The speed with which “This party can go on forever!” optimism on Wall Street is shifting to “The long-overdue bear is nigh!” terror is surprising—even to me, and I’ve been predicting it.
This has me thinking about the long-delayed “exiting of the eye of the storm” my friend Doug Casey has been calling for. I’m not at all sure that’s finally just about to happen. But if the record bull run was propped up with funny money and phony numbers, even a normally healthy correction could topple the house of cards, bringing on a 2008-style event. Days like today, when market sentiment turns so bearish that even the talking heads on Yahoo Finance can’t find any rays of hope, suggest we might just be at such a tipping point.
It was good to see gold acting like a safe-haven asset should during Wall Street’s traumatic opening this morning. But I have to say that the US dollar was down at the time, and now that it’s back up (as I type), gold is off again. This brings me to an important point:
Even gold sold off—albeit briefly—in the crash of 2008.
Don’t hate me for saying that. Recall that I’m not here to be a cheerleader, not even for assets or stocks I like. I’m here to call it like I see it, offering you the most useful insights and analysis I can.
It’s simply a fact that gold sold off in the crash of 2008—along with everything else. Why? Because portfolios were melting down, gold was one of the few things fetching a bid, and investors and institutions were selling anything they could to remain solvent. As soon as the immediate liquidity crunch passed, gold made a sharp reversal upward and finished the year in the black.
The better gold stocks rebounded with gold, by the way. Most didn’t end the year in the black, but they developed sharp “V” (not “U”) shaped bottoms on their charts, and went on a tear that lasted almost three years.
I’m reminding you of this because if we really do see a 2008-style event, everything will get whacked—hard. I expect precious metals to spring back first as they did last time, but industrial metals will go down and likely stay down for some time (as they did last time).
By the way, I wasn’t in the markets in 1987, but I understand that in that year’s crash, everything got slaughtered as well. The 1929 crash is famous for the same thing, so I’m not just basing my thinking on one episode. It’s a consistent pattern—and it stands to reason.
What if there’s no crash? Well, a serious correction in mainstream equities is still long overdue. If we get one that’s not reversed immediately, I would expect it to last for years. That would weigh on industrial commodities as well.
Either way, it’s looking gloomy for base metals. We’ve seen that in their prices over the last six months. The last 30 days have been brutal for some.
This applies to even the New Energy Paradigm minerals I’m most bullish on. If broader markets slump, they will not be immune from the pressure.
The one potential exception I can see to all the carnage is uranium. Its price is not being driven by economic optimism or market sentiment. Buyers are being forced to pay more because the growing demand that’s already baked in the cake simply won’t be met at current price levels.
That doesn’t mean share prices in uranium companies won’t drop if the markets as a whole drop sharply. We saw great uranium plays fall today along with everything else, even though uranium prices didn’t budge. But I do think they should fare better than most, and recover quicker.
Other takeaways:
- Cash is king today. There are a lot of moves I could make that may or may not work out well, but the one I’m least likely to regret is going to cash right now.
- I’m not selling any of my stocks. I wouldn’t blame anyone for selling almost anything and going entirely to cash today, but I’m holding my positions. That even goes for the ones I see as most vulnerable in the near term: stocks in energy metals companies, like copper and nickel plays. These are companies I would be happy to buy more of at half their current prices. That’s what I plan to do if there is a meltdown.
- The first thing I’m likely to buy in the event of a crash is physical gold and silver bullion.
- The second thing I’m likely to buy in the event of a crash is a short list of the “best of the best” precious metals stocks.
- The third thing I’d buy would be the New Energy Paradigm plays I like the most. That would be when I’m sure the bottom is behind me.
For now, I’m looking to raise cash.
Caveat emptor,
