5 Critical Points

Posted by Dennis Gartman Interviewed by Michael Campbell

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1. Volatility Here To Stay
Dennis thinks that volatility in markets is getting worse and that the era of buying something for the long term is not only gone he doesn’t think it will be back in his lifetime. Another change has been in his personal trading size, “its smaller, smaller, it all gets smaller. You have to focus, and I think everybody has to keep their noses to the grindstone, get smaller or get out. 
2. The Bear Market in Government
The backdrop that all the major markets in Western Democracies are struggling with is a bear market in Government complicated by demographic shifts. ” The problem that we have in the West is that with the exception of the United States, Canada and maybe Australia, we are getting very old and we’re depopulating and that makes for a very uncomfortable, very difficult retirement circumstance. A welfare circumstance. You have fewer and fewer workers and more and more and older retirees. That’s the problem and it’s a problem everywhere around the west. Furthermore, this problem is not going to go away, in fact it’s going to get much worse. The only way to resolve the problem is to employ draconian measures, Governments raising the retirement ages dramatically and they are going to have to do it very quickly. They’re going to have to tell people even if they’re 63 that they are not going to be able to retire for four or five more years. Those people need to stay working so that they can pay into old age social security benefits. Then you have the back end problem that is older workers who continue to stay on the job would normally be coming out of the pipeline and making way for younger workers to replace them. That’s not going to happen. Simply put, aging circumstances,  retirement accounts that have for many been decimated and Governments out of money means the only thing you as an individual can do is continue to work and hope that you can put some more money aside for your retirement.”

3. No Safe Haven(s)
“All correlations have gone to one, everything is going up together, everything is going down together. Isn’t it amazing that you see days when gold falls and stocks fall, gold rallies and stocks rally, crude oil falls and stocks fall, crude oil rallies and stocks rally, everything has gone to a correlation of one and so therefore trying to find a place for safety doesn’t exist. The only place of safety is cash and you’re not paid to hold much cash here in the States. A one year T bill earns you two tens of 1% and it’s not worth the paperwork to make the trade.  You might have a positive yield on the instrument but the brokerage firm or the bank that you hold them would charge you enough money that the return is negative.”
4. Inflation or Deflation
“When I’m asked the question will there be inflation or will there be deflation my response is yes. There’ s downward pressure upon the wages and generally that’s going to be deflationary while the monetary authorities really have no choice but to try to inflate out of the debt structure which tends to put upward pressure upon commodity prices on balance and gold prices particularly.”
5. Gold
I’ll still be bullish in the long run of gold because I think the only thing that the monetary authorities can do is continue to expand supply reserves in the system, denigrating their own currencies generally and that tends to work to the benefit of the gold market. I’m primarily long gold in Euro terms, I’m long gold and short the Euro and ostensibly because of the problems that the Europeans are now facing and I don’t think those problems are going to go away. Gold in dollar terms has cost a lot of money in the last three weeks, gold in Euros has lost money but it’s lost demonstrably less. Over the course of last year, gold in Euros has actually been demonstrably better than gold in dollar terms and I think it hedges away some of the attendant risks during the trading session, during the trading week and during the trading month. I’m comfortable with that trade, I like that trade and Friday, yesterday we started to see gold actually getting strong again in Euro terms, which I thought was most impressive. In the last six weeks you had an awful lot of hedge funds in New York who had on the bull long equities and we’re long gold too, gold being the supposed hedge. They thought if the equities market ever tumbled, the gold would go rallying violently upward in the last quarter and instead, equities stumbled and gold fell with it and those guys found themselves in a very disconcerting position.
6. Equities
I’m afraid we are on a bear market in equities and I think we’ve been in a bear market now for about six months. What I’m really afraid of is I tend to look at things in a technical perspective and it looks like were in mid-point after the sharp tumble of two months, three months ago. So I argue that if we start breaking down on the S&P, and I think we are, we’re going to take the S&P down probably to somewhere between 940 to 980. Right now we’re trading above 1150.
7. Commodities
Well, I think for the first time I’m actually going to see the commodity market do what they’re supposed to do. Some will go up, some will go down and I don’t think they’re all going to go up or all go down together. I can be reasonably bullish of wheat at this point because the seasonal’s point to it. Livestock places are probably going to continue to make new and newer highs because grain prices have been reasonably expensive and it has forced a lot of cattle feeders, especially out west, to liquidate their herds. They just can’t afford to feed this price of corn to livestock. Next year literally there will be so little beef around, prices are going to get egregiously high. Cattle prices have been making new and newer highs along the way and they are probably going to continue to do so.

8. Biggest Fears
a) My biggest fear as far as governments are concerned, is that they will try to balance budgets by raising taxes and history shows that every time you raise marginal tax rates, you get less revenue, not more. So, that’s really my great fear is that they’ll start to do something to balance the budgets, they’ll raise taxes in order to do it and all they’ll do is create more problems, not less.
b) My biggest fear for investors is that they will Average into a bad position. That’s it. People will think that they see value, they’ll average down into a bear market and it’ll go against them.
The Gartman Letter is a daily commentary on the global capital markets and addresses political, economic, and technical trends from both long-term and short-term perspectives. His subscribers include leading banks, brokerage firms, hedge funds, mutual funds, and energy and grain trading firms from around the world.