A Warning to All You Gleeful Permabears

Posted by Rick Ackerman

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Screen Shot 2014-01-29 at 5.54.23 AMWith stocks plummeting in January, of all months, it’s tempting to think something in the big picture has changed, or is about to. The evidence becomes even more compelling with the apparent reversal in gold and silver.  Bullion prices have been in a relentless downtrend for more than two years, but they seem, finally, to be getting traction. If their reversal portends an economic sea change, what could possibly be its cause?  A plausible explanation is that Obamacare, by far the biggest new tax ever imposed on Americans, is starting to take its toll. Burdened by health insurance premiums that have been doubling or even tripling for some households, and with astronomical deductibles that leave millions of ACA enrollees more vulnerable than ever to bankruptcy in a medical emergency, consumers have beaten a hasty retreat to their bunkers. If so, The Great Recession is about to resume with 1930s vengeance.

Moreover, and putting aside the painful impact of Obamacare on individuals, let’s not overlook the fact that the ACA has pushed a nearly 20% swath of the U.S. economy into chaos, if not to say, to the brink of collapse. Considering that uncertainty is the one thing Wall Street supposedly cannot abide, perhaps we should be wondering why the Dow is not trading 5000 points lower rather than a mere 400.

Bullion’s Rally Worrisome

An imploding economy would not explain the firming of bullion prices that has occurred in recent weeks, however.  Gold and silver have been so weak for so long that it’s difficult to imagine that they are moving higher now merely in reaction to the stock market’s relatively rare bout of weakness. We might conclude that if the precious metals sector has in fact embarked on a new bull market, something more dramatic than falling share prices and recession must be looming on the horizon.

From a technical standpoint, however, there is as yet insufficient evidence to suggest that the bull market begun in 2009 is over. Yes, it’s a matter of record that I encouraged subscribers to buy put options after the S&Ps hit an important long-term rally target on the last trading day of 2013.  That was intended as a short-term trade, however, and it was done in such a way that the puts options we still own effectively cost us nothing.  If it turns out that we timed the onset of a bear market perfectly, as some subscribers evidently believe, then coincidence and luck will have played a role.

Meanwhile, last week’s refreshing selloff on Wall Street did not change my mind about the prospect of higher highs in the months ahead, after this presumptive correction has run its course.  My gut feeling is that the bull market is not dead – that the brazen financial fraud that has sustained it for nearly five years is intact. Nor will the torrent of Other People’s Money that has supported reckless buying by fund managers have abated sufficiently to kill the bull.  [Full disclosure: The foregoing was inspired in part by the drive I took yesterday along the ocean highway from Delray to Palm Beach. There were more Ferraris, Lamborghinis, Porsches and Maseratis than one could shake a stick at.]

One More Fabulous, Stupid Rally?

Bottom line, I still see at least one more massive, blithely oblivious rally before Wall Street’s amazing hoax achieves a proper climax. To that end, my Dow target remains 17622, more than 1700 points above current levels.  We can revel in put-option profits in the meantime as Mr. Market coaxes forth a healthy does of fear and dread with this correction. However, permabears would be wise not to take their eyes off the nasty little sonofabitch while it’s falling, since, even if this is a bear market, the rallies are bound to be real doozies.

– Rick Ackerman, Rick’s Picks

(Orig. Publish Date: January 27, 2014)