Kind of a mess out there for investors…
The bust in the housing market was a lot deeper than most had fathomed. The U.S. government is bailing out American banks and Wall Street, while lending to small business is freezing up. Even the New Yorkers who thought their real estate was immune to a downturn are starting to feel the pain, as investment banking jobs become obsolete.
The stock market, as measured by the Dow Jones Industrial Average, fails to give investors true direction. While the index refuses to fall on its face — it continues to teeter at the mid-point between its 2002 low around 7,000 and its 2007 high of 14,279.
As I have written before, if the Dow Jones Industrials break down decisively below the mid-point between its 2002 low and its 2007 high, we are in real trouble, as such a move marks a formal end to the bull market in stocks that began in 2002. As for the Dow Jones Transports, Dow Theory enthusiast are quick to point to the fact that the Transports never fell below their 2007 low, which is quite bullish.
It’s difficult for investors not to worry today. My friends in New York call and tell me people think it’s the end of the world. My friends in Miami say it’s never been so bad. And, yesterday, someone in the office asked me if we are headed for another Great Depression.
I’m not that pessimistic (nor is Warren Buffett with his $5.0-billion investment in Goldman Sachs). As a contrarian investor, I make money going against the trend. I got into gold in 2002, when everyone said gold was dead. I told my readers to get out of real estate in 2005 when speculation was hitting its peak.
I’ve never seen so much negativity as is around in America today. We didn’t go into the Great Depression in the 1930s with people saying, “Hey, a depression is coming.” Today, all we hear is that worse times are ahead. Personally, I’m going against the herd mentality and forging ahead with my investments…trying my best to take advantage of a weak economy and distressed sellers.
My major concerns about the economy continue to be: deflation and the falling the U.S. dollar. Everything is falling in price today: stocks, houses, oil, goods. All those journalists and reporters that were scaring us about inflation in the first quarter of this year just didn’t know what they were talking about.
The amount of debt the U.S. government is adding to its balance sheet to fight the weak economy is placing strain on the U.S. dollar. As I have been saying since 2002, shares of quality gold- producing companies present an opportunity for investors who believe the U.S. debt wheel is getting out of control.
I was right in my prediction that gold bullion prices would not move much this summer. But now, with gold bullion having moved back above its May 2008 low of $850.00, I again see quality gold-producing stocks as a buy. Will gold be above $1,000 anytime soon? You bet it will. By the end of the bull market in gold, I’m predicting that gold will be trading in the thousands of dollars, not the hundreds of dollars it is trading at today.
For astute stock market investors, note that the Dow Jones U.S. Gold Index is trading only 17% above its 2008 low: In my opinion, this means many quality gold stocks are still trading at bargain prices.