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Covid19, Bear Markets and Gold

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Source: Ron Struthers for Streetwise Reports   03/12/2020

Ron Struthers of Struthers’ Resource Stock Report discusses the current market meltdown and the longer-term outlook for the markets and gold.

Although I know of some great companies and stocks out there, it is best just to wait. Markets are going a lot lower and investors in the main indexes and techs won’t have a recovery in their portfolios for many, many years. Gold is being sold down too at times but the uptrend is still in place. We can expect a recovery in gold, gold stocks and junior miners this year and then off to new highs in a raging bull market. We will soon have zero interest rates and massive QE. The Fed announced they are pumping up to $175 billion per day in the repo market up from $150 billion. The Fed balance sheet is heading up again and will go at a faster pace now. The red arrow is where it’s headed, off the chart.

This crash will cause some investment bank failures and soon they will implement new rules in stock markets like 2008. I hope the computers melt down and get discarded.

It will be similar to the 2008 crash in some ways. All the liquidity and money creation will debase currencies, so gold and gold stocks will rally like they did in 2008 to 2011. In that period gold ran from $700 to $1,900 over three years. This time after a possible pull back, gold will run to a minimum $4,000 to $5,000/ounce and it could go way higher. I expect this recession will be worse than 2008 and even much harder to recover from. I don’t like to be so pessimistic, but you can get away with it in a bear market. Nobody listens to you until after it happens. I warned about this a month ago. V26 #4.0 Corona Virus, Gold:

Feb 12th – “So far the effects from the coronavirus are being mostly ignored by the markets. There seems to be hope that this virus will be contained or maybe it is denial of economic damage it will, and could cause. …….. The economic impact could be catastrophic. What if markets start to price in the worse. China and the world economies were already slowing ahead of this……………Slowing economies will results in more QE and a quicker move to zero interest rates. U.S. stock markets are frothy at record levels and the balloon is seeking a pin.”

You can be certain fund managers and such are going to put gold back in their portfolios. I am not sure how far a pull back in gold we will get, $1,350 to $1,500 somewhere between the two arrows that will put gold off the chart in the coming years. Just like 2008, gold started to rally about two years ahead of the crisis, from the 2018 low this time.

In simple terms Covid19 will run its course and infect 30% to 70% of the population worldwide. Everything is going to shut down for a while and this will cause a deep recession and a severe bear market. There is no escaping it, there is no denying it. Right now just look after your health and family, Try to obtain essential supplies if stores get shut down. It is already too late for this in a lot of cases as panic has already emptied a lot of shelves. Canned goods and dried goods like pasta, beans and rice will get you by if things go real bad. Don’t worry about face masks and hand sanitize, it will not help much. Keep healthy, eat well, get rest and frequent washing with hot water and soap is all you can really do.

Because we will end up in a bad recession most everything will crash. Real estate is another bubble seeking a pin. I warned about this bubble, last July. I have been anxiously waiting for the RLB Crane Index for year-end 2019, but still not out. All I can find is this article that Toronto will soon pass Chicago as the #2 city with the most skyscrapers..Over half of Toronto condos are owned by investors and they are reliant on travel and tourism for rentals, and you know what’s happening there.

Real estate elsewhere will be negatively affected by the recession and high mortgage leverage. As always with real estate, different locations will suffer less than others. It has been a seller’s market for many years where buyers bid up above asking prices. This will change abruptly to a buyer’s market. The first effect is that people will not even want to go out and look at homes, they will be staying where they are. Those who have to sell will lower prices and then the ball starts rolling down hill.

The last real estate bubble peaked in 2006 and declined into a bottom in 2012. I do not expect this decline to be as bad because lending requirements have been tightened since then, but thelow mortgage rates has inspired high debt levels.

This is an older report from Stats Canada. From 1999 to 2016, mortgage debt represented two-thirds of the overall increase in debt for Canadian families, while consumer debt made up the remainder. In recent years (2012 to 2016), mortgage debt was responsible for 100% of the increase in total debt. More recent, (March 2019) according to Bloomberg – “Household debt in Canada, a nation generally known for moderation, has reached levels that could be qualified as excessive. Canadians owe $2.16 trillion—which, as a share of gross domestic product, is the highest debt load in the Group of Seven economies. With the housing market cooling, a reckoning may be fast approaching.”

It is a debt party in the U.S. too, according to Reuters – “American households added $193 billion of debt in the fourth quarter, driven by a surge in mortgage loans, and overall debt levels rose to a new record at $14.15 trillion, the Federal Reserve Bank of New York said.” A big problem today is a lack of room for rate reductions. The Fed’s gun is about empty. In 2008 rates were cut from about 5% to near zero. This time it will be from 1.5%, so interest rate reductions will be useless this go around. Ignore the Fed, there is nothing it can do. Going to zero interest rates will do nothing in an economy already over leveraged. More QE keeps the financial system afloat; none of this solves the Covid19.

I follow the Michigan Consumer Index for recession warnings and it is showing no problems yet. This virus thing came on very fast, so it will be interesting to see the March numbers. I expect a big plunge.

And finally my targets for stock markets as per the S&P index. My update last week when the S&P was still near 3,000 was a downside target just above 2,700. That only held two days. My next down side target is around 2,400 and we might hit that Friday as many traders will not want to be long over the weekend, then maybe a relief rally on Monday. This bear market will go down to at least the 2,100 area which is about a -38% decline. I could easily decline much more, depending on economic damage

Just one more very ugly chart of the TSX Venture Index. At 388 it is about 100 points below the early 2016 bottom. The index is now down -84% from the 2011 high. This is more than a bear market, it is a broken market. Regulators need to get off their behinds and make changes. There is no way computer trading should be allowed to short nickel and dime stocks.

There is an initiative underway to try and get regulation changes. It is called “Save Canadian Mining.” It is not just about mining companies but all penny stocks in Canada. Check out this short video on youtube.

In my opinion, every investor should signup and support the initiative. You can do so here. https://signup.savecanadianmining.com/

Ron Struthers founded Struthers’ Resource Stock Report 23 years ago. The report covers senior and junior companies with ample trading liquidity. He started his Millennium Index of dividend stocks in 2003 – $1,000 invested then was worth over $4,000 end of 2014 and the index returned 26.8% in 2016. He retired from IBM after 30 years in customer service, systems and business analyst, also developing his own charting software. He has expertise in junior start-ups and was a co-founder of Paramount Gold and Silver.

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