What a Patient Money Man Told Me at Lunch Today

I’ve known Tony Jasansky for about 20 years now; and for more than 20 years Tony has been expressing his views on the stock market and the economy in his MIB Profit System newsletter. Tony’s called every major market move I’ve seen over the years.

His only fault is that he sometimes calls a market change too early. For example, he called the 1987 stock market overbought in the summer of ’87. The market didn’t crash until October, 1987. Hey, no one is perfect 100% of the time.

You may have noticed Tony contributed an article the other day to Profit Confidential wherein he gave his current view on the stock market. We hope you enjoyed his commentary. The good news for our readers is that Tony has agreed to contribute an article each month for Profit Confidential, again offering his outlook for stocks, various sectors, and the economy.

Today, Tony was kind enough to sit down with me for our annual economic “forecasting” lunch. With his heavy European accent, Tony laid this economic landscape:

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In the early 1980s, interest rates started to decline world-wide and there-in started the greatest bull market ever in stocks. That bull market ended in 2000. A bull market in real estate started in the early 2001. It took 10 years of declining interest rates (and an end to the bull market in stocks) for real estate prices to really start rising. All along, from the early 1980s until 2001, gold bullion prices fell as interest rates fell.

Along comes 2004 and the United States finds itself in a very interesting position. Due to economic fears arising out of the 9/11 panic, the U.S. Fed started dropping interest rates aggressively from 2001 and into 2004. Real estate cap rates fell with interest rates and property prices went through the roof.

But, because the Fed unwisely brought rates down too much, consumers overextended themselves with debt. During the same time period, the U.S. invades Afghanistan and Iraq. Suddenly, the U.S. Government finds itself overextended too. Tony figures the real federal deficit last year was about $900 billion.

All of a sudden, with American consumers and government awash in debt, foreigners start to worry about the U.S. dollar. Interest rates start to rise to keep the greenback afloat. The Fed decides not to publish the money supply figures anymore, foreigners get even more worried, and interest rates rise further.

Tony figures interest rates ended a 20+ year down cycle in 2004, when they started a new up-cycle. And Tony believes the Fed will not be able to lower rates for fear the U.S. dollar will collapse and gold prices will run higher. The worst possible scenario for the U.S. is abandonment of the U.S. dollar as the reserve currency of the world for gold bullion.

Tony says stocks and property prices don’t go up when interest rates rise. He also feels it could take two to three years for the effects of the Fed’s 15 interest rate hikes to really have an effect on the economy.

I share much the same economic view that Tony does. Except I believe the demand for metals and resources from fast growing China will give added support to the current rally in metals and oil–I believe both have much further to rise in price because of concern over the U.S. dollar and because of sheer, and very real, demand from China and India.