There are several forces lining up now to send stocks into a new bull market. Chief among them …
First, the sovereign-debt crisis. The money that’s going to come out of bonds has to go somewhere. It can’t all go into gold, silver and commodities.
So as money shifts out of sovereign-bond markets in Europe, and eventually the United States, there’s going to be a huge influx of capital into stocks — especially the cream-of-the-crop stocks, the blue chips and top S&P 500 names.
Second, precisely because of the European debt crisis, the U.S. looks like a heck of a lot better place to invest these days, especially for Europeans. That’s a corollary of the above point, but it’s already in force — European money is showing up on U.S. shores in droves, and most of it is going into U.S. stocks and bonds.
Third, as I’ve often said in the past, good quality stocks can often take on many of the attributes of commodities. In the sense that stocks can and often do inflate higher with money-printing and inflation, they can and do adjust upward as the underlying currency depreciates, or in anticipation of a currency devaluation.
This happened in the 1930s … and in just about every third-world and emerging-market country that experienced a depreciating currency. From Argentina to Brazil, from Indonesia to Malaysia, from Pakistan to Zimbabwe.
The only difference now and in the future is that the sovereign-debt crisis is not happening in emerging or third-world countries but instead is hitting the FIRST WORLD!
Money-Printing to the Rescue?
So, what could cause a new bull market in stocks when there are so many problems in the world?
The worldwide money-printing phenomenon will not be the cause of it. Even though money-printing is bullish for commodities and stocks, it’s not necessarily bullish all the time.
For instance, a lot of the recent money-printing has managed to help (at least temporarily) push back the European sovereign-debt crisis. So this can have the effect of temporarily taking some of the shine off of tangible assets. We’ve seen this happen in sugar, coffee, cotton and select other commodities that normally do well under a money-printing scenario, but are not doing so now.
And notably, right now the money-printing has largely gone to support banks in Europe. To help liquidity, to help the banks remain solvent, to help the credit markets, to bail out Greece again, and more.
But the money is not yet finding its way into the private sector, where loan demand and credit remains tight. So the fires of inflation are NOT being stoked by the current money-printing, and the inflation force behind a bull market in commodities or stocks is not yet here, either.
Simply put, money-printing is inflationary and bullish for asset prices under most scenarios, yes, but not always.
If it were, gold would already be at new record highs because there’s a heck of a lot more money-printing going on now than before.
We’re Not There Yet,
But When Is That Day Coming?
As strong as gold and silver appear … as strong as the Dow Industrials … the S&P 500 … and even oil look — they are not yet at the point where I can confidently say that new bull legs higher are starting.
Yes, I have been wrong in the short term. Very wrong. And I dislike that just as much as you do.
In fact, I personally am and have been short gold, silver, oil and the S&P 500 in the futures markets. So I fully understand how lousy it feels when you’re on the wrong side of the market.
But I will not succumb to emotions, guilt or popular sentiment just because I’ve been wrong in the short term. That would be the worst thing to do.
Instead, I have to go with hard, technical evidence gathered from my more than 30 years of experience, and from all my trading models and indicators, to draw my conclusions.
Here they are …
- Gold has taken out the December high, which is very positive for the longer term. It confirms that gold is still in a long-term bull market. But that’s all it says.
- To truly break out to the upside, we need to see gold take out the $1,808 and $1,835 levels — preferably on a weekly or monthly closing basis. Until then, gold remains in a very broad trading range that could easily see gold plunge back down.
- Silver, as noted previously, needs to take out the $35.85 level on a monthly closing basis. If silver cannot close above that level on Tuesday, February 28, then it is still at risk of a sharp decline.
- For the Dow Industrials, we need to see a close above the 12,850 level at month-end, before I can say for sure that the new bull market in the Dow that I’ve talked about many times is here. Short of that monthly breakout and buy signal, the Dow also remains at risk of a sharp decline.
- In oil, we need to see a close above the $111 level before I can confidently say that a renewed long-term bull market in energy is back.
This may occur this week, or next month. But no matter what, you can rest assured that, when these markets are fully flashing green, any money you missed out on making recently or any hits you may have taken following my short-term calls will be more than made up for. Many times over.
P.S. Our natural-resources expert Sean Brodrick is finalizing an urgent series of recommendations on some new natural gas companies that he’s looking at … and his instructions went out at 1 PM Eastern Time Monday, February 27.
To get the full story on this incredible “New Fuel Revolution” straight from Sean … and to learn how to get the names of these stocks as soon as he reveals them, click here immediately!
About Larry Edelson
Larry has nearly 33 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Resource Windfall Trader (weekly) provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.
For more information on Real Wealth Report, click here.
For more information on Resource Windfall Trader, click here.