Mike Burnick: This is Mike Burnick at Weiss Research and welcome to all of our members of Supercycle Trader. We’re here again for the special monthly membership briefing and with me today, as always, the editor of Supercycle Trader, Larry Edelson. Hi, Larry.
Larry Edelson: Hi, Mike, and thank you again for hosting today. Thank you, welcome to all the members who are attending today. I really appreciate you attending each month. There’s so much going on in the markets, and we’ll cover a lot of the macro stuff again today with Mike hosting. And then we’ll get to your questions and my best answers to those questions. So without further ado, I’m going to get started rather quickly at a decent pace because I have some really amazing charts to show you.
We’re still seeing what I’m calling the increasing winds of economic change. Deflation is clearly worsening in Europe. You can see that in virtually all the economic stats, including Germany, which we’re seeing deflation and a weakening, a further weakening of the economy. We’re seeing Mario Draghi under more and more pressure to print more euros, which he will do at any moment. That’s clear.
We’re also seeing Japan’s economy continuing to shrink. Fourth-quarter 2015, it shrank 0.4% more than expected, really in trouble there. The Bank of Japan is soon going to have to print more yen, especially since there’s been some capital flight into the yen recently that’s pushed it up. The U.S. economy is hanging in there and by hanging in there, I mean exactly that. We’re just hanging in there. We’re the best economy in the world but we’re hanging in there. We’re not seeing much growth really and a lot of people are really concerned right now about whether or not the Fed is going to hike rates any more.
The most recent testimony from Yellen is that she’s going to probably pull back, and I agree with that. The U.S. economy is not strong enough to handle it, and she sees some of the repercussions and unintended consequences from the first rate hike. So I do think she’ll slow down the pace a little bit but I do expect that we will see instead of the original four hikes this year that were planned probably two, maybe one, depending on how much the U.S. economy slows.
As far as my major forecasts, I believe they remain on track. We have a sovereign debt crisis worsening mainly in Europe at this point in time but also in Japan. In Europe it’s really quite astounding. More than $2 trillion worth of European sovereign debt is in negative-yield territory, with Sweden and Switzerland being the worst. Sweden has actually officially abolished cash. There is no more cash in the Swedish economy. It is an entirely electronic economy and currency at this point. Switzerland, as we know, is continuing to kowtow to the Internal Revenue Service and other tax authorities around the world. So Switzerland’s economy is really taking it on the chin. The Swiss franc is holding up temporarily okay, but I expect it to take another nosedive right along with the euro. And the alternative asset markets, diamonds, etc., are still red hot.
So you can see the major forecasts really remain on track, and we’re even starting to see them spill over into the markets that I’ve been monitoring so closely for you and others as well and myself.
Precious metals in particular, wow. We got such a great initial rally that is starting to confirm a new bull market in gold and silver, and I’m very excited about that. We’re going to talk about that in more detail in a minute.
Wheat, energy, but I contend or re-contend my view that oil and gas are bottoming. You’ve seen some charts there recently in some of my issues. I’m going to show you another one today. The grain bear-markets on the other hand are not over. And you’ll be surprised to hear this: The mining-sector, although and admittedly I missed the big run-up there, it has not bottomed. I believe the mining-sector will take one more big spill later this year, and that will be its final bottom, and I’ll explain more on that in a minute.
Right now I want to go to the charts. On your screen now should be the a gold chart. Silver looks almost exactly like this. You can see the action. We bottomed on the left side precisely on the cyclical target of late November, early December, down to 1,044 in gold. It was touch-and-go there right into the end of the year with some sloppy trading action. But really coming out of the gate in the first of the year, we started to see a nice rally and look at that almost parabolic move higher to last week’s high of about 1,260 and then we closed the week at 1,239.40. This green line that you look at here is the timing-line from my Neural Net model for gold, and as I’ve been saying all along, it points higher into March before we see another decline.
Here’s what I think is going to happen based on other indicators I use. And the fact that last Friday, and I put this in my editorial, gold did indeed close above the first weekly buy-signal at 1,187.50. We’re pulling back since then to test that area. We’re hanging around. We got down to like 1,189, bounced back up to 1,207 today. I think we’re going to pull back one more time to 1,187 – 1,170 and then move into March to a new high that will test the monthly buy-signal on my system, which is all the way up at 1,368. That’s how high we should go into the first week of March possibly with a little bit of a delay into the second week of March because there always is a standard deviation of error in these timing forecasts.
But everything is looking very, very good for gold and, as I indicated, silver as well. The pattern is the same. As I indicated in my issue yesterday, if we get the pullback that I’m looking for — and we’ve gotten a pullback but not the one that is really the one that I want to see, which brings us down to around 1,170 – 1,180 — I’m going to get more aggressive in gold and silver looking for that 1,368 level in early March.
Now, as you follow this chart to the right, you can see there’s a big nosedive coming in gold and silver after March all the way into April, then a bounce, and then back down into May before we start to rally again. That will really be nothing but a pullback consolidating the first leg up of gains. However during that period, we will likely go short and during that period, we will likely see the mining-sector get completely eviscerated.
So I believe, based on the volume and other internal studies, that the rally we’ve seen in mining stocks, which admittedly I missed and has been pretty good, is actually a very weak fake-out rally, and it’s not going to sustain its gains. It might hold up the mining-sector into early March, mid-March, but then it’s going to nosedive and crash. So while we missed it on the upside, we’re going to catch it on the downside and we will be ready for the final bottom in mining shares, which should come in May.
Now, oil is still, as you can tell from this chart here. Again it’s an artificial intelligence (AI) model that computes billions of data points in time and price in the oil market, and it is clearly showing a substantial rally into April 22nd, a pullback, and then a rally into May. That rally is starting to shape up now, okay. I know it’s looked pathetically weak. Oil keeps sliding back down to 26, then it rallies up to 29 and 30, fell back down to 27 the other day, now it’s back up over 31. It is really revving itself up and basing for this tremendous rally into May.
What are the fundamental forces that will set it off? I’m sure you want to know what that is. Really, it’s guess. You know, I don’t believe much in predicting fundamental forces. I believe in reading price-action first and then you can pretty much usually figure out what the fundamental forces will be.
Well, we’re already starting to see it. You know, Saudi Arabia and most of the OPEC countries have agreed to freeze production at current levels. So they’re not going to put the pedal to the metal any further than they already have is what they’re saying, and I believe it will stick.
More importantly, we have seen China move missiles into the Southeast China Sea. Now, the Southeast China Sea and the Spratly Islands and the Senkaku Islands are home to some of the largest oil and gas reserves in the world. I have long contended that China will take that region over. It is also home to some of the busiest shipping lanes in the world for oil and gas.
So I believe of the two, Saudi Arabia and OPEC, you know, saying they’re going to freeze production at current levels, and China moving more aggressively in the South China Sea, if I had to choose, I would say it’s certainly China, with its aggressive moves in the South China Sea, that is going to come into play as the leading fundamental force to this rally that will be coming in oil.
Now, we’re in oil now. We’re underwater in a couple positions. This rally that you see on this chart should bring us into some very profitable positions. I will soon be looking to add positions in oil and gas. We added natural gas yesterday. I’m looking at some explorers and producers that might do very well, that should do very well during this rally. So please, please stay tuned to the oil market and the gas market. There’s going to be a lot of action there.
Speaking of natural gas, I have a chart of natural gas here. You can see the black line how natural gas has largely followed again the AI model and timing forecast for natural gas and clearly natural gas is also headed higher into April. I wrote this before we actually took a long position, so you can see we were prepared to long position. We’ve already taken a long position. I will likely add to that position soon because natural gas is looking terrific. So be aware and stay tuned for additional action in natural gas.
Let’s now talk about the dollar. The dollar’s been choppy of late, and you can see it on the cyclical forecast chart here. It will remain choppy all through July. It’ll have large swings up and large swings down and then in July it will take off to the upside quite dramatically. I believe we’ll probably see that move occur earlier in mid-June for a variety of other reasons. But the sideways action in the dollar right now is more a function of the unpredictability of what’s happening in Europe.
Now interestingly enough, the euro has gone nowhere. It’s gone sideways as well as the mirror image of the dollar, but some of my work on the euro shows it starting to break down soon. And indeed, if you look at roughly the midsection of the dollar chart, you see that from February 8th into roughly April 18th, we should have a sizable rally in the dollar. So I expect the euro to — and it’s down substantially yesterday and today — I do expect the euro to start weakening substantially over the next couple of months. We may be getting soon back into a bearish position in the euro, and an aggressive one, despite the fact that this choppy sideways chart here. I just wanted to show you this sideways chart in the dollar for the sole reason that we’re going to have some very large swings in currencies over the next few months, not necessarily net progress in either direction.
Let’s go on to our next chart, which is the stock market. And you can clearly see that the stock market, it’s headed lower into mid June. There’s no question about it. We’re going to have sharp rallies like we’re having now, and we’re going to have sharp declines and we’re going to stair-step lower, but we are in a bear market and the stock market is not going anywhere on the upside other than bear market rallies until we get past this major correction which will likely not end until roughly July of this year, and then we will take off to the upside. We could get down as low 13,900 in the Dow Industrials. After that, we’ll start a new leg up that will eventually see Dow 31,000 or Dow 32,000 as Europe and Japan really, really go down the toilet. There will be a tremendous tsunami of capital coming into the United States.
With that, let’s go right to your questions.
Larry: I know there are a lot of them and Mike will host on the questions.
Mike: Absolutely. And you’re right., we do have a number of questions already in the queue from our listeners today so let’s get started with this first one from Dale that actually I’ve seen several like this. Dale asks, “Thanks for sharing your forecast and expertise. Your guidance is much appreciated. Gold passed the $1,200 mark recently and is now retesting as you pointed out in your presentation, Larry. Where do you see gold going in 1) the short term, the next one to three months, and then longer term, six months-plus. What do your forecast models show, and also what’s your outlook for the S&P over the same time-frame?”
Larry: Well, keep in mind the short term, and I’m glad you’re defining it as one to three months, is always harder to forecast than the long term, six months-plus. But basically, harking back to the charts that I’ve already shown you, we should head higher into March, March 8th or March 15th of this year, in gold and then drop into May and then basically begin another leg up in gold that continues really the new bull market all the way into 2020. Now, we’re not going to go straight up in gold. Nothing ever goes straight up, and you don’t want it to go straight up because anything that goes straight up is a sign really of weakness, not strength. So, you know, once we get past May in the correction from March to May, we’re going to start to build the next leg up in gold.
As far as the S&P and the Dow Industrials, as I just showed you in that final chart, we should head lower with bear-market rallies along the way stair-stepping lower into June of this year.
Mike: Here’s another question, comes from Marty. He wants to know about physical gold and silver. “We want to buy physical gold and silver as near as possible to the bottom. Doesn’t everyone? How much lower might they go, and when should we buy in before prices begin their stratospheric rise?”
Larry: Well, I would not be a buyer here yet, okay? I would wait for that period where we see the correction from March into May. Then we’ll probably get back down to below 1,100. We’ll shake out a lot of people. If there should be a change in that, I will let you know. If we need to get into physical, say around 1,170 or 1,200, I have no objection to that if the models show that we should do that. But, we didn’t get in the bottom at 1,044. I missed it, plain and simple. I regret that. You know, picking the exact bottom is not an easy thing to do. I’ve done it before. This one I missed. It was a very difficult bottom to pick, but I believe we will get a second chance with a much better risk/reward profile than what we see right now. So I would not run out and buy physical gold at this moment.
Mike: This next question comes from Ian. “Hi, Larry. A question for the webinar basically on money management in trading. I’m wondering what your view is around our current position in oil. We have 7% in call options and 5% in a leveraged ETF, where we are also down. It seems to me that using 12% of funds on effectively one trade could be considered excessive. Your comments?”
Larry: Well, keep in mind that I recommend one vs. the other. I’m recommending alternatives for those who are not trading options. So you really shouldn’t be in both. If you’re trading options, you should trade the option. That is the preferred vehicle when I recommend an option. If you’re not trading options, you should trade the ETF. You should not be trading both, and perhaps I should do a better job of clarifying that in future issues. So that’s one thing right there.
The other thing is, assuming you bought both, it’s a little bit heavy. But you saw that chart before in oil. Oil is so downtrodden and so beaten and so negative in terms of sentiment, the rally that’s coming in oil is going to blow the socks off of everybody. And I want to take advantage of it. So I think, you know, even at 12% if you did both the ETF and the options, you’re okay.
Mike: This question comes from Garo who asks, “To what percent is the recent gold price rise due to the new monetary policy restrictions in China or do you think it has no impact at all? If you do, do you think that this bull rise in gold could be a fake-out due to gold demand in China?”
Larry: No, I don’t think it has anything to do with China at all as one particular force. It has to do… If I had to pick one particular force as the driving force behind the gold rally right now from a fundamental point of view, I would say that its global stock markets being weak and starting off the year and continuing to get smashed, largely despite the sharp counter-trend rallies.
People are nervous and this is all part of the sovereign debt crisis, the other side of the financial crisis that I’ve been warning about. This is going to continue for quite some time. So if I had to pick one force I would say it’s just general anxiety and nervousness over what’s happening to global stock markets. It has nothing to do with China. It has nothing to do with crazy rumors that Iran is going to dump the dollar as an oil-pricing thing, petrodollars, and go to some other currency. That’s all hogwash.
Mike: This next question is from Brian. He says, “Considering your projections for gold longer term, will you be recommending any LEAP options if they’re available?”
Larry: Yes, I will at the right time. That is something we will certainly be doing. Not only in gold but also in silver and, of course, mining shares.
Mike: This question is from John. He says, “Larry, while your forecasts on gold appear to be spot on, your forecasts on the euro have not materialized as predicted. There are a number of pundits who are recommending putting money into the euro zone stock market because they see growth and safety over there. Can you elaborate on your foundation for seeing the collapse in Europe and when?”
Larry: Well, yes, the euro’s been difficult lately and the dollar has been choppy as well. Per the chart I showed you earlier, it’s clearly a choppy market for the next several months, with large swings. So yeah, the currency markets are going to be choppy but there are going to be big swings giving way to nice tradable, profitable opportunities.
The euro zone stock market is a freaking mess, okay. It’s as bad if not worse, I would say far worse, than the U.S. stock market, which internally is very, very weak.
And the DAX has gotten hit extremely hard since the first of the year. So I beg to differ with you on that. I wouldn’t touch, and the other analysts out there who are saying put money in euro zone stock markets, I think that’s suicidal. I think it’s crazy.
Mike: This question comes from Richard. He says, “Larry, when do you expect UVXY and UWTI to move up in tandem? Ever since we bought them, they’ve been moving in opposite directions.”
Larry: Well, they don’t necessarily have to move in tandem. I don’t know why people think that. Yes, for the past few months, we saw a correlation where stocks went down and oil went down. But, you know, longer term there’s no correlation whatsoever that’s consistent between the price of oil and the stock market. So look at each market individually, and you’ll become a much more successful investor.
Oil is bottoming. Stocks are in a bear market, okay? We should continue to see UVXY rise. We’re in a nice profitable position at this point in time. We have a profit-stop now locked in. Not much, but we have a nice position in there. It’s gotten back up to 58. I believe we’re still in the cards to see 100 on UVXY. UWTI will soon take off to the upside per the oil chart I showed earlier and that’s a triple-leveraged oil ETF. So, you know, patience. Patience. You’re going to likely see oil rally and stocks down. Don’t expect oil to rally and stocks go back up. That may be the case but it’s highly unlikely based on what the models are showing.
Mike: That’s a great point that correlations often change between asset classes.
Larry: Yeah, you know, typically, just a piece of wisdom, once you note a correlation or you read about it in the press or you hear about it on Bloomberg or CNBC, once other people notice it and start talking about it, it’s been in play long enough that it’s going to change. People don’t notice them ahead of time. They notice them near the end of time. So, you know, again that’s just, you know, 38 years of experience trading the markets. When somebody tells you oh, look at this, you know they’ve been correlating for the last six months and I say to them, you know, good. Good for you. I’m going the other way because that’s about to end.
Mike: Well put. This next question comes from Ron. “What is the likelihood of a recession at this juncture and how long might it last? Can oil appreciate over the next few months if a recession occurs? What’s the present upside for gold and silver?” Kind of a multiple question.
Larry: Well, officially the U.S. is not in a recession. Europe is certainly in a depression in my opinion technically and officially. They’re just not calling it that. Japan is in a recession. What about oil in a recession? Well oil can rally in a recession. All you need are some crazy things going on in the South China Sea, which I think will happen in the months ahead, and oil can rally. Being in a recession doesn’t mean oil’s going to start falling again.
So again, don’t look at those correlations. Look at the charts that I give you, which have an uncanny ability to make accurate predictions and forecasts about the future. Oil is going to go higher no matter what the U.S. economy does, Europe does, China does, Asia does, whatever. The likely reasons, using my crystal ball or reading my tea leaves would be: terrorism in the Middle East, the Persian Gulf War, and the South China Sea really becoming very tense with China — I mean they put missiles in there over the weekend. They said they would not do that. They are taking over the South China Sea and the reserves that are there. This is serious stuff.
Mike: This next question comes from Greg, and it’s a two-part question. Number one, “Your modeling relies on trends and cycles, but how do you account for circuit-breaker interruptions, which can skew data by not allowing the full swing to take place?” And part two is, “What percentage split in funds between Real Wealth Report and Supercycle Trader do you suggest?”
Larry: Well, circuit breakers don’t change anything. There is nothing that changes the cycles, okay? They may cause them to stretch a little bit, that’s it. But nothing can change the cycles. I mean they just can’t, you know. The problem is a circuit breaker is really something artificially introduced. And just like central banks and governments like to artificially introduce measures to try and smooth out the business cycle or smooth out the markets, they don’t work. They fail all the time, okay, and the cycles are the cycles. They cannot be defeated. They can be somewhat tripped up, if you will, in the sense that they can be stretched as we saw in October, November, and December in gold, causing some stretching out timing-wise but that’s about it. What will be will be. I mean that’s the message of cycles.
Okay, just like winter comes. It might be a little more mild or more severe one particular season. I mean, you know, it comes every year. So circuit breakers doesn’t make any difference.
As far as the split between Real Wealth and Supercycle Trader, you know, no more than 20% of your total liquid net worth should be involved in speculation whether it’s Supercycle Trader or anyone else. That’s my hard and fast rule that I apply to my own finances.
Mike: This question comes from Bill. “As bullion prices rise do you have a rule of thumb as to how to take profits off the table?”
Larry: That will depend upon my system and my cycle work. My system gives buy- and sell-signals such as the weekly buy-signal in gold, 1,187.50 that was hit last week, okay, and the monthly at 1,368. And my timing work gives me the timing and what we want to see is when they converge. We know already, again using gold as an example that a high is due cyclically March 8th. So if we get to 1,368 in gold by March 8th give or take a few days, that’s a top and we would take substantial profits and reverse and go short. So it’s a combination of using my buy- and sell-signals, which are based on other models and the timing models, which are based on an artificial intelligence Neural Net set of software, which really is incredible at crunching the waves and cycles in each market.
Mike: This question comes from Russell. “What type of opportunities do you see going forward in the area of interest-rate fluctuations in the bond market?”
Larry: Well, the interest-rate fluctuations are starting to get pretty wild for obvious reasons. You have the Fed on one side, you have the ECB on the other side pushing rates negative, Yellen wanting raise rates albeit a little bit more slowly than she expected. You have a sovereign debt crisis brewing. The bubble there seems to be getting worse, especially in Europe as investors — I don’t know what they’re thinking — are paying the ECB and European governments to hold their money which is absolutely totally insane. So the sovereign debt bubble is getting worse. We’re going to have some great plays there. I’ve stayed away from them because the cycles, believe it or not, have been very cloudy in the interest-rate markets. Long-term rates are headed substantially higher. There the timing models are clear. But short-term trading opportunities have been slim a very choppy market.
Mike: Indeed it has. This next question comes from Bill. “Larry, what, if any, consideration do you give to the Baltic Dry Index as an indicator of the overall health of the economy?”
Larry: Well, I do give it considerable weight and if you’ve seen it, which apparently you have — maybe I’ll put it in an issue for others who haven’t seen it — it’s pretty clear. The world is awash in deflation. Shipping rates, freight rates, overseas freight rates have collapsed over 90% since 2008, 2011. I forget — I don’t have the chart in front of me — whether the high was 2011. I think it was 2011. But, you know, freight rates have collapsed.
So global trade has also collapsed, and that’s a serious problem and global trade has collapsed for a number of reasons. Some have to do with economic reasons. Some have to do with fiscal policy by various governments around the world, especially the United States. For example the FACTA law, Foreign Account Compliance Tax Act, which has basically shut down overseas banks for Americans. That has had a domino impact on the number of Americans doing business overseas, and even big companies have pulled in their tentacles from doing business overseas as a result. So we’re seeing global trade absolutely completely collapse, and it’s not going to change any time soon.
Mike: This question comes from John. “UWTI is supposed to be a 3X leveraged ETF. Why does it not correlate closer to the price of oil?”
Larry: That’s a problem will all leveraged ETFs. It’s just one of those things that sometimes when a market is going sideways or there’s some uncertainty in the underlying security, in this case oil, the leveraged ETF has some depreciation built into it, kind of like an option. Not really like an option but I can compare it. We can make a comparison to an option in the sense that the leverage doesn’t really come into play in a sideways market. So you don’t get that, you know, triple-leverage on small moves. But you do, when you get a breakout market, which I expect to see soon in oil, then you’ll see that 3X triple-leverage really come into play.
Mike: Doug asks, “Tell us why the stock exchanges are ending stop-loss orders. What is the real purpose of that and the actual effect on investors?”
Larry: Well, the bottom line is there’s going to be no effect on investors because the brokers already handle it electronically. If you’re using an online broker, which everybody is these days, the brokers will still enter the stops for you: good-till-canceled, stops to get in, stops to get out, etc. Nothing is going to change. The exchanges have taken that step to actually improve liquidity on the exchanges or the electronic exchanges, because that’s what they all are these days, and to get rid of the high-frequency traders trying to pick off some of those stops.
So net-net … I’ve done a lot of work on this. I was quite worried, and I mentioned this in previous webinars. I was quite worried about it originally, but I did do a lot of research on it. I did talk to a lot of people both on and off the exchanges, and I think it’s a net-net positive for all the markets. And I repeat, it’s nothing to worry about for us because the brokers will still handle the orders.
Mike: Our next question comes from Lars in Sweden. He asks, “When do you think agricultural products will bottom — wheat, soybeans, and corn specifically? Do you think that will occur in March, April, or when?”
Larry: Well, I think we’re still on target for a March/April bottom in the grain markets there. That so far has not changed. We got a little bit more of a bounce in December and early January than I had expected, but I believe we’re heading back down on target with the cycles into March/April.
Mike: Joan has a comment. “It is clear that a debt crisis is happening right before our eyes just as you predicted. Europe and Japan do not look good. Now, you’ve said that after the market moves lower, we’ll rally with great force. What signals are you looking for to alert you that the U.S. stock market is ready to swing back to the upside?”
Larry: Well, holding major support levels during this correction, which is 13,938, worst case. We might not even get down that far, but we might get to the 14,500 – 14,300 level where there are additional support levels. We’ll have to see. But when the Dow hits one of those key levels and holds it and bounces off of it, that will be our sign basically that the correction or pullback has run its course.
Mike: Pam would like to know, “Larry, I inadvertently sold all my shares in USLV and UGLD. Should I buy half back at the market now or wait for you next signal?”
Larry: Wait for my next signal. Wait for my next signal for sure.
Mike: Curt has a question on the euro. “Are you still looking for a drop in the euro because it’s been tough being short the euro recently?”
Larry: Yes and the euro is down yesterday and again today. It’s starting to break the 1.10 level, 1.11 level, which is if we succeed and see a closing below roughly 1.10 in the near future in the cash market, the FOREX market, in the euro, that will signal further weakness probably down to 1.05. So do as I mentioned earlier when we looked at the dollar chart, do remain on alert for a new bearish position in the euro.
Mike: This question comes from Doug. “Why is Freeport-McMoRan following the stock market moves instead of gold?”
Larry: I don’t know that. I mean that’s just conjecture. I don’t see any correlation there between Freeport and the stock market. I would say that it’s probably more correlated to gold, but I don’t know how you can make any correlation statements between Freeport and anything. That’s a stock that was on the verge of going bankrupt. I recommended it in the Real Wealth Report as a long-term play, fully aware of the risks and disagreeing with those who are saying Freeport is going to go out of business. It is a giant company with substantial reserves and resources and creditors who are friendly. And indeed Freeport is turning around quite nicely to the upside. So that’s a Real Wealth recommendation that I expect to hold for multiple years.
Mike: This question comes from James. “For a longer term three- to five-year play on the sovereign debt crisis now unfolding, would shorting government bonds with an inverse bond ETF be a safe way to play?”
Larry: Yes, in good time. I don’t think it’s the right time just yet. We’re close but the way things are shaping up now, Europe is in such a mess, and our economy is so meager, and Yellen is leaning toward pulling back on an aggressive rate-hiking scheme, and the stock market is headed lower into June. So we’re likely to see a continued rally in U.S. government bonds and lower rates going into June, and that’s when I would really get aggressive on the short side. I may even, depending on the stock market and the cycles in the government bonds, look to go long bonds for a short-term trade heading into June and then flip to the short side. So do stay tuned on that.
There’s a lot of talk, by the way, behind the scenes, some of it not behind the scenes, guys like Larry Summers, who started the whole idea of negative interest rates a few years back for Europe and recommended it. There is talk about negative interest rates in the United States if the U.S. economy doesn’t get cooking. So we have to be aware of the fact that the negative-interest-rate scenario that has unfolded in Europe, it’s already spilled into Japan. We now have negative interest rates in Japan. It may domino over to the U.S. if our economy weakens. So we have to be aware of that. Long term, I still wouldn’t be owning government, U.S. government bonds or European or Japanese government debt for the life of me. I just wouldn’t touch them with a 10-foot pole. Short term, okay to trade. But this is going to be the worst implosion of all time.
Mike: This next question comes from Grant, actually first a comment. He says, “Larry, I have been with you for several years now and wanted to thank you for all you’ve done to make my family’s life better. I bought 10,000 IAG, IAMGOLD, stock about one year ago and now I have $25,000 with an average price of 2.50 a share. What is you thought on this gold mine company today?”
Larry: Well, I still like IAG long term going forward, and it’s starting to move nicely like the rest of the miners have. I regret again that I missed the recent move in the mining sector. But as I said earlier, we are going to get a second probably less-risky chance when they pull back from March into May. We’ll have to be patient. I know you’re all itching like crazy, myself too, to get into the mining stocks. But we’re going to have to be careful, and we’re going to have to be patient because the volume and liquidity is virtually nonexistent. That’s one of the reasons they moved up so quickly is because there’s no volume. There’s no liquidity. There’s huge gaps in that market in the mining sector. So we’re going to have to be very, very careful and concentrate on really the seniors in this service. IAG is not a senior. But to answer your question, I do like IAG long
term.
Mike: This question comes from John. “Hi, Larry. I did not see your advice on the future of the U.S. dollar. Could you please advise? Thanks in advance for your help.” I know you covered that in your presentation, Larry, but you cut out at that moment so maybe you could just recap your expectations for the dollar.
Larry: Sure. Dollar remains in a long-term bull market. Over the next few months we should see large swings up and down in the dollar and conversely in the euro over the next few months heading into really late May, early June, and then the dollar is going to explode higher again. The dollar is going to head higher into late 2017. The strength in the dollar is going to precipitate a major global economic crisis. We will have a problem with deflation so severe and government collapse and dollar strength so intense that that’s what’s going to precipitate the crisis, not the hyperinflation that people are warning you about. That’s not going to happen.
As a matter of fact, let me just mention something quickly. The dollar in the black market in various countries, especially Africa, is trading at 100.30, 435% premium over its official exchange rate. There is a shortage of dollars in the world, believe it or not, because people are hoarding dollars and/or paying off debt, dollar-denominated debt and that is creating a shortage of U.S. dollars.
Mike: Interesting analysis. So the dollar is higher longer term then. Now, this question comes from Michael. “Larry, some big money is betting that China has only just begun to devalue its currency either voluntarily or by having it forced upon them by the markets, maybe as much as 50%. Do you see this as a possibility and considering the turmoil due to the recent devaluation caused last August, what might be the consequences of a big devaluation in the currency?”
Larry: Well, I think we’ve already seen a pretty big devaluation. I warned about it. I told you that when the yuan was admitted to the IMF SPDR, special depository receipt basket, they would have to devalue and that’s exactly what they did. They’re going to have to further devalue because their economy is a bit sluggish relatively speaking. But they’re having another problem, which is that there are large amounts of Chinese money looking to leave China for diversification purposes. So they’re having to put into place certain capital controls to slow the exodus of capital out of China.
Now this is one of the dilemmas of an economy, a closed economy opening up to the world. Do you open the spigot all the way or do you open it partially? So you’re going to see this battle in China in Beijing played out between capital controls to slow down the depreciation coupled with occasional depreciations that they do on their own. They’re in a tough spot. But they need to do it both for their economy and to join the global economic community. So yes, the yuan is going to continue to depreciate, but it’s very unpredictable because it’s really still largely controlled by Beijing.
Mike: This question comes from Chris. “Larry, could you please give us an updated outlook for platinum?”
Larry: Platinum and palladium are largely going to follow gold and silver, and I’ll give more detailed information on both in an upcoming issue. Unfortunately there’s no really good way to play them in an ETF. There are some decent mining stocks that we’ll take a look at, at some point. But the platinum and palladium ETFs are so illiquid they’re untradable.
Mike: This is a question from Truce, he asks, “Larry, is it too late to buy oil? You have been spot on about oil but I missed the bottom. Your thoughts?”
Larry: No, it’s not too late. It’s not too late, and I will give an update on that in an issue probably tomorrow.
Mike: This question comes from Terry. “Larry, it seems pretty obvious to me that the Fed has intervened with the recent natural decline in the stock market via the Plunge Protection Team and derailed the natural process of things again in the market. How do your models and the timing of your models compensate for these manipulations?”
Larry: Well, the Plunge Protection Team doesn’t really exist. I know people are going to say I’m crazy about that, but there’s never been any proof of it whatsoever. Again it’s one of those conspiracy things. Is the U.S. Federal Reserve buying stocks? I wouldn’t be surprised that they are. After all, so is the ECB, the Bank of Japan, and so on and so forth. Is it altering the cycles? No. You have the worst traders in the world at the world’s central banks. It’s that simple, and it’s patently dumb that a central bank should go in and try and support a stock market by buying stocks because they’re going to lose. They’re going to lose, and they’re going to put themselves out of business and that’s going to be something you will see between 2017 and 2020. You will see central banks in danger of going out of business.
Mike: This question comes from Jean. “I’d like to purchase some physical silver. Can you recommend what type, coins, bars, etc.?”
Larry: Just bars, and even there I wouldn’t put much money in silver. The premiums are just way too high. I would prefer gold over silver any day of the week.
Mike: This question comes from Shen. “Hi, Larry. Are we in the first legs of a new gold bull market here? Thanks for your good work.”
Larry: Yes, I believe so. We will know for sure once we see a monthly close above 1,368.
Mike: This question comes from Peter. “Hi, Larry. I very much value your expertise, especially as you present a wholly international perspective and your advice is very relevant to me in Australia. My question is will the Aussie dollar continue to fall in the medium term? It is a safe-haven country but very much linked to commodities markets. Your thoughts?”
Larry: Yeah. It’s very much linked to commodities markets, and that will longer-term give it quite substantial support and I am bullish long term on the Aussie dollar. Short term it is having a problem again because of oil and because China is simply not buying as much as it used to from Australia. So the short-term weakness will continue in the Aussie. Long term the Aussie is a very, very good play.
Mike: This question comes from Tony. He says, he notices that, “Platinum is trading at the largest discount to gold ever. Would you consider buying physical platinum instead of gold and silver?”
Larry: Yes, but again even the physical platinum market is kind of thin and to be honest with you, I need to do a bit more work there. That discount may persist longer than anybody realizes at this point in time because of the problems in Russia’s economy which is a major producer of platinum and palladium. Now, interestingly, I should mention that it just came out that the Central Bank of Canada just sold off almost all its gold reserves.
That came out last week. I have been warning about that. You will see more central banks sell gold in the weeks and months ahead. You will also see Russia sell platinum and palladium. Russia is having a tough time because of the price of oil and the sanctions that are in place against it as a result the Crimea. So you’ve got some fundamentals there that are very forceful that are affecting platinum and palladium, and they are not at this moment in time as bullish as gold and silver are.
Mike: Well that’s about the time we do have for today’s session. Lots of great questions, but if we weren’t able to get to any of your questions, please remember that you can always submit those directly to Larry using the editor’s mailbag right on the Supercycle Investor website. And Larry does a very good job at answering those individually, or we could certainly take them in a future issue and kind of bunch them together for the next online briefing. So with that said, thanks, one and all, for attending today and, Larry, thanks again as always for your terrific insights.
Larry: Not a problem. I enjoy it. Thank you, Mike. And to all my members, thank you very much for your loyalty. Thank you for attending today. Be alert. We’re entering very important periods where there will be a lot of profit opportunities coming up. So thanks to everyone again. Have a good week and I’ll talk to you soon.
