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The Sky is FallingMike Hoy One would think that the possession of this valuable knowledge would give untold financial advantages to those who possess it. Unfortunately that may not be the case. In fact this knowledge could be a curse that will leave scars on its unfortunate victims for years to come. Many well known analysts and writers who understand the financial problems that exist today believe the timing is ripe for a major correction, if not a total market reversal. They could be correct. Personally, I believe their timing could be off a little bit. Knowing that the world is facing severe financial hardship does not mean that "The Sky Is Falling" today. In fact, many of us have seen these problems building for years. The exponential growth of debt and leverage has been running rampant for almost three decades. Any individual with marginal intelligence knew that interest only and adjustable rate mortgages were being used as vehicles to float an industry that did not have the guts to police itself. Simple logic and common sense took a backseat to the blind desire of the individual to live beyond their means. Individuals who fell victim to living a lifestyle they could not afford should have been able to avoid the pain and frustration they now face today. The unwise financial choices they made in a failed effort to possess and own a lifestyle that simply did not belong to them is a mess that now has to be cleaned up. In my opinion it is the cleaning up of this mess which will serve as the target for the bullets which will be fired when the trigger on the gun is pulled. The trigger will be lower interest rates. In the end I believe that history and the overriding instinct for self preservation from the "Powers that Be" have no choice but to lower interest rates. No politician in his right mind would raise rates from these levels leaving his or her legacy as being responsible for the collapse in the economy and the markets due to problems in the housing industry. A collapse in the housing industry would lead to the demise of many "career" politicians; an event which would bring a smile to my face. We all know inflation is heating up big time and this is where the "Powers that Be" are stuck between the proverbial rock and the hard place; recession-depression or inflation-hyperinflation. History has shown that when faced with a choice inflation is always politically preferable to recession. At this point in time I believe a failed attempt will be made to bail the housing market out over a choice to support the Dollar. This postponement of the inevitable will have the same effect on the economy as giving a heroin addict a fix. From the addict's perspective, after a fix, things are now fine and life is good. In reality this fix will only serve to make matters worse in the end. IT SEEMS SOMETHING HAS BEEN MISSING! How many of you have noticed that there has not been a major correction in the markets for several years? I know there have been a few minor selloffs but where is the follow through? I have asked myself this question many times and I can only come up with one conclusion. In times of uncertainty, like we have right now, the markets always seem to find very timely bids to give needed support. In my opinion these bids are no accident and the "Boyz" have been very successful in smoothing out the rough spots. In fact, I believe the market could be due for another up leg. As a result of increasing interest rates for two years I believe the "Powers that Be" have added several bullets to their "Gun!" It is the raising of these rates for two years that lead me to believe the timing is just not right for a major market correction or reversal. Another factor which influences this type of thinking is the fact that investors I work with are more liquid today than they have been in years. Most of these people got caught up in the "Sell in May and Go Away" syndrome. With this capital on the sidelines I believe the market will use this fuel to work its way higher. I have never seen a market peak with as much cash on the sidelines as we have now. The possibility exists that there could be a window of at least a year where excellent profits await those who are in the right place at the right time. Do not confuse my thinking of the short term market prognosis with the fact that I know a "Day of Reckoning" awaits the ultimate failure of stupidity and spending excess. I view the economic and political circumstances as a "rubber band." At this point in time no one knows when the elasticity ends and the rubber band snaps. It is my personal opinion that the rubber band, which is no doubt pushing its limits, still has at least some elasticity left in it before it snaps. My experience and knowledge of the markets has also taught me that bull markets, like the one we have been in since 1982, end in a rhinoceros horn where a buying panic ensues and the market goes straight up. Remember how the bull market in tech stocks ended and where the best gains in the tech bull took place? That's right, it was at the end of the tech bull market and the tech stocks went straight up. We have seen nothing like this and with the cash on the sidelines and the overall negative market sentiment I do not think the market will cave in until "every mother's son" is loaded up on stocks. EXCEPTIONS TO THE RULE! The only trigger I see that would change my thinking would be a rise in interest rates. If the Fed decides to start raising interest rates all bets are off and I will go short as I know the US housing market and the US financial system will not be able to sustain another round of interest rate increases. Many people argue the fact that if rates are not increased the Dollar will fall out of bed. My opinion is "so what?" If the Dollar continues to fall exports are going to increase and imports will decrease. This should have a positive effect on employment and may be the first step to repatriating many jobs that have been shipped out of the country. Jobs I believe must come home if the US is ever going to regain its status as the Country on top of the "pile." I see nothing wrong with putting Americans back to work. After all, I believe the Dollar has already been monetized. Many people fail to recognize that a little inflation is not a bad thing so long as wages keep pace. In a nutshell, "the more things change the more they remain the same!" To me, it all comes down to interest rates, if rates fall I believe the market will continue to punch out new highs; if rates rise there is a major correction in place that could turn into a "bear" rampage. As always these are just my opinions and it is up to each of you to do your own due diligence as your conclusions may vary from mine. Mike
Hoy 321gold Ltd |
