The Bull Is Acting Like A Bull

Guess what? The bull is living up to his reputation. He is shaking investors off his back so he can carry the fewest number possible through the next major leg up in the commodity bull market. That means that the dollar is now rising strongly against gold, silver, oil, and other commodities, just when a new crowd of people have climbed on the get-out-of-the-dollar bandwagon. This is not only perfectly normal, but it is healthy. Some of the greed in the commodity bull market is unwinding…buying with borrowed money, on margin, etc. This is why I have consistently counseled investors who do not yet have their full allocations of gold (10%) and silver (20%) to dollar-cost average in small increments over time. This is not a science and I am not an artist at it, but for what it’s worth, I suggest a purchase every two months, or after a 10%, 15% or 20% decline, whichever comes first. At one point this week, silver was down more than 20% from its high. It is trading at 17.21 as this is written, an excellent add point in my opinion.

This correction will set a firm foundation under the next leg up. The supply-demand fundamentals are still very much in place. As Rogers said this week, “We are probably in the fourth inning of a nine inning game. We have a long way to go.” Regardless of what the dollar does, the supply-demand fundamentals should carry commodities much higher over the next few years. Then, if the Fed keeps creating more fiat paper money, the dollar will resume its bear market. That will be icing on the cake for commodity investors.

Speaking of that, how do you feel about bailing out investment bankers who made bad investments, with your tax dollars? That’s exactly what’s happening. Adding insult to injury, according to Rogers, the officers of the top five firms on Wall Street paid themselves bonuses totaling $39 billion in January (yes, that’s billion with a “b”). I often wonder how long the American people will tolerate this without a taxpayer’s revolt.

For those who have not done so, but wish to lighten their stocks and increase cash, it appears that the current out-of-control (Rogers’ term) actions of the Fed may provide a window of opportunity for doing so. Rogers says we could easily have a stock market rally lasting a few weeks to several months. He reports that he is making no changes in his strategy, i.e. holding all his commodities, remaining short of the financial stocks and homebuilding stocks, and ready to add to any of his commodities that have a significant decline in this correction.

I believe the mortgage crisis will lead to further sell-offs down the line. In my opinion, the market is nowhere near bargain levels. The public is very heavily invested in stocks, which usually indicates a top rather than a bottom. This is opposite to the commodity market which is nowhere near the top, and has very little public participation to date. As Rogers pointed out in a recent interview, there are more than 70,000 mutual funds for the public to invest in stocks and bonds, and less than 50 mutual funds for the public to invest in commodities. As he said to the person interviewing him, “Do you know any friend or business associate who has bought a commodity? Wait until there are 5,000 or 10,000 commodity mutual funds, then you might think about selling.”