Stock Market Head Fake, Compounding Debt, Oil Collapse, Gold Strength
Some thoughts about each of these:
Opinions differ on this, but I'll go out on a limb here: The stock market rise over the past couple of weeks is simply a bounce from a sharp fall, a so-called dead cat bounce, a typical "correction" in a primary bear market. Take your pick, but they all add up to the same basic idea.
So we're not really interested in purchasing stocks in any great quantities for the long-term. Any stocks we do buy will be for speculative purposes. If we buy at all, it will be to scalp a few points that might help make up for our losses so far this year. But we'll be super-judicious and err on the side of caution.
If you disagree and believe we've seen or are close to the bottom, we suggest you're going with a head fake intended to strip you of our money so that those more sophisticated traders who were caught short when the market tanked in March can sell you the stock positions they want to unload.
Compounding Debt
As people stop making mortgage payments, there's going to be a quick build-up of a balance owed. What happens if some stop paying insurance premiums, cable and telephone bills...and on down the line. So many companies are making offers to delay payment. But the payment isn't being forgiven. So what's owed builds up quickly. Some have said they won't charge interest on what's owed. But is that permanent? How long will they give their customers to pay off the balance? What happens if the debtor can't get a job for some months, even years? Doing the math here is useless. Suffice it to say debt will build up and will linger for a long spell.
Oil Collapse
The obvious reason: no demand. No demand makes sense in a world where much economic activity has ground to a halt.
What about those negative futures prices we just saw? It's likely a function of: a) no desire to take delivery of the oil, due to no prospect of selling it to anyone; b) the cost of storage. So governments who have apparently bid on the negative contracts must have somewhere to put the stuff and will use it to build up their national reserves. The producers of the oil get to offload it without having to pay exorbitant storage fees - fees driven up because existing storage facilities are full up. The only way out of this is for an opening up of the economy, with some uptick in demand resulting, along with a cut in oil production. But it'll take time for all that to work out. Meanwhile, oil prices may continue their strange journey.
Gold Strength
Gold just corrected, but it's been showing some muscle this year. I'm reluctant to say much more because the price of gold is notoriously manipulated. But certain facts remain in place: Central banks have been buying lots of it for the last few years. And their buying hasn't eased. Supplies of the actual metal have dried up due both to demand and to gold mines and the refineries make the end product closing down due to the virus. But that will eventually turn around. What then?
An educated guess: The gold bull market that began in 2000 and corrected from 2011 through 2016 had already resumed. Not sure about this? Well, do you realize that for years Gold has outperformed the S&P? From the end of 2015, the S&P is up 46.5%. The Dow is up 45.7%. Gold is up 52.3%. And you don't hear a word about it. That's the sort of quiet rise you find in a long-term bull market.
What's the upside price? Who knows? You'll find all sorts of projections out there. Reasonable number begin in the $2,000 - $3,000 range over the next year or so. That's pretty powerful in itself. But you can find some outrageous estimates in the tens of thousands. Such expectations anticipate complete destruction of all current forms of currency out there: US dollar, Euro, Yen, Yuan, Pound, etc. What would cause that destruction? That's a whole discussion unto itself but it's not beyond reason.
Of the four items here, the last, Gold Strength, has the widest range of possibilities, and thus may be the most intriguing. Gold has a way of springing to life in the midst of crises. And we sure have one on our hands now.
- Stock Market Head Fake
- Compounding Debt
- Oil Collapse
- Gold Strength
Opinions differ on this, but I'll go out on a limb here: The stock market rise over the past couple of weeks is simply a bounce from a sharp fall, a so-called dead cat bounce, a typical "correction" in a primary bear market. Take your pick, but they all add up to the same basic idea.
So we're not really interested in purchasing stocks in any great quantities for the long-term. Any stocks we do buy will be for speculative purposes. If we buy at all, it will be to scalp a few points that might help make up for our losses so far this year. But we'll be super-judicious and err on the side of caution.
If you disagree and believe we've seen or are close to the bottom, we suggest you're going with a head fake intended to strip you of our money so that those more sophisticated traders who were caught short when the market tanked in March can sell you the stock positions they want to unload.
Compounding Debt
As people stop making mortgage payments, there's going to be a quick build-up of a balance owed. What happens if some stop paying insurance premiums, cable and telephone bills...and on down the line. So many companies are making offers to delay payment. But the payment isn't being forgiven. So what's owed builds up quickly. Some have said they won't charge interest on what's owed. But is that permanent? How long will they give their customers to pay off the balance? What happens if the debtor can't get a job for some months, even years? Doing the math here is useless. Suffice it to say debt will build up and will linger for a long spell.
Oil Collapse
The obvious reason: no demand. No demand makes sense in a world where much economic activity has ground to a halt.
What about those negative futures prices we just saw? It's likely a function of: a) no desire to take delivery of the oil, due to no prospect of selling it to anyone; b) the cost of storage. So governments who have apparently bid on the negative contracts must have somewhere to put the stuff and will use it to build up their national reserves. The producers of the oil get to offload it without having to pay exorbitant storage fees - fees driven up because existing storage facilities are full up. The only way out of this is for an opening up of the economy, with some uptick in demand resulting, along with a cut in oil production. But it'll take time for all that to work out. Meanwhile, oil prices may continue their strange journey.
Gold Strength
Gold just corrected, but it's been showing some muscle this year. I'm reluctant to say much more because the price of gold is notoriously manipulated. But certain facts remain in place: Central banks have been buying lots of it for the last few years. And their buying hasn't eased. Supplies of the actual metal have dried up due both to demand and to gold mines and the refineries make the end product closing down due to the virus. But that will eventually turn around. What then?
An educated guess: The gold bull market that began in 2000 and corrected from 2011 through 2016 had already resumed. Not sure about this? Well, do you realize that for years Gold has outperformed the S&P? From the end of 2015, the S&P is up 46.5%. The Dow is up 45.7%. Gold is up 52.3%. And you don't hear a word about it. That's the sort of quiet rise you find in a long-term bull market.
What's the upside price? Who knows? You'll find all sorts of projections out there. Reasonable number begin in the $2,000 - $3,000 range over the next year or so. That's pretty powerful in itself. But you can find some outrageous estimates in the tens of thousands. Such expectations anticipate complete destruction of all current forms of currency out there: US dollar, Euro, Yen, Yuan, Pound, etc. What would cause that destruction? That's a whole discussion unto itself but it's not beyond reason.
Of the four items here, the last, Gold Strength, has the widest range of possibilities, and thus may be the most intriguing. Gold has a way of springing to life in the midst of crises. And we sure have one on our hands now.
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