Sunday, April 30th, 2017 MST

Stock market collapse not without warning

It’s astounding to hear talking heads blame the stock market collapse on falling oil prices. Lower oil prices should have caused stocks (except oil stocks, of course) to rise. This is especially true of the stocks that make up the Dow Transportation Index.

Oil is significant to operating planes, trains and trucks, yet the DTI has been in decline for a year. With reduced costs, investors should have flocked to transportation stocks. However, they did not, and the talking heads and experts they brought on their programs failed to see the significance of a declining DTI.

More important, a strict interpretation of Dow Theory called a top in stocks last year (as noted on this blog several times). Additionally, “Death Crosses” showed up in all major stock indexes. Still, investors–almost always encouraged by their mainstream advisors–hung on to their stocks. This decline has been brutal and may get worse.

Meanwhile, gold and silver–and gold/silver stocks–are stuck at or near four-year low prices. Why? Isn’t gold the “go to” investment during times of economic and financial concerns? The answer is yes.

Gold and silver are monies that have stood the test of time. Despite government spokesmen (think former Fed head Ben Bernanke) ridiculing gold, governments hold huge quantities of gold and sell it only when forced to. Some governments regularly add to their gold positions, most notably China and Russia, The United States, which claims the world’s largest hoard of gold, has not sold any since the 1970s (when it dumped along with the IMF in a failed attempt to stop gold’s march to $850).

Gold and silver will re-assert themselves as the “go to” investment, but it will take time. For generations, college students have been indoctrinated into Keynesian economics where gold and its function as money is ridiculed.

Investors will turn to gold (and silver), and logically so. As noted, only gold and silver have stood the test of time; however, history shows that every paper money is eventually destroyed because it is so easy to print.

2 Responses to “Stock market collapse not without warning”

  1. jeff weiss

    Obviously, when the dollar collapses a new currency based not on fiat will have to come out. Little doubt it will partially or fully be backed by precious metals. Though who can pick the top, or near top in precious metals. I wonder about timing of exit strategies?

    Reply
    • Bill Haynes

      Good questions, Jeff.

      When the dollar goes the way of all paper (fiat) currencies yes, politicians will promise a precious metals back currency of some sort. But, we’ve been down that alley before, only to be mugged. The dollar was “fully backed” by gold for most of its existence. Today, it’s backed by “the full faith and credit of the US government.” Lots of speculation on what that means.

      As for picking tops or exit strategies, I don’t worry about picking a top or when to get out of the metals because it is likely that I will never get out of the metals.

      Reply

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