It now seems like ancient history. But it was just 10 years ago that the stock market mania was preparing to enter into full bloom. Soon, companies that you had never heard of, and when it was all over, never would hear of again, were about to launch upward, eventually to levels no one could have ever imagined. Testimonies of instant millionaires who were like your typical neighbors were all over the media. CNBC replaced elevator music; it was on in the barbershops, at check out counters, staring at you in the windows of every appliance store. It became so absurd that even Shaq and Jose Canseco were on the covers of stock market magazines, dishing out savvy technology tips. But then, like an alarm bell, the millennium arrived and instead of the plateau of perpetual prosperity, the market sank. The bubble had popped, the zany ride was over, and most of those who were expecting to clean up found that, instead, they had been taken to the cleaners.
But even though we now look back at this period with embarrassment, pain and loss, we tend to forget that this freakish move covered almost 8 years. And even though almost all the players lost, there were actually some who foresaw the move, and for those who got in early, fortunes were made.
This brings up my point about the gold market at this point in history. What if you had a shot at buying at an equivalent opportunity, perhaps even far greater than the dot-com era? It is rational to ask, if this is at all possible given the discouraging results of the past two years? Now please, I realize that I might be speaking to only true believers, but gauging from the world famous Café Sentiment Indicator, I think that some of you might benefit from this essay.
A ONCE-IN-HISTORY MOVE IS AT THE DOOR
At this moment a once-in-history rise is revving up, and as Bill always reminds us, it is on the launching pad. Although it has now taken eight years to reach this point, it is rapidly approaching in the precious metals, and even much more so in the mining shares.
Certainly, the fundamentals are solidly in place — a surreal creation of paper currencies from every central bank in the world, the exploding claims upon the US dollar, declining mining gold production, a dearth of large discoveries, a virtual cessation of central bank selling and finally, a world-wide manipulation of the metal, particularly over the past 8 years, that has produced an incalculable naked short position in the metal. Blend these all together and you have a golden recipe for an unthinkable market move. As my friend Jack has maintained, “The central financial issue of our time will be ‘what is money?” I believe that we are now about to find out.
Why am I so confident, when so many who bought the dot-com stocks at the top and then leveraged themselves to buy ridiculously priced houses have never even bought a quarter-ounce gold coin? Please read on.
A TALE OF TWO PARABOLIC CHARTS
My confidence can be seen in the following two charts. Please take a long look at them as they display two similarly powerful trends or formations: and both of these patterns are parabolic or exponential. One is the Nasdaq index from the early 1980s until 2000; the other is the price of gold from 1971 until 1980, and then a second cycle from 2000 until the present.
PARABOLIC POWER–THE SECRET OF MAJOR CYCLES.
Our American culture is dominated by a craving for sound bites and instant results. We tend to have an attentive span of a 3 year old just after a pound of candy and two hours of violent cartoons. The result is a mentality to make a quick, profitable trade, sometimes within minutes, without ever understanding that most major stock market cycles tend to move parabolically or exponentially over a period of years. Even though it may lack the sizzle and excitement, that is where the money is really made.
Contrary to those who believe that the stock market moves randomly, there is a pattern in markets which you see this clearly in the two charts. Parabolic cycles begin after an extended period when a lack of positive movement has discouraged the investors and tends to keep them both nervous and pessimistic. Consequently, while the parabolic pattern is in its formative stages, corrections are sharp and violent. This scary behavior confirms the pessimism and fear while flushing out those who do not have true convictions. Only those who have a real vision of the full cycle tend to remain unmoved, and at certain points, add to their holdings.
Eventually, the slope of the rise moves up gradually until at a certain point in its ascent, it begins to accelerate, drawing attention from a new momentum driven buyers. It is also at this point in the cycle that the fundamentals become more evident. Then after perhaps one last scary shakeout such as in 1994 in stocks, the cycle is ready for liftoff. Strangely, the more the price rises the more it draws in more and more people who excitedly chase it. As you can see by the chart of the Nasdaq, the last phase consumed about 2 years and yet it rose by an incredible 400%, which means some stocks went up over 10 times. By the top, fundamentals lose all reality, and then as we saw both for gold in 1980 and in stocks 2000, the reversal inevitably arrives, trapping all of the blind and the greedy, and a bear market ensues. It is critical to note that the alternate cycle of gold, stocks and then again gold is not accidental. They are fundamentally opposite, and when one is in ascendancy, the other is in reversal. The key is to recognize that such a trend is in effect, and to be prepared to take advantage of it.
Why do I bring this up? Because at this time even after eight years from $250 to $1000, we are still in the relatively earliest stages of an unprecedented bull market in gold, yet with very few still recognizing it or positioned for the move. If you think I am exaggerating, then I ask you, “Who do you know on CNBC or Bloomberg who is really advocating a strong position for the rise in gold? Which renowned economists? How about Buffett, Cramer, Jack Welch, Bernancke, Tiny Tim? Do you see what I mean?
Another fascinating feature about gold’s rise so far is the bizarre “cash for gold” phenomenon. To me, this is beyond any reasonable explanation. In the media we only seem to read or hear about gold are the gleeful sellers who are getting their 50% on the dollar for some old worthless jewelry. Isn’t it strange that if we are in a genuine bubble, as many believe, we haven’t see ads everywhere telling us to buy gold, not to sell it? Really, do you know friends, neighbors or family who has suggested that you protect yourself by buying some gold or silver coins? Remember how it was in 2000 when the television was plastered with brokerage house ads, and all of your friends and family were calling you with stock tips?
I believe that the impending move in gold, and even more so in the gold mining shares, will become the greatest and most speculative cycle in the history of financial markets. Setting up this move is the well documented (in the gold sites i.e.) radical shift in the world political and financial system. Many nations are turning from holding paper currency and U.S. debt and purchasing gold. It is happening in nations such as China, Russia, India and those in the Middle East. With the electronic money presses going 24 hours a day, and in the midst of so much uncertainty, it is only a matter of time before the fundamentals collide and gold accelerates in its parabolic pattern. And please consider that unlike the great stock market bubble we are talking about a bull market that is founded upon reality, not just pure speculation. The financial system is systematically being torn at the seams. Neither Alan Greenspan, Ben Bernancke, Tim Geithner nor Humpty Dumpty, himself, can ever repair it.
There is one other point that we tend to lose sight of. Since 1974, gold has been trading in 3 figures. It has surpassed $1,000 twice only to be rebuffed. So there is a mentality inherent in almost all non-gold believing analysts that gold is always ready to drop back to $800, $500-600 (Nadler, although privately he probably believes $35) or even lower (Prechter.) But I believe that once gold moves firmly over $1,000, the entire landscape and attitude towards the price of gold and the gold shares will radically change.
This is what happened once the Dow finally climbed above 1,000. Who would have guessed that in 1982, the Dow would go to 12,000? But this is what happens and what is going to happen to gold. And the primary beneficiaries will be the smaller gold exploration companies which until recently, haven’t been able to catch the proverbial bid.
THE IMMINENT EXPLOSION IN GOLD AND IN GOLD MINING SHARES
Many of even the most confident gold bulls were hit by tremendous doubts last year as the great credit squeeze pressured down the gold shares. For most of us, it was incredibly frustrating and depressing. But it is also likely that many who held those tiny electronics companies in 1990 or even 1994, after those sharp market drops, felt the same way. However, the ones that still maintained their vision stayed the course; patiently accumulating during the sell offs and eventually reaped incredible rewards.
As we have claimed now for many years, the world is about to change forever, and on every front. The financial measurement of this, gold, will fully reflect this change. Be vigilant and prepared for tumultuous times just ahead!