Another One Bites the Dust

I am referring to Portugal's stock market ($PSI) quietly sinking below its 2008-2009 Armageddon lows and closing below these lows on a weekly basis. Portugal joins Greece in achieving this dubious distinction. Here's a 3.5 year weekly chart of $PSI thru Friday's close to show the recent action and break down:





Far from being a sign that the worst is over, this breakdown may portend another 50% drop in the Portuguese stock market if Greece is a guide (and I don't think the Greek stock market is done falling, either). The Spanish and Italian stock markets are only about 10% above their March, 2009 lows. Meanwhile, mainstream US financial media continues to debate whether or not we are even in a bear market yet! Gotta love tout TV and its intentional misleading of the average investor that is trying to learn something by watching.

Last week's market action was brutal in the precious metals patch as well.

It is shaping up to be an interesting fall, to be sure...

I don't think the US Dollar rally is over and I don't think the stock market slide down the slope of hope is over, either. Specific trading recommendations reserved for subscribers.

Not a Permabull

Watch out here if you are a Gold stock investor. I am not a permabull on Gold stocks, as I have learned my lessons well and studied history rigorously. If the market continues to melt down through October, which is what I expect, Gold stocks will get hit. Silver stocks will get hit even harder. And juniors will get hit harder than seniors in both sectors.

I warned about a dangerous neckline in the GDXJ ETF before. We are now at the neckline and threatening to break down below it after the obligatory dead cat bounce at the neckline:





If we get the breakdown and waterfall decline into the low 20s in GDXJ, it will be a fabulous buying opportunity for those with the cash to do so. In the mean time, I am bearish on Gold stocks and all other equities and have been warning my subscribers to avoid Gold stocks.

Tick Tock, Tick Tock

I remain convinced that a nasty new cyclical bear market in common equities has begun. Now that Germany's stock market ($DAX) has dropped 35% from its May peak, there is little point in Wall Street trying to pretend that this is "just another correction/buying opportunity." The US stock markets have held up better than most, but this is about to change in my opinion. In fact, it was Germany that held up much better than the US in late 2007/early 2008, only to play catch-up later once the bear market really got rolling. Now, the crisis is centered in Europe (for now), so Germany and the US get to reverse their roles relative to the prior cyclical bear market of 2007-9.

Greece continues its deflationary collapse as predicted. The Greek stock market ($ATG) is now down 84% from its late 2007 highs, versus 89% for the Dow Jones in the 1929-1932 bear market. Close enough and I don't think the decline in Greek shares is over yet. Japan's chart looks like it wants to break down yet again (3 year daily chart of the Nikkei Index thru Friday's close follows):





Meanwhile, one of my favorite indicators for this secular bear market, the industrial metals to Gold index, is screaming for caution. I like the $GYX industrial metals index, but the copper:Gold ratio uses the same concept and the chart looks the same. The message is simple: if Gold is rising faster than industrial metals (i.e. falling $GYX:$GOLD ratio or falling $COPPER:$GOLD ratio), the underlying economy is likely to be in trouble. Here's a 6 year weekly chart of the $GYX:$GOLD ratio thru Friday's close with my thoughts:





Meanwhile, the Dow to Gold ratio continues on another cyclical down move within its secular downtrend that began in 1999. To keep Gold bulls focused on the big picture of "Gold versus paper" (i.e. paper=stocks as a proxy for financial assets), here is a monthly chart of the Dow to Gold ratio ($INDU:$GOLD) over the past 10 years thru Friday's close (log scale):





I also think ol' Uncle Buck is beginning yet another death dance rally. This separates me from the "Dollar to zero tomorrow" crowd, but doesn't temper my belief that Gold will top $2000 before the year is over. All fiat paper currency is sinking relative to Gold, just at varying rates. Here's a 20 year monthly chart of the $USD Index with my thoughts:





I think it is shaping up to be a great fall for bearish stock trading and bullish Gold trading. I wouldn't short stocks before the fedspeak meeting next week, as I think the current equity dead cat bounce can go a little further in US markets, but I also wouldn't fear that apparatchiks and central bankstaz can stop the train wreck that's coming. Unlike most Gold commentators, I am not yet bullish on Gold mining stocks and continue to favor metal over metal equities for now. Specific trading recommendations are reserved for subscribers. Join us!

Beggar Thy Golden Neighbor

Every country wants to devalue their currency. In other words, every government around the world wants to destroy its citizens' savings. This is the madness that passes for PhD level economics. Destroy the value of people's labor to "stimulate" further indebtedness as wages fail to keep up with the cost of living. But how can every country devalue at the same time?

They can't, some say. I say, of course they can. They can all devalue against Gold and have been for a decade now. The so called bastion of stability, the Swiss, a country that got rid of most of their Gold, has now decided to peg to the Euro, cost be damned. This is irresponsibility defined and destroys confidence.

Confidence destroyed constitutes the fundamental underpinning of a strengthening Gold bull market. We have just begun the parabolic phase with the summer blast up to the $1900 USD/oz level. There's no turning back now. The scramble for physical Gold is now going to intensify and the price movements are going to get more intense to the upside. Any government can devalue relative to Gold even if they can't spark lending in the economy. This is a retarded goal, but speculation is all about exploiting the retardedness built into the system by apparatchiks without a clue. An anchorless global fiat system is of course going to explode and be replaced with something more rational, but the transition will create winners and losers.

Those thinking Gold is too expensive are going to be profoundly shocked at what comes next. Roubini. Gartman. Nadler. The pied pipers of the financially damned. We are in a massive deflationary collapse being fought tooth and nail with unfettered money printing. A massive war between inflation and deflation. But I have long stopped trying to pick a winner in this tug-of-war and instead settled upon the obvious beneficiary - Gold.

Financial instability and lack of confidence benefit Gold. Those who say Gold can't be a hedge against both inflation and deflation are completely wrong. This is like saying Democrats and Republicans can't both be for pro-welfare and pro-warfare policies since they are opposing parties. And yet, Obama is a war president and Bush signed into law Medicare Part D. If the inflation or deflation are mild, Gold doesn't do well. But Gold benefits from the monetary extremes that destroy confidence. We are there and things are about to deteriorate further (short term expected bounce in the stock market aside).

I agree this is no 2008, but that is only because the problems are worse and Gold will rise this time during the market collapse, regardless of the movements of the US Dollar Index. I actually remain a US Dollar bull for those interested in playing the paper currency games, but I'll take the "long physical Gold held outside the banking system" trade instead, thank you very much.

Gold is by far the best asset class for the next few years and will remain the premier asset class until the Dow to Gold ratio hits 2, and I am increasingly convinced that we will go below 1 this cycle.