11 August 2010
In the month of July we saw a complete change, in theme, from June. In June we had heavy signs of deflation with prices dropping but in July things started to heat up and rise. The S&P 500 was still down 1.2% for the year through July 30th, although it went up 6.9% during the month of July.
Gold went down about 5%, in July, while the US Dollar declined 1.32%. Remember, the US dollar is the largest traded market in terms of dollar volume and it is also less volatile than gold and stocks. Gold is less volatile than stocks. So with gold down you are probably asking, “So what was so inflationary about July?” Gold is a monetary metal, primarily, so a sign of rising prices (inflation) doesn’t necessarily mean that gold goes up as well. The Dow Jones-UBS Commodity Index went up 4.8% in July! That is quite a rise in general prices in 1 month. However, for the year, general prices (as measured by the Dow Jones-UBS Commodity Index) are down about 10%. This means that we have had a deflationary year…so far.
Long Term – Still Bearish on US Stocks
So what do I expect moving forward? Right now, on a long term basis, I am still bearish on US stocks. In the end I expect the Dow or S&P 500 to be 40% lower than it is today (S&P 500 at 1,123). My gut feeling is the bottom will be reached sometime between 2014 and 2016. Where do I come up with all of this? The answer is, by using human behavior in the past. You know how when you read the Bible and a verse really speaks to you? Well, the Bible was written thousands of years ago but its principles and messages still convict our hearts because human nature (the flesh) doesn’t change. We still struggle with greed, lust, and fear and will continue to until Jesus Christ comes back.
So right now, as you are talking with your friends and family, I believe that whatever money they have in US stocks (and leave in US stocks) will be 40% less than it is here in early August 2010. However, I have been wrong so many times before it isn’t even funny. So with that in mind, let’s move to my intermediate term sentiment on stocks.
Intermediate Term Stock Beliefs
As you can see from your account activity, I became bullish in late July on US stocks. From late July it looks like stocks were heading up at least through the first 2 weeks of August and possibly quite longer (meaning months).
Gold
Gold has held pretty firm through its typical down season, being down only 7.6% from June 18th through July 27th. This tells me the gold bull is still alive and in fact well. We are entering gold’s seasonal bull. From August through January and sometimes into February we typically see gold have its best advance. I am expecting this year to be no different. From August 2009 until the end of last year, gold and gold stocks were both up about 15%. So if we see that again this year, those of you in the TDP® and Real Return strategies will reap the rewards in your gold stocks.
The Long Bond and Japanese Government Efforts
On an intermediate term basis, only, I am a bear on bonds. However that could change due to seasonal forces kind of like what we see with gold but not nearly as consistent. The mortgage rates hit an all-time low in late July and where we go from here only God knows. We could be like the Japanese economy for the last 20 years. Japan has tried with all of its might since 1990 to inflate its economy with no success. Japan has printed money out of thin air and lowered rates to 0%, yet their stock market is down 72% since its peak in 1989 and their currency continues to be one of the best performing. Unfortunately for Japan, though, the mood of the people has been one of fear for decades and they would rather save money and get out of debt than buy. The government’s actions have not been able to overcome the citizens of Japan’s mood for about 20 years now.
