Sunday, November 1, 2009

Germany's Secular Bear Market

Looking at some international stock index charts this weekend and Germany's secular long-term bear market chart looked interesting to me due to potential symmetry. Those bearish on America need to remember that Europe is in as much trouble as we are economically, for fiscal, export-related, debt and property bubble-related reasons. This is why, as a Gold bull, I have no problem anticipating a U.S. Dollar rally. When comparing ol' Uncle Buck to other paper currencies, I have no issue with the Dollar rising and falling relative to other currencies.

Yes, the U.S. Dollar is in greater trouble when one steps back and looks at the "bigger" picture. This is because we are going to lose our reserve currency status in the world during this secular bear market cycle. However, all paper currencies are sinking relative to Gold right now. Not always, not forever, but until the Dow to Gold ratio gets to 2 or less, this will continue. Why? Because we are in a secular (i.e. measured in decades) bear market and this is what happens during these periods. Confidence evaporates, money/debt printing occurs by panicked governments, and uncertainty reigns (i.e. things good for the Gold price). Nothing radical or exceptional, just repetition of a long-term cycle. Not the end of the world, just a time to be invested in physical Gold instead of stocks (unless one is a good trader that can catch the ups and downs of a long-term bear market).

Anyhoo, here's a 20 year weekly candlestick chart of the German DAX Composite Index ($DAX) with my thoughts on it:

I think 2011 would be a reasonable time to end the current cyclical bear bear market in general stocks for major economies around the world. This could also be a good time frame for a nominal low for the secular bear, though an inflation-adjusted lower low may then be in the cards a few years later. Coincidentally, 2011 could also reflect the secular high in the Gold price it if decides to start going parabolic. There's a Martin Armstrong major cycle bottom due in mid-2011, which also colors my views somewhat (say what you will about him). For now, it is all academic discussion with no current practical applicability, as I have no plans on going long any non-Gold stocks any time soon (I may not be able to resist the urge to go short again soon on general stocks, though).

In the mean time, Germans (like Americans) who are not into shorting stock markets are better off trading in their Euros for physical Gold (following is a 3.5 year ratio chart of the price of Gold [$GOLD] divided by the Euro currency index [$XEU]):

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