Peter Grandich said very clearly to Michael Campbell in early December we would see a bull move in the US Stock Market and we did, 11 weeks in a row. He advised his readers to get long because:
1. The market had every reason to go down and it didn’t.
2. We were entering a seasonally favorable period.
3. There was a belief we’d at least get a Santa Claus rally.
Subsequently, once we got past Christmas it looked to him like the market still wanted to go higher, and he even suggested to his readers that in this rally we might even squeak out a marginal new all-time highs in the Dow & S&P.
What Now
To be clear, he didn’t think we’d have a 3-5 years bull market joy. Indeed, on friday March 2nd he put out the “yellow caution flag” to his readers. Peter sees danger in what he sees as an imminent and inevitable conflict with Iran that will hit this elevated stock market that has been getting within shouting distance of Dow and S&P all-time highs.
In short he thinks we will see the end of what he thinks is “a countertrend rally in a secular bear market that actually started in the fall of 2007.”
Timing and signs that this scenario is in fact playing out.
1. An inevitable large scale military confrontation in the middle east occurs. Peter feels there is no way that Israel can live with an enemy that has sworn it wants to eliminate all of Israel with nuclear weapons. He thinks that whether or not Israel has to act alone, whether or not their action is successful, its only a question of when and it seems to him that the window for action is getting very small. A matter of weeks to a few months from Israel taking action. “That doesn’t mean the that the day this happens the market will tank and never come back again, but it will be the beginning of a major geopolitical change that will take months if not years to play out and be a net negative simply because of the fragile economies that are in the world today. One fragile economy being the US and another is a good part of Europe.”
2. “The US is past the point of no return. The US doesn’t produce enough cash flow after they pay for their bills to pay off the interest let alone the principle of the debt the US has outstanding. Inevitably one of three things has to happen, part of the debt will be reneged, part of it will be renegotiated, and part of it will be monetized as the Fed is doing now.” Bottom line, there is not a very bright picture for general equities past the next few weeks or months. “We’ve had a nice rally, if you are still long equities that are not related to metals congratulations, but now is not the time to be getting into them, now is the time to be selling.”
Bonds
“Over the next 10 years, the worst investment will be US bonds.” He saw a study this week from a very independent, reliable group that inflation is running in the US between 5 and 7%. Peter believes that study and thinks no-one should believe that inflation is running at 1.6% as the government would have us believe. He doesn’t see how over the next 10 years with bonds yielding 2%, how anybody that buys and holds could end up making money. He would sooner be in general equities, before he would have any ownership of bonds right now.
“The dramatic lowering of interest rates far below where they should have been literally destroyed or seriously damaged 10’s if not 100’s of millions of Americans and others who would have normally been dependent on fixed income and been able to live out their retirement. The lowering of interest rates resulted in a quest, as Ron Paul said, of destroying the currency and destroying America.“
This destruction of the Bond Market is the pivotal moment of our time, and we are seeing right now the ramifications of what happens when confidence leaves a bond market in countries like Greece, Portugal, Spanish and Italy. There is an absolute ticking time bomb waiting to explode in the states, and Peter doesn’t see how people can think that it can happen in all of those European countries and not for some reason fail to happen in America too.
One positive, Peter thinks that when bonds start to sell off it will probably initially support the stock market.
The Eye of the Hurricane
“The US is going to have to address the real political time bomb that’s coming, and that is the changing of the US retirement system, changes that will be forced on Social Security and Medicare”. Peter urges us to enjoy what he calls the eye of the hurricane, “we had our first wave in the financial crisis of 2008 and that we are now in this eye of the hurricane where the sun has popped out and things are starting to feel pretty good again. Noting that hope is a great spiritual strategy but also the worst investment strategy, he thinks that in the next several months to perhaps early in the next year “we will be back in the grips of something very serious and that its going to have to get a lot worse before it can begin to get better.”
“I refuse to leave our children with a debt they cannot repay”–Obama 02/29/2009
As low as interest rates are, the US is paying 4 billion a week on interest payments alone, and the kicker is that if they keep going on the trend that they are that figure will change to 10 billion a week within 4 years, or 552 billon a year in interest at a minimum (assuming rates do not rise). Given rates have risen tremendously in Greece, Italy, Spain and Portugal, it seem highly unlikely that rates will not rise in the US over the next 4 years and that weekly figure could be very low.
How do Individuals Protect themselves?
Seniors in the States have seen all the worst things that can happen. They have seen fairly secure, good reliable interest income disappear, they have seen the value of their housing go from always rising annually to collapsing to levels where a houses that cost $300,000 in 2007 can be bought for less than half that now. Even nice little 2 Bedroom Bungalows can now be bought for less than $35,000. Now they are being told that their AAA medicare plan is going to change and they are going to have to start paying a lot more for it.
Action Items
1. He urges everyone, particularly young people, that debt is now more than ever a 4 letter word and if you do nothing more for the rest of your investment life than pare down your debt and get out of debt completely you will not only have a great financial reward but the mental aspect of being debt free can’t be underestimated.
2. Get out of the US Dollar since as the worlds reserve currency is backed by a country that is in even worse shape than Europe. Peter has recently converted “a bunch of my Capital” into Canadian dollars.
3. The US is no longer the economic engine that pulls the rest of the world around. There are other countries, India, China, Brazil and he recommends that action be taken and investments made in equities that do the majority of their business in these countries.
4. For preservation of Capital he recommends the Gold Market. Its been the best investment for the last 10 years and he thinks it has another 4-5 years to run. As for the Flash Crash, Peter believes it gave investors an opportunity to get involved in Gold at good prices. As an alternative, if you can’t pull the trigger here then buy when Gold breaks the $1,800 level.
5. While Peter thinks that Silver will outperform Gold over the next few months, ultimately he likes and recommends you buy Gold.
To listen to the entire Peter Grandich interview with Michael Campbell go to this player you will find in the centre of the masthead of any Moneytalks page:
