Patience Before the Dow Hits 35,000

There is blood on the streets and people are just about in panic mode. I predicted that QE3 would come by the end of the year, and it looks like that prediction will come true. The Fed and the government hate falling stock prices because they know the public correlates stock prices with how well the economy is doing. Like it or not, our economy can not stand on its own feet.

For people bullish on gold, silver, and stocks, this correction is the best thing that could have happened. This is the setup. Capital is shifting from stocks to bonds, but it’s only temporary. Once this relationship reverses, you will see a rally in precious metals and stocks for the ages in the midst of economic weakness.

When I say stocks are going to at least 35,000 within the decade, it probably seems like I’m delusional. But understand that stocks have cyclical patterns. I’ll probably write about this more in my newsletter, but following wars and years of consolidating prices, stocks usually rally explosively. I’m talking about 500% rallies, so 35,000 is actually a very conservative projection. So I’m warning you all, don’t get too bearish on stocks, and if you see Prechter say for the 100th time that the Dow is going to 1,000, do yourself a favor and ignore him.

Perhaps most fundamentally, the growing disconnect with government is going to create a panic into certain assets. This is what gold permabears are missing. You can’t value gold according to industrial demand when all the big money is buying gold bullion as an investment. This is also why jewelry demand is more or less immaterial in this environment. The big move is coming because of a collapse in confidence. People will be buying at any price, and those that are calling gold a bubble are like those that called for a Great Depression in 1987 after stocks crashed; they are dead wrong.

Maintain your balance in this environment. $1450 gold is reasonable. A 10,000 Dow is reasonable. The gold to silver ratio is a lot more attractive for silver now, and I would probably look to be overweight silver on the next correction. Government bonds are going to collapse, just be patient and let the dumb money flood into Treasuries; I feel very confident that we are approaching a significant top in bonds. Go on a vacation and have some capital ready for the months ahead; valuations will be very attractive.

Patience Before the Dow Hits 35,000 is a post from: Expected Returns

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