Hi Bill!
I spend a lot of time browsing various internet websites that are geared towards the retail investor, and my observations suggest that bearishness has reached a nadir. People tend to look at what is happening today, and then extrapolate that indefinitely into the future. So because the dollar is soaring today, and PM stocks are out of style, then the sky must be falling and things can only get worse tomorrow. We all know this is not true, but we are fatigued and have been dealing with extreme losses, so our will to fight is fading. And that is why there is so much bearishness, blaming, hostility, and depression in the posts that appear on public forums lately.
The truth is that parabolic moves are not sustainable. We can recall that the bigger the spikes in PM prices during this cycle, the deeper the corrections that have come thereafter. The same is true of real estate, oil, and any other asset that draws speculative interest. It seems that people are seduced by big moves and cannot resist piling on, even when we know that the bust is coming. It will be no different for the US dollar move.
The fundamentals for the USD are horrible and eventually the fundamentals will rule the day. Why? Because there is only so much speculative capital that can participate in any market. Once it has all been drawn in, then the market collapses. Meanwhile, the fundamentals will continue to be in effect and undermine the confidence in the dollar as the spec money flow starts to be withdrawn. The result is going to be an epic downside move. You can have entire governments actively involved in trying to prop up the dollar and it will not do any good. The amount of money that can be directed to shore up the dollar is finite. It will come to an end and the laws of diminishing returns have not been repealed. Billions and billions of dollars can be printed and thrown into the effort, but in the end that will only strengthen the fundamental weakness that will undermine the dollar in the end. It is inevitable.
Meanwhile, people are giving up hope, projecting the trend will continue forever, and watching their portfolios with dismay. In short, these are the classic indications of a bottom. It is hard to find anything to be bullish about, but history tells us that usually that is the exact time when we SHOULD be most bullish that a turnaround is at hand. Say your prayers but keep your powder dry. I think this is a time to be cautious and conservative, but we should also be proactive and alert to the opportunities at hand, because when the reversal comes, it will hit hard. Many people have forgotten that volatility works both ways, and we are way overdue for an upside rally.
I do not subscribe to the end-of-the-world-as-we-know-it mentality. I think things are going to be difficult but we will survive the crisis and perhaps emerge with a more realistic and sustainable economic model at the national level. The days when gold will be referred to asa barbaric relic are soon to pass, in other words. In the meantime, I continue to sleep well at night knowing that I own a small amount of physical gold and silver, and I remain convinced that we are close to the bottom for what has been the worst market environment I have seen in my lifetime.
cheers!
MexicoMike
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