The recent Greek crisis and Chinese stock market crash has injected high volatility back into the financial markets and dragged down the broader averages over the past week or so. Before you hit the panic button and start selling though, this news isn't necessarily a bad thing.
There are two big factors working for savvy investors right now. One is a fundamental tenant of investing – no one ever made money by panicking. A market sell-off means plenty of stocks that might not even be exposed to the events occurring overseas are suddenly much cheaper right now. Value investors know that the pickings are good when everyone else is nervous because there are deals to be found in multiple market sectors.
The Gold Report: The price of gold is flirting with a five-year low. Do you attribute this solely to the strength of the U.S. dollar, or are there other factors at work?
Ralph Aldis: There are other factors. Most important is the strength of the equity markets. Looking at a six-year window, we have seen, for the third time in the last hundred years, the highest returns for such a period. This happened before in 1929 and 1999. These phenomenal returns have been fueled not by fundamentals but rather by the U.S. Federal Reserve, which is trying to jumpstart the economy.
All this has taken people's eyes off gold, but it won't go on forever.
All through 2006 and 2007, I heard some of the smartest minds in the investment game warning about the massive housing bubble that was about to pop. For a long time, these smart folks looked wrong, as housing prices kept going up and up.
Then things changed in a hurry, and we suffered through the worst credit crisis in our country's history and a housing bubble collapse. Anyone that didn't heed the warnings got crushed.
I see the same thing happening today. There have been warnings that we could be in for severe inflation ever since the Federal Reserve rolled out the printing presses back in 2008 with its "quantitative easing" program.
So far, not much has happened. However, similar to the housing bubble, that "nothing" could turn into something very quickly.
Somewhere along the road from the 2000 bottom in gold stocks to the 2008 flame out of inflationary hysteria, the gold stock sector went from counter cyclical first mover to ‘inflation trade’ also ran. Gold stocks put in a secular bear market bottom in 2000 just as the US and many global economies were topping out.
Then came the era that NFTRH has labeled ‘Inflation onDemand’ (IoD). The economy was successfully* inflated by Alan Greenspan early in the decade as easy monetary policy fomented an epic credit bubble, which took over and did the heavy lifting for a cyclical bull market and buoyant economy that terminated hard in 2007/2008.
During this time of IoD ‘inflation bulls’ and commodity bulls who had all the answers for a newly inflation-phobic public emerged and took center stage. Misperceptions were formed, cemented and driven home. Nowhere were the misperceptions more intensely and dangerously embedded than the gold stock sector, which at its core is different than most commodity sectors and indeed, most stock sectors. Introducing another one of our ‘busy’ charts to illustrate…
Evidence is mounting that the bottom for gold may be in. While there's still risk, there's a new air of bullishness in the industry, something we haven't seen in over two years.
An ever-growing number of industry insiders and investment analysts believe the downturn has come to a close. If that's true, it has immediate and critical implications for investors.
Doug Casey told me last week: "In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.
"It's now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world's financial and economic state is far more shaky.