Mike Burnick: Hello again, everyone, and welcome back to this special online strategy briefing for Supercycle Trader. I’m Mike Burnick and joining me today as always is of course Larry Edelson. Hi, Larry. Good to speak with you again.
Larry Edelson: I want to welcome everyone to the December event. It’s nice to have everybody here. It looks like we have a pretty full house and I’m going to move pretty rapidly today because I do want to address your recent questions. We did get quite a few so I do have some slides for you and some comments I want to make and then we’re going to go right to the Q&A.
Most importantly we are indeed continuing to see increasing winds of economic change. We’re seeing deflation worsening in Europe with some recent statistics. We’re seeing Germany’s economy weaken further, especially with exports. Just recently Mario Draghi actually disappointed the markets a little bit as far as printing more euros but he did take interest rates further into negative territory. I have no doubt, and we’ll cover that in a few minutes, that he will soon have to print more euros. Japan’s economy, seeing some recent economic stats there, not so good at all and I believe we’ll soon see the Bank of Japan, they waited another month just recently but come the first of the year I wouldn’t be surprised if we see the Bank of Japan also begin printing more yen.
The U.S. economy is not so good but obviously it’s good enough for Janet Yellen to strongly consider a Fed rate hike tomorrow. Now, let’s talk about that for a minute before I go any further. It is my opinion she’s going to go ahead and raise rates ever so slightly tomorrow. The handwriting is on the wall. She’s already been out there and various other Fed members have been out there saying so.
What will be the market’s reactions? It is impossible to say. I will tell you this. I believe that most of the markets have already discounted the fact that she is going to raise interest rates tomorrow. What will happen actually tomorrow in the various markets will depend largely upon the press release statement that comes out around 2 o’clock or 2:15 and the conference that she holds around 2:30 if there is one and I believe there is one and every trader and fundamental analyst out there will be hanging the entire future of the world on every word that she says or every sentence in the press release.
Let me tell you something. It doesn’t matter. It doesn’t amount to a hill of beans. Whatever she does and says tomorrow, it’s already factored into the markets. It will not change the trends. The trends change when they change. It’s as simple as that. And the best way to analyze the change in those trends is through a combination of cyclical analysis and technical analysis. The markets tell you everything you need to know. That’s why I always harp on charts and technical analysis because for every fundamental statistic or what have you or comment from some economist or Fed member, people can interpret it a myriad number of different ways. That’s what makes markets. But if you really want to get through it all and make money, you have to put all that stuff behind you and look at the technicals and the cyclicals.
That said, we’ll probably come back to Janet Yellen in our Q&A. My forecast as far as I’m concerned remains definitely on track. Let me get that slide up there. The sovereign debt crisis is worsening. That’s clear if I look at debt-to-GDP levels all over the globe. In Europe there’s more than $2 trillion worth of European bonds that now sport negative yields. Sweden is moving very aggressively to abolish cash as is France. Switzerland just recently ruled and complied with German tax revenue authorities as well as the U.S. Internal Revenue Service which it’s been doing now for years, and is now divulging the names of all foreign account holders to any governmental authority that asks for it. So you can pretty much kiss Switzerland as a privacy haven goodbye. Why is that happening? It’s happening because there is pressure all over the world from major Western sovereign governments to hunt down every penny of wealth.
And that is why the alternative asset markets continue to be red hot even though it’s almost impossible to get those off the grid these days as well. I’m seeing the diamond market explode higher, art, jewelry, etc. Eventually that will work its way into our tangible markets and commodities, gold, silver, platinum, palladium, and so on and so forth. I just point that out to you because that savvy money, that big, big money and I’m talking about people that can afford to spend $157 million on a painting as we recently saw, that big money knows what’s going on and that big money always moves first.
Okay, let’s go to some charts. I want to point something out. I have done something special for this webinar. You have seen my gold cycle, you know, my cycle forecasting charts previously with a green line on them. That is the neural net artificial intelligence model. That is not the only model that I use. So today I’m going to show you the charts and it’s very important as a learning function for you to understand the difference between dynamic cycles and fixed cycles because sometimes they can account for some of the differences we see in market action.
If you look at this gold chart now, the blue line represents gold’s fixed cycles. That is, definite statistically proven fixed cycles that range from basically eight weeks up to about 16 weeks. They never change. They’re fixed in time. The green line represents the artificial intelligence computer model that then takes those fixed cycles and turns them into, if you will, dynamic cycles adjusting for time and price. I typically show you just the dynamic cycles which tend to be the most accurate but sometimes the fixed cycles have to be considered and that’s why I have those for you today because they can be kind of like an EKG of a heart. You have a sinusoidal rhythm and you have the different rhythms of the heart EKG. When you look at a market you have to sometimes break down the different rhythms to really see what’s going on.
Now, in gold we all know that the cycles originally targeted November 13 for a low. Gold continued lower. I told you that the cycles were stretching to November 25. It continued lower right into just recently and we are hovering not too far off the lows right now. Why is that happening? Why are we not taking off to the upside as the green line indicates? The reason is the blue line. Gold’s fixed cycles show a clear spike low right around January 4 or 5, 2016, early next year right after the new year.
I believe gold is being held back, so to speak, by the fixed cycles which are calling for another move down in the first part of January. Thereafter you can pretty much see going into March they rise together. So that’s additional confirmation that whatever low we get between now and early January we should see a very, very strong rally into March. I hope everybody gets that because sometimes, you know, we have to play a little bit scientist, a little bit artist, a little bit trader, and a little bit doctor to analyze the markets from a cyclical point of view.
Let’s now move on to silver. Silver, kind of the same set up. It looks a little bit different but we had the stretching out of the low in silver just like we saw in gold, yet the artificial intelligence model is pointing higher into, in this case, you know, it points higher into March but here I wanted to show you that it points higher into December 28 while the fixed cycles, the blue line in silver, is pointing lower right into the January 4/5 period of 2016. So it has some conflict there between what the artificial intelligence model is showing and what the fixed cycles are showing.
That is what’s giving you the choppy market. That is what’s giving you no liftoff yet to the upside in silver and gold. Combine it with all those who are waiting for the Fed to make a move tomorrow and you get markets that largely drift sideways and that might be the case for the rest of this year. We just don’t know yet. Based on what I’m seeing here, it looks like we should drift lower in gold and silver into the first week of trading of the new year and then it’s really off to the races to the upside.
Now, let’s move on to oil which we nailed quite nicely in the service with some very, very recent gains that we just grabbed late last week in SCO and in the USO put options. I’m really liking oil because it’s really come very close to fulfilling my long-term forecast of a break below $40. Pretty much nobody believed that but we got down to 35-1/2 just yesterday. This chart is already a little bit out of date. 
But what I want to show you on this chart is that here the neural net model points lower right along with gold and silver into January 4, first week of trading, while the fixed cycles have largely already pointed up in this case starting back in late November. Little bit of a conflict there but the bottom line here is that oil just made a new low since 2009 yesterday. It’s rallied today. It looks like it’s going to drift lower into January 4 and then as you can see from this chart both the blue line and the green line basically start to point rapidly higher going into February. There’s a little conflict in mid February but if you go out into June, July they’re lining up pretty nicely and they’re stair stepping higher together. So it is my opinion that if oil hasn’t already bottomed, it will bottom in early January and take off to the upside.
Now, let’s go to the stock market, the S&P 500 I’m using for the analysis today. I do not have a chart of the euro but we will discuss that in a minute and probably along with our Q&A. 
This is a very important chart in the S&P 500. Here again you can look at the fixed cycles, the blue line versus the artificial intelligence model, the green line. It is spanning, it is basically pointing lower on both the fixed cycles and the neural net into January 4, interestingly right along with gold and silver and the blue fixed cycle is showing some sort of bottom right around the 16th. So we get a little bit of conflict there which is tomorrow by the way, that blue line is showing tomorrow. So that could be telling us we’re going to get an initial rally out of the Fed meeting but then we’re going to plunge into January. In other words we could see both in this case, another rally or attempt at new highs in the stock market and then a plunge into January and then we take off to the upside.
Now, very importantly, time is running out for the market to correct. I have been wrong for almost a year on the market in the sense that the major averages have not corrected. I’m not making any excuses. We have seen a stealth bear market in the Dow and S&P stocks. The majority of stocks are actually down 15%. Some 40% of the entire stock market in the United States is down at least 15%. I’m not saying that to make excuses. I’m just pointing out that we have not by the same token broken up to the upside and it does not look like we will break out to the upside until sometime next year. A correction is still in the cards. We are running out of time.
If the market does not correct by early January and that’s just 3 weeks away, then we should start to see it chip away at the Dow 18,500 level and it is, yes, possible that the market can take off to the upside without ever correcting. It could be a sideways internal correction this entire past year if you will, okay, that basically played itself out and now it’s ready to roar ahead. I will know in early January. I will have a better handle on it and if that’s going to be the case, we will then abandon the bearish side and start taking a strategy towards the long side of the stock market.
We are not going to exit our UVXY position yet because as you can see, this market could fall apart quite easily going into the end of the year and early January. In fact, we could see some tax selling in the last few weeks of this year which may push it down. So for now, we’re not abandoning the bearish side but I am very alert to the possibility that the correction may be an internal systemic correction that we’ve already seen through a stealth bear market and the market may in fact be ready to take off to the upside.
That’s a heads up. Do not go out and buy stocks based on that. Please do not do that. Do not go jumping into the market with your investment funds. It is not a buy signal. I’ll be very clear on that. It’s just a heads up that things are indeed running out of time for the market to fall and the pressure may start to form on the upside in early to mid January. I will keep you of course thoroughly posted.
Now, let’s go right to your questions and Mike as always will host and we’ll cover as many as we can. Obviously we cannot get to every one but we have selected the most important ones and we’ll spend the next whatever it takes to go through them.
Mike: All right. Sounds good, Larry. Great presentation by the way. Those cycle charts of yours are always fascinating to look at to get a glimpse into the potential future for the markets and we do have a lot of questions in the queue.
Here’s a good one to kick off, very timely. Christopher asks, “Larry, if for some reason the Fed lays an egg tomorrow and decides not to raise interest rates, what do you think that will signal to the markets and what will it mean for gold, oil, and the dollar?”
Larry: Well, again that’s anyone’s guess and, you know, I go by the charts and the cycles, okay and they’re telling me that, you know, gold could pop a little bit higher but it’s heading lower into early January. You know, from a fundamental point of view I would have to play mental games with it and if the Fed doesn’t raise rates – I see no reason why they would do that at this point – then you’d probably get a rally in gold with everybody wrongly thinking that oh my gosh, the Fed is going to print money again. But then that rally would quickly die out and everybody would wake up to the fact that she did not raise rates because there’s a systemic problem somewhere and they would go back to the main trend which is gold has not bottomed yet and you’d see the big sellers and the savvy money knock gold back down.
I’m pretty confident she’s raising rates. Let me just add. She has to raise rates to look halfway decent. The pressure on the Fed is enormous at this point. Not necessarily from other economists per se or analysts. It’s the pension funds, folks. That’s exactly what it is. Pensions are going bankrupt all over the country and if she continues to keep rates low we’re going to see pensions go belly up. So she has to raise rates to start to normalize them. Otherwise she’s going to have… She’s going to have it anyway, maybe not Janet Yellen but her successor. It’s all part of the sovereign debt crisis: pension funds, municipal funds, all kinds of things. She has to signal that she’s got to raise rates and start normalizing them at this point.
Mike: Oh, good information, Larry. Thanks for expanding on your comments. This question comes from Zane. He says…
Larry: Mike, I’m sorry, one other thing. I’m sorry to interrupt, everybody. What she should do is raise rates slightly and she should take away from the banks the 0.25% interest that is paid to excess reserves that are deposited with the Fed. She should penalize the banks for not lending. That said, let’s go to the next question.
Mike: Okay, this one from Zane. Zane says, “Talking heads have been stating that there has been the Santa Claus rally where large cap blue chip stocks have risen in value nine times out of the last 10 years. Do you think there will be a Santa Claus rally for stocks this year in the remaining weeks of the year or will the Grinch take away the Christmas rally?”
Larry: Ah, it’s impossible to say. I can just tell you what the cycles say. We probably should head lower or sideways into early January and then if we haven’t seen the major averages succumb to what’s happening internally to the market, then you’re probably going to see again, you know, a take off to the upside. But let me perfectly clear. The next leg up in stocks will not begin until the Dow can close above 18,500 on a solid basis – I mean like, you know, by 100 points or something like that – on a daily basis and on a weekly basis. Then you’re off to the running. So we’re not there yet. We’re just not there yet but time is running out. As far as the next couple weeks, who knows? I would say the bias is definitely lower otherwise I would not be keeping the UVXY position.
Mike: Okay. This question comes from Doug. He notes that, “Iran will soon be selling millions of barrels of oil on the market in early 2016. Don’t you think that will keep the pressure on oil as possibly trading between $25 to $30 a barrel?”
Larry: Well, that’s the logical thing, right? I mean that’s what logic tells you but markets are not all that logical. There is order within the markets but markets work on anticipation and everybody knows about the Iran oil coming on the market. So the market has probably already largely discounted it. That’s why, you know, it’s probably going to be… This is how fundamental analysts and investors lose their shirts. They figure Iran’s going to flood the market with oil. It’s coming on line 2016 so I’m going to go short oil and guess what happens? They lose their shirt. Oil rallies. It defies all logic. Why? Because it’s already discounted it. It’s already figured out that that oil is going to be in the market. That’s why it’s already hit $35. So you’ve got to be very careful with fundamental analysis.
Just like a company announces great earnings and the stock goes down. Or vice versa. I mean, fundamentals can really… More people lose money trading and investing off of fundamental analysis than anything else. Next.
Mike: How true, how true. Here’s a question from J.R. “Are you perhaps a year or two ahead of time on the demise of the euro?”
Larry: I don’t think so. And I’m glad we got to this question. The euro is certainly very weak. It has bounced a bit higher than I expected. We do have some put options that were ill timed in the sense that we put them on and the euro rallied. Mario Draghi caught many investors, big investors and traders, Goldman Sachs even, by surprise by being a little bit tame in his most recent ECB meeting and that’s why the euro rallied. But it hasn’t gotten above 110 but for a brief few minutes and the bounce in the euro from 104, 105 while it sounds big, it’s a fly on an elephant’s butt. It is a tiny little rally. When you step back and I’ll show you a chart in the next issue, the bounce in the euro is pathetic. The euro is going to head back down. The cycles point lower into January meaning the dollar should start to soon rally again which of course will put pressure to the downside on the stock market and gold and silver going into January.
As far as longer term, the euro’s going to break up. There’s no question about it and it’s absolutely on target for 2020.
Mike: All right, here’s a question from Paul. Paul notes that, “Larry, you’ve been calling for a market correction for some time now and so have others. Every time it seems like one may be coming, the stock market rallies again. Does this mean we will need a disaster or some sort of disturbing economic news such as problems in China to lead to the pullback next year that you’ve been looking for?”
Larry: Well at this point, as I said earlier, we are running out of time for a correction or major pullback to occur in the major averages and I think it’s pretty clear to everybody. This is a strong market on a long-term basis.
I mean, it should be clear and it should be clear from, you know, a fundamental point of view which should not be used for investment or trading purposes. You have to have a vision but for timing your investments you need technical analysis and cycles. But from a world view and a geopolitical view, the capital is pouring into the United States. It’s pouring into real estate. It’s pouring into our stock market. It’s pouring out of Europe. It’s pouring out of the Middle East and it’s even pouring out of China not so much because of the economy there but because for the first time ever, wealthy Chinese can convert their yuan to other currencies and diversify.
Now, some of that money coming out of China is crooked money. We all know that. But some of it is legitimate money as well and this is why I said all along that when the yuan becomes part of the reserve system which it is now, a small part, a very, very small part, it’s not going to knock the dollar down because nobody ever talks about all the money in China. There’s $21 trillion in savings in China and that’s going to start moving around the world and out of China for opportunity. So you’ve got to look at both sides of the coin there and, you know, the euro’s in big trouble. Capital is coming here. Capital is clearly coming here from the Middle East. Capital is coming here from China.
There was recently an article about the average price… It was in The New York Times. The Chinese money that’s pouring into the U.S. real estate market, it was originally going mostly into places like Manhattan and LA. Now it’s spread out into Austin, Texas, and it’s big money. There was an analysis done by The New York Times that showed that the average real estate transaction by a Chinese investor is $834,000 compared to $246,000 for other investors including U.S. investors. That’s big money, guys and gals.
Mike: Indeed it is.
Larry: So that’s what’s driving our market. Yeah and I’m sorry to be long winded so let’s go to the next question.
Mike: All right. This one comes from Sam. Sam says, “Hi, Larry. Some other precious metals forecasters are predicting a major low a lot closer to the presidential election next year.” And Sam notes that, “Since 1976, a major low has formed within just a few months of the election every eight years, each time without fail.” What are your thoughts on that?
Larry: Well, there is an eight-year cycle that has been documented in gold – I believe it’s 8.6 years, not quite sure – by Martin Armstrong and it’s not the same as his economic confidence model. But there is really an eight-year cycle in gold roughly speaking. Some call it the presidential cycle. I don’t particularly think it’s the presidential cycle because you can develop these theories and look at the history and say oh, okay, it made a low every time. But what low did it make? Did it make a lower low in a bear market or did it make a higher low when it was in a bull market? There’s a distinction that needs to be made there.
In the present case, my cycles show that we’re headed higher into March, pull back into August, and then higher into the end of 2016. So maybe we’ll pull back right before the elections. I don’t know. Based on how the electoral process is going right now with Donald Trump and the characters that are running for the next president of the United States, I wouldn’t be surprised to see all hell break loose which would be bullish for gold. So we’ve got some real characters there, you know?
Mike: Absolutely. It should be a fun year next year for the election.
Larry: Okay, next.
Mike: All right, this one comes from Lothar. He says, “Hi, Larry. I appreciate your work. So might this be a good time to get into oil and gas leveraged ETFs in anticipation of crude oil bottoming?”
Larry: I am looking very closely at them and per the analysis I did a little bit earlier about oil, I believe oil is in a bottoming process right now. I do want to wait until the first of the year to see that January 4 low come into place. It may be a new low in oil or it may be some sort of double bottom with the low that we saw yesterday. But I’m going to be patient and cautious.
Now, just a quick note on that. Everybody loves action in the markets. I know you all want more trades but that’s not the way to build wealth. You’ll get more trades when the time is right. Between now and the end of the year is not the best time to add positions. I will add them based on signals and that’s the defining criteria.
Mike: Okay, makes sense. Yeah, a lot of false moves this time of year with the light liquidity around the holidays so got to be careful. This next question comes from John. He says, “Hi, Larry. Could you please advise your outlook for Aussie in the future, the Aussie dollar?”
Larry: Aussie should be bottoming. I’ll try to update that in an upcoming issue because I do like the Aussie longer term and it being a commodity currency, it should be bottoming in early January along with gold and oil and silver and so on and so forth. By the way, miners and the mining sector is also lining up for a January bottom, a little bit extending into February and as you know the mining sector has been literally destroyed over the last several years, losing as much as 90% of its value so we’re going to have some fantastic trading opportunities there as well.
Mike: Okay. Here’s a question from Eddie and, I know you’ve already addressed your outlook on the euro but we’ve gotten a ton of questions specifically about the February 16 calls on EUO because it’s dropped a little bit since you put it on. So basically they’re asking, “Would it be wise to double up on this, the number of contracts at this point in time since it’s cheaper or what’s your strategy going forward for that particular position?”
Larry: Yeah, they’ve dropped more than a little bit. They’ve dropped a lot. You know, let’s not mince any words here. That’s not fun but if you will recall, our biggest winning trades over the last few months have been options, a 121% gain previously on the euro and just recently slightly over 100% on oil and in both situations both of those options were down substantially before they took off. As good as cycles are at helping with timing nothing is perfect and sometimes, you know, we’re going to get stepped on or our timing is going to be off so to speak. We have plenty of time left. The euro is very weak as I mentioned earlier. We could easily see the euro crap out starting tomorrow, depending on the Fed’s statements. I mean, the euro is very weak. The dollar is very strong. It may be a pivot point or a tipping point if you will, the Fed meeting today and tomorrow, for the dollar and for the euro. So I think we’re fine. If I see an opportunity to double up and I get a legitimate signal to do so, I will advise accordingly.
Mike: Okay. Here’s a question from Joseph. “Dear Larry, I have never bought physical precious metals in any form. Could you please advise the best way to go about doing that? PS, thanks for the great job so far.”
Larry: Well, you’re welcome. Buying physical precious metals is not part of this service. This is a speculative service. I have put out there my favorite dealer just recently, Hard Assets Alliance, and if you are not a subscriber to my Real Wealth Report, you are entitled to a free subscription for one year. That is covered… Real Wealth covers your core money and physical precious metals. So I urge you all to follow my signals for your core wealth in precious metals via the Real Wealth Report.
Mike: Okay. Here’s a question from George. “Will there be a time when we will play the swings in the Chinese markets and if so, what timeline would that be?”
Larry: Yes, I’m looking at that. The liquidity in China naturally kind of dried up with the bear market that they experienced over the past year and a half. The liquidity is starting to come back. I do believe China is in a new bull market. It’s bottomed. In fact, it’s up quite substantially from its August lows. It’s just pulling back recently just a little bit and I believe China will more than double over the next three years. So I am looking at more and more China-based ETFs for trading, yes.
And ADRs by the way, traded on the New York Stock Exchange.
Mike: Right. We’ll look for that. Here’s a question from Scott. “Looking at the Dow Jones Industrial Average over the last year or so, there has been a dome shape forming. Does this particular pattern have any significance in your models?”
Larry: I know what you’re referring to. You know, some people call it a dome. Some people call it a possible head and shoulder formation, forming a right shoulder now. You know, I don’t really buy into a lot of those textbook technical analysis formations because more often than not, they’re wrong. I use median line theory which was developed by a nuclear physicist and Roger Babson and I use cycles and I use what I have called my, for lack of a better term – we have some students on here from my coaching class from last year – I call them Larry Lines. They’re lines I developed that act as a… Because I’ve never seen them anywhere yet they work wonderfully and I just capture important highs and lows and alternate them and find swing points and fulcrum points in the market and cyclical points and they work very well. I learned a long, long time ago that a lot of these things really, head and shoulders formations, trend lines… Trend lines are just useless. They are totally useless unless you know the right way to draw them. Head and shoulders formations can fake you out more times than they’re worth. So I developed really a lot of my own charting techniques.
Mike: Okay, we have quite a few questions here about natural gas which has really been pummeled of late as a number of people note here.
Larry: It sure has.
Mike: “What’s your take on natural gas in the year ahead? Is there a bottom that you foresee ahead with that, similar to crude oil?”
Larry: Yes. I’m glad we brought that up. It’s lining up with crude oil. We are very close to a bottom in natural gas, very, very close and I am looking at the long side there as well. So to reiterate, I am not going to play a move down in oil and natural gas into the January period basis the cycle charts that I just showed you. There’s not enough move there. If we go from 38 to 34, you know, in oil sounds like a big move but we’re too close to the bottom to be shorting and taking out bearish positions.
So I’m looking to buy into a pullback now, a double bottom or a new low if it comes in early January and get aggressive on the long side.
Mike: Okay, couple more currency questions here, one from Jan and one from Michael. Jan would like to know, “You just talked about the Aussie potentially bottoming. Do you feel the same way about the South African rand?” And also Michael wants to have your forecast on the Canadian dollar. “Has it bottomed?”
Larry: Canadian’s lining up with the Aussie basically. It’s forming a bottoming process based on commodities and if you’re a Real Wealth subscriber you know that I’m forecasting a rolling thunder of commodity bottoms that stretches all the way out to March. That would include the Canadian.
And the Aussie and New Zealand by the way. As far as the rand goes, I need to take a better look at it. I know it’s been, you know, pretty beat up recently. I can’t say. I have not looked at it in a couple of months actually. So I will take a look at it.
Mike: Okay. This question from Steven, actually a couple of similar questions about the recent stress in bond markets. Steven asks, “Do you feel the junk bond collapse over the last few weeks is contained or does it cause you some pause that it might be the canary in the coal mine for a new credit crisis?”
Larry: Well, there’s certainly a lot of talk about that out there in the media. Our own interest rate expert, Mike Larson, is really doing a great job pointing out the problems there and I do agree that we have a crisis in the high yield market. So far it has not spilled over into really any other market. I’m not sure it will at this point. It’s hard to say but I do know that the sovereign debt market is in big trouble. Not as much trouble as the high yield, naturally of course. But the sovereign bond market… I mean with Yellen raising rates and we’re going into a sovereign debt crisis, anybody who’s long government bonds should have their head examined in my opinion. Sorry to be blunt. I’ve put that warning out there before now. Go ahead, Mike.
Mike: How true. Yes, you have been warning about that. The next question comes from Christopher. “What is your take on the colossal amount of debt for oil related companies and the price of oil below their industry break even production cost of about $55 a barrel? Apparently only about 10% of the oil industry is even hedged for next year. Would that keep a lid on crude oil prices in your view and stocks?”
Larry: Well, you’ve already seen I think close to 11% of the total oil and gas sector basically go bankrupt so to speak. I mean, I think the latest number is 11%, public and private. You’re going to see more bankruptcies. The fact that a lot of them have not hedged is a wonderful thing because if oil starts taking off as I expect it to, they will quickly go back into profit mode. The worst thing you want to see with gold miners or silver miners or oil production companies is hedging. You don’t want to hedge when prices are low. You want to hedge when prices are high. So those that have been able to survive the carnage with good management, relatively low debt service, good reserves or resources, and have not hedged are the ones that are going to be the winners in the mining sector and in oil and gas.
Mike: Okay. Here’s another question from Louis. “What will be the effect of war with radical Islam on the various markets?” Going right to your cycles of war studies.
Larry: Well, we already have it. Long term it’s very bullish for commodities. It’s very bullish for oil and gas, long term. Everything has a time and a place. We have that rise in the war cycles ongoing. The initial reaction to it was risk off. Let’s get out of the markets and go into cash. That’s what the big money did. At some point that’s going to flip. It’s starting to flip now in my opinion and there’s going to be a risk on mentality when they realize that it’s just a situation that isn’t going away and it’s going to get worse.
And you’ll get a risk on back into tangible assets and commodities and that’s starting to happen and then, you know, it’s fascinating as an investor and trader to watch these things unfold and it’s fascinating because I have a cultural economic anthropological background. What is previously considered bullish can all of a sudden become bearish for the market. It’s interesting to see the psychology change and what was previously bearish all of a sudden becomes bullish. Nothing has changed in the sense that we still have ISIS and it’s ongoing. But in the future you’re going to say oh my gosh, you know, there’s been another terrible incident wherever and you’re going to see gold skyrocket whereas previously you’d see it sell off. The social psychology of this is fascinating when you’re a long-term observer and trader of the markets to see how this unfolds and that’s one of the most important things I can convey to you is how to understand how markets work because it’s fascinating and it’s not what you think it is. It flips and changes all the time.
Mike: Interesting.
Larry: And I don’t mean up and down. I mean the psychology behind it.
Mike: That’s indeed what makes it a market as sentiment shifts all the time.
Larry: Yes.
Mike: Here’s another question from David. “If Japan is going to print more yen, will we play the downside on that?”
Larry: Absolutely.
Mike: All right, here’s another question from Fran. “Any update, Larry, about the soft agricultural commodities, corn, soybeans, wheat, etc.?”
Larry: They’ve had a bit of a bounce lately. That bounce is giving way. I expect a January… pretty steep selloff going into January, a rally, and then ideally the final bottom for the grains in the March, late February, early to mid March timeframe. The bottom line is they have not bottomed. The recent bounce is nothing but a bear market bounce.
Mike: Okay. There’s probably time for one more question. Here’s one from Christopher. He asks, “Do you anticipate going long again on call options for the U.S. dollar?”
Larry: Yes, absolutely and it could be tomorrow. We’ll have to see once the noise and the dust settles after the Fed does and says whatever it’s going to say tomorrow. These events, most events that the market tends to swarm around can sometimes be tipping points. They can line up with the cycles, I’ll grant you that. But they never change the trend. What they do is cause a tremendous amount of noise and static in the markets and a lot of fundamental traders to lose their shirts. So I tend to, you know, stay away from those periods and let the dust settle and then see what my system is telling me.
Mike: Very good advice. Well, that’s about all the time we have for today but if we weren’t able to get to any of your questions of if you have a question for Larry in the future, please remember you can always submit them directly on the Supercycle Trader editor’s mailbag function. We have a link right on the members only website. You can go in there when you look at your issues, enter your questions, and send them our way and, Larry, you do a great job of addressing those questions both one on one and in future online briefings. So thanks for your time and your insights today.
Larry: Mike, thank you for helping out and to all the members, thank you for joining today and we had some good trades and I will do my best to keep it up and I think we’ll have some winners very soon.
