VETERAN ANALYST Pamela Aden thinks that although recovery is by no means imminent, a respite for the battered stock market is now overdue.
Publisher with her sister, Mary Anne Aden, of the highly rated Aden Forecast – the monthly investment newsletter now in its 27th year, and ranked in mid-2008 at No.5 out of more than 180 newsletters tracked by the Hulbert Financial Digest (HFD) – she sees important signs of the turbulence retreating. And as one of Wall Street's worst-ever years comes to a close.
Here in this interview with The Gold Report, Pamela talks about the 2009 prospects for Gold Prices, silver, bonds, currencies and more.
The Gold Report: The stock market is down, the Dollar index is down, the LIBOR [London Interbank Offered Rate] has also come down, but gold and Euros are on the rise. One of your recent letters indicated that these are all signs that the crisis is calming down. Could you explain that?
Pamela Aden: We've been measuring and watching the crisis and the recession in the various markets. The way they move will tell us when things are easing. The LIBOR rate, for example, stayed high when Treasury bill yields collapsed. This alone was clearly crisis driven. But the interbank lending rate has since been coming down, which is lie saying that the crisis is easing. This is a good sign.
But this is not to say the crisis is over, however. It's just easing up a bit. The Dollar's strength has been crisis-related; it isn't based on its own merits. So with the Dollar beginning to decline after these last several months of crisis-related strength, it's another sign of easing in the crisis.
With the Dollar coming down, the Euro and Gold Bullion are now rising, as they're more closely tied to the Dollar than other currencies.
TGR: How about the commodities – gold, silver, oil and other metals?
Pamela Aden: When the resource sector was really hot in 2003 and 2006, silver soared much more than gold. So that's another barometer for the recession – the silver-gold ratio. When silver starts outperforming gold, it means the resource sector is starting to strengthen. Silver will have a bigger boost than gold when it's rising as both a precious metal and an industrial metal.
Recent new lows in oil and copper suggest that the recession signs are not letting up. They're still there, they're real, they're scary; but you also see that Mr. Bernanke is doing everything he can to prevent the economy from moving from recession to deflation.
TGR: How many more essential tools to fight does he still have? The interest rates are at zero. He's already produced trillions of dollars. What more can he do?
Pamela Aden: He's going to keep doing that. He can't lower interest rates from zero, but he has other instruments he can and will use. It also will help when the banks start spending the money they now have available to lend. You can lead a horse to water, but you can't make him drink. That's kind of what they're facing now.
TGR: Will these moves actually encourage the banks to ease up?
Pamela Aden: With time, yes, they will. People are still shell-shocked. Everyone is pulling back, and in some cases a lot, by being conservative and careful, not wanting to make any mistakes. They can't afford mistakes. Everyone's spending less, from the consumer to the banks.
But life goes on and people need loans; banks need to lend. Even though it might not be the wild situation that's been going on, it still has to happen. That is where it'll start easing up little by little with time.
All of the global stock markets are now completely bombed out, the most since 1974. It's not casual. It's a big major oversold situation. That alone says that the markets are poised for a bounce-up. The gold and Euro rise may be leading the way in a rebound rise because most markets need a breather. And while this rise could be impressive on an intermediate basis, it doesn't mean that the bear market will end. A bear market is clearly the stronger force now.
Maybe we might get that January surprise rise on a rebound basis and perhaps Obama optimism will be the reason (with everyone having such high hopes for him). Low interest rates are another positive for the market. When T-Bills, for example, first fell to zero on November 20, it coincided with the stock market low. The stock market has been wanting to bottom, and T-Bills have been sitting practically at zero since then. So that is helping the stock market.
TGR: Despite the potential for a January surprise, then, all the signs you see tell us that recession will continue, albeit perhaps with a little blip in a continuing bear market?
Pamela Aden: I think so, definitely. It's to be seen if it's going to turn the market around. Sometimes bear market rallies can be fantastic in the sense that they are rising from a bombed out level. But it doesn't mean that the market's going to turn bullish from here and continue on into an ongoing multi-year rise. It just means a several month bounce is possible.
It seems to me, the way that the markets are looking, that we'll still have bad news coming out for next year, before mid-year. We'll likely hear more stories similar to that of the auto industry. The money still has to come out of the Fed. After a rebound rise takes the market out of an oversold area, the market could turn lifeless. It wouldn't be surprising to see a lackluster performance after a bounce.
TGR: In this lackluster market environment you're describing a continuing recession, do you maybe see the Gold Mining sector breaking out and actually starting to increase in a broader stock market bear?
Pamela Aden: What's interesting with gold's rally over the past several weeks is that after the plunge in 2008, gold will probably break even or have a gain for the year as a whole. If so, it will be the ninth year that gold's had a consistent gain vs. the Dollar. Even if it's a small gain or a break even year, it's still not a losing year.
That's good for gold, when looking at it on a year-by-year basis. The Fed and other central banks are printing money like never before to save the financial system. In protecting their countries and their banking system, they will eventually create the biggest inflation boom that will be exceptional for gold investors.
It's hard to say when we'll see the end of the whole crisis and recession period. It could be a year away, two years possibly. But after that, is when I think gold is going to go way up, and the Dollar and probably a lot of the currencies will take a back seat to gold. I think that the Gold Price will have its moment at that time.
For now, gold actually has held up the best of any market. It's held up better than the stock market, and it's held up better than the commodities. Of course, we can't compare gold to the bond market right now because, since the crisis, bonds have been extremely strong. But when looking at gold compared to bonds going way back it shows that the mega-trend turned to favor gold over bonds in 2003 for the first time since the early 1980s. It said gold is a better investment than bonds.
Last March, gold rose too high versus bonds and it was due for a downward correction versus bonds, which, of course, it's done in recent months. Bonds have been stronger than gold but it's now getting closer to a point of approaching the mega-trend. So far, the mega-trend favors gold over bonds in spite of the last month's rise. This is an interesting indicator and it's still telling us the mega-trend still favors gold, not bonds, even though bonds have been very good in recent months and probably will continue to be good.
TGR: With the interest rates on bonds reaching zero, how does that work as an investment strategy?
Pamela Aden: US government bonds have been soaring in price. While the Dollar has been strong, during the crisis, bonds have clearly been the best investment by far. If you had bought them in August or September, you would have been the winner of the year. Very few people really caught that. I have yet to see anyone say, "Yeah, I've been big on bonds." It's interesting. It caught a lot of people, even the bond people, off guard.
TGR: But with the Dollar now beginning to weaken, would you expect bonds to weaken, too?
