Yesterday, the Dow finally rallied to the 10000 mark, inducing cries of joy from the trading floor in NY. It seems like the market is recovering. The V-shaped recovery that many have hoped for seems to be coming true. Most economists say we're recovering.....or is it? Unfortunately, I think they are going to be wrong again. How can we trust these very economists who have been getting it wrong year after year? They did not even predict the current crisis.
Dow at 10000 means nothing. Sure, for the experienced short-term traders who can time the market very well (this is very hard), he can make some money. But if you compare Dow to say, the year 2000, the current Dow at 10000 in real terms is actually only about 7500. That is because since 2000, the USD has dropped by 25%! Back then, Dow was > 10000. So how much has the Dow 'purchasing power' dropped? Gold, on the other hand, has gained > 300% in terms of USD since 2000. The USD buying power has dropped, is still dropping and doesn't look like recovering, given all the crazy monetary policies that the FED and the government are implementing.
If you price Dow in terms of Gold, the Dow:Gold ratio has dropped from 1:40+ to the current 1:9+. Gold retains its value.
The picture above is the Dow priced in gold, courtesy of Goldsilver.com and Bloomberg. Rats! How I wish I can still use the bloomberg machine in NUS. Anyway, look at how it has dropped to 9.6.
Gold is the ultimate and best currency that man has ever known. Which is why investors still flock to this 'useless' metal. For the past 2 weeks or so, gold has hit record prices 3 or 4 times. The highest to date is about $1070. It is not even close to its inflation-adjusted high in the 1980s of $2000+ yet. If you use some ratios, as I've done in my earlier posts, you can expect gold to hit USD 5-6k. Recently, an excellent article (it's somewhere in the archive of Goldsilver.com) calculated that if Fed were to back its balance sheet with gold, gold will be priced at $8000. Anyway, given all these, I'm still far bullish on silver than gold. For now, I'm buying silver only. For inexperienced investors like me, the best way to invest in precious metals is in the physicals themselves, rather than paper gold/silver. Look at the derivatives market. When it bursts, there is gonna be mayhem. The current ratio of paper promises to actual physical bullions is in the region of 100:1 each for gold and for silver !! When the bubble bursts and all these people scramble to close their positions, look how the prices of the physicals will shoot to the moon.
What about JP Morgan's $3.19b profit? In fact, the Dow rally to 10000 is caused largely by this company's stellar earnings, and 1 or 2 other companies which I can't remember. I feel that it is gonna come crashing down again. JP Morgan's bulk of the profit comes from investment banking, not from consumer banking. Because of all the ultra cheap credit that Fed is providing, an illusionary rally in the stock market is happening. The US' REAL economy is shrinking, its consumers are suffering. Wall Street is happy, Main Street is miserable. Look at how many troubled states it has right now. California, the world's eight largest economy, may well become the first failed state. Rising unemployment, rising number of homeless people, rising credit card defaults, rising foreclosures. Just look up on youtube videos or read up some articles, you'll get the TRUE picture of the situation in the US right now (Don't believe what the mainstream media is saying!). Yet, stock prices are going up. Sounds funny? Yeah, it's another bubble in the making. According to estimates, for Dow and gold to realign in the median point, Dow must be at around 4000-5000. According to David Tice from Prudent Bear, Dow will only be at its book value at 3100. Now it's just way inflated.
Eventually, in the immediate years down the road, the great global trade imbalances have to re-balance again. It has been extraordinarily out of whack for several decades. The Western world will see their currencies depreciate by a lot, the Eastern nations will see their currencies appreciate by a lot. The Western currencies will lose their purchasing power, standards of livings will drop. The Eastern nations will see their exports reduced, because of the lowered Western purchasing power and because of the Eastern currencies' appreciation. Both sides of the world will enter recessions that dwarf even the current one. Those who actually saw the current crisis coming say that the recession down the road is going to be the biggest Depression in history. One of them is Gerald Celente, a highly respected trends researcher. He has been right in predicting more than 40 major world events over the years, including financial crisis, economic crisis, issues on politics and terrorism. You can find some videos of him on youtube.
The big nations that we know of: US, UK, Spain, they are all in huge trouble. UK still holds on to its faint hope of regaining its former superpower status with its sterling pounds. That is why it did not join the Euro. Another reason is that UK is US' close ally, and the US asked the UK not to use the Euro currency, for fear that this will further diminish the power of the USD. With a lot of nations increasingly using the Euro as a reserve currency, and with reports that oil will be priced using a basket of currencies, including the Euro, the UK stands to lose out. Recently, the USD only makes up about 1/3 of NEW reserve currencies, down from 2/3 in the past! The Euro and the Yen now makes up the other 2/3. What does this mean? This simply means that central banks around the world are increasingly doubting the USD. They are buying up the Euro and Yen for their reserves, instead of the USD. That said, these banks still hold a large amount of USD reserves though. But clearly we are seeing a trend away from the USD here.
What about Spain? With unemployment of more than 20%, and lots of troubling reports recently about its very bad state of economy. On a side note, I think very soon, the EPL and the Primera Liga are gonna be affected too. With fans' purchasing power reduced, revenue will drop too. These leagues currently look like a big bubble to me, especially the EPL. But then again, they have a huge fan base in Asia. And the entertainment industry tends to do well during crisis (not sure if these leagues are in the sports or entertainment industry, or both?). So who knows.
Ever since I started this blog, gold has gained 10% in USD, about 9.6% in SGD, and silver has risen 13% in SGD. There is more to come! What about copper, nickel, zinc, iron, agriculture, and other commodities? They are going to do extremely well too, according to legendary billionaire investor Jim Rogers. The base metals has risen 100-200% in the past year. Sugar has risen 100% in the past year. Even orange juice has risen 30+ %, according to data I last saw a few weeks back. The world will go back to real physical assets soon. Already, China is buying up huge amounts of commodities, and they are going to buy even more. They also have > 95% of the world's rare metals, metals which are important for use in technology stuff. And they are planning to export only a small amount of those metals, an amount that will not even satisfy Japan's demand alone. Anyway, all these indicators point towards a rise in commodities in the next few years. Ride the wave while you can!
Dow at 10000 means nothing. Sure, for the experienced short-term traders who can time the market very well (this is very hard), he can make some money. But if you compare Dow to say, the year 2000, the current Dow at 10000 in real terms is actually only about 7500. That is because since 2000, the USD has dropped by 25%! Back then, Dow was > 10000. So how much has the Dow 'purchasing power' dropped? Gold, on the other hand, has gained > 300% in terms of USD since 2000. The USD buying power has dropped, is still dropping and doesn't look like recovering, given all the crazy monetary policies that the FED and the government are implementing.
If you price Dow in terms of Gold, the Dow:Gold ratio has dropped from 1:40+ to the current 1:9+. Gold retains its value.
Gold is the ultimate and best currency that man has ever known. Which is why investors still flock to this 'useless' metal. For the past 2 weeks or so, gold has hit record prices 3 or 4 times. The highest to date is about $1070. It is not even close to its inflation-adjusted high in the 1980s of $2000+ yet. If you use some ratios, as I've done in my earlier posts, you can expect gold to hit USD 5-6k. Recently, an excellent article (it's somewhere in the archive of Goldsilver.com) calculated that if Fed were to back its balance sheet with gold, gold will be priced at $8000. Anyway, given all these, I'm still far bullish on silver than gold. For now, I'm buying silver only. For inexperienced investors like me, the best way to invest in precious metals is in the physicals themselves, rather than paper gold/silver. Look at the derivatives market. When it bursts, there is gonna be mayhem. The current ratio of paper promises to actual physical bullions is in the region of 100:1 each for gold and for silver !! When the bubble bursts and all these people scramble to close their positions, look how the prices of the physicals will shoot to the moon.
What about JP Morgan's $3.19b profit? In fact, the Dow rally to 10000 is caused largely by this company's stellar earnings, and 1 or 2 other companies which I can't remember. I feel that it is gonna come crashing down again. JP Morgan's bulk of the profit comes from investment banking, not from consumer banking. Because of all the ultra cheap credit that Fed is providing, an illusionary rally in the stock market is happening. The US' REAL economy is shrinking, its consumers are suffering. Wall Street is happy, Main Street is miserable. Look at how many troubled states it has right now. California, the world's eight largest economy, may well become the first failed state. Rising unemployment, rising number of homeless people, rising credit card defaults, rising foreclosures. Just look up on youtube videos or read up some articles, you'll get the TRUE picture of the situation in the US right now (Don't believe what the mainstream media is saying!). Yet, stock prices are going up. Sounds funny? Yeah, it's another bubble in the making. According to estimates, for Dow and gold to realign in the median point, Dow must be at around 4000-5000. According to David Tice from Prudent Bear, Dow will only be at its book value at 3100. Now it's just way inflated.
Eventually, in the immediate years down the road, the great global trade imbalances have to re-balance again. It has been extraordinarily out of whack for several decades. The Western world will see their currencies depreciate by a lot, the Eastern nations will see their currencies appreciate by a lot. The Western currencies will lose their purchasing power, standards of livings will drop. The Eastern nations will see their exports reduced, because of the lowered Western purchasing power and because of the Eastern currencies' appreciation. Both sides of the world will enter recessions that dwarf even the current one. Those who actually saw the current crisis coming say that the recession down the road is going to be the biggest Depression in history. One of them is Gerald Celente, a highly respected trends researcher. He has been right in predicting more than 40 major world events over the years, including financial crisis, economic crisis, issues on politics and terrorism. You can find some videos of him on youtube.
The big nations that we know of: US, UK, Spain, they are all in huge trouble. UK still holds on to its faint hope of regaining its former superpower status with its sterling pounds. That is why it did not join the Euro. Another reason is that UK is US' close ally, and the US asked the UK not to use the Euro currency, for fear that this will further diminish the power of the USD. With a lot of nations increasingly using the Euro as a reserve currency, and with reports that oil will be priced using a basket of currencies, including the Euro, the UK stands to lose out. Recently, the USD only makes up about 1/3 of NEW reserve currencies, down from 2/3 in the past! The Euro and the Yen now makes up the other 2/3. What does this mean? This simply means that central banks around the world are increasingly doubting the USD. They are buying up the Euro and Yen for their reserves, instead of the USD. That said, these banks still hold a large amount of USD reserves though. But clearly we are seeing a trend away from the USD here.
What about Spain? With unemployment of more than 20%, and lots of troubling reports recently about its very bad state of economy. On a side note, I think very soon, the EPL and the Primera Liga are gonna be affected too. With fans' purchasing power reduced, revenue will drop too. These leagues currently look like a big bubble to me, especially the EPL. But then again, they have a huge fan base in Asia. And the entertainment industry tends to do well during crisis (not sure if these leagues are in the sports or entertainment industry, or both?). So who knows.
Ever since I started this blog, gold has gained 10% in USD, about 9.6% in SGD, and silver has risen 13% in SGD. There is more to come! What about copper, nickel, zinc, iron, agriculture, and other commodities? They are going to do extremely well too, according to legendary billionaire investor Jim Rogers. The base metals has risen 100-200% in the past year. Sugar has risen 100% in the past year. Even orange juice has risen 30+ %, according to data I last saw a few weeks back. The world will go back to real physical assets soon. Already, China is buying up huge amounts of commodities, and they are going to buy even more. They also have > 95% of the world's rare metals, metals which are important for use in technology stuff. And they are planning to export only a small amount of those metals, an amount that will not even satisfy Japan's demand alone. Anyway, all these indicators point towards a rise in commodities in the next few years. Ride the wave while you can!
And oh yeah, Happy Birthday to fellow investor Ms.Cheng!
Cheers,
Jin
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