My family is visiting for a week. Because of the President’s Day holiday today, I will most likely have an abbreviated column tomorrow.
A friend of mine pointed out that both Edelson and Sjuggerud expect a double in the Dow, but for opposite reasons. Edelson says it will happen due to dollar devaluation (Sinclair would agree) and the resulting inflation. Sjuggerud says it is because stocks rise when interest rates are low.
I tend to agree, in this case, with Edelson.
I had an interesting conversation with a friend today. His business is high-end assisted living. These are not nursing homes; they are up scale units in upscale locations. They literally can’t build enough new units to meet the demand.
At the same time, here in South Florida, the cost of real estate is going up so fast that property new listings sell in a few days, at prices well above what my friend feels they should go for. He bases that statement on what the ROI (return on investment) would be, relative to the higher cost of the property.
He also told me that they just completed a sale of many of their assisted living (and very profitable) properties because they are afraid of the increased costs associated with Obamacare. They got top dollar now, but in the future, their profitability will be greatly compromised with the new law. Their basic costs would rise by many millions, and they come directly off of the bottom line and substantially reduce the value of their properties. Everything has its cost and when it comes to expanding the National health care, someone has to pay for it. This is an example. There will be jobs lost, a lot of them, to defer the new health care costs.
Since 2008, the Fed has been flooding the too-big-to-fail banks with newly created money (as they replaced the bank’s worthless mortgage bonds with cash). The money eventually has to find a home – it has to earn a return. We are seeing the early stages of inflation, as it is starting to work its way into the economy, and it is flowing toward the wealthy portion of the economy. The wealthy can afford to pay more for their investments and their real estate. The truth is all of this money is not disseminated equally. Most of it is flowing to the top. But it is finally making its way into the economy. That’s what Fed induced bubbles are all about. The new money flows to “hot spots” in the economy and it tends to distort the sector (think of the stock market in the 90s and the real estate market in the 2000s). It’s starting to move back into high-end property and stocks once again. Prosperity? No. Just more reflation of “bubbles.”
Unless this ends with a Hyperinflationary Great Depression, which is what John Williams suggests, then prices of everything will rise as the dollar loses value and the stock market will RISE, just as Larry Edelson predicts. Interest rates have been very low for quite a while now and the Dow is still sitting around 14,000. It will take more than low interest rates for the Dow to double. But if the dollar loses up to half its value, which is what Sinclair says will happen, and the Dow doubles, in reality, it will not have gone up at all. $3200 gold will not buy you twice as much “stuff” as $1600 gold will today, but the higher priced gold will at least keep you ahead of the devaluation of the currency.
If the Dow does double, so will gold (at least) and the dollar will lose a great deal of its (USDX) value.
But what if the falling dollar and rising prices causes a sharp drop in the economy? It could well happen. Then all bets are off as far as the stock market making a major move up.
And what if the inflation causes interest rates to rise? It usually does. That will put the dampers on any stock market growth, and it will smash the real estate market and it will devastate the bond market.
The only way interest rates will stay low (near zero) is if the Fed keeps on pumping out new money via QE (Sinclair’s QE-To-Infinity). If they do, then the dollar will lose value and the inflation and currency debasement is inevitable. If they don’t the economy will tank and it will take the stock market along with it.
Here is the latest from Jim Sinclair, and I would like you to read it and pay heed to it. Andy Hoffman disagrees with Sinclair’s comments on gold mining shares, but he states that “eventually” the shares are capable of this kind of performance, just not yet. It’s too early. The hedge funds have them in lock-down mode. But the fact is, for the shares to perform, the PHYSICAL market must first lead the way – $3500 and up!!
The Greatest Business Opportunity Of The Millennium – Jim Sinclair