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Dear Fellow Investor,
Ho hum. Another day, another sell-off in U.S. stocks.
A few hundred points here, another 500 points there...pretty soon we’re looking at a bear market.
Or at least that’s the consensus view. At our recently concluded New Orleans Investment Conference, our experts agreed that stocks were already headed into a bear market. Most thought we’d enter into a recession over the coming year...others thought within two years...but all believed the stock market would decline well in advance.
They’re looking like the geniuses I thought they were, as today’s sell-off has brought the major U.S. stock indices into negative territory for the year.
That’s right. As of today the Fed’s vaunted “wealth effect” has turned into a “poverty effect,” draining wealth just as the U.S. economy is struggling to maintain upward momentum and the rest of the world is already turning down.
Special Delivery To The Fed
To put it quite simply, the stock market is delivering a message to the Fed. And like the “candygram for Mongo” in “Blazing Saddles,” it isn’t subtle.
The stock market is telling the Fed to stop raising rates, or there’s going to be hell to pay. And the Fed is going to have to listen, or risk destroying everything it’s built through a near-decade of unprecedentedly easy monetary policy.
As I’ve been telling my audiences over the past year or so, the correlation between the S&P 500 and the Fed’s balance sheet was over 95% on the way up. What we’re seeing right now is a similar correlation on the way down.
Here’s the problem: The December rate hike is, supposedly, baked into the cake. This is partially due to the Fed’s own forward guidance, and partially due to President Trump’s veiled threats.
The stock market is telling the Fed that even this hike might be too much to swallow, and now we’re seeing market expectations — as well as Fed officials — backing off their expectations for at least three more hikes next year.
The good news is that investors are now being presented with a, pardon the pun, golden opportunity.
If the Fed goes through with its expected December rate hike, gold should rally shortly thereafter, as it has in the FOMC’s previous three year-end moves.
Well-positioned junior gold stocks with large resources stand to multiply two or three times in value if the gold move duplicates the previous examples.
But what about the alternative? What if the Fed doesn’t raise the fed funds rate in December?
That would be even more bullish for gold, as the market would assume a major change in policy from the Fed.
Gold would likely rise much more in that scenario...and the best junior gold plays would catapult higher.
Right now, gold is remaining in a holding pattern, and the top junior gold stocks are slowly declining as tax-loss selling season is in full swing.
I advise waiting a couple of weeks, and then moving aggressively to pick up the best bargains. (I’m going to detail my top picks in our December issue of Gold Newsletter.)
Of course, there are no guarantees. Last year, for example, the rebound in gold was muted and the rally only lasted a month or two. Although the gains in the juniors from trough to peak were still very good, they weren’t nearly as explosive as in the previous two years.
We’ll see what happens this year...but I think the table is being set up for another big rally.
That’s what the stock market, and the Fed, are telling us. And we should listen.
All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference
P.S. As I said, our faculty of world-renowned experts at the 2018 New Orleans Investment Conference predicted this continued stock market weakness, along with other startling predictions for the markets just ahead.
Better yet, they gave up their top picks in junior resource stocks — not only in gold, but silver, copper, uranium and more.
You can get all the exciting details in our New Orleans 2018 audio and video recordings. To get yours, CLICK HERE.
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