The Bear Market’s Little Secret

If you believe, like me, the U.S. housing market is headed for a hard landing instead of a soft landing, then the economy is headed for trouble. Really, can all those Americans who bought homes with little or no money down, or with adjustable rate mortgages which eventually re-adjust themselves to market interest rates, cope in an environment of high interest rates?

If you believe, like me, the U.S. Federal Reserve will have to lower rates once they see the housing market is in trouble, then a lower valued U.S. dollar lies ahead. After all, didn’t U.S. interest rates rise 17 times and the American dollar basically stayed at about the same value against the euro and other major world currencies?

If you believe, like me, that the general bear market in stocks which started in the year 2000 is in full force today, then stocks are deflating in price. Couple that with deflating housing prices and general price deflation we are importing from China, then the Fed’s job ahead is to lower rates sharply and to expand the money supply aggressively to fight deflation. In that situation, what possible foreign demand will exist for U.S. dollars?

All these “if you believe” scenarios lead me to the point of today: In time, the only real alternative to U.S. dollars will be something real. And that reality is gold bullion.

As I wrote last week, I’m taking the action in the gold market as a signal the gold bull market correction is still not over. “If you believe…” then the recent price action of gold bullion and gold shares are an opportunity for patient money.