We are still on holiday at the moment and I have been reluctant to make any new post until we are back officially. However, due to new developments in recent days, I will make a few quick and important points here.
- Yesterday's over 500-plus-point plunge in the Dow was similar to that of the crash of 1987. The decline in nominal terms had been greatly "cushioned" by new policies and regulation imposed after the 1987 crash. The interbank lending rate was traded up to 6% yesterday while the target rate at 2% [1]. That's a HUGE jump. In 1987, the interbank lending rate jumped from 6 to 16% jump.
- The 13-Week Treasury Yield is now almost 100 bps away from the Fed Funds Target of 2% [2, 3]. (I closed my long position in the Yen too early!)
- From a respected friend of mine: The Dow will close below 10,000 by the end of 2008. [Comment made without market timing and does not represent the official position of bhc investment. Our advice on stocks has consistently and repeatedly been: STAY AWAY!]
- We are still long on Precious Metals, Energy, and Agricultural Commodities. Our advice to our readers on these has been: buy them cheap when the herds are panic selling! That too has remained unchanged.
- Recent corrections in commodities as well as precious metals are due to, in our view, 3 main reasons: (1) *temporary* demand destruction as recession goes global; (3) politically driven bear market rally in the U.S. Dollar. China had bought a great deal of U.S. Treasury to spark the recent rally; and (3) intervention by central banks [4, 5].
- Central Banks can manipulate the price of Gold, as they had attempted many times in the past, but that will *not* change the long-term secular bull market.
- We have long said that we don't believe the Fed will have the b*** to raise interest rates at all this year. Now, the world will come to the realisation that not only the Fed will have no will to raise, it might well be forced to cut its benchmark rate to below 2.00!
- How is this all going to end? Well, I am not smart enough to tell you how is this going to end yet. But I do know what's going to take to get us all out of this recession. The answer is quite simply: Inflation [6] -- meaning, Inflation will have to be pushed back up in order for the U.S. to prevent a severe depression. The U.S. is now in an inflationary trap!
- Why would anybody sell their Gold in August/September 2008 is beyond me. I guess they had been brainwashed by the media or by those who are selling a newsletter with their sensational market forecasting claims. These guys don't even have a clue of the seasonal behaviour of Gold. Take a look at the following Gold's 15- and 26-year seasonal behaviour.
- As I have said it consistently and repeatedly, the multi-year time frame is what going to dominate the secular bull market of Gold. And within the monthly time frame, Gold is in the process of completing a 1-2-3-4.
- Don't buy and sell by simply listening to what the others are saying. Buy and sell because you knew what you are doing; get your facts right and do your own reasoning. The Fed can bail out its friends on Wall Street and it can print, and it can exchange whatever junks of no value with Treasury of supposed value. What they can do is only limited by their imagination, but not without consequence. The consequence in such a kind of behaviour in a hugely indebted nation has always been: Inflation. The Fed can attempt to manipulate, but it will not be able to do that forever. Take a long-term view, look beyond the manipulation and volatility. Years down the road, all those talks of deflating Gold prices will go bankrupt. If we are indeed heading to a complete collapse even in the Gold market, the baseline target should be $200, not $600. The bears didn't even get their numbers right!
I am heading back to the beach now....
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