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Gold Hits $1,200 as Financials Get Hit – Ep. 139

  • As I mentioned in my video blog I recorded on Friday,  the jobs data that came out on Friday was just not weak enough for the market
  • So the markets’ carnage continues, because everybody still believes the Federal Reserve may in fact be raising interest rates – the only question is, will it be in March, will it be in June, the markets don’t know and so they continue to be under pressure
  • At one point today, the Dow Jones was down nearly 400 points
  • The NASDAQ was down about another 150 intra-day
  • We had one of these last hour rallies, just to keep hope alive so the Dow closed down just 177 points, the NASDAQ down 79
  • At the lows today, we were within 1% of a bear market, in the NASDAQ, so technically Wall Street can pretend they are not in a bear market, maybe for a few more days
  • The same thing is going to happen with the recession – everybody is saying there is no recession, but eventually they will have to admit it
  • I was reading an article by an economist from one of the bigger banks, who said, there will be some more downside, maybe the NASDAQ will go down to  about 3900
  • But, he said, “Don’t worry, it’s not going to be as bad as 2000 or 2008 because the economy is in good shape and the odds of a recession are very slim.”
  • What would make him think the odds of a recession are slim? All the data is horrible.
  • Manufacturing is already in a recession; the service sector is contracting rapidly
  • It has been seven years since the last recession so we’re overdue…
  • The Fed is tightening, raising interest rates, as a matter of fact they’ve been tightening for 2 years if you understand that the “Taper Talk” was the beginning of the tightening
  • Plus, we’re in a bear market
  • We often hear, “The market has predicted 10 of the last 5 recessions”
  • OK, well, the Fed has predicted zero of the last 5 recessions
  • They always say there’s not going to be a recession right before there’s a recession, in fact, they have a history of saying there won’t be a recession when we’re already in a recession
  • What led the carnage in the stock market was the sell-off in European banks and it was brutal, in fact these big banks are lower than their lows in the depth of the Financial Crisis
  • The big one is Deutsche Bank had to come out today and re assure everybody that they did not have a solvency problem
  • All the U.S. stocks hit 52-week lows: Morgan Stanley hit a 52-week low, Goldman Sachs down 4-1/2% – 52-week low, Bank of America down 5-1/4% –  52-week low
  • These stocks will continue to suffer until the Fed cries Uncle, or Aunt
  • The ECB can’t do it, the Bank of Japan can’t do it – negative rates are actually making it worse for the European banks
  • There is no more stimulus coming from Europe because the stimulus is causing a bigger problem than it is supposed to cure
  • I’ve said this many times: bankers in Europe were worried about, “Lowflation” as they see weak oil prices, so now they want to stimulate
  • But whenever they stimulate, they cause the dollar to strengthen and the stronger dollar further suppresses the commodity prices, threatening more “Lowflation”
  • The Bank of Japan can’t do anything, in fact the yen was up again today a new 52-week high for the Japanese yen, so even though Japan has gone negative the yen is rising not just to a 52-week high, this is the highest it has been since October of 2014
  • In Europe they are making the situation worse by easing
  • Who’s left? Janet Yellen will speak to Congress Wednesday and Thursday this week and maybe she’ll throw the market a lifesaver this time instead of an anchor
  • This is exactly what I have been saying would happen – the Fed would prick its own bubble with just a tiny .25 hole and the air has come gushing out
  • It is the opposite in gold.  Gold actually traded up to $1200/oz today before closing today above $1190 – up $18 on the day
  • A number of gold stocks were up 15-20% interday on their highs; they surrendered some of their highs by the close, but some huge up days for gold stocks
  • Gold at $1200 is a $150 rally in the price of gold since the day after the Fed raised rates
  • I was watching the financial news and people are still wary of gold and that’s music to my ears
  • I don’t want the conventional wisdom to be positive gold
  • The last time that happened it went straight down from there
  • When gold was $1800-$1900, everybody was positive, and agreeing with me and I was worried – unfortunately not worried enough
  • I should have sold all my gold and gold stocks and bought them all back a month ago
  • I want Wall Street to miss out on this party for as long as possible because that just gives me more confidence that I’m right
  • In fact I really worried when Dennis Gartman on CNBC was talking about how gold has broken out and you can be long gold in any currency – that made me nervous, because he has such a bad track record
  • But then, he said, “Don’t buy it now, wait for a pull back” which means there’s not going to be a pull back
  • We already had the pull back
  • When we close above $1200, it will be a quick trip from $1200 to $1300
  • Even if Janet hasn’t let the cat out of the bag with respect to the fact that there will be no more rate hikes
  • So many people expect rates to go up, or assume the economy is essentially strong and all they have is the low unemployment rate
  • Go look at a chart of the Great Recession and look how low the unemployment rate was at the end of 2008-early 2009- it was almost as low as where we are right now
  • The unemployment rate is still low at the beginning of a recession
  • This recession just began, I believe last quarter
  • It’s just like when the Fed raised rates and the market didn’t immediately tank
  • I was being called out on CNBC because I said the market would tank if the Fed raised rates
  • The rise in unemployment numbers will also come
  • We had the largest number of layoffs in January since 2009
  • Look at these banks! They will have to tighten up on their lending
  • Look at all these stocks who are imploding, these companies are going to have to cut their labor forces
  • I mentioned on my last video blog that a number of states increased the minimum wage and since we’re a minimum wage economy a boost in the minimum wage will boost the earnings numbers
  • Well there’s a downside and that’s all the people who lose their jobs as businesses deal with higher payroll costs
  • The layoffs are going to be significant – the only question is when is the Federal Reserve going to acknowledge that and relieve the stock market
  • But it’s not going to relieve the economy this is a very serious recession that has started, and rate cuts and QE are not going to stop it from happening – it’s going to happen anyway
  • All the Fed can do with QE and rate cuts is slow down the pace of the recession, but that’s ultimately going to make it much worse
  • As long as the Fed pretends that the economy is great and they will continue to raise rates, the carnage is going to continue
  • Yellen is trying to figure out what she is going to say, and how are they going to get out of this jam
  • I thought the Fed would be too smart to put themselves in this situation – I said if the Fed raises rates and the markets tank, what are they going to do to stop it?
  • They’ve always been the one to save the market
  • I said, if Yellen raises rates, the put expires
  • When the markets figure out that the Fed is out of ammunition, the dollar is going to collapse
  • The dollar was down again today, we surrendered the gains from last week
  • The swiss franc, the euro and the yen were all up today
  • When the Fed cuts rates, the dollar is going to drop like a stone
  • This gold rally is just getting started – it will respond like a rocket ship to a rate cut
  • That’s why it is important to stay the course and think about the long term fundamentals, if is easier to be right in the long run. You have to be willing to be wrong in the short run
  • Long term profits are better than short-term profits because short-term profits can turn into long-term losses
  • Ultimately this is going to happen to people who have been buying gold
  • I have been consistently telling people to buy gold as 10-15% of their portfolio in gold because I think a day of reckoning is coming for the U.S. dollar
  • The U.S. economy is in the worse shape it’s ever been in and there is a dollar crisis coming – you’d better own some gold
  • You’d better have assets to protect yourself
  • We can’t know exactly when it’s going to hit, just like you don’t know if you’ll have a car accident, but you insure against it
  • I think that this is the burst of the bubble.  The only question is how fast things will unravel
  • The difference between now and the 2008 crisis is in 2008, gold was at an all-time record high and the dollar was at an all-time record low
  •  The dollar had been falling for 7 years and gold had been rising, so when the crisis took everybody by surprise, they reversed all those trades
  • This time, it’s the opposite. Over the last several years, the dollar has been rising and gold has been falling, because of confidence in the economy
  • When that turns out not to be the case, and the Fed’s monetary policy is proved wrong, gold will take off – a mirror image of what happened in 2008