Larry Edelson, our Supercycle Trader editor, recently presented an update on the economy during a live webinar and answered questions from viewers. The webinar was moderated by top analyst Mike Burnick. Here is your transcript of the event.
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 is 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 I’m going to quickly go through the macro picture as a I see it and some important charts that I think you need to take a look at, and then we’re going to open it up to the usual Q&A. So let’s get started.
The main macro forces, if you will, that are enveloping the globe are all part of the sovereign debt crisis that I started warning you about. It’s coming from the winds of war, the war cycles that have been ramping up ever since 2014. The rising stress of geopolitics all over the world.
And don’t think that that’s cooled off just because Russian President Putin withdrew from Syria the other day. He always has something up his sleeve, okay? So that’s not the end of the tensions with Russia, believe me. Something else is coming with Russia, and we’ll probably know very shortly. He’s a very sly and clever man, Mr. Putin.
And we have the rise up against the establishment, which you’re seeing all over the world. You’re seeing it in every country in Europe because of the demise of the European Union, the refugee crisis, the cultural conflicts in place before the refugee crisis even hit Europe.
You’re seeing a rise up against authority in France, in Spain, in Italy, and in the United Kingdom, where there’s an important vote coming in June to pull out of the European Union. Unless it’s rigged, which it might well be, we’ll probably see the U.K. pull out of the European Union in June. And we’re seeing a split in Germany between Bavaria and the rest of Germany.
Plus we’re seeing, no question by now, what I’ve been saying all along about this Trump phenomenon here in the United States, that there is a rise up against the establishment in the U.S. It’s against career politicians in Washington, and it’s civil war time in the Republican Party.
It’s just insane what is happening in our own political process, and I’m afraid we’re going to be left with a brokered convention for the Republican Party. Donald Trump will probably move out to an independent position. The Republicans may put in a puppet, and we’ll have Hillary on the Democratic side. Something we haven’t seen since at least 1976, almost 40 years ago. So if that isn’t evidence to you that things are changing right before our eyes, I don’t know what is.
At the same time, all the other things I’ve been talking about remain in place.
Deflation is getting worse in Europe, not better. Germany’s economy is tilting into a recession as we speak. At the European Central Bank, President Mario Draghi, as we know from just the other day, has put his pedal to the metal but I’m afraid it’s not enough. He’s going to have to do more and he can do more. Japan’s economy is starting to shrink again and quite more dramatically in the economic stats coming out.
The U.S. economy is hanging in there. We’ve seen some signs of better, improved strength in the job market, and we’ve seen some weakness in some other markets.
As for the Fed rate hikes. We started the year with everybody expecting four rate hikes. I said no way, that’s not going to happen. You’re going to get two, okay? I still believe we’re going to get two rate hikes. It’s early in the year, but what Fed Chairman Yellen did yesterday was not so much out of fear of any individual strength or weakness in the U.S. economy.
The U.S. economy probably could have handled another rate hike yesterday. But as it becomes abundantly clear that the rest of the world is in bad shape, it means that if she raises rates prematurely again, either here or so soon after the December hike, that the dollar will just go through the roof and the dollar, a very strong dollar, is not good for our economy. So she’s going to hold off. I suspect if our economic stats hold up, she’ll probably raise rates at the next opportune time which I believe should be the May or June meeting.
Overall, I know we’ve had a tough first quarter to this year. But the macro forecast, as you can clearly see from what we just discussed, is that the individual markets remain on track. The precious metals are starting to confirm new bull markets. We’ll know more about that on the pullback I’m expecting to occur.
Bull markets are confirmed more on pullbacks than on breakouts. You need kind of both. You need a breakout, you need a buy signal, but then you need a pullback to see how it handles support. That’s how you define a bull market, a real bull market. Conversely for a bear market.
Energy, oil and gas, no question there. Gas a little bit later than oil, but oil’s almost to $40, guys. Oil is acting very strong. Short term, don’t be surprised to see another pullback but oil should head to $50, and some of our oil positions are starting to pick up a head of steam, which is also good news for us.
Grain bear markets are not quite over. We’re seeing a countertrend bounce there. I may position us on a bearish play in the grain market as soon as I see that bear market rally coming to an end.
In the mining sector, still I don’t believe it has bottomed. It’s close but we had too fast a move up in too short a time, and the mining sector will pull back more than gold and silver will. So we may even see new lows in the mining sector, or we may not. It may hold.
We may get a 90% retracement of the rally, and it may hold the former lows. But the degree of that pullback in the mining sector, and in gold and silver, is going to determine how strong and how long their bull markets are going to last.
Let’s go right now to the gold chart, above, which you’ve seen in the issues.
I wanted to give you a more updated one here. This might have run through March 16th, I forget the exact date, but just before the weekend. And you can clearly see nothing’s changed here. We have a March 7th high that we did get a little bit later, then up at 1,281 right around March 11th and then we started to fall. We fell quite nicely through March 16’s morning session down to 1,235. And then in the afternoon, the Fed news came out and gold exploded higher. We’re back up at the 1,260 level.
Now, I know a lot of you have panicked as a result of that March 16 decision by Janet Yellen and of the action in the gold and silver market and in the mining shares. So let me be perfectly clear as to what’s going there and the update you. There has been zero change in trend.
As of March 17, all you have seen so far as a result of the Fed decision is massive short covering by people who trade based off of fundamental news events, and those people most likely are shorts in the futures market so they covered rather quickly based on a news event. There is no change in trend.
There was no take out of the prior high in gold or silver. There was no take out of the prior high in the mining index. There were no buy signals elected on any of my artificial intelligence or Neural Net models.
So what you are looking at right now is simply a panic reaction to a news event yesterday and some dramatic noise in the market. Everything remains in place for gold to start stumbling again per this chart all the way into May. You will not see a new low in May as it appears so on the green line to the right there. The reason for that being that I had some other studies that tell me we are probably going to hold the 1,160 to 1,180 level on the way back down going into May. So I do not expect new lows.
I do believe gold and silver have bottomed for the long term. But they can pull back substantially and they will pull back substantially. And that’s why we have bearish positions on in gold and silver. Yes, they took a hit yesterday but I believe they will come back very, very nicely in our favor. Same for the DUST position in the mining shares.
Let’s move on now to oil. You can see how beautifully oil is also following its Neural Net model. We’ve had that first leg up. We’re right at about $40 today March 17, just under $40 today. We’re going to probably trade sideways for a little bit. I’m going to have to ascertain what that will do to our existing options. We may want to extend them out now a little bit later to save some time value there. I’m currently assessing that. But we should move to just over $50 by the end of May, which is not that far away..
So keep an eye out for what I will be recommending with the oil positions. On a pullback, we’ll probably get back into UWTI, and I may roll over existing options so we don’t erode away too much over this interim sideways period that’s going on. It’s possible we could get an earlier high.
The strength that I see in oil right now is very nice. If we get above $42, it may just run even higher. So I have to wait a little bit. We have to be a little patient. But the important point is oil is certainly doing what I said it would do.
Now we have to turn into some profitable trades, and we do have good positions. We have to make sure that we capitalize on the move to 50 and continue to capitalize on the strength in oil and natural gas. It now is turning around as well.
Okay. This is natural gas here, above. Natural gas has taken a little bit longer to bottom than I expected but it did fall into a double bottom formation and make a new low. When the Neural Net called for just a double bottom, we did make a new low.
But look at how sharply to the upside natural gas is forecast to move into the middle of April and we’re on the cusp of that move now. We should soon see natural gas pick up upside momentum and really rocket higher into the middle of April.
So I’m very pleased with the turnaround that we’ve seen in natural gas, and we should see some very, very good progress there. And once I get a short-term buy signal, which comes just above the $2 level, not far away, I will probably get very aggressive in natural gas.
Now, here’s our chart, above, for the U.S. Dollar Index, This is an updated Neural Net, artificial intelligence forecast model for the dollar index. You saw this chart in the last month’s webinar as well.
You can see there hasn’t been much change. The dollar and the euro are going to trade back and forth in a trading range unfortunately until about the end of June. There will some big swings that we will be able to capitalize on. We have not been successful so far. In fact, we were stopped out of the inverse euro ETF on March 16th, and the euro call options are clearly under the water.
But we will catch a swing to the upside in the dollar which should begin any moment. And I will look to roll those positions forward so that we can take, or even step aside if need be, so we can take better advantage of the rally that’s coming in June or July for the dollar and the decline in the euro that will occur at that time.
I tend to think it’s going to occur much earlier than what the chart is saying here but I’m not going to second guess it at this time. So far the action in the dollar and the euro has been up and down, up and down, up and down, just like we’re seeing here, which has really not been conducive to trading. So in the next few days after the 17th, you’re going to see a change in strategy coming from me regarding the dollar and the euro so pay attention to that. That’ll be coming out very soon, early in the week beginning March 20.
In the chart above, you can see the Dow Jones Industrials, S&P 500 are also really following the models. But they’re difficult to trade because they’re not moving as quickly as we would like.
Yes, we’ve had a strong rally. That rally is in accordance with the short-term models that you can see here, the blue Neural Net forecast line. And we should a drop that goes into the middle of April starting very soon. So I will be looking to get short the stock market any day now again.
This will likely be the last chance for the Dow to roll over to the downside before we start a new leg higher that takes it past 18,500 and starts a major bull leg higher. If you recall back in December, Isaid the Dow and the S&P 500 were quickly running out of time. They had to make up their minds either way. They had to explode to the upside or crap out. And two days later the market fell sharply.
We’re going to be at one of those pivot points in a couple of days after March 17th where we’re going to have to see the market fall sharply. And then come April, as long as we fall sharply heading into April, that will probably be the last decline and we will be off to the races on the upside.
So we’re reaching a tipping point in the stock market right now, which will be followed by another one in April. You can see that very clearly here and then some sort of temporary top in June and that could easily be around the 20,000 to 21,000 level. If this plays out the way it should, we should be at new highs by June, certainly over 18,500, maybe close to 20 thousand or 21 thousand in the Dow.
So we’ve got a real opportunity here to catch something on the downside and then something really big on the upside in the Dow and the S&P over the next few months. And I am going to be spending a lot of my time on that because it’s going to represent an enormous profit opportunity on the way down and on the way up. All of these do.
The move coming in gold is going to shock everybody on the downside. The move that’s coming on the mining shares on the downside is going to shock everybody. You already have emboldened bulls in those markets who need to be shaken out. It’s just the first tiny-weeny tiny leg up and you’re going to get a shakeout of those early bulls. That’s how the market works.
As for the euro and dollar, they’re difficult, more difficult than I expected. On that I would just say Janet Yellen’s helping out Mario. If she had raised rates on March 16, the euro would have been at 1.05 overnight.
So we’re a little bit at the mercy of the two central banks there in the currency market. That is one market where news events can have an impact on the markets. They never change the major trend. The euro is going to go below par, way below par. The euro is going to break up. The dollar is going to continue to strengthen. The central banks cannot change that but they can cause a lot of noise in the short term, for instance last week with Mario Draghi and this week with Janet Yellen.
So having said that, let’s go to your questions and please get very specific with your concerns. And Mike will host as usual.
Mike: Thanks, Larry, and yeah, we have quite a few questions which is not surprising considering the volatile markets as you pointed out.
Let’s see, here’s the first one from Richard. He says, “Larry, your advice in such volatile times has been heroic. From your chart analysis, do you still expect the Dow to drop significantly before taking off again? If so, approximately when? And same question regarding oil.”
Larry: Well, thanks for the compliment. I try to lead by example. I know at times you want to hear more from me, especially when things are as volatile as they have been for example the last couple of days. But I deliberately at times hold back because so much of it is noise. And if there’s one thing that I can teach you, it’s that 90% of what happens in any particular day in the market is nothing but noise. That’s it, meaningless, absolutely meaningless noise.
Real trend changes even on a short-term level only occur every couple of weeks and on an intermediate level every few months and on a long-term level every few years. So most of what happens in any one particular day’s session is nothing but the investors caught the wrong way who are usually trading off of the news. And sometimes you can be in the right place on the right side of the news and sometimes you can be on the wrong side as we clearly were on the news on March 16. But you can’t let it impact your emotions so you take your eye off the prize, which is the major trend.
Now, having said that, per the second and third parts of that question, the Dow and S&P should be heading lower somewhere right around the end of this month into mid April and then that’s it. We could still get as low as 13,900 in an all out crash. That is still a possibility in the Dow. As far as oil goes, we should push higher to get above 40, 42 then probably pull back or trade sideways but then head to above 50 by May.
Mike: Okay, here’s a question from Bud. “Hi, Larry. Will Credit Suisse be likely to collapse in the coming financial collapse in Europe in general? If so, will ETFs or ETNs such as USLV, which Credit Suisse is involved with, will they drop to zero value?”
Larry: Well, Credit Suisse certainly has its share of problems. Will it be allowed to collapse? I doubt it. Credit Suisse isn’t going to be the only one to collapse in Europe. They’re going to pretty much go through what we went through in 2008 although probably worse.
The difference is going to be that in Europe shareholders and depositors are going to take haircuts. So I don’t believe that Credit Suisse will just go the way of Lehman Brothers or something like that or anything that bad. But there will be concerns and I am concerned too about ETNs.
However, I don’t think it’s a big concern at this point. It’s going to be more a concern in another year or two. So I am not the least bit worried about it at this point in time and I will be warning you about that risk well ahead of time.
Mike: Okay, here’s a question from Mark. He says, “We’re getting our faces ripped off right after the Fed minutes, EUO, ZSL, GLD, puts, you name it. When do you expect this to change and why will the direction change?”
Larry: Well, yeah, we’re getting our face and our butts ripped off on March 17, or actually March 16.
As of today, March 17, it’s already stalling out. The gold market can’t seem to add onto its gains, same pretty much with the euro. It doesn’t mean it won’t but I’ve looked at everything intensely – during the March 16 reaction and even into the night and the night sessions and overseas trading – and no buy signals have been hit even on an hourly chart for gold or for the euro.
Now, my work accounts for a lot of noise in the markets. If you are a very, very short-term trader and trading futures, you could’ve got in and got out with a profit in a matter of minutes if you saw what was coming.
But nobody knows what the Fed is going to do until they announce it, okay? What I can tell you is that it’s meaningless what they did yesterday. It did not change the trend. Did they interrupt the trend? Yes. Did they cause a lot of noise? Yes. Did they hurt a lot of people? Yes. Did they change the trend? No.
So it takes a lot of bravado to stand up to the noise in the market. But I have learned many, many times over that if you ignore the noise and steel yourself against the noise, you’re going to make money and lots of it. So it’s a matter of steel nerves and patience.
Mike: Especially in these volatile markets, that’s a good point. This next question comes from Ian. He says, “Has Ms. Yellen’s decision with the Fed fundamentally changed the future for gold, silver, or crude. Or does your model have the Fed interest rate decision included in it?”
Larry: Well, again that’s a very, very interesting question. My models are really true forecasting models. My models told me she was not going to do anything March 16, okay? So in that sense my models were right. My models didn’t say that there would be a spike in gold yesterday as a result. Now, it could’ve gone either way. This is why fundamental news should never be used as a trading point of… to trade from. Who the heck knows what the reaction was going to be yesterday?
Now, you could easily talk to any number of people before March 16 and asked; What do you think the Fed’s, that gold is going to do if the Fed doesn’t raise rates? There would be a bunch who would say it’s going to jump and skyrocket, thinking it’s easy money again, easy credit, maybe even back to money printing, blah, blah, blah, blah, blah, all those rationales.
Now, I could argue with that right there, then and there, okay? They did the most printing after gold peaked in 2011. It didn’t do anything. So I could refute that. But let’s, for argument’s sake, say six people yes. You interviewed 12 people yesterday before the Fed decision. Six said gold’s going to rally because it’s like easy money again and six said it’s going to go down because it says the economy stinks and there’s no demand for credit and money. It’s a matter of opinion. It’s totally subjective. That’s the problem with fundamentals.
I learned that a long time ago. And it wasn’t until I really learned that in about my first 10 years of trading that I started to make money on a consistent basis. I ignored the news, and I studied technicals and cyclicals and I finally became a consistently profitable trader.
Now, as I said before, 90% of what you see day-to-day in any market is nothing but noise and that’s why I urge you not to stare at your computer or check the market 10 times a day. And I know many of you do.
All you’re doing is making yourself a nervous wreck. You’re not going to change anything. You’re just going to turn yourself into a nervous wreck. You’re going to raise your blood pressure. You’re going to get mad at me when there’s a lot of noise in the market.
Let me hold your hand and sift the noise out of there for you. I will tell you when it’s time to get in and out. When we’re wrong, I’ll get you out. When we’re not wrong, we’re going to have to sweat through a few adverse moves from time to time, as good as my models can be. You have to sweat through that noise. It just comes with the territory.
This is not as easy a game as many people tend to think. Making money in the markets is hard to do but it can be accomplished on a consistent basis. But it takes time. You’ve got to pay your dues, okay, and a lot of that is simply sometimes small losses and sweating it out.
I’ve paid my dues and I learned a lot and in my personal trading, I trade only futures. I am profitable every year and when I’m not… There was one year where I was not profitable. I was down substantially and I came back to break even the next year and then 60% up the same next year. Go ahead, Mike.
Mike: It just takes time, doesn’t it, Larry? Can’t expect overnight…
Larry: Yeah, I like to have these conversations with our members – and I hope I don’t sound condescending in any way – because I really want you to learn the mindset of a successful investor and trader. That’s very, very important. It’s at least half the battle. So that’s why I go into these mini-lectures if you can take something away positive from them.
Mike: Okay. Charles is asking, “If you believe we’re close to another pullback in S&P stocks, are you planning to re-recommend UVXY, the volatility ETF, anytime soon?”
Larry: Yes, UVXY is one of the fastest moving ones and some of the other inverse, directly inverse ETFs I’ll be looking at as well.
Mike: Okay, this question comes from Steve, “What is going on with the euro? After Draghi announced he was printing more euros, I figured the euro would tank but it did just the opposite. What’s your take?”
Larry: Well, what’s happening is really a very interesting phenomenon. Now, the dollar is benefiting from the weaker Asian currencies and weaker Russian currency, Latin American currencies because the dollar is still the main reserve currency of the world and most of the debt around the world is denominated in dollars so the dollar is continuing to hold up.
Here’s what’s happening in Europe: Think of Germany as the core economy of Europe. Now if you’re in Greece, you’re converting your euros to stock in the German DAX. The peripheral countries of Europe are really going into the German DAX stock market so they’re keeping some of their money in the euro, which is preventing it from sliding as much as it should be. So it’s kind of like Germany is acting as the U.S. dollar is to the euro even though it’s the same currency because there’s capital flight going into Germany and it’s going into the German stock market, which is holding that stock market up, a lot of euros leaving and heading into the U.S. dollar, U.S. stock market, U.S. real estate.
So I think what’s happening here as a result of the flight of capital from the periphery, weaker countries of Europe, some going to Germany, some coming here, we’re getting this sideways action. But there’s no question in my mind that the euro is going to break down to initially 1.05, then 1.02, and then below par going into 2017 down to around the $0.80 level.
You know, it’s interesting that a lot of this timing is also starting to line up with the 2016 elections at the end of this year. And going into 2017 there’s several key elections in Europe on the platter. And of course in June of this year, the U.K. may be pulling out of the European Union. They don’t use the euro but they are part of the European Union.
So, and I’ve got to tell you, folks, long-term fundamentals, I do make a case from time to time based on things like our national debt of 18 trillion and $225 total trillion in debt. I mean, that’s fact and it’s not good. You don’t need a chart to tell you that and you don’t need a chart to tell you that the choices we have for the next president of the United States are horrendous. And I’m sorry to be political – because I know there are some out there that like Hillary and some out there that like Donald – but I think what’s happening right now in American politics is a very, very bad situation and it bodes very poorly for the next four years.
Mike: Okay, here’s a question from Gary. “No mention of silver in terms of your Neural Net models or in the presentation. Can we get an update?”
Larry: Silver is actually acting a little bit stronger than gold in the short term, very, very short term. I’m talking one to three days of trading. But it’s the same overall outlook for silver. We’re at a peak and we should be pulling back into May basically.
Mike: Okay, another question on a different market. “What’s in store for platinum?” asks Joseph.
Larry: Same thing. All the precious metals are pretty much in sync right now. They should be pulling back into May, June latest.
Mike: Okay. Here’s another market. Tom would like to know, “If you’re certain enough about your models about DUST and GLL, then would now be a good time to add to our positions?”
Larry: Yeah, I just want to see. I have considered that. I have to consider all the technical, and they are in favor of adding to the position. But I also have to consider all members and the current results and the track record. I do not want to add any unnecessary risk unless I’m 100% positive that it would work out. Sometimes doubling up on positions can really wipe you out and I’m not in the mood for that and I don’t think anyone on this call is either. So unless they get a confirming sell signal in the next few days I would probably hesitate to add.
Mike: Okay, this question comes from Harold. “My broker won’t allow me to short stocks or buy on margin or buy 3X ETFs. I only want to buy stocks. Will you be recommending just individual stocks for trading longer term?”
Larry: Umm, some. Yes and no. We’ll be recommending some at the right time, some senior miners and senior natural resource companies and senior Asian stocks, and we have an Indian stock ETF on right now. But we’ll be doing a lot in ETFs. We’ll get more active in individual stocks, yes.
Mike: Okay, this question comes from Leanne. She says, “Hi, Larry, and thank you so much for your wonderful insight and trading knowledge. My question is about good-till-canceled stops. There have been times that the stops have gone off and we immediately buy back into the same stock or ETF. When buying them back right away, the losses from the sale are added back to cost of the new trade. My broker says we need to wait for 30 days in order to avoid these extra costs. Should I wait to buy it back?”
Larry: That’s a tax issue. Your broker’s wrong. It’s really a tax issue. Okay, we’re not in this for taxes. In fact I would say the more taxes we pay, the better, when we’re making money. That’s a sign we’re making money. So yeah, it’s a tax issue. You don’t get to take the loss at the end of the year if you’ve gotten right back in within 30 days at December 31st, but during the year it doesn’t matter. We’re in this to make money.
Mike: Good point. Here’s a question from Rex. “When do you expect the euro/US exchange rate to drop down to parity, back down to a dollar? Later in 2016 or when?”
Larry: Well, it looks like we’re probably going to get a move down to 1.05, 1.03 in June/July. It’s been postponed to June/July. We could get to parity by then. We’ll have to see how much pent-up energy occurs during this sideways period here that we have right now. One thing about sideways periods in the markets, even when they’re big swinging sideways periods, they build up energy and when that energy coil — I like to call it an energy coil — finally breaks, which in this case will be the euro to the downside, you’re going to see one heck of a move in the downside in the euro and to the upside conversely in the dollar and typically you can measure the energy and the energy in that coil right now says that once we do break, we’ll easily get to 1.02. So we might even see parity in July. It’s quite possible.
Mike: Okay, here’s a question from Phil. “Larry, where do you see the price of oil going into the summer?”
Larry: Once we get to 52, 50, 52, we’ll probably head back down believe it or not. There’ll be a good first leg up from 26 to 50, 52. It’ll be a doubling of the price of oil from its lows, and it’ll probably need a break, and that’s what the models show. It’s pretty amazing to me. I’m going to pat myself on the back a little bit here. Last year I said oil’s not bottoming until it hits 26 and 26 was the low.
Mike: That’s true. Yeah, right on the nose.
Larry: And everybody said I was nuts when I said we’re going back up, and here we are at 40.
Mike: Here’s a kind of a follow-up question. Kai says, “I haven’t bought oil yet. Should I still get in now or wait?”
Larry: No, wait for my next signals.
Mike: Okay. Wayne would like to know, “Could you explain your view on wheat prices?”
Larry: Little bit higher than a decline, a sharp decline.
Mike: And Mark asks, “What do you forecast for the Japanese yen?”
Larry: A lot of people are very bullish on the Japanese yen. The yen is a safe-haven currency as well as the dollar is and the euro is to a degree for those regions of the world. I mean most of the money that goes into the yen is Asian money.
Just like I explained in Europe, frightened weak capital in the periphery of Europe tends to go to the German DAX and the U.S. dollar. In Asia weak money goes to either the dollar or the Japanese yen. So the yen has gained some safe-haven flight capital of late. However, the Bank of Japan cannot allow it to continue because their economy is already rolling over again. So the Bank of Japan is going to have to put the pedal to the metal on money printing like Draghi did and they’re going to have to do it soon.
Mike: Okay, another question from Ben. He says, “Hi, Larry. I’m a big fan of your work on cycles and I’m eagerly anticipating the coming surge in gold prices. It seems historically gold prices have surged during times of inflation but we expect deflation. Can you point to specific times in history when gold prices surged during a deflationary period? Thanks.”
Larry: Oh, that’s such a great question. Thanks for the great question. First of all, let me explain. Gold is a terrible inflation hedge. That’s going to shock everybody but I’ll give you a very perfect example.
In 1980, the high price of gold was $850. Today it’s $1,250, say. It’s gone up only $400, let’s say a 50% increase in 36 years. In 1980 the Dow was at 1,000. It’s at 17,300 today. It’s gone up 17.3 times over. Which is the better inflation hedge? Stocks are. Okay?
Now, you can take that example back from any point in time, take it back to the Great Depression, take it back to the Roman times, and I can prove to you that gold is a lousy inflation hedge.
Where gold does do best is times during severe deflation when the ability and finances of government come under question. During the Roman Empire the price of gold skyrocketed when Rome collapsed. The price of gold skyrocketed when the Ottoman Empire collapsed. Now, many people think Rome collapsed during hyperinflation. No, Rome collapsed in deflation. The Ottoman Empire collapsed from deflation. The Spanish Empire collapsed from deflation.
The only empire, if you will, that collapsed in hyperinflation was the Weimar Republic, and even then gold didn’t really rise. It was hoarded. It was truly hoarded and it rose in the black market but not like it did in 1980, 1978 to 1980. That was something that was really a freak because you had the OPEC oil shut down, you had the terrorist hostage crisis. And then you had the first American experience with some pretty major inflation. It wasn’t really the first. We had major inflations in the 1880s and the 1860s and it did nothing to the price of gold or silver, largely because they were fixed at that time of course.
So what you’re seeing now is gold reacting to its true role in monetary history, the collapse and looming collapse of governments. That is where gold does the best and that is what’s going to drive this new bull market in gold. Right now what’s driving gold, what drove gold’s first leg up was more what’s happening to Europe’s collapse, the Middle East, ISIS, and the political friction here in the United States. Those are the fundamental forces that are driving gold because there’s no inflation in sight at all for the United States, zero.
In fact, we’ll probably see more deflation in the future as the dollar strengthens even more. So don’t be surprised if you see times when the dollar and gold go up together. That too has happened. During the Depression the price of gold went up so high, Roosevelt had to devalue the dollar by changing the official price of gold and then confiscating it. Confiscation will not occur this time but you can see the dollar and gold go up together.
Mike: Okay, here’s another question from Charles: “Unfortunately we’re on the wrong side of the metals trade in recent days and taking hits with our short metals portfolio. In your view, is this just a short-term inversion of the cycles or is something more permanent to the upside at work here?”
Larry: There’s no inversion going on. If there were an inversion going on, we would be generating buy signals. So I’m very happy to see that you pointed that out in your question. It means that you’re learning from me or perhaps other sources that the cycles can invert.
When a low is called for, sometimes a high can show up and vice versa. But right now there’s no evidence of an inversion. We would have evidence of an inversion if we closed above 1,302 at the end of this month and preferably 1,308 would be the real line in the sand. Then we would have gold going up into June and probably to 1,400, 1,404. There is no evidence of that at this point in time, not even close.
In fact, in terms of Elliott analysis, which I sometimes do, we had an A wave to the upside and now we’re going to have a B wave to the downside, which should be quite sharp and then another rally. Elliott-ticians would call it a C wave because they’re still long-term bearish. I would call it the second leg up in gold’s new bull market. That’s where we separate an Elliott-view from my view and my models. But if you’re an Elliott-tician-type of person, we are synced with Elliottwave right now to go to the downside as well quite sharply. So no signs of an inversion.
Mike: Okay, here’s a question from Doug. He says, “If Donald Trump wins the presidency, what’s the likely result in the markets in the U.S. and in major world markets? He’s not a politician or an office holder. I believe the last similar person was Eisenhower.”
Larry: Well, I don’t think anybody knows right now. Donald Trump is saying some of the stupidest things I’ve ever heard in my life. But you know what? He’s not a stupid man. He knows exactly what he’s doing. He knows exactly the buttons to push. He’s a brilliant marketer. No doubt about that, and I doubt very much that if he makes it all the way to the White House, you will see the same Donald Trump.
A White House occupied by Donald Trump is probably going to be a Donald Trump who moves to the middle because he’s going to have to in order to get along with anybody and he’s going to be a lot more conservative than he sounds right now. He may even turn out to be a heck of a good president. We don’t know. I doubt it but who’s to say?
Hillary, I’m not going to comment either way. I don’t want to upset anybody or take sides. I’m kind of neutral right now until I see more. But Hillary is a socialist. Thank God she’s not as bad as Bernie Sanders.
Now, every one of these candidates has their merits and demerits. In the end, I don’t think it’s going to matter one iota who is in the office because the sovereign debt cycles and crisis is bigger than all of them combined. No matter who is in office, we’re going down the tubes come 2017 and that’s not going to change.
The way we go down the tubes is the most important thing that we need to be aware of and that is how the markets react and how we can protect and grow our money. The U.S. stock market is set to double. It will become a safe haven for the entire world even if Donald is in office with his crazy policies. Gold is set to skyrocket to 5,000. It doesn’t matter whether it’s Bernie, Hillary, or Donald. So as far as the markets go, they are already etched in stone. The only difference it can make, whether it’s Hillary, Donald, or some puppet like Mitt Romney who’s put in there by the Republican Party, is the speed at which it happens, not the course but the speed — and that I’ll keep you posted on.
Mike: Okay, this question comes from John. “Can you please explain the relationship between UNG and the price of natural gas? Some days natural gas rises but UNG doesn’t.”
Larry: That’s a problem with a lot of commodity ETFs because the commodity-based ETFs tie in to the futures. And when you have something like natural gas or crude oil futures, they roll over every month. So they don’t always gear properly or correlate 100% with the underlying day to day and week to week. It’s the best thing we have short of going into futures.
Personally I’d rather trade futures. But in some ETFs you do have that inherent problem related to the rollover of futures markets and it acts kind of like a little bit like premium erosion on the options in the sense that you don’t get that ideal correlation that you should have. It’s a handicap but short of that, you go into futures. If you guys want to go into futures, let me know. Be more than happy to introduce them. I’d have to discuss that with my publisher but futures, you don’t have that problem.
Mike: Okay, I’ve got a couple questions on individual markets and since time is running short, we’ll do a little rapid-fire round here if you don’t mind, Larry.
Larry: Sure.
Mike: Alex asks, “What are your comments on the Canadian dollar?”
Larry: Canadian dollar is starting to show some strength, and it will continue to strengthen slowly with the bottoming process that’s occurring in commodities. Same for the Aussie and New Zealand dollars.
Mike: Okay. Renee would like to know your thoughts on copper and copper mining companies.
Larry: Copper is starting to look good. I think copper has indeed bottomed. I’m waiting for that first pullback to occur in copper. I’ve written about that in my columns and in my issues. The first pullback is key, so I’m looking at the first pullback in copper to possibly get long, copper and some copper stocks. We are long FCX, Freeport-McMoRan in Real Wealth Report, up about I think 20% or 30% there.
Mike: Another question from Andy. “What about uranium. Any opinion there?”
Larry: It should be bottoming quite nicely with the commodity markets, but the stocks that are left tradable in the uranium market are so illiquid. There’s literally nothing to do there at this moment in time.
Mike: Okay, John asks, “Can you give us some suggestions regarding the whens and hows of buying physical bullion for gold and silver?”
Larry: Yes, I will on this pullback. I will update my recommendation for the coming pullback and what to do at the Hard Assets Alliance, which is my recommended dealer and for platinum and palladium as well and silver.
Mike: Okay, here’s two questions, kind of related. Steven asks, “What will be the effect on the euro if Great Britain does leave the EU?” And then Gus comments, “Thank you, Larry, for all your great work. Two questions: When in terms of time do you think the euro will finally start its severe downfall and also what do you expect the dollar will do longer term?”
Larry: Okay. I believe Britain’s going to pull out of the European Union in June. I believe the people will vote to pull out. Whether or not it is allowed to happen remains to be seen. Unfortunately we live in an era where politicians tend to ignore the popular vote. We’re seeing that right now in our own country.
The Republican Party is basically going to stage a coup at some point either right before their convention or at the convention to get Donald out of there. So even though Donald may win delegates, primaries, popular vote, he may get booted out and have to go his own way.
We don’t control as much as we’d like to think we do when it comes to the political process and I say that because I believe the popular vote in Britain will be to leave but I’m pretty sure Cameron and the powers that be will ignore the popular vote and stay in the Union. Either way, it’s not going to be good. None of this is good.
That’s what these politicians don’t get. If you don’t listen to the people, it’s not good and if you don’t do what the people want you to do, it’s not good. So either way, whether they leave or stay in, it’s just not good for the euro.
As I mentioned earlier, I think the euro can get down to 1.02 by June/July, possibly even parity with dollar. Longer term, the dollar, it’s trading at 95, 96 on the dollar index right now. I expect it to get to, believe it or not, 118 to 122 by the end of 2017. That is what you need to do to turn the U.S. economy down. You need a very strong dollar.
We’ll be the last domino to fall as I have said all along. In the meantime, we’re going to be looking fairly good compared to Europe and Japan. The strength in the dollar will be the final domino that turns the U.S. economy down. That will cause the slide from 2017 to 2020 for the entire globe.
Miike: Okay we’ll give the last question here to Doug. He says, “Larry, I want to thank you for your insights and dedication to projecting the markets and the timelines for our recommendations. My question is how confident are you about your models that call for another market correction? Is it possible the market could turn higher without a significant correction?”
Larry: Well, thanks for the compliment first of all. I do my best. It’s not easy. There is no perfect model on the planet. Mine does pretty well but it makes its share of mistakes as well.
As far as the stock market goes, we’ve got one last chance as I said earlier. Basically a lot of the correction has occurred internally in the stock market. I’ve spoken about that before. Some of my colleagues at Weiss have too.
We have a stealth bear market that’s been going on for over a year, well over a year in the stock market. Majority of stocks are down 20% or more. It’s only a handful of stocks, literally a handful of stocks that have kept the Dow and the S&P 500 near their record highs, Google, Apple, Facebook, etc. So we’ve already had a bear market.
The question is: Is this all we’re going to see, a stealth bear market, before we take off to the upside again en masse? Or are we going to get a final nosedive where the major indices also reflect a pullback to scare the bejesus out of everybody before moving higher?
My experience is that in order to get the energy to break through 18,500 and establish the second leg up, which will take us to Dow 31,000 eventually, you have to scare the heck out of everybody first and we have not done that. So I’m still inclined to see a very sharp move lower before we move higher.
Mike: All right. Well, that’s about all the time we have for today’s webinar but just remember, everyone, if we weren’t able to get to your question or if you have another question that comes up to mind or any comments for Larry, please remember you can always send those to us directly via the Editor’s Mailbag right on the Supercycle Trader website.
And, Larry, you always do a great job of answering those individually or getting to them in the next webinar that we do next month. So with that said, thanks, one and all, for joining us today and, Larry, as always thanks for your great insights and answers.
Larry: Oh, no problem. Thank you again for hosting, Mike. Members, thank you very, very much for attending today. I thank you for your compliments and your loyalty and as I said, be patient. We’re going to make a lot of money and we may have to go through some tough times this year as we already have, but I’m very, very confident that I’m going to turn it around and we’re going to have another very positive year come the end of the year.
