Mini crash coming?-
Larry Edelson on August 16, 2010
Larry Edelson
My apologies for being so bold in the subject line. But this is one of the most important columns I’ve ever written. Why? Because today I am going to give you a major heads up on the trends I see unfolding over the next few months.
More importantly, I am also going to show you how those short-term trends are going to set the stage for the longer-term trends that you’re going to see unfold over the next few years.
First, a warning: The forecasts you’re about to read are controversial, and many will say I have lost my mind. No problem. Many have said the same about me numerous times in the past.
But the forecasts I speak of today are based entirely upon my proprietary trading models that are unlike any other in the world.
And today is not the first time my trading models have made spectacular calls. Since I developed them in 1982, they have successfully guided me and the investors that have followed me through every twist and turn in the economy and markets:
Through the 1987 stock market collapse, the ensuing bull market, the first Gulf War, the peak in the broad markets in 1999, the crash of 2000—2003, the 2007 peak in stocks, the bull market in gold right from day one, the bear market in the dollar, and more.
My systems flagged every one of those events and major trends well in advance.
I point this out not to brag, but merely to emphasize how important it is that you read on to learn what my models are saying now, and how seriously their messages should be taken.
They are not common forecasts. They are not based on linear logic, but rather, on more dynamic processes, which is what the markets themselves are. Dynamic.
So here are the forecasts and what you should be watching …
FIRST, the broad stock markets will attempt one or two more rallies over the next three weeks. The Dow may even get back to 10,700, or even nudge out a new high near 11,000.
But don’t you dare be fooled. The broad stock markets in the U.S. are now rolling over.
At a minimum, by November, we will see the Dow plunge to at least 9,000, with a high probability of falling to the 8,700 level.
But once you see the Dow Industrials below 9,000 — start preparing for another big rally in the markets, one that could last for years and eventually see the Dow Industrials more than triple by 2015, and soar to anywhere between 27,000 and 44,000.
How could that ever happen, you ask? Call me crazy. Call me nuts. But I’ve written about it before, and that kind of stock market inflation has happened in nearly every third-world and emerging economy on the planet.
The only difference is that this time, it will happen in the FIRST world, and chiefly in the U.S. No matter what the economy does.
Because very simply …
Look for the Dow to plunge this fall ... then stage a long, sustainable rally.
Look for the Dow to plunge this fall … then stage a long, sustainable rally.
SECOND, as the Dow plunges going into November, the U.S. Federal Reserve will start printing more money to inflate away the problems. No matter how much it takes. Whether it’s another one trillion, five trillion, twenty trillion, or even thirty trillion dollars.
The Fed will do whatever it believes necessary to try and turn things around.
It will stop at nothing. The Fed, in the next round of this crisis, will even resort to more extreme measures, such as supporting the U.S. bond markets — and keeping interest rates at near zero — by forcing banks to buy U.S. bonds (like the Fed did during WWII).
By reversing the existing policy of paying banks interest on reserves parked at the Fed, and penalizing the banks instead for not lending out to the economy …
By slashing reserve requirements, by restricting foreign capital outflows, and more.
All of this will be ultimately designed with one end goal in mind: To massively DEBASE the U.S. dollar.
You see, the Fed thinks — rightly or wrongly, only time will tell — that by devaluing the dollar and eventually inflating financial assets higher, that trillions of dollars of wealth will be recreated.
Hence, from that will flow new businesses, a wave of new innovation, millions of jobs being brought back, millions more new jobs being created, real estate prices appreciating once again, and more. In short, everything will be hunky-dory once again.
As I said before, whether or not the strategy works remains to be seen. I doubt it will. But that’s not my main point.
My main point is that if you fight the Fed on this, you’re going to lose your shirt.
So once you see the Dow below 9,000, start getting ready to go LONG the market, because the Fed is determined — and does have the ability — to inflate the financial markets higher, much higher.
No matter what philosophical or political bend you come from, if you want to protect your wealth and grow it, don’t fight the Fed on the next plunge in the economy and the stock markets.
THIRD, gold will soon be giving you the ultimate opportunity to buy — before it heads to way north of $2,000 an ounce. The short-term cycles in gold point down into late August, when I expect gold to fall below $1,100 an ounce. It should, however, hold the $1,000 mark.
But no matter what, thereafter, gold should explode to new record highs, most likely by the end of the year — and then, through 2011 and 2012, march to at least $2,300 an ounce.
By 2015, I expect to see gold at near $5,000 an ounce.
The driving force will NOT be inflation. That will come later, and will show up in the CPI, but not for at least another couple of years.
The driving force instead, will be the final recognition that the U.S. is broke beyond repair … that the Fed will print however many trillions of dollars it wants to paper over the mess and retain control for as long as possible …
Don't be surprised to see gold prices at near $5,000 an ounce by 2015.
Don’t be surprised to see gold prices at near $5,000 an ounce by 2015.
And that the U.S. dollar is doomed as a reserve currency.
So start preparing for all of this NOW, with the following steps. I cannot overemphasize them …
Step 1: Minimize your exposure to the stock market, right now. Get out of all stocks with the exception of core gold shares and other select natural resource, tangible asset stocks.
Later, in a few months, when the Dow falls below 9,000 — I will tell my Real Wealth Report members exactly how and what to get positioned in to capitalize on the Fed’s next aggressive moves, and the financial and tangible asset inflation we’re going to see.
Step 2: For any liquid cash you have, not earmarked for gold, keep it in safe, liquid, short-term investments such as money markets.
Or, use the strategy I’ve outlined in some of my special reports, which involves buying the iShares Barclays TIPS Bond Fund ETF (TIPS), but hedged by investing a third of what you place in that fund into the inverse bond fund, the Direxion Daily 10-Year Treasury Bear 3X Shares (TYO).
Step 3: If you don’t use the upcoming weakness in the gold market to buy or add to positions, I think you could be making a huge mistake.
The best way to buy gold, in my opinion, is the SPDR Gold Trust ETF (GLD). Each share represents 1/10 of an ounce of gold. When you buy this fund, it’s like buying a mutual fund, but one that holds only physical gold. Plus, you eliminate storage and shipping worries because the gold is held in trust for you.
Or, if you’d rather buy a gold stock mutual fund, consider the Tocqueville Gold Fund (TGLDX). As an alternative, look at the Market Vectors Gold Miners ETF (AMEX: GDX). This single investment holds 10 of the largest gold miners in the world.
No matter what you do, I urge you to stay open minded and think dynamically going forward. That means not accepting the status quo, not accepting mass hysteria, not following old models and old economic rules, and using “uncommon wisdom”. Period.
That will be the only true way to both psychologically and financially survive not just the next few months, but also the next few years.
All the best,
Larry
