Let’s face it, it’s never been as easy to lose money in the markets as it has been over the past 18 months. You just had to call your broker, give him your money and he could deploy it anywhere he liked in the stock market. Two years on and the value of your money’s been cut by a third.
But, we’re interested in making money. And right now could be the best time to get into the market for a chance to both protect your existing wealth and to make money.
We’re not talking about stock markets here. Whilst there are good “value” opportunities to be had in defensive stocks, there’s another far better place to deploy some capital.
The market that really deserves your attention is gold.
The perfect storm that will drive the gold price higher
Because there is the financial equivalent of a perfect storm converging on the markets: fear of further financial catastrophe; the further printing of money by governments desperate to avoid deflation; and the looming threat of inflation coming back with a vengeance as a result of this government stimulus.
And when it hits, there’s going to be a rush of global capital into gold. The time to get in is now… ahead of this surge. Gold may well turn into the next asset bubble. If we’re going to make money from it, we want to be in it before the crowd starts pumping that bubble up.
So far, gold is perceived as what it’s best at being: the ultimate store of value. For that reason alone, it’s already starting to attract a small, but growing crowd, as Bill Bonner, points out:
“Still, the crowds are pretty thin, compared to what they will be when the bull market in gold really takes over. Then, your neighbours will be talking about gold... and telling you how much money they made in gold. That’s still ahead... when gold goes over $1,000... over $1,500... over $2,000.”
This isn’t small-time investors driving gold, though. Not yet. What we’re seeing is an influx of money from bigger institutional investors, eager to hedge portfolios with a more stable asset class. This is a fairly new development. Until recently, the bigger money had been staying out of gold.
“It’s not just the hyperactive, hot money hedge funds batting around gold anymore,” says Andrew Mickey of Prosperity Dispatch. “Now pension funds, mutual funds, and other institutional investors are betting on gold – in a big way.
“That is the big difference this time around. The big money interest hasn’t been there for decades, and it looks like that’s quickly starting to change.”
And sooner or later, when it hits the mainstream press, then there’ll be another flood of “hot money” that will continue to drive the price higher.
The big move is already under way
The move has already started, by the way. Gold is up 13% in the past month. Since it bottomed near $700 in November, gold has rallied by 33%. And it looks like it’s just getting started.
Speculators in the gold options market – amongst the smartest of market participants – are betting on gold topping $1,000 by April. They clearly see $940 as cheap. Meanwhile, Peter Munk, Chairman of the world’s largest gold producer, Barrick Gold, said: “Do I personally believe gold will break through $1,000? It’s not a question of if, it’s a question of how soon.”
Munk sees what he calls an “unpleasant and frightening” trend of investors buying gold as protection against uncertainty in world markets. People no longer believe in the security of the US dollar and other paper currencies. Gold is seen as the only “currency” that can hold its value no matter what happens.
From a technical analysts’ view, gold is also looking good. Citigroup chartists wrote this week, “we see gold breaking further through key levels and the market appears on course to making new highs… we therefore remain unequivocally bullish on the short-, medium- and long-term outlook for gold… this useless metal that yields nothing can eventually test $2,000”.
It doesn’t really matter whether you believe we’re faced with deflation or inflation. Gold can protect you whichever happens. If we get inflation, gold will attract money. Whilst the value of everything else is eroded by inflation, gold holds its value.
If we get deflation, then governments will debase their paper currencies – as they are doing already. But sooner or later, this will reignite inflation…
Gold is a great way of protecting a portion of your wealth right now. And if money continues to flow into gold, then you could also make a very decent profit in the months ahead.
Best regards,
Frank Hemsley
For The Right Side
P.S. If, as we suspect, paper currencies continue to lose their value, you need to take urgent action to protect your wealth. Gold is one way of achieving this. Look out for our critical “Financial D-day Warning” alert tomorrow for further ways to safeguard your money… and profit.
Stocks will recover long before the economy
BY THEO CASEY
We have good and bad news. The bad news? By some bearish estimates, we face a 50% fall in global corporate profits over the next two years. The good news? Despite these facts, right now is a good… scratch that…great time to buy shares.
Earnings are only one half of the story. Prices are just as important. The FTSE 350 may have fallen 37% since the peak of the bull market in 2007, but earnings have only fallen 10% so far.
By our calculations, markets have already “priced in” significant losses. Stock markets are said to be forward-looking. This means that even though earnings data will be bad for the foreseeable future, the markets will not necessarily be so.
I believe – as we saw in the 1991 and 2000 recessions – that the stock market recovery will play out in three phases. Take a look at the chart below. It is a projection of stock market returns and corporate earnings.
Source: Citigroup
The orange line represents earnings – how much money the company makes. The black line represents prices – how much money the shares make for investors.
Citigroup anticipates that share prices will bottom out and start a slow recovery in the near-term. At this point earnings will still be falling. Then, expect a mild recovery in defensive stocks.
However, in phase 3, investors will become more adventurous as earnings and the economy begin to recover. It is here that the next bull market can begin.
I see prices breaking away from earnings as more and more investors eventually see the light at the end of the recessionary tunnel. Once confidence and economic forecasts improve, so too will prices.
I believe that there is money to be made by investing in cheap, defensive, high-yield stocks. Rather than a negative, you should see the gloomy sentiment as a plus. It could well prove the best time to buy.
The Daily Reckoning – Bankers Pull Another Fast One
BY BILL BONNER
“We hate you guys...”
Mr. Luo Ping, director general at China’s Banking Regulatory Commission, speaking in New York on Wednesday, shared his opinion of US bailout policies:
“Once you start issuing $1 trillion-$2 trillion... we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”
Reports in the press this week say that China is considering ways to diversify out of the dollar. The Chinese are no fools. They see what is coming. And they know what it will do to them – the holders of the largest pile of dollars ever assembled.
The Financial Times made it perfectly clear to them in a cartoon yesterday. It shows Barack Obama in front of a huge smoking trashcan filled with dollars. The president is pouring on gasoline.
Yes, dear reader, Mr. Ping has caught on. And the rest of the world is catching on too. The feds are printing trillions of dollars... and dumping them in banks and zombie corporations. They’ve got out their zippo lighters... their firestarters... their kindling and crumpled paper.
But getting this blaze going is harder than most people think. It could take months... or even years.
Yesterday, the Dow held steady. But oil continued to sink. The price per barrel fell below $35.
France is officially in recession, says today’s La Tribune. GDP fell at a 1.2% rate in the last quarter, the government announced. A decline of 1% is expected for 2009.
Spain is in a worse recession. Property sales are off 30%. The GDP is expected to decline 3.3% this year. And unemployment is projected to reach 19% by 2010.
“Falling like a rock,” says La Tribune of Spain’s economy.
Meanwhile, “India set for slowest growth in six years,” says the FT.
“Austria warns of dangers in potential Ukraine ‘catastrophe,” continues the gloom and doom.
And in Japan:
“Deflation fears grow as wholesales prices fall.”
“Pioneer lays off 10,000 workers...”
World trade is collapsing. Now everyone is complaining about ‘protectionism.’ The next G7 meeting has protectionism – and how to avoid it – at the top of the agenda. But protectionism is just the reaction, not the cause. Trade is collapsing because people have become reluctant to spend, invest or lend anywhere – especially, far from home.
The guy who invented the shipping container industry works in the office above us, here in the “Sea Container Building” in London. You know, the building with the gold balls on the roof. He’s an American from Kentucky who later got into the railroad business and went broke.
To read the Daily Reckoning in full, click here.
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