The Credit Cycle Says We Are Nearing a Major Tectonic Shift


A dispassionate view of history suggests that Michael Oliver’s major tectonic shift into a bear market for stocks is long overdue.Bonds have already started a bear market and I (as well as many others of the Austrian economic persuasion) believe we have started a long-term bond bear market. Whether a new multi-decade-long bear market in U.S. Treasuries is underway remains to be seen. But what is more certain is that the equity market is very vulnerable given the shape of the current yield curve, as shown directly on your left. There is no better predictor of a bear market in stocks than a flattening yield curve. There is no way of knowing whether we are “there” yet, but history suggests the odds of an equity bear market are very high and growing by the day.

As we head into the second half of 2018, I note that, on average, every month since 1975 is an up month for the price of gold. That factor along with growing financial distress likely to come when the existing “Everything Bubble” pops, should make owning gold and gold shares all the more important. We should be looking forward to some major profits for our gold shares as the year unfolds. Yes, with the next implosion we could see gold fall temporarily, as it did immediately in 2008 when the margin clerk compelled debtors to sell whatever had a bid. But then as the Fed began to print endless levels of money, look at what happened:  gold rose from $745 when the equity market peaked on 10/9/07 to $924.75 at the bottom of the stock market on 3/3/09 and then continued to rise dramatically to $1,900 in 2011. Since then gold has bottomed and started a new leg up in this gold bull market of a lifetime. Shares are incredibly cheap now. The second half of 2018 should be a fantastic time for most of the stocks we cover in my newsletter J Taylor’s Gold, Energy & Tech Stocks.