Mike Burnick: Hello again, everyone, and welcome to this special online strategy briefing for Supercycle Trader. I’m Mike Burnick and in just a moment I’ll be joined by your editor, Larry Edelson.
But before we get started today I’d just like to remind everyone on the call that of course this is an interactive briefing about you, our members, and Larry is here today to answer all of your questions. So if you do have any comments or questions, you can go ahead and begin to enter them now or at any time during today’s presentation. You’ll see just below the video screen there’s an “Ask a Question” box. You can type your question in there, send it our way, and we’ll take just as many as we have time for today.
Now, we do have a lot of ground to cover today so without further ado let me introduce Larry Edelson, editor of Supercycle Trader. Hi, Larry. Good to speak to you again.
Larry Edelson: Hi, Mike. Thank you for the introduction. Thank you for helping out today and welcome, everyone. Welcome, all my members, to Supercycle Trader. This is Larry and I want to thank you for attending today. As Mike said we do have lots of ground to cover today so I’m going to actually be moving pretty fast and we may even go over an hour in length. But no worries, if you have to leave promptly in an hour and I understand everybody has a schedule to stick to, keep in mind you can always catch up with the full transcript including all the slides that you’ll soon receive in your inbox.
Okay, I want to wait until the slide comes up for everybody. As I mentioned we do have a lot of ground to cover today. I’m going to discuss with you the critical importance of the right trading expectations and disciplined money management. I’m going to discuss with you cycles, how I use them, my tools, how I combine cycles with the other tools to judge their validity and make forecasts.
I’ll also discuss with you how trading decisions are made — don’t worry about the slide on the screen. It should be coming up. There it is — how stop placement is determined. I’ll also go over the big picture outlook on the most important markets right now and of course I’ll get to your questions and my answers.
Now, let’s talk about having the right expectations when you’re trading. This is a speculative service and having expectations that are appropriate with a speculative service along with disciplined money management is the single most important step to success.
Even amongst the most successful traders, the likes of George Soros and many others, it’s important that you understand that the win-to-loss ratio in any speculation, even amongst the best, is typically no greater than about 60%, okay, and really anyone who tells you otherwise is really simply lying to you, okay? I know we all like to have winning streaks, one winner after another but that is not how speculating works.
Of course, streaks of 80% or even 90% winners, one right after another, can and do happen and we will certainly enjoy those streaks when they come our way.
But losing streaks also happen and if you think about it, just like you can’t have day without night or winter without spring, you cannot have winners or winning streaks without having occasional losers and occasional losing streaks. Now, I’m going to emphasize this today and on occasion in the future and in my editorial issues only because it cannot be stressed too much. Money management and having the right expectations is everything.
So then what is the key to making money and to keeping it? If we’re going to have our share of inevitable losers and our share of winners as well and we’re going to have losing streaks and winning streaks, what then is the key to making money and keeping it? It’s entirely proper money management.
Now, I’m going to go through two slides here with you today coming up momentarily and I’m going to go over some simple examples with you to show you how powerful money management is. Let’s take this slide right now, Trader A. He does 100 trades. Each trade has an equal amount invested in it. He has an 80% win rate for an average gain of about 3% on each of those trades. That’s a total, if you multiply it out, of a 240% gain not counting compounding of course and he has 20 losers but he takes an average loss of 15% on each. He has a 300% loss and that loss is 60% of his total capital even though 80% of his trades were winners. Now, this is a little bit of an oversimplification but you can see right there that by not managing the risk on a trade, you can easily, even if you’re winning 80% of the time, go upside down.
Now, let’s take a look at the next slide — I’ll wait a brief second until it comes up for everyone — Trader B. Trader B does the same 100 trades, has only a 20% win rate but he lets his winners run and has an average gain of 35% on each for a total of about 700% in gains or open profits. He has 80% losers, 8 out of 10 are losers, but he strictly defines that risk and loses only an average of 3% on each for a total of about 240%. The net gain, Trader B has a net gain of roughly 460% even though only 20% of his trades were winners, 1 out 5.
Now, again this is a little bit of an oversimplification but I want you to think about these numbers, Trader A and Trader B, throughout the day and throughout the next week or the weekend so that you understand that money management is everything. The bottom line is keep your risk strictly defined and I will help you do that and if you do that and you follow my stops and my money management techniques that I will give you, over time the profits will take care of themselves and they should start to pile up.
Now, I use some of most successful money management trading techniques in Supercycle Trader. If you follow them, even with the inevitable losers that come along, you will definitely be on the road to success. I am emphasizing this because A, money management is critical and we are now also entering a period where the trading opportunities are going to be coming fast and furious and we have an enormous wealth of opportunities. Not all traders will be winners and I know some of you get upset, rightfully so and I respect that, when we have a loser but it’s part of the territory and if you follow my instructions, you will keep your risk limited and the profits will take care of themselves over time.
Okay. Let’s now go on to cycles and how I use them and the kinds of tools that I also use. Now, I have something very special for you today. I have an actual video of how I run my software for a cycle analysis. It’s about 3 minutes and 42 seconds long and we’re going to let that run in a moment. Please watch it. I’m going to be silent during that 3 minutes and 42 seconds and then I’ll come right back on to discuss it further with you. Enjoy it and watch the video.
VIDEO: What you’re seeing now on the screen is my cycle software. It’s a program developed by a Russian mathematician and it’s a very powerful program for analyzing cyclical behavior in markets and with economic data as well. This is one of the programs that I use to study economic cycles, the cycles that I’ve talked about that are now starting to hit, and it’s also the program that I use for determining likely paths of highs and lows for various securities. There are many features to the program and it is a bit complicated. I’m going to run through it right now.
On the screen I have a weekly chart of gold. This is gold data going back roughly to about 1980, weekly basis, and I am now going to run a neural net on the cycles. This program, you can see the progress bar right here, is now computing the cyclical behavior in the weekly gold chart and as you can see these numbers fly by, it is analyzing the data, literally hundreds of millions of data points that it’s mixing and matching and, with an artificial intelligence neural net, determining what is really going on in this chart of weekly gold and finding the highest probability cycles to project forward in time. It is now generating the cycles.
Now you see here a lot of up and down green bars. That’s of course a lot of data and a lot of cycles going back in time. So I am now going to zoom in to the current period and you can see as I zoom in we get a better handle for what’s happening here in gold on a weekly basis. I’m going to make a slight adjustment so I can put some dates up there for you and now you will see that the high called for on September 24 was fulfilled. You do see here that we’re likely to decline, that is, the cycles show a decline into October and then another rally. The reason I am staying with a long position in gold is due to the fact that the stock market is rolling over.
Now, as nice as this, is keep in mind that these are just the cycles for gold and at times there are larger macro economic cycles and larger markets with cycles that can overpower an individual security and that’s why, for example, I’m staying long gold. I expect this October high to actually be higher than what you see on the chart here because of the wicked decline that we’re starting to see in the stock market. Then gold would roll down into the middle of November as forecast and then we should be on the cusp of a new bull market heading forward.
So you can see this software is very, very nice. I’ve made some customizations that I need for the purposes of Supercycle Trader and for my own needs. But there you have one of the major tools that I use for forecasting cycles.
Mike: Wow. That’s a great video, Larry. Very interesting and informative. Thanks for sharing that.
Larry: And I do a lot of work with cycles as everyone knows and it’s a science that’s practiced by only a handful of people. Now, importantly I have long-term data on all the major commodities, some going back hundreds of years and I have long-term data on the most important economic stats also going back hundreds of years. I have long-term data on nearly all publicly traded stocks in my database and this is what I use when running cycles. I can run them on literally anything and then I look for correlations and how different markets and macro economic variables are coming together.
That is not the only step, running that program that you saw there in the video. I also run additional steps which I don’t have time to show you today on the neural net data that you just saw where I can verify the probabilities of the cycle projections given to me and that’s an additional several billions of calculations that are run by the computer.
Once the projection is confirmed, I then look at the turning points for projected highs and lows into the future. That will give me an idea of not only the trend but also, as I look at other markets, whether or not it makes sense with those cycles, whether or not there’s a possible cycle inversion where a low becomes a high or a high becomes a low that could occur, or the macro economic cycles such as we have coming into this period are beginning to affect all the markets.
Then, once I’ve filtered through all that, if a potential trade comes into focus I then put it on my radar screen and I move to the next level of analysis which is technical analysis of the current price pattern so that I can determine support and resistance and low risk entry points.
Now, my form of technical analysis is not practiced by a lot of people. I use… The first part is very simple. I use simple bar charts for technical analysis, high low open and close bars for those of you that are interested, pure price action. I do not use things like point and figure, Japanese candlesticks, etc. I like to see, when I look at charts, simple bar charts. It is the purest form of price action and that price action, once you become proficient at reading it, is like a language that the market is speaking to you.
I also use extensively what is called median line theory which was developed by Roger Babson in the early 1900s and further refined by MIT physicist Dr. Allen Andrews. Babson used the median line theory to amass a $50 million fortune in the early 1900s and of course he founded the now very prestigious Babson College.
A little bit about median line theory, I ‘m going to show you a couple examples. Median line theory is really based upon Newtonian physics in the sense that for every action, there is a reaction and when applied to the markets in a very simple fashion, median line analysis is an extremely powerful tool, one of the only tools that gives you a leading indication of price into the future and it has statistically proven results of being 80% accurate in terms of price action and reaction when you get a trade set up as to where that price might go. It is the only, again, the only known technical tool that can give reliable forward-looking price projections.
Here’s a simple example. Okay? Don’t worry about the chart right now. Do your best to take a look at it. You will get a transcript. I know it’s a little bit small on the screen but essentially median line analysis is based on finding three pivot points labeled ABC. In the middle there you can see within the context of a larger median line that we have an A point, a B point, and a C point and you can see how quite nicely it forms a trend channel for the Dow Industrials to move higher throughout that period and up at the upper right top where the Dow peaked out a couple of months ago, you can see for those of you who are members of Real Wealth Report, I was saying all year long, the Dow needed to break above 18,500 to confirm the next leg up yet it did not, and that level right there is 18,500 which acts as a brick wall, preventing the Dow from moving higher into its next phase of its bull market.
Now, according to median line theory, there’s an 80% probability if we did not get through the upper line of the big green B line here, labeled B on the left, there’s an 80% probability that price will come back to the middle dotted dashed line which is down below 15,000. If that were to fail to hold, then we could get all the way down to 11,000. There is some intermediate support level, however, based on my other system models that would probably bring the Dow down to about 13.9 worst case and we’ll go through that in a minute as we get to the major markets and I give you updated charts.
Here, again, is… Next slide up is the median line example, one of the most powerful techniques you can use. I urge you to read up on it. You can find information on the internet about it and I would be happy to teach you down the road and do some more webinars on it that you can employ for your own stock picking for example on other investments.
But as you can see from this chart here, the move from the center line to an upper line or to a lower line has an 80% probability of occurring. In other words, if you move above the center median line, then there’s an 80% chance that you’ll go to the upper line. Conversely, if you close below the dashed center line, there’s an 80% probability that your price will project forward in time but lower to the lower parallel median line that you see there.
The center line and this is all computed by people at Stanford and MIT….. It’s proven. If the market gets to the center median line, you have a 43% chance that it will stop and head back up or back down, depending on which side it’s on. You have an additional… Not an additional but you also have a 43% chance that the market may just stop there and go sideways. I’m sorry. 43% chance there that it would plunge through to the opposite side and you have a 14% chance that the market may just bounce back and forth and create a sideways type of sloppy trading affair at that center median line, okay? You’ll be able to study this more when you get your transcript.
Moving on now because we do have a lot of ground to cover. Waiting for the next slide to come up for you. Once I’ve done my technical analysis, I will then cross check what that analysis is saying with the cycle forecasts from my computer to make sure they’re not in disagreement. For instance, if cycles are pointing higher and the median line is also upwardly sloped showing the trend upwards, then we have a possible trade depending upon support and resistance.
On the other hand, if there’s disagreement and the cycles are pointing, let’s say, higher but the median line is pointing lower, then there is no low-risk trading opportunity on the long side and we may want to look at a bearish type of position. There are many, many other variables that go into it but that’s the nuts and bolts of it.
I will also look at a few other things to make sure there are no red flags in the way. For instance, if a market is highly overbought, we don’t want to go long. That means just about everybody who’s bought has already bought so there’s not going to be anyone behind us to propel prices higher. Conversely, if a market is oversold, we don’t want to get too bearish because just about all the selling that’s been done is done. Or I’ll look at volume. If volume is contracting, then typically that means something weak underlying the trend is going on.
There are lots of little tidbits you pick up over the years that give you markers as to what’s a good trade and what’s not a good trade, what’s a red flag to be aware of, and what’s a green flag that says let’s go, okay?
And then when everything comes together — wait for the next slide just to come up for you — I then determine the appropriate time and price to either buy or sell and at that point, I also establish the money management strategy for the trade using some additional tools including the tools that I just mentioned, but some additional tools such as average to range, volatility measures, etc. to determine the optimal protective stop.
Okay, let’s move on now to the next section. I’m just waiting for the slide to come up for everybody. We’re now going to take a look at gold and silver, euro and the dollar, interest rates, U.S. equity market, Europe’s equity market, the mining sector, and crude oil and I’m going to move kind of quickly because I want to make sure we have time to do the Q&A.
I do have to pause a little bit for the slide to come up. I want to make sure it’s up there so that you’re seeing what I’m speaking to. Now, gold is still very, very bearish. As you can see here, yes, it’s testing the upper line on that median line set but cycles, intermediate term, a lot of other things, strongly suggest we’re still in a decline. We’re going to see one of two paths over the next couple of weeks. We’re either going to climb a little bit higher and then fall or we’re going to climb a little bit further higher to about 1,200 and fall. I doubt we’ll see the second one because gold is acting so miserable in the general context of things. But we could see a rally up to 1,160 to 1,170 and then, as I’ve showed you on that cycle forecast, gold is set to roll over into a November low.
Silver… I’ll just wait a second for the chart to come up. Silver has a little bit of a different setup. The chart looks a little bit different, not grossly different but silver too is very, very bearish, likely to bounce a little bit further but then head lower. Many of you know my target is down near the 12.50 level. We could get even slightly below that to 12 bucks, maybe even 11.50 in an extreme panic.
Next chart, the euro… Just wait for it to come up. There it is. The euro is in horrendous shape. Now, we just put on a trade in the euro, an inverse euro ETF and we bought some call options on that euro inverse ETF yesterday. This is why. If you look at this chart you can see the severity of the decline in the euro. We’ve had a little bit of a bounce over the last couple of months but we are now starting to roll over based on volume measures, based on cycles, based on a lot of things and the euro could easily fall before the end of the year to about… by the end of the year to about the par level and then into mid 2016 down as low as the $0.80 level. So we have a great opportunity there to rack up a lot of nice profits, provided everything remains on track and I have every reason to believe it will because everything is pointing lower including the fundamental analysis for the euro currency.
Next slide is the U.S. dollar. Again I’ll wait a moment or two for it to come up for you. The U.S. dollar, we have a long position in the U.S. dollar ETF, UUP. You can see here we have an upwardly sloped median line set. We bought it close to support just the other day. The cycle forecasts point higher. We have a nice money management stop in place. We have the 80% probability of price following that light blue arrow to the right up towards the 98 level and then even higher to 100 on the dollar index, a very, very handsome profit opportunity.
Next chart, I’ll wait a second for it to come up. Interest rates, very interesting time for interest rates and I thought I’d bring this chart up here; a couple of things I wanted to point out to you. If you look at the left side of that chart, this is the U.S. 10-year note yield. Not price, this is the yield on the right scale. But if you notice, interest rates on the 10-year note yield bottomed way back in 2012 and all this talk about raising interest rates, interest rates have gone from roughly 1.4% on the 10-year yield, came back down to 2, roughly 2%, 2.1% and now poised to move substantially higher. So anyone who thinks the Fed controls interest rates, all you got to do is look at this chart. 10-year interest rates have been going up for three years. They bottomed three years ago. Sure, they’ve been declining slightly since 2014 but they bottomed in 2012.
There is a possibility we could see one more low push lower in the 10-year rate down to about 1.5% if the stock market panic gets out of hand to the downside. But right now the bias is going to be to the upside over the next few years with the 10-year note more than doubling in yield so I do want you to be aware of that.
Next slide is the Dow Industrials. We’ve already talked about it quite a bit so we’ll move through this slide pretty quickly. Let me just take a drink of water. I have three numbers on here, number 1, 2, and 3 that you can see. Number 1 is that 18,500 level which was clearly defined by the median line work on this chart as major, major resistance. It’s a key line in the sand. If the Dow could not get above that, it was topping out. It has not gotten above it. We are now rolling over to the downside.
If you look at number 2, the red dashed line pointing vertically lower, we have an 80% probability of getting down to about the 15,000 Dow level based on median line theory. If that is solidly broken, we’ll probably move to line number 3 which is a parallel median line bringing us down to 13,900 which I have been saying pretty much all year long in the Real Wealth Report as the worst case scenario for the Dow.
Now you know where I get this stuff. So, I wanted you to have it and be able to study it. In a future webinar next month, you may want to ask me some questions. That’s fine and maybe we’ll line something up to do some practice where you can take away this stuff for your own use down the road.
Next chart — just waiting for it to come up — is Germany’s DAX. We yesterday took out an inverse ETF on European equity markets. The DAX is like our Dow Industrials is for Europe’s markets and you can see here on the right side, the very last bar, Germany’s DAX… This is a monthly chart and we’re about to get a close below the lower median line indicating Germany’s stock market, already in crash mode, could start the next leg down with another 30% decline coming for the German DAX.
Now, if that unfolds as I expect it will, not only will our EPV position, the inverse ETF, do extremely well but we will also see the meltdown in Europe that I’ve been talking about because the rest of the European Union is going to crumble along with the euro. The sovereign debt crisis that I’ve been talking about is going to accelerate and start hitting the European continent very hard and it looks like the timing of this October period that I’ve been telling you about is right on the money because Germany’s DAX is set to close below a very, very important support level for the month of September. So right on cue, we’re going into this sovereign debt crisis. That’s what this German DAX chart is telling us. It is confirming everything that I’ve been telling you about.
Next chart — okay, just wait for it to come up. A lot of you have sent me questions about the mining sector so I want to show you this chart here. As cheap as miners have become, losing 90%, 95% of their value, sounds like a great bargain. Just go in and buy them and hold them forever. You’re going to make tons of money. Well, I don’t agree with that philosophy because first of all, they haven’t bottomed and secondly, that’s not how to trade. If you’ve got long-term money and don’t mind putting it away for 10 years, fine. Put it in your grandchild’s account. That’s okay, you know. I’m not going to go into that with you.
But from a trading point of view, mining stocks have not bottomed. You can see that clearly on this chart here. This is a chart, by the way, of the NUGT ETF, NUGT ETF which is a good representation of gold and silver miners. Yeah, okay, we could get up from $3 to maybe $4 at number 1 on there but overall we’re in a downtrend and I expect over the next two months, along with the drop in gold and silver into November, that NUGT could go all the way to $1.50. It could be sliced in half. So if you were to buy it now, you could lose 50% of your money over the next two months in NUGT. That’s why I don’t want anyone buying mining stocks right now. We may even, in Supercycle Trader, buy puts on NUGT or inverse ETFs on the mining sector.
Next chart, oil. Lots of questions I’m getting on oil. No, oil has not bottomed yet. It’s bouncing around in a sideways congestion right now but as you can see from this simple chart with some good median line analysis on it and a few other technical lines that I use, oil is headed lower, clearly and as I’ve said all along, it will probably not bottom until the middle of 2016 on a timing basis somewhere between $20 and $25. So there’s a lot more damage to be done in oil.
Now, if you look at all these commodities, you can see one thing in common. Deflation is still here. It’s here because we have a sovereign debt crisis that’s brewing in Europe. We have a currency crisis in Europe. We have a sovereign debt crisis developing in Japan and we will soon, after those countries go down like dominoes, see it hit Washington as well, the most indebted of all Western countries.
When sovereign governments’ backs are up against the wall, you have deflation, no matter how much money the Federal Reserve, ECB, Bank of Tokyo, Bank of Japan print. It doesn’t matter. This is how it pans out. History has proven this time and time again that core economies for Europe, the core economy of the European Union, for Asia, right now at least Southeast Asia. Japan is a core economy over there for the entire globe. The U.S. is still the core economy. For core economies, you get deflation. You get a contraction in money and growth, even if the central banks print pedal to the metal. You get governments fighting with threatening tax increases, confiscation, additional spying, monitoring of you, etc.
This is the age we’re in and it’s going to get worse over the next couple of years. Commodities will bottom sooner than that when everyone realizes that it’s really a crisis in government that’s occurring and government that is contracting. Everyone will flop back into tangible assets. But for now deflation still has the upper hand.
Okay. Let’s go right to your questions now. We do have a good solid 20 minutes to go so that’s great and Mike Burnick will host the question and answer session with me.
Mike: Right, Larry, and we’re getting quite a few really great questions and I’d just like to remind everybody that you can send them in right now on the question window and remember also if the call does go a little long today as Larry mentioned, please remember that you won’t miss a thing because we’re going to be getting a replay of today’s session out to everyone via email very soon and of course we’ll also be following up with a full transcript of today’s session. So let’s get right to some of these questions. There’s a ton here in the queue, Larry, but a lot of them are similar or representative so we’ll take the ones that are most recurring.
Here’s one from Lothar for example. “Hi, Larry. I read that Deutsche Bank could be in a Lehman Brothers-like situation. Could you talk about some prospective consequences if Deutsche Bank goes down? Thank you.”
Larry: Yes, okay. Mike, can you hear me? I lost the connection there for a minute.
Mike: Yeah, I can hear you fine. Did you hear the question on Deutsche Bank?
Larry: Okay. Yep, yep. I got the question.
Mike: Great.
Larry: Deutsche Bank, yes. Deutsche Bank has a tremendous amount of exposure to Russia. That’s one problem, okay, and that is obviously still an ongoing affair with trade sanctions and all kinds of penalties still in effect against Russia by Europe and the United States. But the most important problem for Deutsche Bank is it has some $75 trillion in highly leveraged derivative bets which is a substantial multiple on its capital.
So on the one hand you have Deutsche Bank, one of the largest banks in Europe if not the largest, having a lot of losses and write-downs occurring with Russia. It has a lot of losses and write-downs occurring with its own territory, the European Union, and it has $75 trillion in derivatives. Will it go under and bust like Lehman Brothers? There are rumors out there right now that that’s something that could happen any day. I don’t know how true they are. I can’t vouch for those rumors. It wouldn’t surprise me because we are entering that period where chaos will begin to reign again. If it does happen, well, that will fulfill what I’ve been telling you all along about Europe’s going down the tubes.
Now, as a forecaster I go by the technical analysis and cycles. Fundamentals have a funny way of fulfilling those things. We can’t be certain that Deutsche Bank is going down but if it does, don’t be surprised and we are prepared to take some nice profits out of the situation because we’re already situated appropriately. Okay, next question.
Mike: All right, we’ve got another question here from Doug. He says, “Hi, Larry. In a recent issue you provided a gold price chart that has proven to be very accurate. According to the chart we now look like we’re at the peak of the recent rally and getting ready to roll over. So for those of us that are holding gold like UGLD, the ETF, or gold mining stocks, should we be selling now ahead of gold’s next decline?”
Larry: Well, as I mentioned in the earlier slide on gold, yes, the forecast showed some weakness for this current period. I have opted to stay with our gold position because there are larger cycles at work right now that are overpowering that gold forecast cycle that I just showed you. Remember, those are just the cycles… That’s just the cycle personality of gold. The stock market is rolling over big time now. Stock market cycles will have a greater influence on gold because the stock market is 100 times larger than the gold market. So you have to take these things into consideration.
Many of you have asked and I think that’s one of the questions we’ll probably get, just guessing, but if it comes up I’ll repeat myself. Many of you have asked for me to give you cycle charts on all these markets on a weekly basis. I would love to do that but it will simply confuse you because you have to know how to read them and by themselves, you’re only looking at the personality of one particular market. I have to correlate them to give you the best recommendations and advice I can. It’s not as simple as running that computer model, looking at it, and say okay, here’s where I sell, here’s where I buy. It doesn’t work that way. So I will try to give you more charts but bear in mind that you can’t rely exclusively on one single cycle forecast.
Larry: Next question.
Mike: Okay, here’s a question from William, kind of a technical one regarding trading. William says, “You say to round down for fractional shares in your trade recommendations but why is going down so important rather than rounding up? Is it wrong to buy more shares than you’re recommending rather than less?” He goes on to say that, “Newbies like me need your thought process on this.” What do you say?
Larry: It’s simple. It’s called conservative. You’re speculating, okay? Always round down. It’s that simple.
Mike: Okay, makes sense. Here’s a question…
Larry: You just want to err on the side of caution.
Mike: Right, play it safe. Here’s a question from Pat about the dollar which you mentioned in your prepared remarks. “How much higher will the dollar ultimately go?” Pat wants to know.
Larry: Well, I think the Dollar Index which is the benchmark for a lot of analysts and a lot of import/export companies as well, it’s kind of like the Dow is to the stock market. I think the Dollar Index has a very good chance of getting up to about the 112 area before we see an end to generalized deflation and that’s a very powerful rally. We have already, on a trade weighted basis, seen the U.S. dollar in the past year put in its most spectacular bull market since 1984, just before the Plaza Accord in 1985 where the G7 got together and forcefully devalued the dollar. We will probably go a lot higher in the dollar now because the Fed is going to soon start raising interest rates as well which will signal a stronger dollar.
Mike: Okay, here’s a question from Don again about trading. Don asks, “What is the likelihood of your buy recommendations causing a temporary increase in the price of a stock or ETF?”
Larry: It does happen. We have a lot of members in this service and it does happen and that is why most of the time I am giving you specific prices to buy at or better. Of course, or better means that you can buy it at a lower price or sell it at a higher price than my specified price but I tend to shy away from market orders because there are a lot of people following my recommendations.
Mike: Okay, a followup question from Don too. He wants to know that, “Given your forecast that gold may have a little bit lower to go, if you own physical gold right now,” as Don does, “should you consider selling it and buying it later on at lower prices?”
Larry: Well, I cannot give personalized advice on this webinar. I refer the question to what I’ve said in my Real Wealth Report monthly issue. If, for whatever reason you have to hold some gold and silver previously purchased as emergency bullion, whatever, you feel compelled to own it, you should hedge it with a put option or an inverse ETF.
Mike: Makes sense. Okay, here’s a question from Shen and actually a comment first. He says, “Hi, Larry. Thank you for your good work. I used your signal to buy physical gold in March 2001 for $260 an ounce.” Now Shen wants to know, “What is the gold miner index, NUGT, Nugget, holding? What stocks does it hold and do you think that’s safe to buy and hold until 2020? Of course, I will wait for your signal to buy it first,” he says.
Larry: I don’t think anything is a safe buy-and-hold blindly for the next five years. So let me state that emphatically right at the outset. As far as NUGT goes, I haven’t looked at the latest constituency but as I showed everyone on that earlier slide, I wouldn’t be surprised that it loses another 50% of its current value. So I’m not inclined to… I’m certainly not inclined to buy it right now and if I were holding it, I wouldn’t be holding it.
Mike: Okay, here’s a question from Peter, kind of more of a macro economic question. Peter says, “If the Fed raises interest rates, how in the world are we going to pay the interest on our national debt?”
Larry: Bingo. That question goes right to the heart of the matter of what a sovereign debt crisis is and why we’re going to have a nasty one. It’s coming. Interest rates have been held artificially low. That is the official interest rate has been artificially held low by the ECB, Bank of Japan, U.S. Federal Reserve to financially repress you so that governments can deal with the burden of their debts. Inevitably, as we’ve already seen with that 10-year note yield chart that I showed you, inevitably interest rates will start going up with or without the Fed and that is going to cause the interest debt and interest burden of the Federal debt to go exponentially wild. Same for Europe, same for Japan. The sovereign debt crisis will be like a fuse. You light it and there’s not going to be really any stopping it. It’s just going to burn and then blow. So it’s a very good question and that’s something I’ll
focus on in my editorial. The interest expense on the Federal debt is already off the charts and it’s going to go skyrocketing higher over the next few years and it will ultimately break the back of our own government.
Mike: Okay, here’s a question and a comment from Nole. He says, “Congratulations, Larry, on your excellent Real Wealth Report and Supercycle Trader.” Nole has two questions. Number 1, “In view of the huge fall in the Canadian dollar recently, is it getting ready near the time to invest in Canadian stocks and do you see inflation taking off in the euro area any time soon?”
Larry: As far as the Canadian dollar goes, no. I see the Canadian dollar going lower along with commodities. Until commodities bottom, I don’t think the Canadian dollar will have much upside to it. That said, when they do bottom, the Canadian dollar will also look like a very attractive currency.
Inflation in Europe? Nope. Not a chance. I don’t care if the ECB prints $20 trillion tomorrow… 20 trillion euros, that is, tomorrow. Europe is a basket case. The refugee crisis, by the way — and I’m not against humanitarian efforts. I would take in as many refugees as I could — is going to be the final nail in the coffin for the European Union. Their governments are already straining with debts. With the exception of Germany, most of Europe isn’t growing at all. Most of them have budget deficits and debt that can’t be sustained and the refugee crisis is just going to break their backs and as interest rates start to go higher all over the globe, it’s not going to be due to hyperinflation. It’s going to be due to investors leaving sovereign debt behind and dumping euro bonds. So, no, I don’t see any inflation at all in Europe. On top of it all, they have some crazy policies about 75%
income tax rates for example in France and all kinds of things going on that are very authoritarian. You can’t have inflation under those conditions.
Mike: Okay, here’s a question from Bill. He notes that he has a Schwab account and tried to follow your advice or your recommendation to buy the euro call options but was told he doesn’t have permission to deal in options. “What should I do in that situation?”
Larry: Well, you should certainly talk to your broker. If you do not have authorization for options, it’s no big deal. Don’t let the terminology scare you. There are different levels of approval for different types of option trading. We will not be writing naked options, that is selling options without having the underlying as a hedge. We will simply be buying call options and put options and that is the level of approval you should seek with your broker and it should be a simple thing to do.
Mike: And most members, correct me, Larry, if I’m wrong but if they don’t have an options account, they can always buy the underlying securities that you recommend as an alternative, correct?
Larry: That is correct, as we offered yesterday in the issue. Correct.
Mike: Okay. Here’s a question from Tom. “With all the volatility in the S&P lately, one of your recent recommendations, UVXY…” That’s the ProShares Ultra VIX ETF. “…it seems the perfect opportunity to trade on a shorter-term time period with volatility. Will you be recommending any further entry and exit points for this particular security for those that may want to add to it or should we stick with the original entry price only?”
Larry: Well, I’ll be trading in and out of it but we’re not going to be day trading or trading… getting in one day and out the next day. That security moves way too fast for us to do that and this service is not designed for day trading. You’d literally have to be sitting next to me at my desk to day trade something like UVXY. That said, once the liquidity picks up as we get into this period where the moves are going to be volatile but liquidity and volume will be coming back into the markets, we should expect more frequency of trades in UVXY and others as well.
Mike: Okay, here’s a question from Jesus. “What can we expect about emerging markets?” And maybe to add to that, what’s your view on China right now with all the volatility we’ve seen there, Larry?
Larry: Great question, yep. I’m still long term bullish on Asia, very much so and especially on China. Yes, they’ve taken a hit recently as the dollar has rallied and their currencies have fallen in value. Many Asian countries have dollar denominated debt so as the dollar gets stronger, it makes it more difficult for them to pay off that debt. But this is not 1997, ’98 Asian financial crisis. Back then we had a lot of pegged currencies in Southeast Asia. Today we have largely free floating currencies so the adjustment mechanism is much, much quicker and I maintain my view that it’s very hard to bet against nearly four billion people in Asia who are all seeking to improve their lives, 60% of the world’s population. I’m not going to bet against them. So long term I am very, very bullish on Asia.
Mike: Okay. How about other emerging markets? Any you would stay clear away from?
Larry: Well, South America, Latin America, again, very commodity oriented. Like Canada, I would wait until commodities bottom.
Mike: Okay. Ron would like to know, “Do you still see oil ETF going down to 30 or below this year?”
Larry: I see crude oil going to below 30, yes…
Mike: Okay.
Larry: …as discussed in that earlier chart.
Mike: Great. Here’s a question from Trevor. “I live in Scotland,” says Trevor. “How will the pound perform against the euro? Will the pound plunge along with the euro?”
Larry: Well the pound is better than the euro, for sure. However, the pound is set to depreciate against the U.S. dollar as well. So I think you’re in better shape than certainly having your money denominated in euros but if I were anyone in Great Britain and certainly for Europe, I would want to have as much of my money in U.S. dollars as possible.
Mike: Okay. Here’s a question from Momar. He’d like to know… or actually a comment first. He says, “It would seem that many shorting opportunities exist in the market right now. Can you comment on shorting something like the iShares iBoxx high yield corporate bond ETF which owns junk bonds?”
Larry: Yeah, the problem there is there’s not enough liquidity for us in a lot of those ETFs so we have to stick with the highest volume, most liquid ETFs for this service… and that limits us to a degree but we still have plenty of choices to pick from.
Mike: Okay, great. Here’s a question from Donald. Donald asks, “What are the odds that the precious metals will reach their low point for this cycle in November?”
Larry: That’s just a guesstimate type of question. Based on what we’re seeing with the cycle analysis that the computer is putting out, the median line work that I do, I would say the odds are very, very high, better than 70%, maybe 80% or greater. We’ll know more in the next week or so to see if gold can muster up a rally here. Ideally the higher gold goes now, the harder it’s going to decline. I know that sounds strange but think in terms of actions and reactions. If we get a nice actionary rally to the upside, we can get a nice decline thereafter.
Mike: Okay, here’s a question from Rick. He says, “Larry, you’re predicting coming deflation globally but won’t this be bad for gold, the price of gold, ultimately?”
Larry: No. Well, it has been bad since 2011. At some point during a deflationary cycle, as we saw in the 1930s, when everyone begins to realize that it’s governments that are having the crisis — all of Europe went bankrupt between 1932 and 1937 — then you’re going to start to see investors seek out tangible assets again regardless of inflation, regardless of deflation because gold is not only an inflation hedge at certain times, it’s a hedge against government crisis and sovereign debt crisis. So don’t let deflation turn you off from gold. Deflation has taken its toll on gold over the last four years but that’s soon going to change and deflation will continue on and then you’ll see gold rally along with a stronger dollar.
And this is why I’ve said in many of my editorial issues the period we’re entering is going to turn everything you thought you knew inside out and upside down. Old rules won’t apply anymore. You have to think differently in a way that history can teach you if go back and look at really what happened between 1932 and 1937 during the Great Depression. This was the last time we had a sovereign debt crisis of this magnitude and everything changed. Everything changed. Gold went up with a stronger dollar. Nobody thought it was possible. Stocks went up in the middle of the Great Depression 382%. Everybody thought it was nuts. But nobody wanted to touch government bonds and you have to put your money somewhere. It can’t all go under the mattress. It can’t all go into the back yard in a coffee can. It has to go somewhere and the stock market is the largest recipient of flight capital, much bigger than
gold. Gold can’t handle that amount of money.
Mike: Good point. Here’s a question from Frank and we’re just about at the one-hour mark so we’ll just take a few more and then wrap up but Frank would like to note that you stated an 80% probability earlier in your presentation of the Dow falling to 15,000 or less. “Approximately what timeframe do you expect that to play out over?”
Larry: Well, the cycles call for the Dow to go lower into the middle of October, about two weeks from now and I do think we can get there pretty darn quickly.
Mike: Here’s an interesting question from Eli. He asks, ‘How would you characterize the difference between Real Wealth Report and Supercycle Trader?”
Larry: Sure. Real Wealth Report is a monthly publication devoted to protecting your wealth. That’s the first priority. It can also grow your wealth but it’s going to grow in a very conservative fashion, taking advantage of longer-term trends. Supercycle Trader on the other hand is for short-term speculating. Sometimes we’ll be in positions for a few days. Sometimes we’ll be in for a few weeks. But they’re generally going to be highly-leveraged trades. The risk is going to be tightly managed but it’s for speculation. Real Wealth Report is for your core wealth.
Mike: Okay. Here’s another question from Rex, again, about emerging markets. “Where do see India fitting into the global stock market picture over the next several years?”
Larry: India is looking fantastic over the next several years. It’s still about 10 to 15 years behind China in terms of growth but India’s going to go into a turbo charged rate of growth within the next few years because its prime minister is really a Reaganite, if you will, in terms of opening up the free market forces there, deregulating the economy, and of course India has a major asset to it which is that the entire population speaks English. So you’re going to see a tremendous growth curve in India. I don’t think… We’re beginning to see it now. It’s just getting started. But I don’t think it’s going to take a moon shot just yet with the sovereign debt crisis hitting Europe and the United States. So if you feel like you’re missing out on anything in India, we’ll look at some plays there for sure and I have been looking at some recently. But there’s plenty of time to get involved in the long-term
growth of India and I’ll be covering that in my Real Wealth Report.
Mike: Great. Look forward to it and here’s a great question to kind of cover as a last one from Melvin. Melvin asks, “Do you recommend your Supercycle Trader to be used in conjunction with one or more other stock investment strategies for diversification or can Supercycle Trader be used as a stand alone strategy on its own?”
Larry: It’s a good stand alone strategy for speculation but it is not, again, for your core wealth. Your core wealth, you should be looking at something like the Safe Money Report or the Real Wealth Report for your core wealth for protection and growth. Supercycle Trader is for speculation and that should only involve a small amount of your capital.
Mike: All right. Great. Thanks for clearing that up.
Well that’s about all the time we have for today but we do appreciate all of your questions and your comments and please remember, if we weren’t able to get to any of your questions, you can always submit them directly to Larry using the editor’s mailbag function which you’ll find right on the Supercycle Trader member’s website, right on our website. Just send them our way and Larry is great about answering those individually.
And, Larry, I’ll turn it back over to you for some parting comments.
Larry: Yes. Thanks, Mike. Thank you again for hosting today, Mike, and, members, thank you for your loyalty. Thank you for attending today. You will get a copy of this presentation in your inbox. I’m not sure if it will be there today or in the next couple of days. We’ll have to make sure the transcript gets put together and sent out to you and whatever questions — and I know I did not get to them all today. It’s impossible to. There are literally hundreds here — I will do my best to answer individually over the coming days.
So thank you again for attending. I look forward to next month as we go into this critical period for all the markets. We’ll have another webinar next month. Thank you and take care.
