Valuation Tipping Point?

jmski52 · July 28, 2014 8:32AM

First, I should state that I have no idea which way the stock market is going to go. That being the case, my biggest concern is what happens if the stock market takes a MAJOR hit and stock prices decline by say 50% over a 2 or 3 year period.

My question is - what do you think would happen to precious metals prices over that 2 to 3 year period if the stock market deflates like crazy? Just asking.

s4ny · July 28, 2014 10:12AM

Very little correlation between precious metals prices and the stock market.

derryb · July 28, 2014 10:12AM

I suspect, just as in 08-09 there would be a mad dash to cash. This affects most all assets. PMs however were first to recover last time around. In such a scenario great PM opportunities would be made available (lower prices).

The reason for an equity crash would be an important factor in determining if investors would choose to move their money directly to metals in lieu of cash. This would be the only cause for metals to perform well during an equity market crash.

cohodk · July 28, 2014 1:12PM

IMO, PMs will hold value or decline. The bond market will appreciate. The US dollar will buy more of virtually everything.

KUCH · July 28, 2014 1:46PM

PM's will rise when there is a loss of CONFIDENCE. We've got to figure out what causes that loss of confidence and when it will happen. Is it war, is it bank failures, is it inflation?

The wave up for PM's in 08 was because of bank failures. I don't think the stock market has much influence.

So to answer your question, PM prices will remain neutral, when stocks correct.

DrBuster · July 28, 2014 10:43PM

If the market tanks 50% I'll be the first to liquidate some assets and jump in the deep end. I imagine metals would get that 'safe haven' status for a bit again and maybe rise some more, but a crushed market would make me drool.

derryb · July 28, 2014 10:58PM

Make no mistake, an equity crash will have a temporary, negative impact on most all assets, including PMs. When the fire starts everyone heads for the exit. Only when they have safely left the building do they think about what to do next.

Dollars become a "safehaven" during periods of extreme financial uncertainty. With PMs priced in dollars (that naturally become stronger in an equity crash) it will take less dollars to buy PMs. PM prices, in dollars, will decline until such time those PMs become a better safehaven alternative.

For PMs to gain traction during an equity crash it will require a loss of confidence, at the same time, in the dollar.

Equity crisis + currency crisis = PM safehaven status. Given the treatment of the dollar by it's controllers, this is a possibility.

PerryHall · July 28, 2014 11:05PM

When people start dumping their stocks, they'll have to park their cash somewhere. Some of that cash will most likely go into PM's as a haven for safety.

derryb · July 28, 2014 11:10PM

<< When people start dumping their stocks, they'll have to park their cash somewhere. Some of that cash will most likely go into PM's as a haven for safety. >>

Dollars, as shown in 2008-2009, become the safehaven.

TwoSides2aCoin · July 29, 2014 1:54AM

Opportunity exists on the ride. Not at the top or bottom, but all along the path. Few can time it, perfectly…. so if opportunity exists on the slide down, it exists on the recovery, too.

MGLICKER · July 29, 2014 5:58AM

Depends on the feds response to the decline. If decline is accompanied by higher inflation and they continue to pour fresh currency on top of it, the sky is the limit on metals. The $100 ounce of silver though may only buy you the same large pizza with pastrami and blood orange slices that it does today.

VanHalen · July 29, 2014 7:18AM

I don't expect a 50% hit to the equity markets in the next few years so I'll comment on a 25% correction which is likely in

years.

PMs should decline initially and perhaps fall 25% as well. PMs would likely then bounce back strong after the markets stabilize at ~75% of pre-correction levels and then PMs would be poised to gain nicely over the equity pre-correction levels. I can see gold at $1800 and silver at $35 in 3 years.

I'm not one of those $5,000 gold and $100 silver guys, not in the next decade. What that would entail I don't want to see.

Just my 2 cents.

derryb · July 29, 2014 3:23PM

<< I'm not one of those $5,000 gold and $100 silver guys, not in the next decade. What that would entail I don't want to see. >>

You are already seeing what that would entail. Like corporate controlled media, PM prices have not been allowed to publicize it.

jmski52 · July 29, 2014 9:48PM

IMO, PMs will hold value or decline. The bond market will appreciate. The US dollar will buy more of virtually everything.

Why do you think bond prices will go up? That doesn't bode well for the economy. Of course nothing seems to bode well for the economy at the moment.

What effect do you think that de-dollarization by the BRICS will have on the market for the dollar? How valid is the claim that the dollar is losing its status as the world's reserve currency?

cohodk · July 30, 2014 3:09PM

<< IMO, PMs will hold value or decline. The bond market will appreciate. The US dollar will buy more of virtually everything.

Why do you think bond prices will go up? That doesn't bode well for the economy. Of course nothing seems to bode well for the economy at the moment.

What effect do you think that de-dollarization by the BRICS will have on the market for the dollar? How valid is the claim that the dollar is losing its status as the world's reserve currency? >>

Bond prices have always gone up when the stock market has declined.

De-dollarization by the BRICS will have ZERO impact on the market for dollars. In fact, I can see Brazil defaulting in about 10 years. China has a massive asset bubble that will deflate. India still has very constraining infrastructure problems. South Africa, is that a country? Russia---LMAO!!!!

Validity of the claim?---not very. Of course I would very much like to see it, but I dont believe it will happen in my lifetime.

Stop looking at the USA in a vacuum. Think relativity.

derryb · July 30, 2014 7:22PM

<< Bond prices have always gone up when the stock market has declined.

De-dollarization by the BRICS will have ZERO impact on the market for dollars. In fact, I can see Brazil defaulting in about 10 years. China has a massive asset bubble that will deflate. India still has very constraining infrastructure problems. South Africa, is that a country? Russia---LMAO!!!!

Validity of the claim?---not very. Of course I would very much like to see it, but I dont believe it will happen in my lifetime.

Stop looking at the USA in a vacuum. Think relativity. >>

1. The US bond market is an even bigger bubble than US stocks. This alone points to PM strength when equities begin their crash.

2. Rapidly growing decline in foreign demand for US dollars will have a huge impact on the market for dollars, especially when all of those come home and bring inflation with them. The Chinese are already dumping their dollars on purchases of US real estate and any other US asset they see holding better value than those dollars. Additionally, rapidly declining demand for US debt will have a huge impact on a growing FED balance sheet and the means by which the US further forces its debt on its own citizens.

3. The US, due to the negative worldwide affect of its economic and foreign policy is putting itself into a vacuum. The rest of the world is realizing they might just be better off without such a demanding ally. Look for europe, especially Germany, to choose Russia as its next best friend.

Relatively speaking it wasn't too long ago that Britain and its currency ruled the world. It's decline resulted in a loss of most of its middle class and a rise in socialist governing of its population. I wonder if there were "unpatriotic" voices then warning of the change to come.

The dollar is in decline. Either deny it or prepare for it.

cohodk · July 31, 2014 2:51AM

1. The US bond market is an even bigger bubble than US stocks. This alone points to PM strength when equities begin their crash.

Ill agree with the first part of this comment, especially considering US stocks are not in a bubble, perhaps overbought, but not bubble. So lets think about what you think would happen it the bond market collapsed. Where would the money in bonds go? I think it goes to stocks--like it always has--but you differ. You think stocks would also collapse, so now we have both stocks and bonds collapsing. That would probably also bring down real estate. So now we have a massive deflationary spiral. Gold has already shown that it would also collapse in a deflation. So now we have the dollar buying more of anything.

rapidly declining demand for US debt

We have never seen this. However, if the world is not buying US debt, then where is it putting its money? German bonds with a lower interest rate? US real estate (is that a bad thing)? US stocks or Russian stocks or Brazilian or Chinese stocks?

Look for europe, especially Germany, to choose Russia as its next best friend.

Then you are talking about WW III. Poland sits right between Germany and Russia. Chicago has almost as many Poles as Warsaw and London may actually have more. The Muslim population of Europe is huge and Russia has already shown its disdain for that religion. You think Germany would welcome Russia because it has natural gas? The US has more and its cheaper. But lets say Germany and Russia unite. You think the dollar would suffer? Why? The view of the USA as impotent is grossly overstated.

Its a fun exercise to say the US dollar is going down, down, down, while little to no thought goes into the consequences.

derryb · July 31, 2014 3:30AM

<< 1. The US bond market is an even bigger bubble than US stocks. This alone points to PM strength when equities begin their crash.

Ill agree with the first part of this comment, especially considering US stocks are not in a bubble, perhaps overbought, but not bubble. So lets think about what you think would happen it the bond market collapsed. Where would the money in bonds go? I think it goes to stocks--like it always has--but you differ. You think stocks would also collapse, so now we have both stocks and bonds collapsing. That would probably also bring down real estate. So now we have a massive deflationary spiral. Gold has already shown that it would also collapse in a deflation. So now we have the dollar buying more of anything. >>

It has always gone to stocks when the dollar is strong, but my belief is that the cause of a bond collapse will be a currency crisis. The money that doesn't rush to a stronger currency will rush to an asset that can be sold in a stronger currency. Gold heads that list.

<< rapidly declining demand for US debt

We have never seen this. However, if the world is not buying US debt, then where is it putting its money? German bonds with a lower interest rate? US real estate (is that a bad thing)? US stocks or Russian stocks or Brazilian or Chinese stocks? >>

The declining foreign demand for dollars is due a lessening need for them to conduct international trade and a good understanding of what it's masters are doing to it. As countries agree to new payment methods besides dollars, demand will switch to sources of those currencies. Gold is growing in use as a payment method - eastern nations see this and continue to stockpile it.

<< Look for europe, especially Germany, to choose Russia as its next best friend.

Then you are talking about WW III. Poland sits right between Germany and Russia. Chicago has almost as many Poles as Warsaw and London may actually have more. The Muslim population of Europe is huge and Russia has already shown its disdain for that religion. You think Germany would welcome Russia because it has natural gas? The US has more and its cheaper. But lets say Germany and Russia unite. You think the dollar would suffer? Why? The view of the USA as impotent is grossly overstated. >>

The only potency the US carries outside of the US is its military strength, and even that is no longer forcing the dollar on others as it recently did in Iraq and Lybia. Even after the "removal" of Hussein and Gaddafi (who both had pledged to abandon dollar trades) countries are now pulling out of the petrodollar without fear of loosing their heads for doing so. While the bankers and the arms manufacturers will continue to spread conflict for the profit it earns them, WWIII is actually an economic battle and it is well underway. Germany will find a better economic and trade partner in its neighbor.

<< Its a fun exercise to say the US dollar is going down, down, down, while little to no thought goes into the consequences. >>

Or consider it a warning whose consequences can be prepared for. While it is a convenient medium of exchange, it is still just another asset. Viewing it as one, where value can most definitely change, enables one to not be blinded by emotional ties to it. British sterling, once the world currency, went down, down, down and Britian survived (at a heavy cost to those who held and used it). The US will survive, but like Britain, and those before it, it will not be the same country.

cohodk · July 31, 2014 3:43AM

Have you ever been to Germany? Have you ever lived with a German "middle class" family? How about a British family, or an Eastern European family? Do you know their fears and concerns? Do you know what they pay in taxes? Is their domestic real estate affordable?

In order to prepare for the consequences, one must understand what they are. To say the dollar is toast, buy gold, IMO, shows a lack of inter-market relationships. Which is ok, as this is can be a very dynamic study.

derryb · July 31, 2014 4:01AM

Lived there, done that.

rawteam1 · July 31, 2014 5:45AM

Last few days u got your answer... Straight south...

VanHalen · July 31, 2014 6:04AM

<< Last few days u got your answer... Straight south... >>

QE4 this fall or will a correction be allowed?

rawteam1 · July 31, 2014 6:13AM

QE 4, stocks to the moon, pm's passing the 1/4, 1/2 way mark on the Olympic downhill ski tour to Antarctica ...

jmski52 · July 31, 2014 7:10AM

QE backs off by $10 billion/month. GDP for the quarter is reported as +4%. Dow drops 317 pts.

Yeah, makes sense to me. Which of the above three numbers doesn't correlate?

cohodk · July 31, 2014 12:07PM

Tje market was not down for any of those reasons.

cohodk · July 31, 2014 12:11PM

<< Lived there, done that. >>

Then you should have a good understanding of why your ideas will not happen.

Higashiyama · August 1, 2014 7:57AM

At risk of making some gross generalizations, Germans tend to be risk averse and strongly value the rule of law. I'm not sure that Russians understand the concept of rule of law. Being prudent, practical, and risk averse, the Germans will work hard to avoid major disruptions in their economy and will continue to make short term accommodations with the Russians. But, a long term partnership between Germany and Russia will not happen in within our lifetime.

(as an aside, it is worth reading or re-reading Samuel Huntington's excellent though unfairly maligned book, The Clash of Civilizations)

Overdate · August 2, 2014 3:04PM

If interest rates rise significantly (due to Fed policy or higher inflation), I expect that stocks, bonds and PMs will take a hit as people free up money to buy short-term treasuries and money market funds. Long-term bonds will likely remain in demand but at higher interest rates, which means that existing corporate and government bonds will have to be re-priced lower. PM prices will probably depend more on inflationary expectations than on what's happening in the stock market.

jmski52 · August 5, 2014 10:50PM

If interest rates rise significantly (due to Fed policy or higher inflation), I expect that stocks, bonds and PMs will take a hit as people free up money to buy short-term treasuries and money market funds. Long-term bonds will likely remain in demand but at higher interest rates, which means that existing corporate and government bonds will have to be re-priced lower. PM prices will probably depend more on inflationary expectations than on what's happening in the stock market.

I grow more convinced that the bond market is the only market that matters. It's the very largest market and it is tied closely to the US government's ability to do whatever it wants. Nobody in the stock market seems to think that the 30 year bond will ever see the consequences of our continued financial missteps. But I do. The math can't be ignored. Rates cannot be allowed to rise, or all of the consequences happen NOW.

So, you must ask yourself - where do I want to keep my money?

derryb · August 5, 2014 11:15PM

You must also ask yourself "how long will investors continue to loan money to the US government?"

jmski52 · August 5, 2014 11:30PM

You must also ask yourself "how long will investors continue to loan money to the US government?"

Only as long as investors perceive it to be "safe" and/or "profitable". Which could be a very long time. Or not.

Baley · August 6, 2014 12:13AM

So, you must ask yourself - where do I want to keep my money?

In a diversified portfolio of stocks, bonds, real estate, precious metals and other commodities, and tangible assets such as rare coins, along with some bank deposits and good ole FRN cash.

cohodk · August 6, 2014 12:32AM

You must ask yourself, if investors start pulling money from binds then where will they put it?

jmski52 · August 6, 2014 2:03AM

You must ask yourself, if investors start pulling money from binds then where will they put it?

My guess would be that "most investors" would go to cash. But there won't be much of it around. Which really won't be good for bonds.

cohodk · August 6, 2014 4:25AM

<< You must ask yourself, if investors start pulling money from binds then where will they put it?

My guess would be that "most investors" would go to cash. But there won't be much of it around. Which really won't be good for bonds. >>

So cash would be the US dollar? And not enough dollars to go around? Demand exceeding supply. . US dollar goes way up. Dollar denominated assets way down. PMs are dollar denominated. Doesn't sound good for PMs.

rawteam1 · August 6, 2014 4:29AM

So there's a shortage of cash? Or just a bogus report by jmski?, lol
Can we break jp Morgan by buying cash ? Where's wrm?...

jmski52 · August 6, 2014 5:19AM

rawteam, read closely. would be = future tense.

no report here, bogus or otherwise. geez.

rawteam1 · August 6, 2014 5:29AM

Ahh jmski it was all tongue in cheek, lighten up n laugh a little... Lol

jmski52 · August 6, 2014 6:01AM

Yeah, rt - you're right. Sometimes I get too wound up! It's cohodk's fault.

cohodk · August 6, 2014 9:37AM

My nickname is "No fun" .

Valuation Tipping Point?

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