As a Supercycle Trader member, you’re entitled to this free transcript of my recent member’s-only webinar and Q&A session. If you listened to the webinar, I hope this transcript will remind you of important points you may have forgotten. If you didn’t listen to the webinar, then get ready for a great educational experience.
Mike Burnick: Hello, everyone, and welcome back to this special online Q&A strategy briefing with Larry Edelson, editor of Supercycle Trader. Hi, Larry. How are you today?
Larry Edelson: All right, Mike. How are you?
Mike: I’m doing fine. Thanks for taking time out of your busy day to join us again with your insights and analysis. And I know you’ve got a couple of slides to lead things off and then plenty of time for Q&A in today’s session, so I’ll kick it over to you.
Larry: Okay. That’s right. Thank you for hosting, Mike, and you’re right. I just want to first welcome everybody to today’s session. I do not have any charts for you today, and there’s a very important reason for that. I started looking at the charts and the last time we met online, there’s really been no changes in any of the charts that I could’ve showed you today.
The markets are really in a lull, volatility is at extreme lows and we’re still in that calm before the storm, if you will, which will lead to your ticket to big profits. So rather than look at charts that are really like watching paint dry, I wanted to leave time to part with you some of my thoughts about what’s going on in the markets and then handle as many questions of yours as I could.
So let me repeat, these markets are going through an eerie kind of calm that I haven’t seen in at least 38, 39 years, since I started trading. They are trying all of our patience. But I maintain my view that we’ve got to stick it out because this is the ticket to the big profits. And my charts and timing models even have nothing new to say so I don’t want to waste any time there. I will briefly review with you what you should be expecting, and then we’ll go further into it via your questions.
We’re in the middle of May now. Nothing has changed as I just said via the artificial intelligence charts, the neural net forecasting, or anything.
We should be looking for important lows to form in gold, silver, platinum, palladium, and in mining shares in late May. Now, I know it doesn’t seem that way right now but you’d be surprised what can happen in a short two-week period of time over the next couple of weeks, especially the way these markets are compressing and setting up for a major move.
Moving on to the next slide, the dollar is still basing as it has been for the last month or so, and it too is preparing to blast off. Meanwhile the euro, as I have been saying all along, is really teetering on the edge of a cliff.
I know a lot of people have given up on the concept of the euro falling apart. A lot of analysts and professional traders have, claiming that the fact that it hasn’t fallen is a testament to its strength. But when I look at the euro’s trading action, all I see is that it continues to bump up against the 1.14 level and it can’t get through, just like gold can’t get through the 1,290 level.
Gold tested that level again this morning and backed all the way off $10-$11, back down to 1,179. Those are signs that yes, ultimately the market does want to make an upside attempt but it is not capable of doing so at this time. And it will not be capable of doing so until you get a washout on the downside in gold and the euro and that rally in the dollar.
Looking at oil recently, it’s followed my script and my forecast charts to the T. It’s range bound, trading between $43 and $47. We got up to over $50, came back down, and we’re range bound right now between $43 and $47. It’s not likely that we’ll see oil make another major move until late June. So there really has been nothing to do there, and the same with the stock market.
If you look at the stock market, yeah, we’ve had 200 points, 230 points up and then the next day 219 down and then the next day 80 points up and the next day 80 points down. I mean I have really never seen markets like this since I started trading in 1978.
These types of periods come and go every year in every market. But to see so many major sectors and asset classes caught at the same time in such low, volatile, tight trading ranges – with some volatility in those ranges in the sense that they’re knocking back and forth within those ranges is just amazing. And you can bet it is your ticket to massive profits because when they do break out of those ranges, they’re going to break out with a vengeance. And they’re going to break out on the side of the major underlying trends, which have not changed no matter what you may think of the recent action.
The trend is still for gold to pull back. In fact, right now in the gold market, there are more long positions, that is positions bought by speculators, according to most recent report of the Commitments of Traders, than there were when gold was trading at $1,921 in September of 2011.
Do you know what that means? That means if one big gold long position gets spooked, they’re all going to get spooked. And the collapse from 1,290 down to 1,160 and the fact that we have so many more long positions in gold today than there were in September of 2011 when gold was $700 higher is absolutely, stunningly bearish for the gold market.
So having said that, let’s go right into your questions, as many as we can get to, and my answers.
Mike: Absolutely, Larry, and we have a number of questions already in the queue.
So, Larry, the first question comes from Steve. “Larry, I’d like to know your thoughts on interest rates over the next two to five years and how this will impact our economy into 2020 and beyond.”
Larry: That’s a great question. What I see happening is in the short end, that is let’s say zero to two years. I do see the potential for negative interest rates to hit our government, to hit our economy, or to be implemented by the central bank to try and spur economic activity – just like they’re trying to do unsuccessfully in Europe.
I do see that experiment spreading this way. But beyond the let’s say two-year maturity going out to 30-year maturity, I see interest rates simultaneously rising as more and more investors get fed up with the $19 trillion, $20 trillion worth of official debt and the $180-odd trillion of unofficial debt on top of that. And they begin to realize that we’re just as broke as Europe or any other country, in fact much worse than even Japan.
So I see a dichotomy there. I see short-term rates staying low to going even into negative territory while longer-term rates go much, much higher.
Mike: This question comes from Jim. “Hi, Larry. To be honest, the performance of the service has been disappointing recently. Why, if you’re so confident in your models, have we not been actively trading the ups and downs of the market recently?”
Larry: Well, I agree the track record for the first half through to year-to-date has been horrendous. We’ve had some positions that have gotten stuck in these ranges. But I don’t agree that had we done more trading, stepping in and out with the existing positions or in and out with new positions, we would have done that much better.
I think we would have compounded our losses. These markets have not been conducive to short-term trading in ETFs or in options other than futures markets. There have been some good opportunities in the futures markets but this service does not trade the futures market.
Mike: This question comes from Rick. “Good morning, Larry. I’ve been short gold miners with DUST for several weeks now, and it seems that each day gold goes down and then turns around and rallies again within a couple of days. It’s been back and forth going nowhere, sideways, for quite some time. You said you see a major correction to the downside taking place. When do you feel this is going to unfold, and where do you think it will land before a new rally?”
Larry: Well, first we’re caught in that tight range. We’re all caught in that tight range. I perhaps under-anticipated how tight and how long that range would last. However, as I noted earlier, we’re into the period where gold and silver should collapse in the next two weeks into the end of May, early part of June and that would of course spill right over into mining shares and you would see the DUST inverse mining ETF go through the roof.
Mike: This question comes from Noll. He says, “Larry, congratulations on your continually excellent calls on the markets. Do you see inflation in the European Union any time soon?”
Larry: Well, thanks for the compliment. I don’t think my calls have been all that excellent lately. I still certainly have faith in my models and in my calls, and I have not changed them because we have not received any signals to the contrary. But thank you for your compliment.
As far as Europe goes, no, I don’t see much in the way of inflation there even though their currency is already down substantially over the past year. The reason being is that the devaluation of the euro is not prompting people to go out and spend.
It’s geopolitical reasons why the currency is losing value and that is driving people to convert their euros to a stronger currency rather than buy consumables. It is driving them to buy the U.S. dollar, U.S. asset markets, real estate and U.S. equities. And, of course, gold and silver will come into play at some point, and already has to a little degree, but at some point down the road they will buy mostly precious metals. So you’re still going to see deflation in Europe even though the euro is headed down the tubes over the next several years.
Mike: Here’s kind of a related question on gold. Quite a few today as you can imagine, Larry. This one comes from Harry. He says, “What type of an event do you foresee that may trigger the expected and needed correction in gold and silver?”
Larry: It could be anything. That’s a wild guess. We could find out that China bought less gold last quarter than everybody expected. Or we could find out that one of the big investors out there who’s been talking up gold recently – and there’s some names but I won’t mention them – but we may find out they bought less gold than expected or they decided to sell their gold because they don’t see it going anywhere. It could be anything.
What I know is that my neural net model – which tracks the dynamic, fluctuating cycles and data points in the gold market back thousands of years – is indicating a gigantic move to the downside starting May 20th, give or take one day.
Now, I have just given you the exact date when it should occur. I’m going to have a lot of egg on my face if gold doesn’t start collapsing pretty soon and certainly by May 20th, okay? The fact that I’m giving you that date tells you how confident I am. Something big is afoot in gold and in the precious metals come May 20th, and it should be on the downside.
If I am completely wrong and it’s explosive on the other way to the upside, then we will be getting a cycle inversion, which would mean that gold is going to the $1,500 level and we will certainly do an about face and take advantage of that. But that is not the case, and there is no evidence of that at this point in time.
Mike: Here’s a question from Harold. He asks, “Larry, how does Janet Yellen’s interference in the markets figure into your models and your evaluations?”
Larry: Indirectly through the price performance of the different markets because it actually anticipates Janet Yellen because it anticipates human behavior of central bankers, government politicians, and so on. And that behavior – of course, investor behavior as well – never changes. It repeats itself. Janet Yellen is as predictable to me as the market is.
Mike: This question comes from Ann. “Larry, how do you anticipate a devaluation would affect prices of homes. I live in Boulder, and the home prices here have been going up dramatically. I wonder if now is a good time to purchase, or wait a bit to see if gold goes up, as well as what effect a currency reset might have on home prices?” Your thoughts?
Larry: Well, I assume you’re referring to a devaluation of the U.S. dollar. I don’t see that happening at any time. Perhaps a little bit later as we get into 2018, 2019 and the whole monetary system around the world is in chaos, but an outright devaluation like Roosevelt did in 1932, 1933 or as we saw in 1985 where the G5 got together and devalued the dollar against the yen, I don’t see that happening.
I see the opposite happening. I see the dollar strengthening for the next couple of years. As far as real estate prices go, I believe in most parts of the country they bottomed with the real estate crash. They have been on the mend since then. In some areas they’ve become, as Mike Larson on our team has already pointed out, a bit overbought and are subject to pullback. Nut overall I think real estate in the United States is in generally very good shape.
Mike: Okay, this question comes from Greg, going back to the dollar. “If the dollar gains strength again as you expect and starts trending higher, won’t that have a downward effect on all commodities overall?”
Larry: No, not necessarily. What you’re going to see in my opinion and according to my models – I’ve said this before – is what we saw happen in the Great Depression. The dollar went up along with stocks and commodities. Why? Because all of Europe was going bankrupt. This time, it’s going to be worse. Not only is Europe going bankrupt but Japan is going bankrupt and the United States is going bankrupt.
So savvy money, smart money, investor money that moves first and fast is going to want to latch onto anything that is considered a hedge against severe deflation, a hedge against severe inflation, or a hedge against the collapse of the rule of law and order and the collapse of governments.
And that is commodities and the dollar, which is still the world’s reserve currency, and stocks. And that’s precisely what you saw between 1932 and 1937. But nobody ever talks about it except me. It’s the part of the Great Depression no one ever talks to you about. We went through a Great Depression that got worse and worse and worse and the stock market went through the roof, soaring 382%. Gold soared. Silver soared. Copper soared. The price of wheat and soybeans soared, not just because we had a dust bowl at the same time but because we had people hoarding commodities as well. They literally thought the end of the world was here and you’re going to see that again. So they can go all up at the same time.
Mike: This question comes from Fran. She’d like an update on soft commodities including wheat, soybeans, cattle, and the U.S. stock cycles.
Larry: Well, pretty much the same thing. The stock market is still poised for a correction believe it or not. It has not moved above that 18,500 level. You’ve got to give me credit on that. I’ve said for almost two years now, that’s the ceiling and indeed that has been the ceiling.
Until we break above that solidly on a closing basis, you will not see the next big leg up in the stock market which will take it to 32,000. In the commodity markets we have started to see the rolling series of bottoms that I talked about in November and December of last year. There’s a good chance… I mean gold and the precious metals have bottomed.
What they’re doing now is pulling back and confirming that they’ve bottomed and that’s what we’re waiting for, that pullback. Other commodities, oil has bottomed. The grain markets, not 100% sure that they’ve bottomed yet. Some may have, some may have not. They’re a little bit mixed right now. If you look at some markets like rice, the rice market has bottomed and I’m turning very bullish on rice. Unfortunately, there’s no way to play it in an ETF.
Some of the grain markets are looking like they’re becoming very bullish right around the expected timeframe. I said initially no later than March. Most of them bottomed by March. Some took off to the upside. Soybeans is looking stronger and stronger. Wheat is looking better. So I think we’re getting those bottoms.
Don’t expect markets to go straight up. Everybody loves bull markets more than bear markets. But they don’t go straight up, and you don’t want them to go straight up because that is not what a real bull market does. A real bull market stairsteps higher. It takes a rally, then it gives up 50% to 65% of that rally, then it makes another record move up and then it retraces again. That’s what you want to see. You don’t want to see a parabolic move higher. That would be more bearish than bullish.
Mike: This one comes from Anthony. He says, “Larry, I follow your recommendations and prefer using options. Looks like we’re doing fine so far when considering my closed trades so far this year. I do admire the relative accuracy of your cycles. But I do have the following questions: Number one, can you give us at least a ball park number of how many subscribers might be following your option trade alerts?”
Larry: Well, that’s proprietary information but it is quite substantial. It’s in the thousands.
Mike: Okay. Anthony’s second question is about gold, oil, and the dollar. “The Fed seems to be trying to reflate the economy. That’s obvious, contrary to their stated goal, which is to protect against inflation. I believe that fighting the Fed, however, with short trades could be futile. Your cycles may invert and then could we be caught on the wrong side of the trade or miss some other great opportunities? Your comments?”
Larry: I don’t think the Fed is fighting inflation. They’re fighting deflation, exactly the opposite. As far as affecting the models, whatever they do is built into the models because the models are based on human behavior, and human behavior is reflected as the price action of all markets. So I don’t believe it’s impacting the models in that sense. I do believe that it is affecting them in ways that we cannot anticipate, such as the long sideways trading action of the last three months but it will not change the end result.
Mike: Okay. Let’s see, we have another question actually on options while we’re on the subject. This one comes from Ann. “When we trade options, should we place a mental risk stop in proportion to the stock where you indicate where to put a stop on the ETF?”
Larry: Well, when I recommend an option, it’s usually relative to an ETF, okay, and I don’t recommend putting a stop on the option because they’re too thin. Even the heavily traded options can be picked off. The stops can be picked off too easily by the market makers and the professionals who have access to the open order books on the options. So I prefer to hide them, and it’s just way too easy to get stopped out unless you’re in a deeply in the money option. Then stops are okay. I base them off a combination of my models and what they say for the underlying either ETF or pure commodity or stock as the case may be.
Mike: This next question comes from Tris. He asks, “Larry, I have a basket of three currencies: the pound, the dollar, and the euro. What do you think of buying Swiss francs and if so, which currency should I use to buy them with? Would appreciate your insights.”
Larry: I don’t know why you want to own anything except the U.S. dollar. Sorry to be blunt about it, but I don’t want to own the pound sterling at this point even if on the 23rd of June next month they vote to stay in the European Union. You might get a little bit of a rally out of the pound but it is a currency that is in a longer-term bear market. I would not want to own euros under any circumstances and I would really not want to own the Swiss franc at this time. The only currency I want to own is the U.S. dollar. I can make a case for the Aussie, New Zealand, and Canadian dollars very, very soon but not yet.
Mike: Let’s see, this next question from Richard, he asks, “I’d like to get your comments, Larry, about gold and the stock market and specifically how you expect them to rise very high by 2020 based on your war cycles and worldwide investment cash flows but I believe your last advice has been to hold off onto short ETFs on the stock market and gold because you expect that first to plunge. So where do we stand now? Will the stock market first crash to a new low?”
Larry: Where we stand now, there’s been no changes. As I said earlier, the Dow and the S&P 500, there is no way they can take off to the upside and double by 2020 at the latest without pulling back sharply first. Now, you could argue that all this sideways trading of the last year-and-a-half in the stock market is a correction that is relieving overbought conditions. It’s an internal correction. It’s not necessary that we now get a sharp pullback.
We could just blast right through 18,500 and take off to the upside. I have never seen that happen before. Yes, markets go sideways and then blast off to the upside. But major entire sectors like the stock market, a market that is as big as the global stock markets are, no. We’re going to need that pullback that gets everybody scared out of their wits, heading for the hills, running like it’s the end of the world before you can get the energy in the market to really start another bull market of sizeable nature to the upside.
It’s just the physics of the way markets work. They are pendulums that swing from one extreme to the other, and you cannot get from one extreme to the other unless you first move to the extreme in the opposite direction. It’s the way it works. And if you go through every market and look at it, tens of thousands of charts, you will see that this is how they work, not only on a daily basis, weekly, monthly, yearly basis but also on an hourly basis. You can’t get a good rally on an hourly basis unless you first get a pullback, and you can’t get a sharp decline on a day-trading basis unless you first get a rally. It’s just the way. It’s pure physics 101 which is Newton’s law of action and reaction, which is present in the market and can be applied to the market via technical analysis and certain computer models that I use.
Mike: Let’s see, James asks, “Hi, Larry. Your neural net software originally had been indicating a rise in oil until May or June but seems a little over a week ago the projection changed to a short-term downtrend move for oil.”
Larry: Yes.
Mike: “I’m very interested in your software. How often do you run these projections? Daily, weekly, monthly?”
Larry: I run most of them weekly. Positions that we’re in, I run daily. They don’t change that much at all daily. Weekly is the most important level. As far as oil goes, yes, you’re absolutely correct. And that’s why we exited some positions in oil because it got to where the model said it would get, near 50, a little bit sooner than expected. And if you recall the chart on oil, it showed it going really sideways for a period of time.
So I just said why sit in this market right now. Let’s get out. That was one market that showed a real sideways situation developing, much more so than gold and the other charts including the stock market. But it appears that we’ve gotten into this sideways funk in virtually every market on the board.
Mike: Yeah, that’s true. We’ve seen a lot of sideways trading action over the last few months.
Larry: Yeah and I empathize with everybody on this call, with all the members. Sideways markets are the hardest markets to deal with. They try your patience to the max. They bore you to death. They trap you into doing things you shouldn’t be doing like overtrading. They entice you into making mistakes. That’s why you’ll see me very disciplined and very quiet during periods like this because day to day news that comes out is nothing but noise that moves the market a little bit but it’s meaningless in terms of the major trend and the most money is made by being patient and taking the few outstanding trades that come along in a year. I know some traders, some big names, John Paulson, one of the biggest hedge fund managers out there, he makes about three big trades a year. That’s it. That’s all he does. I know other traders that wait all year to pounce on one opportunity and
they’ll make tens of hundreds of millions of dollars on that one opportunity but they’ll wait and wait and wait for that opportunity to set up just the way they want it to and just the way their models show it to.
So active trading week in and week out is an entirely different game and we have to be careful to not get tripped up by sideways periods like we’ve been through. That’s why I encourage you to stick with my discipline during this period and don’t push the markets. You’ll just end up compounding open losses.
Mike: That’s good advice. We’re getting a few questions in here, Larry, on UNG, the natural gas ETF and also do you expect oil may retest its lows? First: Is natural gas, your expectations on natural gas, specifically UNG, the ETF. Second: do you expect oil to retest the recent lows at some point?
Larry: Natural gas is looking pretty good. It did get above up to the 2.15 level. It pulled back down. Seems to be hovering nicely around the $2 level. We might dip just down to 1.97. Natural gas appears to have bottomed and is probably basing out a secondary bottom as we speak.
Oil, largely doing the same thing. We should in June see a new run to the upside to probably around $56 but nothing major is going to happen in oil until probably next year. So I would say for the rest of this year, the range in oil will be widening and really be a $43 to $55 trading range where we will have some opportunities to have some shorter-term trades in the second half of the year. So that’s what I’m expecting in oil. But as far as a new rip-roaring bull market in oil, you’re not going to start to see that until the middle part of next year.
Mike: Doug’s question is, “Tell us the odds of Brexit occurring within the next six months or so. What’s the likely outcome in your view?”
Larry: Well, that’s pure guess work. Looking at my models, I can infer the results based on what they are telling me for the British pound and they are very, very bearish on the British pound. That indicates to me that we will get either a very close vote or a yes vote next month, June 23rd, when the vote actually occurs.
I do doubt, however, that the powers that be will actually permit Britain to leave the European Union. They’ll rig the election somehow in the end. But if they do that, it will just make it all that much worse for the future of Great Britain and the European Union because as we all know these days, even here in the United States, the people are done being fooled with.
So it’s going to be extremely interesting. I wouldn’t be surprised if we get a yes vote and I wouldn’t be surprised if we get a very close vote and I wouldn’t be surprised if we get a vote against it. I know that sounds like I’m talking out of both sides of my mouth but no matter what happens, you’re going to see rising social discontent and a weak currency for Britain and a weak economy.
Mike: This next question comes from Robert. He says, “Larry, I extremely enjoy all of your commentary and your insights on this world going crazy. My question is: Do you still feel certain that we are so deeply in debt that even if Donald Trump is elected, he can’t save us?” Your thoughts there on the political environment?
Larry: No, Donald Trump can’t save us. I have to hand it to him though. For being the first one to come out and say our creditors are going to have to take a haircut on our debts. At least he had the cojones to say that and admit it. Whether or not he will follow up on that remains to be seen.
If he gets that far, empowered to do so, I wouldn’t be surprised he does follow up. So maybe he is part of the sovereign debt crisis that we will be seeing. Maybe he does get into office and maybe he does go around hammering everybody over the head. I don’t know. We all don’t know. But we do know that our debt, our mountain of debt, over $235 trillion including all unofficial IOUs, is completely unsustainable.
Mike: Here’s a question from Iverson. “Larry, what’s your view on the Chinese economy going forward? Do you still feel they are strong or do you concur with Martin Weiss’s recent warning about serious weakness in the Chinese economy? Also what effect might a Chinese collapse play on worldwide markets, including gold?”
Larry: Well, in my Money and Markets column, I have written about China’s economy. I don’t agree with Dr. Weiss. I believe that China’s economy is much, much stronger than everybody suspects and there are several reasons for that.
Some of the oil demand statistics have been improving indicating not only that Beijing’s taking advantage of lower oil prices but that the economy may not be as bad off as everyone seems to think. We’re seeing that in other statistics coming out as well. I’m also seeing that and hearing it from several Chinese acquaintances and business people who I am in contact with who tell me, all of them, that business is on the upswing quite dramatically. So I’m not in agreement, and I haven’t been for quite some time that China is in for a hard landing. I think it’s already staged a soft landing and is improving.
Mike: A couple of other questions on gold and some of your positions. This one from Daria. She says, “Larry, we’re holding the DUST options with a June expiration. DUST is scheduled to reverse split as of May 18th. Should we get out of this position before the split?”
Larry: No, not with May 20th the target date for some fireworks in gold. So we’ll probably roll them forward. Let me back up there. We’ll probably roll them forward but we’re not going to eliminate that position. We’re going to stay bearish.
Mike: Okay. Another question about gold from Allan. He says “If a cycle inversion does happen on gold, how high could it go and when then would the next major drop in gold be delayed until?”
Larry: Well, that’s a very, very good question because the last thing… If you’re bullish on gold you want to be praying so to speak and as traders you never want to pray, but you want to be praying so to speak that we don’t get a cycle inversion.
A cycle inversion would occur if we were to get a Friday closing above 1,307.70 in gold. Nearest futures, that would be the June contract. If we get that, gold would initially probably pull back a little bit, back down to 1,290 to try and scare a few people out but then it would start to move up to the 1,370 level and ultimately to the 1,450 to $1,500 level by probably September or October.
Thereafter we would have a terrible period in gold, probably a six- to nine-month bear market heading into 2017 that would bring gold all the way back to 1,100. So it’s not something you want to see. It would be actually more bearish than bullish.
The more bullish pattern would be for gold to pull back and I’m very, very pleased to see that gold tried to break out again this morning by running up to 1,290 on the June contract and then gave it all back and is trading right now as we speak at 1,276.90, up only $4 versus over $14 and that platinum and palladium are weak at the knees today as well. What can’t go up, must go down and the more a market tries to go up and can’t pull it off, the odds are that much greater that it’s ultimately going to go down to get the energy it needs from fresh new longs and that’s what we’re seeing in gold and in the stock market.
How many times has the stock market, the Dow, gone to 17, 18,000, 18,100, 17,700 and then I mean it just can’t get through? It’s telling you two things when a market does that. It’s telling you it wants to get through to the other side of the door but it doesn’t have the energy to do so yet. At some point it’s going to have to back up to gather the energy to plow through to the other side of the door. And that’s what these markets are soon going to do. It’s how they work, all of them. I don’t care whether you’re talking about gold or sugar.
Mike: Makes sense. Good insights. Another question from Lawrence. “You talked about China just briefly a little while ago. What do you think about emerging markets and specifically Russia?”
Larry: Well, emerging markets I think in Asia are doing just fine on the coattails of China. Russia, I’m sorry, I wouldn’t touch it with a 100-foot pole. I don’t like the leader. I don’t like the government. It’s very corrupt. The economy is very corrupt. My apologies to any Russian members that may be on the call. There is a lot of work to be done in terms of the rule of law, which is nonexistent in the former Soviet Union. And I’m concerned about the ties between Russia and NATO and Europe and the United States going forward.
Mike: Okay, another question here from Christopher. He’d like to know, “Larry, do you feel copper has bottomed?”
Larry: Yes, I do feel that copper has bottomed and I am looking for an opportunity. It’s at the top of my list for SCT as a matter of fact to get involved in copper very soon. So stay alert on that.
Mike: All right. A question from James. “Larry, in your update of May 12th you mentioned the Commitments of Traders report on gold and the extremely high number of net long positions for speculators.” James notes that, “In the same report, commercial traders have an extremely high number of short positions, around 295,000. How do you reconcile those two?”
Larry: Well, it’s simple. The commercials are the insiders. They’re more knowledgeable. The commercials are mining companies that may be hedging or locking in forward sales of material and metal, gold and refiners who are in production. They are presumed – and it’s not always the case – but they are presumed to be the insiders and more knowledgeable. And they often are statistically on the right side of the market far more often than the speculators are.
So the commercials, the fact that they’re very heavily short the market, let’s call it the insiders. Very, very heavily short the market goes along with what I’ve been saying that the longs, being so heavily long the market, when they’re spooked, they’re going to panic like crazy and that could be, whatever that trigger is that spooks them, it’s the setup for the kind of downdraft that we could soon see in gold and it may sound crazy right now but gold could easily lose $100 in a single day.
Mike: Hmm, interesting. Here’s a question from Abe. He says, “Larry, is the Central Fund of Canada a good way to invest in gold, silver at the proper timing?”
Larry: Yes. It’s a great closed end fund for gold bullion.
Mike: Okay, this question comes from Jack. Jack says, “Larry, in this unstable environment what is the real future for government bonds?”
Larry: Sovereign bonds, I don’t think there’s any future. I don’t own them. I wouldn’t own them. I know that pensions own them, but they’re dumping them like crazy because they’d rather be in the stock market.
I know that the government is going to fight the sovereign debt problems that we have tooth and nail. They’re not going to go away overnight but you’re not going to make any money in them on a long-term basis. That epic period for the bond market is over. They are a lose/lose proposition.
Mike: Okay, here’s kind of a related question from Greg. He says, “Larry, first thank you. I appreciate all of your work and your commitment to communicating to us. I’m having trouble here connecting the dots between a strengthening U.S. dollar on the one hand and the eventual collapse of U.S. government bonds on the other. I’m assuming you’re saying the dollar will rise by default as it is the cleanest dirty shirt in the laundry until the U.S. government can no longer honor its debts and defaults. Am I correct or could you elaborate?”
Larry: Yes, you’re correct. You’re absolutely correct. It’ll come in phases. The dollar geopolitically is the best looking currency out there. It has its warts, and it went through a sideways slight pullback over the last few months – which was normal considering how strong the dollar got over its initial breakout rally last year which was one of the strongest rallies since 1985.
So it corrected that rally, pulling back over the last few months and now it’s getting ready to take off again. It will be bullish because of geopolitical reasons. Then as the bond market starts to collapse later, it’ll be bullish for the dollar because interest rates will be climbing on the intermediate- and longer-end sectors of the yield curve here while other countries’ bond markets will be basically getting wiped out.
So there will be some unsuspecting investors buying the higher yields in our bond market which of course will be bullish for the dollar as well and we will continue to look just like we’ve been looking over the past year, the better economy of the world while everything else is collapsing. But then everybody will at some point, late 2017, wake up and realize that they’ve just jumped from the boiling pot of water into the frying pan. And we’ll see the collapse begin in the United States.
Mike: Hmm, interesting. Fascinating insights. Another question from Tom. “Larry, do you see oil and equities remaining fairly highly correlated?” And another similar related question on oil, Larry, Rick would like to know, “Is oil being manipulated higher to save the banks that have a lot of loan exposure to domestic oil companies?”
Larry: You know, I love this. Every time something goes opposite to what they expect based on some story they hear somewhere or read about somewhere, they assume it’s being manipulated. No, no, it’s not being manipulated.
Oil fell from $148 to $26 in a four-year period. All it’s done is bounce back to 47 or 50. That’s a normal technical move. I mean it’s just bouncing, that’s it. You can’t even really on the basis of that and most economic models consider it back in a bull market.
If you want to call what the OPEC nations have done to oil, putting the pedal to the metal with production to put U.S. producers out of business, okay, I’ll give you that. That is a manipulation. But the bear market was in the cards way before that even came out as a news story.
So I fail to see the connection there. I don’t believe oil is being manipulated higher to save the banks or to save the oil companies or to save OPEC members or to save anybody right now. I believe oil is just bouncing and that’s all there is to it.
Mike: This question comes from Guss. “Hi, Larry. Thanks for the great work you do. Two points here. First you said that GDXJ, the junior gold miners ETF, would pull back. If that happens, how low do you expect it to go. And second, is Brazil a good emerging market to invest in now or will the country be stuck in the mud for the next 10 years?”
Larry: As far as the junior miners go, I think what you’re going to see over the next few weeks is going to blow your mind. I believe they’re going to lose anywhere from 65% to 80% of their value. I know that sounds insane but it would be a normal retracement of the leg up that’s already occurred.
And it would be in my view not IF it does that but WHEN it pulls back like that, which again should be over the next few weeks, it’s going to be like stealing candy from a baby. That is when you’re going to want to be buying and trading miners like crazy. Not this first leg up. Let it prove itself by pulling back which it’s shortly going to do. That’s what my models are saying and that’s my view.
As to Brazil, I don’t think Brazil has got a lost decade coming if you want to call it that. I think Brazil’s going to get its act together. I haven’t looked that closely at the Brazilian market. I know what’s going on there. I have my eye on it. I haven’t dissected it closely but I’m interested in doing so because I think it’s going to be a terrific market to get into very soon.
Mike: Okay, well that’s about all the time that we have for today but I’d like to remind everyone that if for some reason we weren’t able to get to your question or take your comments on today’s call, please remember that you can always send your questions to Larry directly using the Supercycle Trader Editor’s Mailbag function you’ll find right on the member’s website and, Larry, you always do a very good job of answering some of those questions individually so that’s always a good way to go.
Larry: Well, thank you very much, Mike, for hosting and, members, I want to thank you for joining today. And I want to thank you for your loyalty and your patience. Our time is coming. There are going to be some big moves that we’re going to capitalize on. So thank you for joining today.
Mike: Thanks, Larry.
Larry: Thanks, everyone.
