Here’s your transcript of the recent Supercycle Trader webinar. During this webinar, SCT Editor Larry Edelson reviewed the state of the world’s economy and answered questions live from the participants.
Mike Burnick: Hello again, everyone, and welcome back to our monthly Supercycle Trader strategy session and Q&A and in just a moment I’ll be joined by your editor, Larry Edelson.
But before we get started today, I’d like to remind everyone, as always, that Larry is taking time out of his day to be here with you and to give you his insights on the markets as well as to answer any questions or to take any comments that you may have. So feel free to join in the discussion by sending your comments or questions our way, and we’ll do our very best to handle as many as we can in the time we have today.
So without further ado, let me bring on Larry Edelson. Hi, Larry.
Larry Edelson: Hi, Mike. Thanks for hosting today. And to the members of Supercycle Trader, thank you very much for attending today. We have a big crowd today. We have a lot of ground to cover so without further ado, let’s get right to it.
The first thing I want to say to everyone is that over the last few months the lull that we’ve seen in the markets is really the calm before the storm and your ticket to big profits. Now, what do I mean by that? What I mean is simply this: You all know, because I can tell from your emails and I can tell from my own emotions, that the markets for at least the last three months, depending on what market you look at, have literally gone nowhere but up and down in a tight trading range. And it’s been very frustrating for all of us. We ask ourselves questions like: Are we on the right side of the markets? Our positions are losing value. Perhaps we should turn and go the other way?
I want to tell you that that’s normal when the markets get into a lull like that, and that is what you are experiencing right now. But it is also very much like weather. It is the calm before the storm and as we go through today’s session, you’ll see that when that storm hits, which could be just days away, it’s going to be your ticket to big profits. I am 100% confident that all of the positions we have on now, even the ones that are deeply under water, will come roaring back into the green.
Larry: Okay. There’s really nothing I can say here in terms of fundamental forces that I haven’t already said earlier this year, even going back into late last year. Europe is really in deep doo-doo. Excuse my language, but day by day, Europe’s economy is getting worse. Recent news out of Germany’s economy, out of Daimler AG for example, showed some very, very disappointing sales and earnings numbers. Germany, as you know, is an export-based economy, the strongest economy in Europe. And if a company like Daimler AG is starting to falter, well so is Germany and so is the rest of Europe.
Japan is getting worse by the day as well, with more and more deflation, so much so that we will probably see Bank of Japan leader Shinzo Abe push interest rates further into negative territory. And at the European Central Bank, Mario Draghi will soon have to do something much more dramatic, printing euros or bringing more rates and Treasuries into negative territory.
So nothing has really changed. Deflation is the dominant force. Hoarding of cash is the dominant force. That’s part of the equation. Governments can’t get their economies going even with negative interest rates. Meanwhile, here in the United States, we’re still much stronger and better looking than Europe or Japan, yet we have our own problems and really the only force holding up the major stock indices in our economy is a handful of blue-chip stocks. So the forces have not changed and that’s particularly so over the last few months.
Moving on to the next slide, the point I want to make right now is that our time is coming. You can see it most recently in many of the failed moves and the false counter trend thrusts and trading ranges, such as last week’s euro thrust higher against the dollar but then almost completely gave up its gains before it turned around back to the upside. Meanwhile gold spiked up to 1,275 and then collapsed all the way down to 1,233.
These moves are called failed rallies or fake-out moves. They almost always come before the major trends resume. What they do is they psychologically fake out the undisciplined, if you will, the neophyte weak money in the markets, the people betting on a dollar rally but who see the euro spike higher in a single day so they say, “Uh-oh, I’m on the wrong side of the market,” and they immediately switch, only to get the stuffing knocked out of them in the same day.
These types of moves occur right before the major trends resume, and we are on the right side of the major trends. So let’s look at some updated Artificial Intelligence Neural Net charts that I have now, starting with gold.
Larry: Yes, we’ve seen some fake outs, choppy moves in gold. You can see the black line is a line chart of gold. It was produced late last week in order to have it in time for today’s webinar. Gold has actually fallen since that 1,254 number that you see there. We’re down to 1,238-36, trading in that range now.
But as you can see, the green line tracks the forecast by the AI Neural Net model, which is based on billions of calculations of data points and cycles. It forecasts the most probable path for prices and you can see it clearly points lower into May 31st, the end of next month.
Gold, on its latest rally last week, tried to get back above the 1,275 level, and failed miserably. We’re now back down to 1,236, 1,238. By the time we get to May 31st or sooner, we should see gold below $1,200.
Now, I know that this is completely opposite to what you’re hearing from many other analysts and from many other newsletter promoters if you will. And all I can say is: I trust my work more than I trust their work. Over time my work has proven to be far superior than their work.
And from an anecdotal point of view, there are more people jumping on gold’s bandwagon now. In fact, the Commitments of Traders report that came out just yesterday shows more speculative long positions in gold right now than there were at the top of gold in September 2011, when gold was at $1,921. In other words, people are more bullish gold today than when gold was at $1,900.
What does that really mean? It means that as bullish as they are, even though they can’t get gold above 1,275, this market is headed for a crash, which is what I’ve saying all along that although gold did bottom last year, it is not really ready for prime time until we get a pullback and a correction from the first leg up and that’s what we are in now.
Mike: You’re saying there’s simply too many bulls right now and that’s a contrarian bearish signal.
Larry: There’s too many bulls right now. That’s a contrarian signal. It’s actually a bearish signal. Plus, when you add in so many bulls being unable to get the price of gold much above 1,275, it’s an even more contrarian signal. With record numbers of speculators, who are almost always wrong, that too is a bearish sign.
Now, I am not saying gold’s going to 800 or 900 or below 1,044. I’m simply saying that gold is not ready for prime time. It has already had its first leg up. It is in the process of correcting that leg up.
It will pull back to between 1,160 and 1,180, where I will recommend being a very aggressive buyer. And that’s when the big money will be made because all those early buyers will be basically bailing out and fresh new money will be coming in. And the next leg up, let’s call it the second leg up, should take gold up to about 1,450 or 1,500 and that’s the one you want to be in and you will be in, as long as you are patient and you follow my advice.
Mike: Another market we’ve been hearing a lot about lately is the dollar. No shortage of opinions out there on which way the dollar’s moving next. A lot of negativity we’re seeing.
Larry: Yeah and it’s interesting that you’re seeing negativity in the dollar largely because President Obama is over in Saudi Arabia or was. I find it fascinating how the media, the financial media, will come up with some newsworthy item.
President Obama is over in Saudi Arabia meeting with the royal family. But there’s 28 pages missing from 9/11 documents. What’s in those 28 pages? The Saudis have threatened that if Congress releases the missing 28 pages from the 9/11 investigation, they will sell what assets of ours they own and trash our dollar. And you see these promotions all over the web from other publishers, the dollar’s death is here again. It’s such bull dinky, it is truly amazing. Why would the Saudis shoot themselves in the foot? Their entire reserves are based in dollars. Why would they hurt the dollar? It would be like committing financial suicide.
All that’s happened with the dollar recently is it too, like gold and like the euro, has been in a very sideways trading range. It’s pulled back to the lower end of support around 94 on the dollar index from around 99. That is not a big move. It’s just a pullback from its initial move higher and as you can see from this chart here, right here, middle end of April, the dollar is due to explode higher to over 100 on the dollar index, moving all the way into November of this year.
Mike: Yeah, that’s a monster move for currencies. Now, in this next chart, we see what appears to be the mirror image of the dollar’s ascent that you’re expecting and that’s the euro.
Larry: Exactly, Mike. That’s exactly what it is, the mirror image and this is not a mirror image chart just made up to be a mirror image. This is run through my AI Neural Net models, which take the data points, and crunch everything. And conversely if the dollar’s going to take off, the euro is moments away from going down the gutter. As you can see here, this is a monthly chart based on monthly data, and we’re really just moments away from the euro tanking all the way into late September before it can get any relief. There might be a bounce in July, a bounce in September, but the euro is moments away from collapsing.
And I can see it in the day-to-day trading in the euro when I sometimes day-trade currency on the foreign exchange market, or forex. The rallies cannot be sustained in the euro. Every rally is just fading away.
So that is constant bearish action. It tells you there are big sellers over ahead in the euro and conversely the dollar, every time it tries to go down now, is being bid back up, telling us that there are big buyers at the 94-95 level in the dollar index.
So you can see these things starting to form. It is indeed very frustrating to have to wait patiently through moves like this but, again, I have no doubt that we’re on the right side of the markets. And moments from now, things will start moving our way and you’ll be shocked at how quickly we can rack up the profits.
Mike: Indeed these markets can move quickly. The next chart here you have crude oil which is up over 3% today, trading above 44.
Larry: Yeah. Oil is even stronger than I expected. I’ve shown you this oil chart before. I believe oil is headed easily to 52. We’re up at 44 right now so we’re gaining on this chart which was produced last week. We have a little dip going into May 9th, but the high should come around May 23rd. We have about a month from now where we should see oil near 52, as high as 55. We are in the USO position, and we have options I will probably roll forward but we are going to stick with oil because there’s a lot of money to be made there and I may even add some new positions.
Mike: How about the stock market, Larry? A lot of questions about that recently.
Larry: Well, defying gravity. It certainly looks that way. Certainly it’s been defying gravity for over a year quite frankly. Yet every time it gets above 18, it sells back down. I’ve mentioned for over almost a year-and-a-half now that 18,500 is a brick wall for the Dow and it has held the Dow for over a year-and-a-half and it has repelled the Dow for over a year-and-a-half. Most stocks, mind you, are in bear market territory. It’s just the big blue chips that are keeping the Dow and the S&P 500 near their record highs. But, as our colleagues at Weiss Research, Mike Larson and others, have pointed out, this market cannot sustain these levels and it will not go any higher until we get a pullback.
So I am still very bearish on the stock market, expecting worst case the 13,900 level going into October, perhaps September, I mean early July as you can see on that first major dip. But it’s not going to be easy. The important thing to notice on this chart is that this also looks like it’s ready to turn down. The stock market looks like it’s ready to give up the ghost and head lower into July, bounce into September, and then back down into October. That is the overall pattern. So if we get confirmation that this pattern is unfolding, we will add more bearish positions to the stock market. You can bet on that because it’s going to be a hard down fall.
Now, reviewing a lot of these charts at once, what are they telling us? They’re telling us a) we’re on the right side of the markets, b) they’re telling us that we are moments away from this sideways period finally ending and a major trending period in our favor resuming. So this is not the time to give it up. This is not the time to turn away from the markets, be frustrated, desire to go the other way, pull out, or what have you. This is the time to brace yourself for action that’s going to line your pockets, and I am not saying that out of wishful thinking or hopeful thinking or out of an agenda to keep you on board.
It’s plain and simple. Markets go through periods where they have enormous moves like we saw in December of last year and January and February of this year, where we made a lot of money. You give it back during sideways periods, and then you make a bundle more during the next trending move, and we are just about to do that. So hang in there. The markets are going to be going our way and our time is coming and I will do everything within my power to maximize the profit potential.
So let’s go now to your questions which I always enjoy and we have quite a few coming in from everyone.
Mike: Indeed we do, Larry. We have a number of questions in the queue already, and I’d like to encourage our listeners to send any questions or comments for Larry our way. We’ll do our very best to tackle as many as we can.
And we’ve seen a few questions like this one from Steve we’ll lead off with. Steve says, “Hi, Larry. I’ve been following you for years and have been very satisfied with your calls on trend changes and market timing. However, lately your models, excluding oil, seem to be off in their timing. I know there are a lot of tricky crosscurrents in play but in the past your models take this into consideration. Why do you think your models are off on gold in particular? Thanks.”
Larry: Well, I don’t think they’re that off. If you look at the charts we just did go through, they’ve been pretty much on the target. I think where we went wrong or I should say I went wrong is not allowing for more sideways action. There’s been more sideways action and eating up of time than I had originally expected. So I think that is the issue and we then have to ask the question, why have the markets been spinning their wheels for so long? My best guess is that it has a lot to do with the election process going on here and overseas.
We are looking at our silly insane electoral process and race for the White House that’s going on with Donald and all the name calling and everything that’s going on but there are important elections forming in Germany, in Spain, in Italy, in Canada. There’s a political revolution going on all over the world, and I think that that is really what is tripping up the markets and sort put them in suspended animation until there’s some resolution there. I’m not saying that we’ll have to wait until November for the markets to move but I do believe that my models, if you will, have underestimated the influence of this year’s political cycles occurring all over the world, especially in the United States.
Mike: Okay, here’s another question, let’s see, from one of your members. He says, “As an institutional trader on the trading desk in 1987, during the Black Monday crash – wow, what a ride – I see many parallels in the market to then and now, yet not much is being said about that. We’d like to hear your thoughts on those parallels.”
Larry: Well, I don’t see the parallels. If you want to make parallels, you can certainly make parallels using all kinds of statistics. I don’t see the parallels to 1987 because we don’t have a major currency war occurring like we did between 1985 and 1987 between the U.S. dollar and the Japanese yen. We had the Plaza Accord, where the United States and Japan got together and openly announced that the dollar had to be devalued against the Japanese yen, and that set the stage for the 1987 crash. We don’t have that now.
We have currency wars going on, but we don’t have one single currency war that I could point at that would trip up the markets in a 1987-type of way. And we don’t have overvaluations like we had in 1987. In reality the Dow or the S&P 500, they’re not overvalued. I can make a strong case that they’re either fairly valued or undervalued. So I don’t see the parallels there. I’m sorry but I just don’t see them.
Mike: Okay, here’s a question from John. He says, “Hi, Larry. GDX, a gold mining ETF, has almost doubled since February. Is there a reason we aren’t participating in this with Supercycle Trader?”
Larry: Yes, there is a reason. There are two reasons actually. It got ahead of itself and, therefore, I didn’t want to jump on board. I do not like to get into markets that get ahead of themselves. Typically when they get ahead of themselves, it is simply a matter of short covering. It’s an oversold condition, and there’s a lot of short covering going in and then you get neophyte, what I call unsavvy or weak money, jumping on board, driving it even higher and you may indeed have seen the first run-up of a new bull market in mining shares just like we saw in gold but that is not the time to jump onboard.
The time to get in is on the pullback. The first pullback in any new bull market is always the best way to enter that market. It gives you the lowest-risk entry points rather than picking a bottom, and it gets you in to the second major leg higher, which is often the strongest.
So it is okay if you’re an experienced trader and analyst to let a market run away from you as long as you know what you want to do when that market pulls back. And as I have been saying in Supercycle Trader and especially in Real Wealth Report, the first pullback that comes in the physical precious metals and in the mining shares is where we are going to just back up the truck and load up our ammo. So be patient. Don’t cry over spilled milk. It’s not going to get you anywhere and be ready like the smart money to buy that first pullback.
Mike: Okay, here’s a question from James. “You mentioned recently that you would not be recommending junior miners, only the majors, to Supercycle Trader members due to the poor liquidity in many smaller gold shares. I understand you will not make official trades with the junior miners, but at some point could you speak broadly to us about the group so that we might be able to consider those names in our personal investing?”
Larry: Well, absolutely. In fact, I am working on a research report that you will receive that talks about this particular situation and some of the junior miners. Every dark cloud has a silver lining. There has been a dramatic change in the mining sector. Companies that used to be senior miners are now junior miners and even smaller. And what we’re going to see in the next bull market in miners, which is starting, is a whole new crop of junior miners that you’ve never even heard the names of become senior miners and other senior miners become junior miners. Things are shifting in the mining sector quite dramatically.
The seniors still have good potential. In Real Wealth Report I did lay on a couple of mining stocks a few months ago just to get Real Wealth members’ toes wet. We bought FCX, Freeport-McMoRan, and Agnico Eagle and we just excited with 40% and 50% gains over a few months, waiting for the pullback where I’m going to load up again. But in Real Wealth Report I’m looking for mining shares that be held for years. In Supercycle Trader I will be looking for mining companies that we can trade in and out of in the course of days and maybe a few weeks, and there will be plenty of them.
However, the juniors, the real juniors these days, I could personally go in and trade them and move the markets just with my own capital, and that makes it very difficult for us as a group to go into them. We’d be pushing the market all over the place, and that’s not going to be good. So we’re going to seek out alternatives and that will be mostly in the big volume seniors where we’ll be taking advantage of options in the seniors for short-term moves.
Mike: Makes perfect sense. I can’t wait to see that research report of yours that you’re working on. Here’s another question from Don. “Larry, what is going on with the euro and natural gas? I’m currently losing a lot of my meager investment dollars, having invested in these areas.”
Larry: Well, natural gas has made a nice run, and it’s going to continue to run higher along with crude oil. So I’m very optimistic about natural gas over the next month or two. We may have to make some adjustments to the SCT portfolio to take better advantage of it but I’m very pleased with the way natural gas is forming a new bull market.
The euro, the euro is just in one of its sideways fake-out moves. It is on the verge, as shown on the chart I just showed you previously, of collapsing down to at least 1.08 on the first leg down coming out of this sideways period and then 1.05 and by the end of the year, I actually expect to see the euro below parity to the dollar down around 0.94. Europe’s in big trouble.
Mike: Here’s another question from Fran. “Hi, Mr. Edelson. Please discuss UVXY, how it works and what it does for our portfolio. Thanks.”
Larry: UVXY is a volatility ETF. The more volatile the stock market, the higher UVXY rises. Interestingly enough, the sideways period, all the ups and downs that we’ve seen in the stock market over the last few months, you would think volatility would be increasing, but it really hasn’t been. So we’re probably going to see volatility increase when the stock market takes a turn back to the downside and we will be ready to jump all over that.
The sideways action we’ve seen in the stock market’s really pathetic. And by the way, yesterday’s volume in the stock market was the lowest volume on record for the year and we’re not even into summer yet. Normally you see the kind of volume numbers that we saw yesterday in July, August. Now, I’m not saying volume’s going to continue to decrease. It’s actually going to pick up very soon but it’s a sign that there’s been a heavily sideways curse on the market for the last several months, and there are not many investors in the market, institutional or otherwise. That’s shortly going to change.
Mike: Okay, another question from Peter. “Hi, Larry. Thanks again for your excellent analysis in this chaotic world. It is very reassuring. I just cannot understand why the Australian dollar is firming against most other currencies. Can you please clarify the situation for me?”
Larry: Yeah, that one’s simple. First of all the Aussie is a natural resource currency. We’ve seen, just as I predicted last year, what I call the rolling thunder of commodity bottoms. In January or March of this year, we’ve seen bottoms start to take effect in everything from gold and silver and copper to the grain markets and so on and so forth. So we’re getting those bottoms into place. We’re getting rallies in commodities, hence we’re getting a rally and strength in the Aussie dollar. That’s the first reason.
The second reason is, for all of those of you who read my Real Wealth Report, what is the latest talk about China? China’s economy is indeed improving. It’s getting better, it has achieved the soft landing, demand is picking up, etc. Australia and China are joined at the hip. So as China improves, so will the Aussie dollar.
Mike: Okay, speaking of China, we have a question here from Omar on that subject. “Business magnate George Soros said recently that China is evolving into a debt and credit crisis similar to what the U.S. had in about 2008. Do you agree and why?”
Larry: No, I don’t agree at all. I’m sorry. Mr. Soros is a very, very smart man but I don’t agree and I’ve been asked this question a million times before. The reason I don’t agree is because it is still largely a closed economy. It is still largely a communist economy. The debt that is created is created with the stroke of a pen and it can be erased with the stroke of an eraser. It is not an open economy. It is not public versus private debt. It is a closed system. So whenever you hear about debt-to-GDP is something like 380% in China now, it’s a fictitious number because it can be wiped out at the stroke of a pen, unlike our debt, which is owed to somebody else, American citizens or foreign creditors.
Ask yourself, who owes whom in China? Okay, the government lent $10 billion to this real estate developer to build a ghost city. It looks like a ghost city today but in three years it’ll be full of people and commerce, okay? Let’s say it is a ghost city, and there’s $10 billion sitting idly there. It’s the government owing the government money. It’s one pocket owing the other pocket on the same pair of pants.
That is distinctly different from a capitalist economy where you have two different sectors. You have the public sector and you have the private sector. The public sector can borrow from the private sector and the private sector can borrow from the public sector. And if you overdo it, one or both of those sectors can get into deep trouble
In China you truly still have one sector, the government. It borrows from itself, it lends to itself. It’s a mirror. It’s a mirage. Is that clear? You have to understand that because if you don’t understand that, you’ll never get China right. And it’s amazing to me how many people don’t understand that, even people like Mr. Soros.
Mike: Here’s another question from Janice. “Hi, Larry. You said the stock market still has a decline in its future and you believe oil is going to go up. However, for some time now both markets have been trading in the same direction. So will they be trading in different directions in the future or are we to expect a pullback in oil as well?”
Larry: I believe strongly that you’re going to see a change in that relationship. Remember that relationship is relatively new in and of itself. It’s only maybe a year old, probably less than that, okay? Relationships between asset markets come and go. They change all the time. Don’t rely on it as a trading or an investment tool. Usually by the time it is noticed that there’s a relationship between two markets, it’s usually too late to use it as an investment timing tool or a trading tool and it’s usually near the end of that relationship’s coincidental lifespan.
Mike: Okay, here’s another question from Todd, a good one. He says, “Hi, Larry. I find your cycles work as an excellent and very useful tool, and I want to thank you for helping us employ it. Oil is continuing to strengthen and so is natural gas. Do you foresee additional oil and gas stock buys coming up?”
Larry: Yes, I do and there, like I’ve mentioned about mining shares, I want to buy the next pullback. So I want to be a buyer on the lows. I don’t want to necessarily be a buyer on the breakouts. I will not become, just as an aside, I will not employ a strategy of buying on breakouts until the Dow has broken out above 18.5. The reason for that is you want to be a breakout buyer when the entire market is moving in your favor and we don’t have that right now. So it’s far better to be a buyer of dips than a buyer of breakouts.
Mike: Okay, here’s a question from Manny. “Larry, I’ve heard that the Chinese have created a new yuan-backed currency by their gold reserves. Question’s related to this. Is that true and if so, what is the effect on the U.S. dollar and the stock market?”
Larry: Well, they have not created a yuan-based currency. What they are doing is trading gold in terms of yuan, priced in yuan in Shanghai and some analysts have used that like oil to proclaim the death of the dollar with scary headlines like Beijing out to kill the dollar by trading gold in yuan. That’s not what they’re doing.
What they’re doing is that over roughly a decade, Beijing is working to open up its capital accounts and convert to a fully capital free market economy. In order to do that it needs to restructure some of its institutions and many of its financial markets. So what they’ve done to provide more liquidity for the yuan on the open market is make it tradable in gold. That’s just another step toward making the yuan more of an international currency. It will not dethrone the dollar or anything else.
Mike: Another related question to that comes from Paul. He asks, “Larry, how long can the U.S. dollar continue to be the world’s reserve currency?”
Larry: Well, in terms of lifespan, I give it about four more years. The reason for that is the dollar by itself is not the problem in today’s world. The problem in today’s world is Western government’s inability to confine themselves to a budget. Europe, Japan, the United States, all three of those governments spend more than they take in in tax revenue and they promise more than they can ultimately ever, ever give to their citizens.
That is going to cause the collapse of the existing monetary system somewhere over the next five years. And when that happens, the powers that be will get together – just like they did at Bretton Woods back in 1933 at the World Monetary Conference – and they’re going to redesign the monetary system. Because we are no longer a global economy of G2 or G5 but G20, a much, much more globalized economy that will continue to globalize, it’s going to have to be a more equitable, diversified, fair monetary system – and the U.S. dollar cannot be the sole reserve currency. It’s as simple as that.
There will have to be a new single world reserve currency that is politically neutral. It will have to be administered by the World Bank or the IMF. It will have to float based on a basket of commodities, and it will have to act as a firewall between countries, sort of preventing contagions and financial crises from leapfrogging from one country to another.
This is something that is imminently doable. It is very easy to implement. It is very simple to design. But to get there, we’re going to unfortunately have to have a political crisis that forces the existing leaders in the world to take a good hard look at what’s happening and a good hard look at themselves and say holy cannoli, we’ve got problems and we’ve got to start over and we’ve got to erase the board and come up with a new system before everything fails everybody.
Mike: Interesting analysis. All right, here’s another question from Doug. “Gold should have started its downward move the beginning of April according to your artificial intelligence charts that you published. Does that mean instead of ending in May, it will continue down into June?”
Larry: There’s always a possibility of a timing extension. I see no evidence at this time that that would happen.
Mike: Okay, here’s another question from Larry on the subject of gold. “How about the GLD 118 May 16 puts and ZSL $50 May 16 calls? We’re running out of time. Should we still hold on or roll them forward? I hope you answer the question today.”
Larry: Yes, I will answer the question today. We will be rolling them forward very soon. If not in the next couple of days, by the latest would be early next week. But I plan on doing it this week.
Mike: Okay. Here’s another question related to options. Harlan would like to know: “I do not trade options as yet in my account. Is trading your alternative recommendations acceptable?”
Larry: Of course. That’s why we put them in there.
Mike: That would just be the underlying ETF, correct, Larry?
Larry: Correct.
Mike: Okay, a question from John. “I bought Freeport-McMoRan at $7 on your recommendation. Thank you. But I didn’t buy enough of it. Will I get another chance to add to the position and at what price?”
Larry: Yes. Yes, you’ll get a second chance. That’s the first pullback that I’m looking at. With FCX, probably you will be looking to get in around 8-8.50. I don’t believe we’ll get all the way back to 7. But on a stock that’s heading to at least 30, there’s plenty of profit potential there and that was in Real Wealth.
Mike: Okay, here’s a question from David. “Larry, will implementation of negative interest rates here in the U.S. have the effect of propping up Treasury bonds?”
Larry: Well, they would. That is true in the short run but they would also just worsen the ultimate implosion of the Treasury market here. What’s going on with these negative interest rates is absolutely insane. I just want to comment on it a little bit. It was really put forth a little over a year ago by the economist Larry Summers. He proposed pushing rates negative as a way to try and stimulate spending. It has not worked. All it is doing is making the sovereign debt crisis that much worse because it’s just a very unnatural thing to do to a debt instrument.
Remember, it is not investors who are buying these things and pushing them into such high price territory that they yield negative rates? It is the governments that are pricing them that way. So it is really, it’s like a doctor putting a patient into an artificial heart attack – which is completely unnatural – and hoping that when the patient is revived they’ll somehow be healthier.
It is an extremely dangerous experiment and it is going to fail and be one of the biggest failures of all time. And it will lead to the destruction of the sovereign debt markets.
Mike: Here’s a question from Heinrich. He says, “Larry, if gold goes to 1,180, what would be the projected price for the ETF DUST? Just an educated guess, but I would guess about $7 again. Is that anywhere close to your thinking?”
Larry: I have not projected it out but I’d say somewhere, depending on how sharply mining shares fall, I would say you’re probably about right, 6.50, 7.50, maybe even 8 in a panic.
Mike: Here’s a question from Bob. “Since most of the fundamentals in your models indicate a market drop and since it has kept going up, does this tend to indicate that the longer it waits for the decline, the bigger and quicker the drop will be?”
Larry: Yes. Normally that is the case and a very astute observation there, especially if there’s no sign of a cycle inversion – and there is not any signs of a cycle inversion occurring in any of these markets. It’s like Wile E. Coyote, the old cartoon, suspended in thin air and looks down and finally realizes there’s nothing underneath and then just crashes.
Mike: The Wile E. Coyote market, I like it. Here’s another question from Jim. “Larry, you’ve talked about gold and the dollar rising together at some point in the future, however, currently it seems gold has been exclusively correlated to the weakening dollar. Is this correct or are there more forces at play causing gold to rise?”
Larry: Well, if you look earlier in the year, the beginning move from 1,044 in gold last December into January and February up to 1,180, then 1,200, the dollar was rallying at the same time. Gold and the dollar were going up at the same time. It’s only been this recent sideways period where you’ve seen the dollar weaken a bit, gold goes up, and vice versa. Longer term, I expect to see more and more periods where the dollar and gold rise and fall together. They will start correlating much more closely.
Mike: Question from David about gold miners. “Do you think we are seeing a correction in time for the miners to be followed by the next leg up or do you still a significant price correction and decline?”
Larry: By a correction in time, you mean a sideways correction before the next leg up?
Mike: Yeah, I think that’s what he means.
Larry: No, I don’t. That is one way a market can correct and work off overbought conditions is by simply trading sideways. However, the nature of the rally in the mining sector, the permutations that I saw occurring in volume and short interest and short covering all tell me that the rally that we saw in miners is not a market that will be corrected by sideways action and instead by a pullback of at least 50%, probably much more.
Mike: Here’s a question from David. “I signed on with your service, Larry, because I really like your approach and scholarship when it comes to financial markets. However, I have to admit I’m somewhat disappointed with the losses in some of the May options here. Please tell me something to give me some hope that we’re going to turn things around soon.”
Larry: Well, as I mentioned earlier, we’re on the right side of all these markets. I’ve also mentioned that it’s been very frustrating for all of us. I think everyone on this call can certainly relate to how frustrating it has been, can relate to the losses on the open positions in the portfolio. I certainly do and I certainly at times lose sleep over them.
My number one goal is to turn it around and I know that we will do so and I know that we’re on the right side of the markets in order to do so. So all we need right now is for these resumptions, major trend resumptions, to occur and it’ll come. Three months of sitting and watching these sideways positions go nowhere but down, will turn into one week of explosive profits.
We have been there before, folks. If you remember in third quarter of last year, we were down and then I think it was a two-week period we came out of the hole. We had seven positions that were in the red and a week later we had seven positions that were in the green in a pretty big way. We will come through it.
Mike: Here’s a question from Martin. He says, “Hi, Larry. Any thoughts on other energy source cycles like such as uranium or coal? Are these anywhere near following other commodities higher?”
Larry: Coal is dead. Forget coal. Coal is being phased out by China, and it’s certainly being phased out by Obama and Hillary, should she get into office. They just want to shut down all coal. I think coal is a nothing sector unfortunately right now, and I don’t see it coming back. Uranium is going to make a comeback. There are very few uranium stocks to take advantage of it but when I do see an opportunity, I will certainly jump all over it for you.
Mike: Now, here’s a question from Ken. He says, “Larry, has silver bottomed yet? If not, when do you expect it to bottom and at what level? What about miners and gold?”
Larry: Well, as I’ve said all along I believe gold bottomed at 1,044 or 1,043 on December 3rd of last year. I believe silver bottomed at the same time. I don’t have the exact price in my head, just under $14 I think it was.
Okay. I think silver’s going to pull back to the 14.50 level and that will be the equivalent to getting into gold at the 1,160-1,180 area. As far as mining shares, yes, I think they have bottomed but they are subject to a pullback of as much as 80% going into the end of May and that is where you want to back up the truck. It’s not an unusual pullback. Most pullbacks are in the neighborhood of 61.8% Fibonacci or 78%. So somewhere between 60% and 78% would not be… That would be a totally normal pullback. Anything more than 78%, then I would begin to wonder if they truly had bottomed.
Mike: Hmm. Here’s a question from Mark. “Hi, Larry. Thanks for your great analysis. Even I wasn’t following your recommendations for Supercycle Trader, I’d still want to be in the loop just for your analysis of the markets. My question, is the new ETF offering OUNZ, o-u-n-z, similar to PHYS, just another way to buy paper gold but with options to deliver the physical product? Will you be recommending these types of instruments in the service going forward?”
Larry: Yes. Yes, more from a trading point of view but also in my Real Wealth Report for a buy and hold longer term type of position.
Mike: Dan asks, “Hi, Larry. Thank you for everything. You’ve helped tremendously steer me clear of the market wanting to part me from my money. Here’s a question. For years now I’ve read that for long-term corrections, a W-shaped recovery has to be experienced. For instance, you are predicting more or less a W-shaped bottom in gold but not oil. Why the difference?”
Larry: I can’t answer that. I’d have to ask the artificial intelligence model. Unfortunately I haven’t been able to program it yet to give me the answers. It spits out the forecast, and I take it just the way it comes out of the model. As for W-shaped bottoms, I know what you’re talking about. Sometimes markets, they bottom in all kinds of ways. They bottom in a dome-type fashion, a long protracted bowl-type formation, they bottom in a W, they bottom in a sharp V, they bottom in double bottoms. There are many more way a market can bottom than top. Almost all markets top with a spike high and what’s called an island reversal.
For example, you almost never see what you’re seeing. Just the stock market alone today having tested and hovered near 18,000-18,500 for so long and for so many times, that guarantees you it’s not the final high because a market doesn’t top like that. It tops by spiking higher and then suddenly reversing. So there’s really only one or two ways a market tops while on the bottoming side of things, there are many, many ways a market can bottom and bottoms are more difficult to nail down than tops.
Mike: Well, Larry, that’s about all the time we have for today’s webcast but I appreciate all your terrific answers. And if any of our listeners at home didn’t get the question answered that you’d like to have Larry’s thoughts on, feel free to send it to us in the Supercycle Trader editor’s mailbag and Larry’s always very good about answering those individually. Thanks again, Larry.
Larry: Thanks again for hosting, Mike, and, members, thank you very much for your loyalty and your patience. Thank you for being patient with the recent sideways trading action in the markets. You will be rewarded. I am working very hard to turn the service around and bring you lots of new profit opportunities as well. And thank you, again, for attending today.
