December 9, 2015
Please check the archives for my prior outlooks for continuity.
First stocks, gold, oil and then we’ll spend more time on bonds.
My last update 5 weeks ago, my intermediate outlook changed to bearish on stocks, for the first time in over 4 years. Since then, I’m even more bearish. While still very bullish long term, stocks need a large selloff to reset the bull market and build a solid foundation for Dow 100,000 well down the road. A 25% selloff is a decent possibility. Both stocks and gold will eventually rise together, courtesy of the upcoming bond market demolition.
I’ve been urging listeners to avoid buying gold since Sep. 2011, except for a trade. However, that situation is slowly changing. In the last update, I said I still expect more new lows in gold, which has occurred. So now what? Gold is definitely under accumulation by big capital, despite the obsession with gold manipulation, they’re using weakness to buy. While I still expect sub $1000 gold, so does just about everyone else now, even some of the most bullish gold bugaroos. So begin to SLOWLY accumulate gold, but do NOT buy into the price rallies.
While gold itself is not nearly as bullish as it was into the 19 1/2 year bear market low of $248 on July, 20, 1999 – the gold miners are that bullish. Something to ponder.
Quickly on oil, my long held belief remains we will see sub $35 oil before a major low will begin forming
Lastly on bonds. And its a doozy. In the Sep. update, I said the Fed would be raising rates soon, even though, all of the way over paid famous talking heads were claiming the Fed would not raise rates, maybe ever. The reason is that my technical work convinced me the short term interest rates were about to explode higher. And explode they have – 3 month, 6 month and 1 year TBills are at 7 year highs – up by 10 -20 times from the lows. And to repeat the Fed does NOT lead the bond market, they FOLLOW. And when the Fed does catch up to the bond market, short term rates will begin to move even higher. Expect to see a flat yield curve within 18 months as the 10 year yield will stay stubbornly low for a while before also exploding higher. Andrew and I have both been warning about the coming junk bond market disaster – junk bonds today hit new 6 year lows.
So despite the fact that we’re likely already in a recession, rates are moving higher. Going forward, this will all be about CREDIT QUALITY. So a weakening economy, will cause interest coverage to deteriorate, causing rates to move even higher. And the geniuses at the Treasury have been shortening the average bond maturity on our debt, meaning higher short term rates will quickly cause higher deficits.
Finally, to repeat it is NOT falling, but it is rising interest rates that will lead to increasing inflation, because the rising interest rates will finally now lead to increased volatility. And the best real time indication that velocity has bottomed, will be more frequent and consistent periods of high market volatility.