Subscribers, Plunger here. Surf asked me to make a few comments or updates since he is posting this old post of mine. Gosh it was a long one, I need to be less windy.
I suppose the biggest surprise to me is that it took so long for this Post Bubble Contraction (PBC) to unfold. It is of course impossible to get it all right, but over 2 years ago we got the concepts correct and one can see that we did see this thing coming. I will try to make this brief. Maybe my comments can be helpful.
I see this current crisis as simply a continuation of the 2008 WFC. The WFC was the natural end of the credit cycle that began in the late 1940’s. In 2008 the financial system was beginning a debt implosion following debt saturation at the end of the 70 year debt cycle. Debt default and restructuring is what it takes to reset the system and start growing again in the next cycle. But a funny thing happened on the way to the collapse. The FED and world CBs stepped in, bazooka under arm, and reflated the system. Incredibly it seemed to work for 11 years, but at what cost? The cost was increasing debt loads and allowing zombie company business models to destroy even more capital. While 2000 had its dot-com bubble and 2006 had its real estate bubble, all caused by the FED, 2020 had its super bubble, a bubble of everything. The virus is simply the pin that punctures it. It could have been something else, it just needed a black swan.
So where to from here? I think your author Surf sees it correctly. He suggests possibly a depression. I say more than likely he is right. The FEDs actions have inflated the the bubble through debt and allowing zombie companies to survive. It is now time for a 4th turning.
Look closely at the DOW/Homestake chart in this report. Note that it took basically 2 years after the crash for Homestake stock to take off. It took that long for the efficiencies to flow through the production process and get to the bottom line. Maybe it doesn’t take that long this time, but be prepared to be patient. But that’s the dynamic the real price of gold goes up while the input costs go down. It results in huge profits….in time.
Where to for gold and silver? I am saying that the deflationary forces are going to be so strong that it will probably tug further on gold:
I think we may very well see a full backtest to the break out level. That would be $1350-75. That would be a perfect 50% fib retrace of the entire move off of the bottom. Gold BTW is famous for 50% retraces. Note this is a monthly chart and Stochastics are just now turning down. It will take a lot to turn it back up… Be patient.
Silver: Silver was demonetized long ago and is now an industrial metal. The downturn in industrial activity could continue to crush the price level. I hate saying this, but I think it is reality. This means the GSR will continue to climb. I said years ago that the next crisis will see the GSR (Gold to Silver price ratio) explode to crazy levels. 130-150. with even the insane possibility of 200. This seemed ludicrous at the time, but not anymore.
Stock Market: We are in a bear market- finally. It’s been too long in coming. The country actually needs one to correct the imbalances and distortions caused by the FED. I know that sounds callous and a lot of people will be hurt severely because they were not prepared and are very vulnerable. It is a shame that they were led there by our monetary and political authorities. It pays to think for yourself.
My DOW Theory studies identified the trend change on December 14 2018. The indexes diverged for 15 months, but Dow Theory again proved right. This is NOT a 1987 fast and furious correction within a bull market. This is an Ursa Major Bear. The current implosion downdraft is almost over IMO. I would give it 2-4 more weeks for it to burn out to the downside.
The loved QQQ stocks have held up the best, but in the final impulse down over the next month I suspect the Qs will suffer the brunt of it. The average Joe hasn’t panicked yet, incredibly. I believe he will within the next month. After that we should have a nice tradable Bear Market Rally (BMR), get ready for it, but don’t over stay in the market, it will just be a relief rally. Ultimately, I see the possibility for Ursa Major sized declines in this bear market, unlike any other bear we have witnessed.
Bottom line: this crisis is far more serious than people believe. This is because people only see the virus as the problem. The Virus is just the pin to a structure that has been built out over the past 12 years.
Here is the thing about crashes. It’s not the crash that causes the damage, no the crash only reveals the damage that has already occurred beneath the surface. Be careful with your assets, build your cash position and wait for the opportunities to come, don’t jump to early.