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BFI Perspectives 

Limit Losses: That's the Main Thing Now (Plus, How Low Can the Dow Go?)


No one knows the future. I only know a few things: first, that the market hates uncertainty, and the advent of a plague about which too little is known. It is probably true that the panic is all out of proportion to the eventual damage it will do. But the markets spent all of recent days panicking, as have most people.

There is another thing I believe I know: gold has been in a half century bull market, ever since it has stopped being tied to national currencies. The first phase of this bull market was about a decade: that one took gold up by thousands of percentage points. A rise that fast and huge had to have a period of correction: it lasted about 20 years, until 2000/2001. Then we saw it jump up again for the next decade.

In 2011, a correction began, but much smaller than the first. That one hit the bottom at the end of 2015. Since then, gold has been moving up. We have not yet seen it burst into new high ground in the US dollar. But in most currencies, it has recently done so. It is only a matter of time before gold price in USD bursts over the old high of $1914.


Common stocks had, until very recently, been at record highs and had not had a correction since 2008/09. We are in the process of seeing how deep that correction will be. The problem is that all stocks had been hit: for the first time since 2008, the miners fell along with the rest. It didn't seem to matter that those miners were not starting out from positions of strength and were usually far from their record highs.


I've decided to stress the course of safety. Until things become clearer, I am concentrating on first, gold, then silver, and only then, in a 'minor' way, miners.


After last week's carnage, I would not be surprised to see something of an upward move this week. We'll just have to see. But the uncertainty of the virus coupled with the ever-growing narrowness of the stock averages at record highs made a large stock correction not surprising. The character of any bullish bounce these next few days will say a lot about what is to come.


The only question is the miners. Will they truly start to rise again, or will they follow the path of the regular stocks?


We've got a pretty safe 21% rise to look forward to in gold --from last Friday's $1583 to 2011's peak $1914. It is fairly rare to be able to look forward to such a rise. What we don't know is what will happen to stocks: from 2009's 6,600 to the recent 29,500 without much stop, this fall could be long and large. For now, I have to be wary of the stocks of mining companies. They could, and likely will, be rising along with stocks on the very short term. But what happens after the next few hours or days?


I know that many people are drawn to the miners and think them a way to make more money than only holding the metals. In exchange, they can succumb to greed and go overboard. We saw last week what can happen to them, even though gold holds steady.


I want to, above all else, limit further losses. When we know more, we can once again do more.


"What Can The Fed Do About the Virus?"


That's a great question. What can they do? This is not a monetary problem. What can lower interest rates or a huge increase in the holdings of government securities in central bank balance sheets possibly do to stop any spread of this virus? I don't see that central bank moves can do anything. Besides, the markets are already pushing long rates down to unheard of levels: from mid-January 2.3% to current 1.62%. Where will this stop? I'd love to know that.


During the Spanish flu of 1918/19, the Fed was new and did almost nothing. There is no record of any other central bank doing anything to combat it. And why would there be? It would be akin to a meteor striking the Earth. There'd be a lot of problems, but none of them had anything to do with prior mal-investments or the effects of either too much or too little prior central bank action.


The world has gotten to the point where people look to central banks to solve all problems. This is really absurd. If someone can tell me how any central bank action can help, I'll be interested. Maybe printing money and handing it out to Chinese restaurants or airlines whose business has dried up? If so, that's one more reason to be in gold.

Chris is a money manager and he has been sharing his insights with clients and readers since 1974. He regularly writes and publishes The Weber Global Opportunities Report, a subscription-only newsletter. With a focus on precious metals investing, the Weber Global Opportunities Report covers a variety of topics that should be of interest to Global Gold subscribers and clients as well.

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