Jim Rogers: Owning silver and gold means you profit whether the economy tanks or not

NEW YORK (Commodity Online): Buying Silver is a no brainer as far Jim Rogers is concerned. And why not? Considering that governments are printing money, silver will prove to be a very good bet.

In a recent CNBC interview, Rogers says - “Throughout history, when things have gone wrong, they print money…when they print money, you should own silver, you should own rice, you should own real assets. Gold could go down a fair bit more…but I’m certainly going to buy more gold and silver if it goes down.”

“I’m long commodities and currencies, because if the world gets better, the shortages in commodities will make sure I make money. If the world economy doesn’t get better, I’d rather own commodities because they’re [central banks] going to print money.” he added.

Bottom line – you profit in both ways whether the economy slips into recession or the economy rebounds and grows

He noted that the MF Global fiasco has created a temporary forced selling in the markets and this will provide an opportunity for buyers to accumulate more silver.

Though he remained uncertain as to the magnitude by which Gold and Silver will fall, he however remarked that he will be ready with his chequebook if silver and gold fall further.

Stephen Leeb, the noted American economist, had earlier said that he expected silver to hit at least $100/oz

Barclays’ 2012 forecasts: Gold to hit $2000, silver to hit $35/oz

LONDON (Commodity Online): Barclays’ forecasts for precious metals in 2012 include gold, $2,000 an ounce; silver, $35; platinum, $1,835; and palladium, $860.

Barclays’ 2012 forecasts for the base metals include aluminum, $2,544 a metric ton; copper, $10,075; lead, $2,506; nickel, $21,125; tin, $28,000; and zinc, $2,300.

According to Barclays Capital, base metals prices would plummet as dramatically as they did after the financial crisis of 2008, even if the economic-growth outlook worsens, that is because there are important differences between then and now.

On the supply side, responses are emerging at much higher price levels than in 2008 and working inventories are now much leaner, so market dislocations from destocking should be less pronounced. The bank considered three scenarios in which global GDP growth turns out lower than its base-case forecast of 3.6% for 2012: a mild slowdown, a moderate slowdown and a sharp contraction.

“In all three cases, we find that global metals demand would be much weaker than what we currently assume under our base-case scenario, but would not fall as much as it did during a similar GDP trajectory in 2008-09,” Barclays added.

The bank said Lead demand looks the least vulnerable to an economic recession, while aluminum andZinc could face the biggest downside from its base-case forecast, based on the historical relationship between demand and global GDP growth.

Gold is Still Good

Uncertainty is spreading around the world. It’s not just the Occupy Wall Street crowd, or the European protestors who are frustrated, everyone is being affected in one way or another.

WE’RE ALL IN THIS TOGETHER

Rich, poor, business people, salaried employees, old, middle aged, young or unemployed… they’re all concerned about the changes happening before our eyes.

The elderly are receiving little, if any income. In many cases, their plans and hopes for a good retirement have been dashed. Plus, with the markets so volatile, they don’t know where to turn.

Middle aged working people are struggling too. Their incomes have gone nowhere for decades and concerns about job security and future retirement are becoming more worrisome. Essentially, they’re nervous, angry or depressed as a not-so-bright future seems to hang overhead.

The poor and unemployed wonder if they’ll ever get a job as their ranks grow by the most since records began over 50 years ago. And many young people are feeling the same.

DIM OUTLOOK

For young people, the situation is also very serious. With youth unemployment at levels last seen during the Great Depression, the consensus is that this young generation doesn’t have the same opportunities that the last several generations have had. So the older generation has been helping the young and it looks like that’ll be continuing.  In the past, it was usually the other way around.

It’s no wonder then that so many feel the system has failed them. And if they haven’t been directly affected, they worry they will be (see Chart 1, which shows the Misery Index at a 28 year high).  This coincides with a recent poll showing that 75% feel the U.S. is on the wrong track.

As we’ve often discussed, the world has indeed changed and many of the jobs that used to be available aren’t coming back, not only in the U.S. but throughout most of the Western world. They’ve moved to other countries where the wages are much lower.

Whether people understand this and all of the other fundamental factors that got the West into the situation it’s in, isn’t really the point. The point is, people are upset, they don’t like what’s happening and they’re taking action.

PROTESTING IS GLOBAL

This explains why the Occupy Wall Street and the “indignados” movement in Spain (where youth unemployment is almost 50%) gained momentum in such a short time.

From New York, to Oakland, to European capitals, to Sydney, protests have occurred in hundreds of cities all over the Western world.

The protestors blame the banks, Wall Street greed, the governments, war, the rich, capitalism, socialism and corruption.

Just what’s happened in Greece has been an eye opener. It’s brought the Eurozone and the world economy to the brink, a couple of times. And considering that Greece’s economy is only one seventh the size of Italy’s, the growing crisis there is evolving into a much larger danger for the global economy.

VOLATILE & MORE VOLATILE

This is making the markets even more volatile than they already were as uncertainty remains a constant. In fact, if you look strictly at the world’s fundamental picture, it’s currently not good.

Aside from what’s happening in the West, the Middle East remains uncertain too.

GO WITH THE FLOW...

With so many uncertainties hanging overhead, it’s best to just turn to the markets. Like we always say, they look ahead and they’ll tell us the story. The trick is trying to understand what they’re saying. And since they’ve been so volatile, it’s been more difficult.

In fact, it’s hard to remember a time that compares to the present one. The markets are still swinging wildly and simply reacting to the news of the day, which indicates nervousness. This reflects how people are feeling… nervous and uncertain with spurts of optimism… and that’s what nearly all of the markets are suggesting. 

The gold price has actually been telling us for the past few years that the world is a scary place, even more than it was during the 2008 meltdown.

The fact that gold has hardly declined in a normal downward correction (down only 16% so far) since then, after reaching record highs, reinforces that the world is tense and uncertain. Plus, with gold in other currency terms also rising to record highs, it further reinforces this (seeChart 2).

But you may remember that during the financial meltdown in 2008, all assets fell, including gold, and only the dollar and bonds held up.  This is something that could happen again. We might see an accident or a meltdown at any time, which would tie in with the much awaited full downward correction in gold.

Most telling during the 2008 crisis, however, was that gold fell much less than the other markets, and it ended the year on an up note.  It fell almost 30% during the year but ended up about 5%.

A RESILIENT BULL

Last time we showed you the current bull market in gold compared to other bubbles of the past. Gold is hardly near those explosive high levels, and the next chart provides yet another good example of this.

Chart 3 shows the gold price above, along with its leading indicator, below, since 1968.  Note the sharp steady rise in gold since 2001. It’s been an amazing rise, up 660%.

But the type of volatility gold had in the 1970s has yet to be seen. The indicator (lower chart) helps to identify volatility, as well as high and low areas in the major trend. Note the clear difference between the volatility in the 1970s and the movements since 2001.

So looking at the big picture… this indicator is saying that gold is near a normal high area within a major uptrend, but it has yet to experience any type of explosive action. This is likely still to come once this current period of weakness is over.

Is gold still a good investment at $1,800 and higher?

Precious metals have been the best performing asset class of the past 10 years. Gold hit $1,800 mark recently. Gold is up over 32% compared to April 2010 and 470% compared to April 2001. At $44.8 per ounce, silver is up 149% from April 2010 and an unbelievable 911% from April 2001. At today's prices, many investors ask themselves if this precious metals rally is nearing its peak. As you will see, there are many reasons for it to last for some more time.


Basically, a high gold price is the reflection of how bad things are or are about to become. Any force that creates uncertainty and negatively impacts major asset classes such as currencies, stocks or bonds tends to increase the investment demand for gold. Hence, we need to identify such negative future forces in order to confirm the positive price outlook for gold. There are plenty of them. Find them presented below, divided into short-, mid- and long-term clusters.


Yes, the following list is a conscious indulgence in the pleasure of confirmation bias. Yes, perhaps a follow-up article should try to confirm the opposite thesis. Yes, a few hints sketching the opposite view will be provided. But for now, enjoy the exercise and don't say you weren't warned!


Short term (2-3 years)
The euro: Greece, Ireland, Portugal – who's next? The fear of further bailouts that could become bottomless pits is not subsiding. The heated political discussion, the wide spectrum of possible solutions, the veto threats from member countries and the ECB's unpredictability – they all create additional uncertainty. Will the political decisions come fast enough to prevent blows to the eurozone's credibility? How many more euros is the ECB going to print while buying up the maturing debt of the default candidates? There are some rough times ahead for the euro. The lack of reliable currency alternatives feeds the investment demand for gold.


The dollar: Same story, but worse. The Fed has been buying up outstanding US debt with freshly printed dollars, only on a much grander scale. This real-time dilution of the dollar demonstrates itself in the dollar continuously falling against most major currencies, commodities and precious metals. Look at any of the relevant indexes (DXY, CRBQ) over the past 10 years. They speak a thousand words. Any businessman who expects future dollar payments asks higher prices, reflecting on dollar's ongoing inflation. This is a self-feeding spiral and the Fed has not made any effort to stop it.


The Middle East & Northern Africa: The military conflict in Libya and further potentially contagious unrests in the Middle East (Bahrain, Yemen, Algeria, Syria, Jordan) continue. The outcome and long-term effects on the oil price are yet unclear. High oil prices would dampen economic growth, reverse the fragile economic recovery and negatively impact the stock markets. Unpromising and turbulent stock markets force investors to flee to safe heavens such as gold.


Japan: The earthquake/tsunami/nuclear disaster will result in a long-lasting drag on the Japanese economy and the Yen. Those who argue that the rebuilding processes will actually boost Japan's economy need to familiarize themselves with the Broken Window Fallacy. More importantly: Japan, being one of the top three lenders to the United States, may need to redirect outbound financial resources towards rebuilding its own infrastructure. This would further negatively impact the U.S. and the dollar, thus increasing the attractiveness of gold.


Mid term (+-5 years)
Central banks: Fearing devaluation of their forex reserves, central banks around the world have been lately increasing their gold purchases (becoming net buyers in 2010, after 21 years of net gold sales).


China: Has been looking for ways to diversify itself away from the dollar without causing too much damage to its dollar reserves. One of the ways is to motivate savers to invest in gold. China has a yearly savings rate up to 40%(!) of income and its government actively encourages citizens to put 5% of savings in gold.


The abandonment of the dollar: Investors and countries are evidently moving away from the weakening U.S. dollar. China abandoned the dollar in its trade with Russia in 2010 and has been working on a similar deal with Brazil. These BR(I)C countries now settle a notable part of their trades in their own currencies. Could the OPEC follow? Some sources indicate that talks with this subject have been taking place. Also, some prominent investors and entities took similar bets against the dollar: John Paulson made a fortune during the 2007-2008 crisis while most investors lost money. Today, the GLD ETF accounts for 14.93%, and the gold-mining conglomerate AngloGold Ashanti for 6.89% of his portfolio. A few days ago, The University of Texas put $1 billion or 5% of its $20 billion endowment into gold bars stored in a New York vault. You can expect many more stories like this as the weakening dollar forces countries, investors and institutions to look for alternatives.


US debt: Historical benchmarks suggest that the US debt as well as the debts of many European countries are now past the point of no return. In other words, any way politicians tweak the system (taxes, stimuli, laws), this debt is now too high to be paid back – virtually no country managed to recover from such high debt levels in the past without destroying its currency or its economy or both in the process. This destructive process is already under way – quantitative easing, government purchases of toxic assets, liquidity injections, etc. are just fancy names for money printing and the last desperate attempt to create the impression that these debts are being paid back – alas, with soon to be worth-less fresh paper money.


Long term (5-20 years)
Baby boomers: Because most countries have no savings (rather, they have massive debts), in order to pay the promised pensions (at least on paper) to retiring baby boomers, they will have no other option than to print large amounts of money and debase their currencies. Gold, being the closest tangible yet liquid alternative to currencies will benefit from this development.


Military conflicts: From the historical perspective, the gold price tends to rise in times of heightened military activity. While the reserves of natural resources are shrinking, the global population is growing at a rate never seen before. Because a country's standard of living depends directly on cheap access to natural resources, fights over the remaining reserves are not unlikely—we have seen a few just lately (Middle East, Afghanistan), and new areas of tension are already on the map: Russia has newly started voicing its claims in the untouched and resources-rich Arctic continent, but so have Denmark, Canada and the United States; the Chinese are heavily investing in exploration in Africa, just to name a few.


Peak oil: Oil production reached its peak in 2006, which was admitted by the International Energy Agency (IAE) in November 2010 (in the preceding years and decades, the IAE would repeatedly deny such scenario). Now it is official that we cannot increase oil production above today's levels with the current and new technology available in foreseeable future. Demand for oil, however, is projected to rise sharply. For the first time in history, oil production will not fully satisfy the demand. As a result, the oil price may start increasing rapidly. Increasing oil prices will create inflation, dampen economic growth, decrease tax revenue and further amplify the need for printing money (which in turn creates more inflation) and force people to look for alternatives to cash savings – gold will be one of them.


Now, what may be the opposite forces that could drive the gold price down? Let's address the most obvious:


Trust (in the dollar) is powerful, and theoretically, it could last forever. Is it likely? You decide.


The power of the West to convince the rest of the world and its own citizens that everything will somehow be alright. Never underestimate it!


Solid, sustained recovery: Such recovery would reverse the current trend in the gold price. However, this type of recovery doesn't set in overnight – solid foundations take years to build. Right now, no foundations for a new period of prosperity are being laid. The focus is on the preservation of the (fairly rotten) status-quo. The recovery is either fragile, or purely nominal (due to inflation), or not present at all. Therefore, there is no need to fear a genuine reversal in the next years.


Speculation, gold price manipulation and high volatility: Yes, (sharp) corrections or whatever you choose to call them are possible in the short term – and they will shake out gold from weak hands. However, the dominant mid- and long-term trends should eventually prevail.


Deflation: Don't worry about gold. Deflation means a lot of uncertainty, which is one of the key drivers for gold. Gold was in such high demand during the deflationary 1930s, that the U.S. tried to prevent a depletion of its gold reserves by the Executive order 6102.


The altogether positive perspective for gold and silver doesn't mean that everybody should jump to them or put all their eggs in one basket. In the short run, the precious metals markets could become very volatile (silver more than gold). But still these commodities always do well when the economy turns sour. 

Gold and Silver Technicals: The Key To Trading Now

Over the recent couple months the precious metals charts have made some sizable moves. Most investors and traders were caught off guard by the sharp avalanche type selloff and lost a lot of hard earned capital in just a few trading sessions. Gold dropped over 20% and silver a whopping 40%.

The crazy thing about all this is that these types of moves in precious metals can be avoided and even taken advantage of in certain situations. There is no reason for anyone to continue holding on to those positions after they pullback 6% of more because of the type of price and volume action both gold and silver had been displaying in the past few sessions.

I warned investors on Aug 31^st that precious metals were about to top any day and that protective stops should be tightened or taking profits was also a smart move. It was only 2 trading sessions later that precious metals topped and went into a free fall. 

A couple weeks later once precious metals has found support and the uneducated investor’s were licking their wounds wondering what the heck just happened to their trading accounts… I put out another report but this time with a bullish outlook. Silver was currently trading at $29.96 and I had a $35-$36 price target over the next two months. Gold was trading down at $1611 and I saw it heading back up to $1750-$1775 area before finding resistance and pulling back. Both these forecasts were reached over the next two months. 

With all that said, what exactly are the charts saying right now?

Current Precious Metals Charts Summary:

The past 6 weeks we have been watching both gold and silver struggle to hold up but they have managed to grind their way to my price targets. After reaching those targets a couple weeks ago sellers have stepped back into the precious metals market and put pressure these metals.

Last week gold and silver started to pullback in a big way with rising volume. This could just be the start of something much larger which I will cover in just a moment.

The wild card for precious metals and for every stock and commodity for that matter is Europe. Every other day there seems to be headline news moving the market and most of takes place in overnight trading for those of us living in North America. It’s this wild card which is keeping me from getting aggressive in the market right now.

Let’s take a look at the charts…

Silver Precious Metals Chart:

Silver is currently in a down trend and may be starting another leg down this week. Long term I am bullish but for the next couple months I am remain neutral to bearish for silver until it forms a base to start a new uptrend from.

Precious Metals Charts

Gold Precious Metals Chart:

Currently I am neutral/bearish on gold. If it can trade sideways for a few weeks then I will become bullish.

Precious-Metals-Charts

Precious Metals Charts Conclusion:

In short, I feel there is a good chance the US dollar will continue higher and if that happens we should see strong selling in North American equities, commodities and likely on the precious metals charts.

Financial markets around the world are at a tipping point meaning something really big is about to take place. The question is which way will investment move. The only thing we can do is trade with the current trends, price patterns and volume.

At this time I still see a higher dollar and that means lower stocks and commodities. This could change at the drop of a hat depending on the news that comes out of Europe so the key to trading right now is to remain cash rich and taking only small positions in the market.

Expect A Global Recession No Matters What Happens In The Euro Zone

After MF Global went bust, most people believe it was an extreme "spectacular recklessness" under Jon Corzine, and that the U.S. banks should have only "moderate" European Exposure.  However, banking stocks have been under pressure with increasing investors worries.

Jefferies Group, for example, eventually disclosed detail position it held on European debt earlier this month after its shares plunged more than 20%.  But other banks have not followed suit as Bloomberg notes that since it is not required by the U.S. regulation,

"Firms including Goldman Sachs and JPMorgan don't provide a full picture of potential losses and gains in the event of a European default, giving only net numbers or excluding some derivatives altogether." 

U.S. stocks took a beating after Fitch Ratings said on Wed. Nov. 16 that Europe’s debt crisis may pose a “serious risk” to U.S. banks, driving investors to safer bets such as U.S. Treasurys.  Fitch also notes that although U.S. banks have been reducing their direct exposure for well over a year, but they haven't clearly disclosed the extent of their holdings of European sovereign debt or their trading positions with European counterparties.

There are clues to somewhat quantify the potential exposure on a global basis and of the U.S. banks.

Reuters cited a report by the IIF that European banks hold some $3.5 trillion of euro-zone sovereign bonds and U.S. banks have significant direct exposure to their European peers.  U.S. banks had about $180.9 billion of debt from GIIPS on their books at the end of June.  Guarantees and credit derivatives added another $586.6 billion, bringing the total to $767.5 billion based on Bank for International Settlements data.  But the exposure does not stop there,

" There is a secondary level of exposure that is potentially more worrying -- through international banks lending to each other. Here the greatest risk stems from Italy and France. International bank claims on Italy total $939 billion, and French banks account for well over one-third of that, BIS data show... If Italian debt slumps even further, causing deeper losses for French banks, international banks could stop lending to France. The losses would ripple through the whole global financial system."

Chart Source: NYT, Oct. 23, 2011, (full report here, interactive charts here)

These figures and the fallout from MF Global are enough to put the U.S. regulators and APEC finance ministers on Euro Zone DEFCON 3 alert as Reuters reported

"While the Treasury has been at pains to say that direct U.S. bank exposure to European countries now receiving bailout aid -- Greece, Ireland and Portugal -- is moderate, once the debt of Italy and Spain, plus credit default swaps, and U.S. bank indirect exposure through European banks are added, the potential sum could exceed $4 trillion." 

"APEC finance ministers agreed to shore up their economies to protect against any damage and underpin growth."

These accounts suggest that the hit that U.S. banks could take from the European sovereign default could be somewhere from $800 billion up to $4 trillion.  However, the greater risk is with some smaller iBanks, similar to MF Global, that have not thoroughly gone through and learned the lessons from the 2008 financial crisis, rather than with the top players like Goldman or JPM. 

The post mortem examination by FT Alphaville described "an overnight repo black swan" of MF Global's complex "repo-to-maturity” laddered trades with a doomed steroid-charged 40-to-1 leverage.  One reckless speculation could easily lead to a total system meltdown as Bear Stern, Lehman Brothers, et al have taught us. 

Meanwhile, this Euro sovereign debt crisis, even if contained and/or resolved in an orderly and timely manner, would most likely bring widespread austerity programs to almost all developed economies, including the U.S. either by the Super Committee or by the automatic spending cut, which would almost guarantee a global economic slowdown, if not an outright recession. 

This is probably part of the reason that the Federal Reserve is going to conduct a fourth round of stress tests in coming weeks todetermine if U.S. banks can withstand a recession.  So unfortunately, it looks like even if the U.S. and emerging economies could manage to keep the world from a recession, the European sovereign debt crisis and the aftermath would most likely finish the job. 

Very slow growth 2012 then long bear to 2020

SAN LUIS OBISPO, Calif. (MarketWatch) — “Top advisers see very slow growth in 2012.” That headline is screaming at Americans in “InvestmentNews: The Leading News Source for Financial Advisers” and most trusted.

Get it? Not just “slow growth,” but “very slow growth in 2012.” Another even predicted “very slow, measured growth for two, three years.” Actually it’s far worse. Folks, this is not some worried bull hyping naïve investors, not a Wall Street bank analyst, a Washington politician covering his butt, nor one of Mad Money’s market mavericks.

Click to Play

Global economic outlook

A survey of the economic landscape, and the prospects for growth over the next three to five years. Kelly Evans interviews Glenn Hubbard, Economic Advisor to Mitt Romney, Lawrence H. Summers, former Secretary of the U.S. Treasury, and Zhu Min, Deputy Managing Director International Monetary Fund.

No, this comes from the most respected news source reporting to America’s financial advisers. These are the 100,000 professional Registered Investment Advisers who are advising Americans on managing trillions of retirement assets.

Get it? Main Street America, you should “expect very slow growth” in 2012. That was the response when asked what “scenarios are you painting for your clients?” The panelist at a recent InvestmentNews Round Table then added: “It’s going to be ugly and violent.” Why? Because the politicians “are driving things” and they are “capricious, which leads to volatility.” And clients are “not really happy,” but “they lived through ‘08 and ’09,” so 2012 will be “just a little bump in the road.”

Yes folks, “slow growth” is another very big bump. Let’s put this is context: Wall Street’s a big fat loser. In fact, during the 2000-2010 decade, their stock market casino actually lost (yes, lost) an inflation-adjusted 20%. On a high-risk roller-coaster ride. Remember? In 2000 the DJIA was 11,722, rose and peaked at 14,164 in 2007. And today, after all the volatility, the market’s back where it was in 2000, Wall Street “flat-lined.”

But the house always wins at Wall Street’s casino, gets rich. While America loses. Jack Bogle called Wall Street a croupier skimming a third of Main Street profits off the top. In both bull and bear markets. Not once but twice during the decade the Wall Street casino lost over 45% of your money, trillions of your retirement assets: through the dot-com crash, a 30-month recession, the credit meltdown of 2008, a recent recession, and now today a national economic disaster caused by self-destructive partisan political wars.

So don’t kid yourself folks, recent economic and market “ugliness and violence” not only won’t end soon, it’ll get meaner and meaner for years after 2012 elections … no matter who wins. Only a fool would believe that a new bull market will take off in 2013. Ain’t going to happen. That’s a Wall Street fantasy. Fall for that, and you’re delusional.

In fact, you better plan on a very long secular bear the next decade through 2020. With the European banks, credit and currency on the edge of a global financial meltdown, there’s a high probability that a black swan virus, a contagion will sweep the world, making all investing “uglier” and more “violent” for Americans in 2013, indeed for the rest of the decade.

Let’s set 20`2 in the broader historical context, seen trough the lens of one of America’s most respected economists, long-time Forbes columnist Gary Shilling’s analysis of the poor performance of stocks during Wall Street’s bull/bear cycles the past 60 years, then, projecting the trend line forward till 2020.

What’s coming? Much tougher times are dead ahead, possibly even a sequel to the painful sideways bear of 1968-1982. Bottom line, don’t expect much out of stocks.

Bonds beat stocks by factor of 11-times since 1981

Listen closely to Shilling’s analysis of the past three decades. In an Insight newsletter a couple years ago he compared the performance of the S&P 500 stock index to the bond market. First he focused on his “all-time favorite graph” comparing “the results from investing $100 in a 25-year zero-coupon Treasury bond at its yield high (and price low) in October 1981, and rolling it into another 25-year Treasury annually to maintain that 25-year maturity.”

His bottom line: “On March 31, 2009, that $100 was worth $16,656 with a compound annual return of 20.4%. In contrast, $100 invested in the S&P 500 at its low in July 1982 was worth $1,502” in early 2009, “for a 10.7% annual return including dividend reinvestment. So Treasurys outperformed stocks by 11.1 times.”

But of course, Wall Street’s not going to push this “boring bonds” alternative. Why? Wall Street can’t make big bucks in commissions. So instead, during this same three decades, Wall Street was using sales gimmicks to sell its losers to America’s 95 million vulnerable investors.

Imagine: If you were in your twenties and just out of college back in 1981, and you started adding a hundred more bucks each and every month using Shilling’s zero-coupon strategy, you’d be enjoying early retirement today, instead of crying because your retirement stocks lost so much of your money.

Stocks lost over two-thirds in the last decade

We’ve been writing about the absurdity of trading stocks for a long time. Back in mid-2008 when the DJIA fell below its 2000 high of 11,722, it was obvious to investors that their portfolios had flat-lined for eight years. Yes, zero return on your portfolio for eight years. Actually it’s far worse when you deduct fees, commissions, taxes and account for inflation: Many portfolios lost over 65% of their value since 2000.

And if that stock market performance isn’t scary enough, listen to what Shilling sees for the next decade, based on our financial history from 1949 to 2009. Sixty years of bull/bear cycles will project forward into a secular bear for the next decade, to about 2020, with occasional short-term cyclical bull markets and dead-cat bounces.

In short, expect a very rough decade for the economy, the market, and the taxpaying public. Here’s Shilling’s history of past cycles that run 15- to 20-year log bull and bear cycles the past 60 years:

1949-1968: 19-year secular bull market

The great Post-WWII expansion: “The 1949-1968 secular bull market was driven by postwar economic growth, fading deflation fears, low inflation, the institutionalization of equity and the resulting leap in P/Es.” For me a great time: high school, Marines, Korea, plus a great education on the GI Bill.

1968-1982: 14-year secular bear market

Shilling says “inflation caused by huge Vietnam and Great Society spending dominated the 1968-1982 secular bear market as it pushed interest rates up and P/Es and productivity down.” Remember the oil crisis, recession and a long sideways stock market for over a decade. I was on Wall Street with Morgan Stanley working on troubled banks, corporate and developer restructurings. Evaluated the collapse of the Federal New Towns Development Program for HUD. Long recession. No fun for most investors

1982-2000: 18-year secular bull market

With Reaganomics: “The unwinding of inflation generated the 1982-2000 secular bull market, aided by the consumer spending spree and, finally, dot-com speculation,” says Shilling. And oh how we loved stocks with 30%-plus returns, some even posting 300% annual returns. We went crazy. “This time it was different.” Barbers offered investment advice and neighborhood barbecues were abuzz with early retirement plans.

2000-2020: Yes, a 20-year secular bear market till 2020

Shilling says “the speculative investment climate spawned by the dot-com nonsense survived. It simply shifted from stocks.” Our retirement, “pension and endowment funds have been increasing their exposure to alternative investments such as commodities, foreign currencies, hedge funds, private equity, emerging-market equity and debt and real estate” in recent years. Yes, the ‘90s insanity did survive, like Frankenstein, transplanted in a new body by the White House, Treasury, the Fed, Wall Street, and our dogmatic, self-destructive conservative politicians obsessed about tax-cuts-for-the-very-rich.

Shilling sees “a secular bear market really started in 2000 and may persist for a decade as a result of slower GDP growth,” yes, persist till 2020 “with 2% to 3% deflation.” He warns: “Nominal GDP might not gain at all,” like recent flat-lining. Which coincides with the expectations of America’s professional financial advisers.

So where do you put your money for a decade-long risky secular bear market? Expect our “faltering economy will put more pressure on profits and stocks, and initiate chronic deflation, supporting current low Treasury yields … the dollar is rallying as economic weakness spreads abroad.”

Unfavorable investments include: major bank stocks, consumers and other lenders, domestic stocks, conventional home builders, consumer-spending sectors and risky, speculative investments. Challenges to all sectors.

And on the plus side: The U.S. dollar, and for the long-term, dividend-paying stocks, asset managers, Treasurys, North American energy, apartment REITs and factory-built homes.

One final piece of advice, stop listening to Wall Street’s self-serving ship of fools.