The Beginning of the End? Thank Goodness for Gold!

by Lear Capital EditorialAugust 28, 2015

What a wild ride on the stock market this week! Heart-stopping plunges followed by hopeful rallies… then more drops and rallies. What is going on? Is it market contagion from China? Is it the Fed threatening to raise rates? Is it the high frequency traders and their wacky algorithms? Or is the market just finally waking up to the fact that fundamentals are just out of whack?

The truth is, fundamentals always win in the end. It may take time, but you just can’t get away with bad fundamentals forever, and our market is still rife with terrible fundamentals!

If we go by normal, sane fundamentals – P/E ratios and all that, we have thousands more to drop in this correction, if that is indeed what this is. In this chart of the Shiller PE Ratio, the median is 16. We were up to 26, and currently, as of this writing are just down to 24. Better get your parachute. It’s a long way down to sanity again.

Current Shiller PE Ratio: 24.86 +0.25 (1.03%)

3:19 pm EDT, Thu Aug 27

Mean:

16.62

Median:

16.01

Min:

4.78

(Dec 1920)

Max:

44.19

(Dec 1999)

 

Speaking of parachutes. If we could say one thing to say about this roller coaster ride on Wall Street it would be: thank goodness gold is still down in buying territory! There are many reasons why this could be, but be grateful! Usually by the time turmoil like this hits, gold is already off to the races.

Instead, gold and silver are DOWN again!

One theory is that the same forces that are trying to goose the market and create confidence in the DOW are also suppressing gold and trying to undermine confidence in precious metals. Or possibly different entities are doing these things in concert.

It is hard to imagine a hoard of retail investors dumping a bunch of retirement assets into the market after it has just dropped 1,000 points. Do they see it as a buyer’s market suddenly, before waiting to see how much lower it will go? Apparently, from the big opens we’ve had all week. We have a hard time fathoming such an investment strategy. We have different theories about what is going on, but in any case, it is all working together for your benefit!

So when you look at your positions this week don’t reach for the Tums, reach for the phone and call us to set your position, strengthen your position or get started in precious metals. The market is handing you a gift. Take advantage before it’s too late. 

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