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Welcome to USAGOLD's "Gilded Opinion" pages. We invite you to browse our index of outstanding gold-based commentary. Each article or essay is selected on the basis of its long-term relevance for understanding the role gold plays in the individual's portfolio, the overall political economy, or both.
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The Triple Decade Effect
By John Richardson
"What we should be reading from this is that the coming boom in Gold and Silver could be monumentally greater, than perhaps anyone can imagine..."
USAGOLD Note: I thought this article to be an interesting perspective on both the stock market and gold. It tells a bullish story for both, but suggests that we are heading into the last leg up in the stock market and a big move in gold to $7500. I think John Richardson's reasoning is sound and his 'ebb and flow' analysis is worth noting... --MK
The Triple Decade Impact is predicated on ideas that throughout the entire history of the 20th Century there have been the resounding themes of some three decades of increasing prosperity, followed by a lean period lasting about one decade that's either a contracting or stagnating period of very high inflation and where Gold has tended to mitigate uncertainty by its increasing percentage dominance of financial reserves.
For generations now, if not
since the dawn of Financial Civilization, there have been extended
periods where good times and prosperity reigned, only to be followed
by periods of misery, emanating from wars or in the worst of times
depressions that our forefathers had to endure, causing sometimes
unimaginable hardship compared to today.
The incredible wealth that has been created in recent decades
and especially in this decade, over the past few years, is breathtaking
in the extreme in contrast to the misery of the great depression.
Much of this can be attributed to the current administration's
tax cuts and other stimulative measures post-9/11 and the dot.com
boom, to reflate and prevent what could well have turned into
a modern day depression had the World's banks not joined in to
create what has become the most synchronized Global Economic Boom
in World history. There have been instances in the past where
booms have gotten out of control and have ended up in spectacular
busts as asset prices imploded; and one should in no way consider
this current heady status quo to be invulnerable to that sort
of repeat performance... After all, there weren't too many pessimists
around in those headiest of days in 1929.
Democratic vs Republican Market Performance
However, we're willing to make
this longer term prediction right here, right now: There will
come a time, at some point in our future and maybe not all that
long hence, when the World will harken back to the headiest days
of the Bush Economy. And just as Reagan was reviled at times during
his administration, before being the object of perennial praise
for past accomplishments today, so too could a similar fate befall
one George W Bush at some point, years from now, where no doubt,
his economic performance will be the crowning of his presidency,
rather than more pressing problems of the present in Iraq. And
historically, it's often been a change of administrations or houses
of congress or senate that's been the undoing of a great economic
run, or has repaired the economic damage inflicted by a previous
administration.
Many pundits crow about how stocks have quite often appeared to
fare better under Democratic than versus a Republican leadership.
But, we have a different theory to explain these occurrences.
While there were many explanations as to why the Republicans lost
the house and senate in the midterm elections, probably the real
reason is they'd been in governance too long and the public simply
tired and needed a change. Such that, even without the war in
Iraq there might have still been a similar outcome; and within
this lies the reasoning for improved stock market performance
under a Democratically led house, senate or perhaps the combination
of a republican Presidency.
Historically, Republicans have won governance after what might
have been a disastrous Democratic economic performance, such what
happened with Jimmy Carter before Ronald Reagan's first two years
of cleaning things up ahead of his historic tax cuts, that really
kick-started the boom and got some serious economic growth and
traction. And, even tho we had a great run in the 90's with Clinton:
The groundwork for such a boom may well have lain within the previous
administration's preparations for re-election, but that 12 year
itch, denied Bush 1 his second term and gave Clinton a dream run
at least in the early going until Greenspan took his wrecking
ball to the economy and over-killed what was already a dying bull.
In Politics, Timing is Everything
As Arnold Shwarzennegger will
attest: The best time to come into power is just prior to an upswing
and that's what a canny young President Clinton managed to do
so exceptionally effectively and along with the then newly elected
Republican Congress... The combination of which was able to come
up with the right economic formula that might have actually been
aided by George H W Bush's tax and early belt-tightening plus
Clinton's spending cuts, some of which were good and others which
would come back to haunt us. The same mixed administration in
reverse, where a Republican President and Democratic Congress
was the formula for success in the 1980's, the stage became set
through such similar opposites for back to back booms and bull
markets right into the year 2000. But in many ways, the latter
part of the nineties boom was a false boom generated out of over-reaching
hope and optimism for high-technology, that became the outgrowth
of "Irrational Exuberance" and overly heady expectations
for an Internet based future, whose time had not yet come but
is increasingly coming true today.
So, as the new administration came in, it became the task of the
Republicans to clean up the mess and deflate the bubble as best
they could and thankfully, they were able to re-start the economy
within 3 years and create what has become unquestionably: "The
Best Economy Ever", and increasingly what we've already been
calling the greatest bull market and economy ever since 2004,
and with the chorus growing ever louder, that this really is a
boom to end all booms and one for the ages. Without naming names,
many of the best known pundits have grossly misjudged the underlying
and growing strength of this bull over the past few years, where
we have more often been criticized or have raised eyebrows, with
our relentlessly bullish outlook on stocks and the economy.
The big question is: Where do we go from here? And, how might
"The Triple Decade Effect" impact our future?
That depends on how much more of this Global Boom and Worldwide
Bull Market has yet to run and perhaps how and what may conspire
to derail it. But here are a few interesting snippets to keep
in mind that could yet give this bull market increased longevity,
such as: Has the Fed successfully engineered a mid-decade slowdown
that could turn into a similar late decade run, such as occurred
in the late 1990's? When the "Irrational Exuberance"
statement by Greenspan recently passed its 10th Anniversary and
virtually no-one seemed to suggest we were anywhere near that
today and yet over the past week or two one can clearly see signs
of growing exuberance especially in regards to what looks to be
an all time record year for bonuses across the entire financial
world.
The Triple Decade Effect - In its waning years?
And for sure, over recent weeks
markets have been aggressively defying gravity especially in emerging
markets, which are already up huge for the year, led by Russia
awesomely up some 80% for 2006 and is completely off the charts
over the past 8 years, since our calling of the lows in Russia
back in November 1998. Led by the Dow a few months ago, many US
indices extending to the very broadest Russell 2000 have been
making synchronized new all time record highs, a very bullish
sign until late last week when some early divergences began to
develop.
Closing this strong going into 2007, undoubtedly sets us up for
a very strong year and surprisingly, an increasing number of formerly
reticent advisors are calling for dramatic increases in stock
prices. And, while we ourselves have been hollering about the
possibility of Dow 15,000 and Nikkei 20,000 and maybe even a Dow
also reaching up to 20,000 along with a Nasdaq towards 2,800 and
possibly as high as 3,300. It was nigh on two and one half years
ago, our forecast of Nasdaq 2,500 seemed unassailable and yet
here we are today already at 2,557.20.
And amazingly, something extraordinarily personal occurred just
last Saturday on Forbes on Fox... The incredible revelation that
Ken Fisher, legendary fund manager and multi-decade contributor
to Forbes, now believes stocks are drastically undervalued and
should be some 80% higher. That would surely put the Dow up around
20,000 and likely cause all of our other forecasts to be met.
But, the interesting twist to this story, is that one of Ken Fishers
employees had been receiving periodic updates of our consistently
bullish reports of two and three years ago, such as we were apparently
regularly referred to by them as the eternally overly-optimistic
alternate view.
Of course, we are increasingly flattered that so many are coming
around to our point of view, but also naturally, we're increasingly
cautious of too much optimism beginning to permeate the markets
and mainstream in general.
Therefore, while we believe that 2007 could well usher in what
could be the mother of all "Runs for the Roses", wherein
perhaps everything could move higher, not just Financial Markets,
but Commodities too, as the Global boom rolls on and Gold and Silver become
increasingly sought after and more valuable in the process, as those who understand the implications
that this third decade of mega-growth may bring, is an increasing diversion
by the smart money out of financial assets and into serious hard
assets for the first time in nearly three decades.
A Gold and Silver Boom as Massive as that of Stocks
Except this time, the overlapping
bubbles that have become the hallmark of three decades of mega-growth,
are likely to manifest themselves by their very size and growth,
into a Gold
and Silver boom that could dwarf even the 1970's and extrapolating out in the chart above in what
could perhaps become an overcompensation for the massive devaluation of not
just the US Dollar, but most currencies over the past half century, Gold's percentage of Financial Assets
could soar to new highs over 1980, potentially to as high as twice
that amount, i.e., 58% or so.
Now that may be an extreme case, but we have already outlined
numerous scenarios in which Gold could soar to unimaginable heights
and in the event this was to occur, conceivably Gold could replace
many currencies anew.
Nobody knows what the future holds, but we already know that current Gold values
just don't make sense when compared with just about every asset
out there, from housing
to the postage stamp prices, food or toothpaste.
For Gold
to rise to its true value today
would be require at least a four-fold increase or even up to six-fold
plus. The point is, if the World is gripped by an unfolding mania
such as this, and especially if Gold production were to continue
to fall as the chart below suggests it might, then international
hoarding and speculation along with a massive bull run in Gold
and Silver ETF's, (Exchange Traded Funds backed by physical Gold
and Silver), then the amount of Gold and Silver essentially be
removed from World markets, could be absolutely staggering as
shown by the following chart depicting the potential impact of
a tiny 1.3% increase in investment allocation to Gold.
Does the following chart look
like a peaking of Gold output and an ensuing decline in production
likely in the years ahead?
Some trend forecasts have Gold production falling from the current
2,400 tons per year, to heading towards 1,700 tons by 2010!
Now have a look at the astounding growth in Precious Metals based ETF's absorption of Gold has already done to prices over just two years with so far only die hard Gold bulls waking up to this form of investment that has yet to become mainstream, but ultimately as the current growing wave of stockmarket greed over time is converted to fear of US Dollar devaluation and hedging against inflation the chart's numbers above will explode Gold prices.
So the future looks likely to
be a time of great opportunity where some deft investing could
potentially have the best of both Worlds... A continuing boom
in stocks for some or much of the coming year, that could very
well be accompanied by an inexorable rise in Gold and Silver prices as
they strive to keep pace with the continuing inflation of financial
as well as the physical assets that comprise our daily lives as they continue to rise too, but what
investors should be deftly aware of and watch for, are the signs
of what looks to us, what will become an inevitable impending inflexion point,
where stocks will peak out, and Gold and Silver prices will keep
going higher.
Really from this point forward, we have to be mindful that such
a development could possibly occur at any time, because there
are no guarantees that some exogenous event, such as a severe
disruption in Oil supplies, a new War unfolding somewhere around
the World could easily nip this bull market in the bud or at least
crimp it for a while and the major beneficiaries are more than
likely to be Gold and Silver. Remember what we have continually
said all along over the past few years. Each triple decade has
ushered in an increasing rate of growth in stocks and has also
brought on a mind-boggling increase in Gold and Silver prices,
at least as far as the 1970's were concerned and again, extrapolating
out, we can only contemplate what a 25 year breakout over the
$500 level, that is akin to the Dow breaking out over 1,000 in
1982 and look where that went in only 18 years: A stunning 15
times. On the same scale Gold could rise from $500 to $7,500 over the same
time, or perhaps much faster...
From 1903 or so to 1929, the Dow rose about 8 fold over 25 years.
From 1940 to 1966, the Dow rose 11 times over 26 years and from
1982 to 2000 the Dow rose 15 times over just 18 years or 16 times
to date, bearing out what we have been pounding the table over
for the past 3 years: That extrapolating out from the 19th Century
as a 1 and the 20th Century as a 3, (i.e., averaging about 3%
annually for the economy,) by definition the 21st Century should
be a 9 and while such a high number may look ridiculous or impossible
to many, it is actually now happening right before our eyes, where
the emerging markets, which will become more and more like the
United States economy in their futures, are growing at astounding
rates... Viz: China's economy having grown at 9 percent 28 years
straight and its market has grown even faster, not to mention
Russia, which has eclipsed even Japan.
Unwise To Place Upside Limits on Gold and Silver
What we should be reading from
this is that the
coming boom in Gold and Silver could be monumentally greater,
than perhaps anyone can imagine...
The mega-growth of the current Global boom will absolutely, totally
overwhelm Gold and Silver investments when that time comes. Just
a few years ago, when the total market capitalization of entire
Gold sector was little more that $100 Billion, we predicted it
would run to at least $1 Trillion in the coming Gold boom. Experience
has shown that this could be the low end of where such a boom
that might eventuate.
For example: If the current market cap of say $20 Trillion globally,
is any guide and Gold were to only reach 10% of the market capitalization
of Global Financial Assets, that would put the market cap of Gold's
market sector at $2 Trillion and the first chart above might not
justify a quarter to half of the potential we have already outlined
and a move of this magnitude alone, would mean an average gain
of eight to ten times the current market caps of many Gold issues...
And that's not all, we earnestly believe that in any potential
re-run the dramatic
surge in Gold and Silver from 1978 thru 1980, that as soon
as Gold approaches its old highs, Silver could come from behind
and once again out-perform Gold by a factor of 2.5 to 1 or more
perhaps taking Silver itself to new highs of anywhere from $75
to $105 initially and later on as high as $150 or more.
This time around you have to factor in that we are not only living
in a Global Investment World where countries have massive foreign
reserves as high as $1 Trillion and have amassed as much again
regionally in a World so intra-linked, that $1 Trillion in US
Bonds is as vulnerable as any other kind of investment expressed
in US Dollars, it should focus the mind on what's possible, i.e.,
in a Worldwide panic such as we have already outlined in our Trillion
Dollar Killing, it's every man for himself when it comes to fund
managers bailing out of drastically losing positions that could
some day eventuate in a wholesale liquidation of $US based assets.
While we have termed this special report: "The Triple Decade
Effect", it should be borne in mind that the three principal
upward market growth moves spanned an average 25 years... As ended
initially in 1929 and secondarily extended from 26 years to 30'ish
by 1970 and today we are 24 years by some measures or at the end
of 26 years starting from 1980 and therefore the countdown clock
is ticking as to where this 3 Decade or so run, might actually
end. Could it run longer by months, quarters or even years?
The answer is yes, quite possibly. But common sense dictates that
we may be nearing the end of a major run and the seedlings of
an emerging new bull market in Gold and Silver are already 5 years
old and appear to have anywhere from 3 ~ 5 years or so to run
into the end of this current cycle and as we've learned before,
Gold and
Silver uptrends tend to accelerate rather dramatically towards the end of their decades of
predominance and therefore the most dramatic moves and period
of intense
Gold and Silver market activity may still lie directly ahead, and all the indications we have expounded
upon of late tend to point to just that.
The informational advantage to be gleaned from the above theories
is profound. Imagine what selling stocks in 1970 and switching
into Gold might have achieved, then switching out a decade later
and back into stocks. We are right now approaching a potential
end game, that may have actually been accelerated in a manner
of sorts. Our abilities to call such turning points with near
perfect accuracy is well documented, as is our 2 PM sell signal
of March 24, 2000 and other buy signals of July 24 and October
10, 2002, and again in the days leading up to the Ides of March
2003. Our strategy now is to look for major turning points ahead
in markets.
For most of their blissful childhoods in the 50's and 60's and
over the past 30 years or so the Baby Boomers have had a dream
run and 'tho we cannot know what the future holds, we can learn
from the past and those who do not heed past mistakes, may well
be doomed to repeat them. To arbitrarily believe this dream run
can last forever or the rest of their lives, is indeed the height
of naivety. The sheer weight and preponderance of contrary historic
data and powerful trends pointing to increasing uncertainty is
foreboding.
December 18, 2006 -- Investment Intelligence
John Richardson welcomes any feedback or requests at
marketsavant@gmail.com
This article is reprinted with permission from the author. All rights reserved.
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