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Gold and Silver versus Twilight Zone Bubbles

Every bubble inflates, rises vertically, excites the masses (get rich now – don’t be left behind), appears unstoppable and crashes. The sun rises and sets. Twilight emerges.

Empires, markets, and ideas enter their twilight zone where huge changes occur. Those changes may not happen next week or next month, but soon. Expect the bubbles in stocks and bonds to burst, as they inevitably must, and precious metals to rise – finally!

Consider the following bubble examples: Amazon, Apple and Bitcoin.

 

 

 

Amazon, Apple and other stocks have posted near vertical rises – classic bubble behavior. We don’t know when they will crash, but crash they will!

Consider David Stockman’s “Delirious Dozen of 2017.” He tracked the combined market capitalization of Facebook, Apple, Amazon, Netflix, Google, Tesla, NVIDIA, Salesforce, Alibaba, UnitedHealth, Home Depot and Broadcom.

 

Per Stockman, the market cap of these 12 stocks soared from $1.7 trillion to $4.0 trillion in 40 months, and doubled in the past two years. For comparison, market cap for these 12 stocks is approximately 20 times the value of the gold supposedly stored in the Fort Knox Bullion Depository.

SO WHAT?

Current narrative suggests the stock market will rise forever, with minor corrections. Supposedly the Federal Reserve and other central banks will “print currency units,” buy stocks and perpetually levitate the stock and bond markets. Official inflation is low (unless you buy food, beer, cigarettes, health care, prescription drugs, trucks etc.) and we are told …  yada yada yada.

POPPYCOCK!

If the Federal Reserve, Bank of Japan and other central banks were as powerful as many believe, the crashes of 2000 and 2008 would not have occurred.

The problem is that bubbles crash and paper wealth is destroyed. Many portfolios and retirement plans never recover. Consider the NASDAQ 100 after the 2000 crash – down over 80%.

Crude Oil after the 2008 crash. Down over 70%

Silver after the 1980 crash. Down about 90%.

Bubbles crash. Do your own due diligence.

Central banks have created trillions of new digital currency units and pushed the global economy into The Twilight Zone!

 

What about valuations In The Twilight Zone?

From John P. Hussman, Ph.D.:  Link  Valuations are high and U.S. stocks are expensive. A correction or crash is likely.

From Francesco Filia: The World’s Twin Asset Bubbles Could Collapse Under Their Own Weight:

“There are the usual metrics that the valuation guys are looking at, like financial assets to disposable income that shows that this market is way more expensive than at any point in history including the big dot com bubble and the Lehman moment in 2007-2008.

But there are other metrics like the Buffett Indicator (market cap on GDP), the median debt on total assets, the corporate debt to GDP, the price on sales, the price to book, enterprise value on sales, enterprise value on EBITDA – there are a number of different metrics. They all convene that this is a market bubble that has not been seen before in history.”

Repeat: “… this is a market bubble that has not been seen before in history.”

 

Many people and businesses saw their savings, retirement and living conditions devastated by past bubble implosions, whether the bubbles occurred in debt, real estate, commodities or stocks. Examples:

  • Gold and silver investors and speculators after the 1980 bubble peak and crash.
  • Stock investors in 1987.
  • NASDAQ and internet stock investors after the 2000 peak.
  • House owners, condo speculators, and “flippers” after 2007 real estate bubble.
  • Stock investors during the 2007-08 financial crisis.
  • Crude oil speculators and oil companies after the 2008 bubble and crash.

Entering the Twilight Zone: 2017-2018

Central banks, Wall Street, and greed have boosted risk associated with paper assets, and levitated many stocks and bonds to nose-bleed levels. Consider:

  • Amazon stock has a price to earnings ratio of 305 per Yahoo.
  • Netflix P/E = 3,694. Facebook P/E = 41.
  • P/E and other valuation ratios are double or more above historical means.
  • Sovereign debts have negative yields in Europe.
  • Derivatives are heavily dependent upon low interest rates. Their potential risk is astronomical.

As We Dive Deeper Into the Twilight Zone:     

Expect a nasty hangover and tears. Few will increase their wealth and purchasing power.

Gold, silver, and selected gold and silver stocks will help.

Gold and silver in late 2017 are NOT in bubbles, unlike 1980. Bubbles or extreme valuations are evident in most stock indexes in late 2017, as was true in 1987, 2000, and 2007, all notorious crash years.

Stock indices, debt, gold and silver rise exponentially, because central banks and governments continually devalue unbacked currency units. But precious metals prices are low and most stocks are expensive. A reversal is coming.

GOLD AND SILVER PRICES

Why are gold and silver prices so low relative to debt securities, the S&P 500 Index, national debt and their all-time highs? 

  • $ billions have been invested in cryptocurrencies, instead of the traditionally safe gold and silver. Gerald Celente said, “Bitcoins are Millennials’ gold.” People want financial privacy, realizing that global governments are more intrusive every year.
  • Many gold and silver investors feel they have waited long enough for gold and silver to rally. Retail sales are down. Many have invested in stocks and cryptos instead of gold and silver. We don’t know when, but this flow of funds into stocks, bonds and cryptos will reverse. Gold and silver will rise when the reversal occurs.
  • The Swiss and Japanese central banks have “printed” their currencies and purchased Japanese ETFs and American stocks, not gold, with newly created currencies. This encourages bubbles in stock indices, but not gold prices.
  • Cryptocurrencies have allowed Asians to circumvent capital controls. Escaping capital has boosted cryptocurrencies, but made little impact upon gold prices.
  • Central banks, governments, High-Frequency-Traders, COMEX and the LBMA can easily suppress gold and silver futures prices. Suppressing cryptocurrencies is more difficult. Hence cryptos have gone crazy while gold has risen only about 25% in the two years since the December 2015 low.

DOW JONES INDUSTRIAL AVERAGE – A Vertical Rise

The 40 year graph of the Dow Jones Industrial Average shows a vertical rally. The Dow peaked 10, 17 and 30 years ago. Valuations are high and the RSI (timing indicator shown below) has registered a two-decade high indicating extreme danger of a correction or crash.

Many stocks and bonds are high risk speculations while gold and silver are low risk alternatives. The near-term upside for most stocks and bonds is limited, while their risk is substantial.

GDX – The Gold Miners ETF:

 

Newmont Mining:

 

Risk in paper assets including most stocks and bonds is high. Bubbles crash – but timing is unpredictable.

Gold and silver will rise much higher in coming years, unless we get responsible government, balanced budgets, national debt reductions, and curtailed war efforts.

 

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Article written by Gary Christenson for Gold Stock Bull

By | 2017-12-01T01:27:19+00:00 December 1st, 2017|Gold & Silver Commentary|

About the Author:

Gary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of several books, including “Fort Knox Down!” and “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking.

Many years ago he did graduate work in physics (all but dissertation), so he strongly believes in analysis, objective facts, and rational decisions based on hard data.