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"Get The Popcorn Ready" - Why The World's Most Bearish Hedge Fund Thinks The Biggest Crash Is Almost Here
Conventional investing wisdom would have you believe that anybody who has remained bearish on global markets since the financial crisis has not only lost a boatload of money, but has missed out on the opportunity to cash in on one of the most torrid bull markets in recent memory.
However, as Horseman Global's Russell Clark has proven over and over again, this simply isn't true. A few years back, we anointed Horseman with the title "The world's most bearish hedge fund" for a very simple reason: Of all existing asset managers, Horseman may be the one with the biggest and longest net short position in history. Just look at the chart below, which shows not only that Clark's net exposure was (as of March) a staggering -88.14%, with a gross short position of 160%, but that he had been effectively net short since 2011!DYI: This money manager has been shorting different markets around the world along with certain commodities as well. Despite that his long term returns are far ahead of the American averages. No doubt the U.S. market is massively overvalued whether it will go into a crash situation or along the Japanese experience of a 20 year roller coaster bear market is anyone’s guess. Be as that may be this dove tails right into the next article highlighting gold and especially silver as a valuation play in of themselves and related to the overvalued U.S. market.
Precious Metals Are Setting Up For A Major Rally While The Broader Markets Are Primed For A Crash
While many precious metals investors are concerned about the current low prices, I believe gold and silver are setting up for a major rally while the market is primed for a crash.
Why?
Because the broader market technical indicators versus the precious metal have been pushed to opposite extremes.
Thus, when one goes down, the other will rise. And, we also must remember, gold and silver act as a FEAR TRADE when the conditions get ugly in the market.
However, today, the Dow Jones is now 82% above its 200 MMA.[Monthly Moving average 16.66 years] So, we are severely overdue for a correction. All stocks and indexes eventually come back to their 200 MMA. It’s not only necessary, but it’s also healthy for the market. We cannot have rising stock values forever.
Today, the silver price is currently 11% BELOW its 200 MMA. While this might be a negative technical indicator for traders, I only see that as temporary — more on this in an upcoming video. According to my analysis, the current breakeven for the primary silver mining industry is about $15 an ounce. Which means, we could see lower silver prices for the short term, but we must understand, silver is not overbought or overvalued by any stretch of the imagination, quite the contrary. Also, the breakeven price to produce precious metals continues to provide a floor in the silver and gold prices.
In 2008, the gold price was 144% above its 200 MMA versus only 25% higher today. Moreover, when the gold price corrected lower in 2008, it fell to the industry’s breakeven cost of about $650 an ounce. That was the reason it did not fall back to its 200 MMA. Also, as we can see over the past five years, the gold price has been bouncing off the $1,150 level as that is now its PRODUCTION COST FLOOR LEVEL. Yes, it’s true that gold fell below that in late 2015, but that was due to oil falling to $28 a barrel.
In conclusion, the stock markets are seriously over-valued if we go by their 200 Month Moving Averages. The NASDAQ and tech stocks are more overvalued than the Dow Jones Index, similar to what they were during the 1997-1999 Tech Boom.
However, the gold and silver prices are at the opposite spectrum versus the overall markets as they are undervalued and closer to their 200 MMAs.
Hell, the silver price is 11% below its 200 MMA.
So, I believe the precious metals are setting up for one hell of a rally while the broader markets are primed for a crash.
DYI: The gold/silver ratio with silver
being enormously undervalued as compared to gold at a staggering 87 to 1
ratio! With a sky high stock market DYI’s
model portfolio is well positioned for any upcoming fireworks! Hang onto your hats along with your cash plus
precious metals the Great Wait may just be a bit shorter.
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