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March 2018

Big Picture Perspective:

Consider the 30-year graphs for gold and silver.  Both peaked in 1980, corrected for 20 years and bottomed in 2001.

Following 9-11, official U.S. national debt substantially increased, while the actions of the U.S. government, Federal Reserve, and commercial banks continually devalued the dollar. Bond markets extended their multi-decade bull run (yield decline) and stock markets are making all-time highs.

To levitate the stock market, total debt securities per the St. Louis Fed, have increased from $16.7 trillion in 2001 to over $41.8 trillion in late 2017.  Gold and silver have risen along with debt, bonds, and stocks.

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                                   9/30/2001                10/31/2017        Ratio

10 Year Yield               4.57%                           2.38%

DOW                             8,847                             23,377             2.64

Gold                              $292                              $1,270             4.35

Silver                             $4.67                             $16.69             3.57

Official national debt, all debt securities per the St. Louis Fed, most stock markets, and consumer prices have risen exponentially.  Some prices, such as health care, have risen rapidly, while prices have declined for televisions and other items.

Why?  Dollars are created by the trillions as debt.  Every newly created dollar devalues existing dollars, SO PRICES RISE. The powers-that-be like the system and pretend to care about the middle and lower classes, but material change is unlikely.

PROTECT YOUR SAVINGS, RETIREMENT, AND PURCHASING POWER:

  • Recognize that dollar devaluations will continue. Prices will rise.
  • Place savings and retirement funds in assets that rise faster than purchasing power declines, such as most stocks for the past eight years and gold and silver since 2001.
  • Recognize that market leadership shifts from one sector to another. The S&P 500 and other stocks have risen for eight years, but they will correct. Gold prices will rally as capital flees the stock market in search of safety and inflation hedges.

Example:  The S&P 500 Index rose from a monthly close of 798 in March 2009 to a monthly close of 2,575 in October 2017.  Gold rose from $292 at the end of September 2001 to $1,829 monthly close for August 2011. Gold reversed in September 2011 and fell over 40% to its monthly low in December 2015.

The S&P 500 Index is over-valued in November 2017 and vulnerable to a correction or crash.  By most timing and valuation indicators the stock market is too expensive.  The monthly RSI (relative strength – a timing indicator) shows a multi-decade high, indicating vulnerability to a correction/crash.

Examine the graph of the S&P 500 Index over 30+ years.  The correction or crash may occur next week, next month, or next year, but it will occur.  If the Federal Reserve and global central banks had the ability to prevent stock market corrections and crashes, the NASDAQ crash of 2000 would not have occurred. The devastation took 31 months as the Index dropped over 80%. The S&P 500 crash of 2007-8 took 17 months as the Index dropped about 57%.

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MEDIUM TERM FOR GOLD AND SILVER:

In the medium term gold and silver bottomed in December 2015, broke downtrend resistance, rallied and corrected.  

More rallies and corrections will occur, but as long as debt increases, Congress borrows and spends, and currencies are backed by nothing tangible, currencies will devalue and gold prices will rise.

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