Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Secular Bear Market Warning, Preserve Your Wealth with Precious Metals

Commodities / Gold & Silver 2009 Sep 29, 2009 - 01:16 AM GMT

By: Nick_Barisheff

Commodities

Best Financial Markets Analysis Article“I’m not so much interested in the return on my money as I am the return of my capital." --Will Rogers

In this extraordinary environment, preserving your personal wealth becomes priority one. Before you make another major financial decision, it is imperative to understand the big picture by recognizing and understanding three critical issues. First, we are in a secular bear market for financial assets (stocks and bonds). Second, the consequences of the global bailouts will likely be highly inflationary. Third, we are at a pivotal point in the long-term investment cycle. Let’s examine each of these three keys in more detail.


KEY 1: WE HAVE ENTERED A SECULAR BEAR MARKET

In a secular (long-term) bear market, stocks plunge in value, single digit price/earnings ratios become the norm, and they can stay that way for decades. The secular bear we are experiencing now actually began when the stock markets crashed in 2000-2001, but few investors noticed because in 2003 the markets were artificially propped up by massive amounts of easy money from the US Federal Reserve under Chairman Alan Greenspan. This was not a new monetary policy. Greenspan’s response to every financial “crisis” he faced  starting with the stock market crash of 1987 all the way through to and past 9/11  was to pour money into the system. The system was never allowed to self- correct, allowing a variety of asset bubbles to form.

During a secular bear market such as this one, stocks habitually move down or sideways. But there are occasional and sometimes violent bear market rallies to the upside that suck in naïve investors hopeful of a quick market turnaround. The most recent example is the spring/ summer 2009 rally in which the S&P TSX, the Dow and the S&P 500 has risen between 48 and 56 percent from their March lows. Since we are just in the early to middle stages of this secular bear market for stocks, investors still have time to rebalance their portfolios into negatively correlated assets. That means selling stocks and bonds (which will decline when interest rates rise) and buying an asset class that will thrive in this uncertain market: precious metals

Cash may seem to be a safe haven but it won’t protect against rising inflation. Bonds did well in 2008 because interest rates were slashed to zero. But rates have nowhere to go but up, which means adding or keeping bonds in your portfolio is likely to produce a negative return. It is important to note that bonds no longer provide true diversification protection because stocks and bonds have become positively correlated, meaning they generally move in the same direction.

Buy and Hold Doesn’t Work In A Secular Bear Market

Following traditional bull market mantras such as ‘Buy-and-Hold’ and ‘Stay the Course’ is a recipe for disaster in a secular bear market. Because secular trends last for years, they also take years to break. The most recent examples are the1966-1982 bear market in equities which, on an inflation-adjusted basis, investors lost nearly two thirds of their value during this period.  As Warren Buffett points out “During these 17 years, the stock market went exactly nowhere.”

During this current bear market, the DOW has been negative over the past ten years, the MSCI World Index is only marginally positive, yet precious metals have soared over 200 percent (Figure 1). If inflation is taken into account the stock indices would be in significant negative territory, while volatility has been extreme: many of the stocks that formed the DOW in 1999 are no longer even in existence. One more fact: if you are counting on stock dividends to help you get through this downturn, consider this: at the time of writing, companies are cutting dividends at the fastest and deepest pace in at least 50 years. 

KEY 2: MASSIVE BAILOUTS WILL TRIGGER MASSIVE INFLATION

As Merrill Lynch economist David Rosenberg wryly points out, “the new growth engine for the economy is government spending.” We are in the early stages of a global government spending spree of unprecedented proportions which, coupled with zero percent interest and extraordinary money supply growth, will be hugely inflationary. Financial assets will continue to lose purchasing power in this kind of environment, but gold and precious metals will hold theirs because they are a proven hedge against an investor’s two worst enemies -- inflation and economic turmoil.

In recent years, the US money supply has been growing at an alarming rate. In 2008, despite a slowdown in lending and credit, money supply still grew dramatically with M3 (the broadest measure of money supply) increasing at about 11 percent, as Figure 2 shows.  In 2009 the money supply is still growing at approximately 9 percent on an annualized basis. Over the long term, M3 increases have been the best leading indicators of future increases in the price of goods and services.

Most people think of inflation as a rise in the price of goods and services but in actuality price rises are the effect, not the cause, of inflation. As famed economist Milton Friedman pointed out many years ago, “inflation is always and everywhere the result of an increase in the money supply”.

Precious metals are the only currency to own when central bank printing presses are debasing global currencies at unprecedented rates. Because they are a proven store of value, precious metals are likely to be the only asset class that will preserve the purchasing power of your savings as we enter into a prolonged period of ‘–flation’: deflation, stagflation or inflation (one of the latter two being much more likely).

KEY 3: RIDE THE INVESTMENT CYCLE

A buy and hold strategy might work if it weren’t for the existence of cycles that drive bull and bear markets. A good way to understand the investment cycle is to look at what is called the Dow:Gold ratio. The Dow:Gold ratio (Figure 3) calculates the number of ounces of physical gold bullion it would take to ‘purchase’ one share of the Dow Jones during any given time period. When the ratio rises, as it did in the 1920s, 1960s and 1990s, it tells us that portfolios should be overweight stocks. When the ratio slumps, as it did in the 1970s and today, it tells us that portfolios should be overweight precious metals bullion.

The last three major stock market bubbles ended with the Dow:Gold ratio above 18:1, while the last two major bear markets (1932 and 1980) ended with the ratio near 1:1 At the height of the equities bull market in 1999, the Dow:Gold ratio peaked at over  40:1. But now the current ratio is below 10:1 and falling. It is certainly not too late to increase your allocation to gold and precious metals.

Precious metals preserve wealth

Precious metals have successfully preserved wealth for thousands of years because, unlike stocks and bonds and paper currencies, they are not someone else’s promise of performance and they are not someone else’s liability. Massive credit expansion has put US debt at over $11 trillion, but if the $60 trillion in unfunded pension liabilities and Medicare obligations that the US owes its citizens, actual debt is approaching a staggering 500 percent of GDP.

America’s spiralling debt crisis is leading many experts to consider the previously unthinkable: that the US might become the next Argentina, which famously defaulted on its debt ten years ago. To learn more about the debt crisis, visit www.ChrisMartenson.com. Dr. Martenson has created a superbly researched video called the “Crash Course” which explains in layman’s terms how massive debt is destroying investors’ wealth.

Precious metals are a safe haven  

In 2008, stocks lost 30-70 percent of their value, while gold increased about 5 percent in US dollars. But equally significant, in a year of record-setting volatility, gold’s volatility was reassuringly low. At its lowest point, gold was only down 14 percent and at its highest it was up 21 percent. Both Goldman Sachs and UBS see the price of gold rising, and UBS expects investment demand for gold to pull the price of silver and platinum up along with it. Citigroup is calling for gold to rise above $2,000.

Precious metals protect against depreciating dollars

Since gold and precious metals are priced and traded in US dollars, they surge in value when the US dollar declines. As trillions in new money is printed, the dollar and other currencies will fall precipitously relative to gold. In an environment where the dollar is already weak and other currencies are weaker, investors seeking to preserve and grow their wealth must understand the impact of declining currencies on their portfolios.

Figure 4 shows the Canadian and US dollars have lost approximately 84 percent of their purchasing power since 1970. The world’s other currencies have fared no better. Not coincidentally, 1971 was the year the link to the gold standard was cut. Only gold, along with its two precious metals brethren – silver and platinum – will hold their value in periods of severe deflation and inflation.

Physical bullion versus proxies

Few investors are aware of all the precious metals investment options available to them. Some precious metals investments such as futures contracts and options are better suited for speculation and a higher tolerance for risk. But certificates, pooled accounts, ETFs and mining stocks also have higher risk. Only physical, bullion stored on a fully allocated, insured basis can guarantee peace of mind because it gives the investor exclusive title to the safest and lowest risk precious metals investment of all.

For absolute security, physical bullion should always be stored in allocated and insured form. If not, investors take the risk that their bullion may be lent out without their knowledge or consent or may not be there at all. Today, buying and storing physical, allocated bullion has never been simpler. You can privately and securely purchase bars of gold, silver and platinum in large bar sizes and have them insured and stored for you at a registered LBMA vault without ever breaking the Chain of Integrity. Visit www.bmgbullionbars.com to learn more or read our BMG Special Reports on how to invest in precious metals at: www.investinpreciousmetals.ca and www.goldmyths.com

It’s time to preserve your portfolio’s purchasing power

A minimum 10 percent allocation in precious metals is considered adequate in a bull market, but a much larger allocation of 20 percent or more is suggested for protection in a secular bear market.  If you have not already done so, now is the time to rethink your investment strategy and preserve your hard-earned wealth. Physical bullion will keep its value regardless of whether the economy is headed for inflation, deflation or hyperinflation.

For the first time in history, the central banks have an unlimited ability to print as much money as they need. Precious metals are the only currency that will survive intact in this environment, because while governments can print infinite amounts of money, they cannot “print” more precious metals. More and more investors and institutions are turning to precious metals, because this secular bear market is expected to last for many years, eating away at investors’ hopes and dreams and portfolios along the way. Don’t let your portfolio be one of them. Now is the time to make an investment in your future, because the future is precious metals bullion.

By Nick Barisheff

www.bmginc.ca

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a cost-effective, convenient way to purchase and store physical bullion. Widely recognized in North America as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends. He is interviewed monthly on Financial Sense Newshour, an investment radio program in USA. For more information on Bullion Management Group Inc. or BMG BullionFund, visit: www.bmginc.ca .

© 2009 Copyright Nick Barisheff - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in