bullish reasoning (what’s left of it) is that we know we’ve been in a recession for a year and recessions normally never last more than a year or two. The market has always come back and this time won’t be any different. I believe the fallacy of this theme is this is not a typical recession where we’re going through a normal cyclical downturn. It’s an once-in-a-lifetime life or death mess that still has no end in sight and gets worse as time goes on. Another critical difference is we were a creditor nation through most recessions and now we’re the world’s largest debtor nation. In past recessions, the average America was not indebted up to their ears, had savings to draw on and wasn’t living anywhere near beyond their means as they were entering this mess. We’re also no longer a major industrial nation but now one that depends on large-scale consumer spending. Where does the consumer get the money now to spend? The stock and real estate boom is over. No longer can the American home be an ATM. They have no or little retirement savings and there’s no way easy credit is coming anytime soon. And I believe many Americans, especially those over 55, who are really scared now, are going to take the attitude of “Fool me once, shame on you. Fool me twice, shame on me” and become far more conservative of what’s left of their wealth.
I believe the course taken so far by government is similar to what Japan did after their stock market topped out near 40,000 (now under 8,000 twenty years later). They added massive liquidity, allowed interest rates to fall below zero, cheapen their currency, yet spent almost half of the last twenty years in recession. And they had substantial savings versus our mountains of debt.
I agreed that we’re not going to see another 50% down so if you want to join the crowd and say the worse is over, it’s okay. But to expect any major sustained rise where in a year or two all or most of losses are erased is foolhardy. What I do think is possible between now and March is a wide trading range of 7,500 to 9,500.
Interesting reading:
Gold “A battle won is a battle which we will not acknowledge to be lost.” - Ferdinand Foch
It’s not easy being a gold bug these days. While gold has certainly held its ground in 2008, the combination of it not making much progress to the upside (with all the news we’ve been told would drive it higher) and the fact mining shares have been crushed, makes one feel gold has performed as bad as the Talking Heads on CNBC claim. Perhaps the most frustrating aspect has been the tremendous physical demand for gold while the paper market can’t get out of its own way.
It’s become fashionable for some to make fun (every day) of a small camp that has pounded the table about manipulation in the gold market. The track records of those who say nay to manipulation leave much to be desired. John Crudele, a writer for the NY Post, has a tremendous record of being ahead of the crowd when it comes to uncovering the truth and seeing where things are really heading. He wrote a great column about one of the regular smears CNBC does to anyone who dare claim markets are not fair and honest.
$700 continues to be the bottom in my book and despite seemingly the whole world against gold, I think it’s only a question of when, not if, we go to new all-time highs.
Interesting Reading
U.S. Dollar - I truly believe the Talking Heads can’t read charts. All I keep hearing is how great the U.S. Dollar is doing. It’s right where it was in October. If that’s progress, I can’t wait for a decline. I continue to believe shorting the U.S. dollar is a worthy speculation. Link
Oil - As anticipated, oil broke down under $50 and fell sharply towards $40. As you can see, $40 has once been key resistance but has been key support on more than one occasion since then. If the economy didn’t appear to be accelerating to the downside worldwide, I buy first thing Monday morning. My thinking is this; Risk is $10 or so to the downside. If we went that low new exploration or increased development of existing projects would grind to a halt, which would give way to a bottom. Upside over the next 3-5 years is $100. Long time readers know over the last few years I said the “Peak Oil” theory was right, but it was not going to take hold until the next economic cycle. I feel more certain about that now than ever before. So, I’m going to see how we trade day to day hour to hour and will send out an alert if and when I feel it’s time to take the plunge.
Interesting Read
Mining and Exploration Shares - “An expert is a man who has made all the mistakes which can be made, in a narrow field.” Niels Henrik
That’s me when it comes to this industry in 2008. While I avoided base metals for almost two years, I fell on my face in the juniors. I have no excuses other than the boat I’m in is overcrowded. What I’m concern about is talk within the boat of throwing me overboard.
Little or nothing should happen here until the New Year. One piece of great news was Northern Dynasty’s resource update. It was fantastic. If there’s ever a metals market again in our lifetime, NDM should greatly prosper (where did we hear that before?).
