Investing With Jay Today

April 21, 2009

What My Experts Are Saying Now


Q: Jay, what are your experts saying currently?

A: That¡¯s a good question, especially at this stage of the world financial crisis. I¡¯m listening and very carefully analyzing every word I hear from them. Here are some of the best I have seen recently, arranged by expert.

(Early Warning Report, April, 2009,

I¡¯m still receiving letters saying things like, ¡°I¡¯m retired, I didn¡¯t listen to your advice, and now I¡¯ve lost half my savings. What should I do?¡± First, if you are in that situation, don¡¯t try to get the money back by ¡°investing¡± (speculating); you may lose the other half, too. Governments have created so much chaos, and are so panicky, that all financial instruments of any kind are high risk. For protecting what you have left, all I can offer is what I¡¯ve been recommending for a quarter century. The most well-documented, logical plan I¡¯ve seen is the one described in Harry Browne¡¯s book FAIL-SAFE INVESTING. ( Harry Browne¡¯s permanent portfolio is not perfect, but Harry tested it back to 1970, and it¡¯s the closest thing I have seen to a bullet-proof strategy. I don¡¯t trust it, but I trust everything else less.

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The Experts' Strategy Made Simple (Letter 33)
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(Letter 23)
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Let me emphasize, I think this economic crisis contains a cycle that swings from inflation to deflation to inflation, etc. The permanent portfolio plan has a bias in favor of inflation, so it builds profits during inflationary periods. These profits then offset losses during the deflationary periods. From mid-2007 to mid-2008, we were in an inflationary stage. Since then it¡¯s been deflation. Next I think we¡¯ll go back to inflation. From the beginning of the economic crisis in August 2007, The Permanent Portfolio (PRPFX) is down 7%, compared to 45% for the S & P 500. Please read Harry¡¯s book, it takes no more than an hour.

(Dow Theory Letters, March 2, 2009

The bitter fact is that nobody, no brilliant analyst, has any idea of where this bear market will end. What if earnings and dividends collapse, and price/earnings sink below 6 (it's happened before)? Under those circumstances, the Dow could sink as low as 1000 or even lower. We know that bear markets, following great bull markets, tend to overrun themselves on the downside. Therefore, my own advice (to you and myself) is that we should have no preconceived notions as to where this bear market will end. 

How bad can it get? I honestly don't know. A lot of seasoned investors are congratulating themselves on being smart enough to be largely in cash over the last year. But wait -- suppose the US dollar collapses along with most fiat money? In that case, nobody will want to hold Federal Reserve Notes. Nobody will want any fiat money backed by any country (remember, all fiat money must be backed by the country of issue).

Wait, there's only one currency that needs no backing by any nation -- the money that has no counter-party liability -- it's gold. When all is lost, when the Dow is down to 2000 or less, when the dollar has no friends, the last asset standing will be gold.

Those who denigrate gold don't seem capable of understanding this. The reason they don't "get it" is that they can't conceive of how bad a bear market can be. It's the reason I've coined the term "dollar bugs." These are the poor optimists who cannot visualize how bad things can get. They can't believe that Federal Reserve Notes (dollars) can fall. Fall how far? Fall to the point where no one wants them.

If the dollar can fall to uselessness, gold can rise to infinity. I think it could happen. I think it "could" because I can visualize how bad things can get. I told you above that this bear market, so far, has wiped out better that half of all the price appreciation and stock values since the depths of the Great Depression. Is the market telling us something? My instinct (belief) is that this bear market may be just about half over -- with another dreadful half to come. How bad can the second half be? Damned if I know, and nobody else does either. But remember, great bear markets tend to bring great surprises. And one surprise is often just how bad a bear market turns out to be.

(Dow Theory Letters, April 6, 2009)

Speaking to a dinner party, one person asked me what I would do if I was running the country now. I answered, ¡°I wouldn¡¯t do a thing. I¡¯d allow the bear market to run its course.¡± To my surprise, the crowd applauded wildly. Obviously, a lot of people disagree with the current policy of bailing out everything that looks sick. I think this is a policy that is going to fail, and it's a policy that's going to strap the US with almost uncontrollable debt and interest on the debt for years to come. 

The policy is: "Spend whatever it takes now, and as for the trillions of dollars in new debt, let the politicians of tomorrow deal with the 'impossible debts' and let our kids and grandkids pay with rising taxes."

There are two things I will say about the situation with certainty. The standard of living in the US is sure to decline. And the international power of the US will decline. To put it bluntly, the US will not be the undisputed leader of the world, as it has been since World War II.

The US cannot lead the world and at the same time be the world's biggest debtor. The marvelous US life-style of recent decades depends on our creditors sending us their goods and their savings (over $2 billion a day). This is unsustainable. That which is unsustainable will end.

I've taken the position that this is a bear market rally (correction). As such, it is entitled to regain one-third to one-half of the ground lost since the November 2007 high. And you can be sure that the bear will do his best to look "powerful and irresistible," thereby drawing in as many eager stock-buyers as possible.

(Dow Theory Letters, April 7, 2009)

The market situation has seldom been more confusing. Many analysts are convinced that we are in a new bull market. Others (me included) believe we are in a bear market correction (rally).

I believe that we're in a secondary (upward) correction of a bear market. I'm going to guess that this correction could rise further or at least last longer than most people are expecting. A bear market rally is supposed to convince the majority that a new bull market has started. The rally will often continue until a large number of investors are back on board, and then the bear will kill them as it fades away, leaving the new optimists high and dry and with losses.

Gold is in a downward correction of its primary bull market. Gold may decline or stall until it convinces the majority of gold-fans that the gold bull market has died. What we're experiencing now is the big correction that often occurs prior to the third speculative phase in gold. So what are the markets trying to do? They're doing what they always do, keep investors in the bear market and keep investors out of the gold bull market. Why would they do that? Because that's the very nature of markets. Markets tend to thwart the majority. And that's logical and self-evident. If markets existed to make money for the majority, then most market participants would be millionaires, and we know that sadly, that is not the case.

(Dow Theory Letters, March 20, 2009)

I started building my gold position in 1999. At the time gold was flat on its fanny well below 300 -- what few gold mining shares were still alive were selling under $5. I wrote at the time that many gold shares were so cheap that you could buy them as if they were perpetual warrants. 

My gold position now is comparable to my market position back in 1958. My gold position represents maybe 30% of my total worth. Why have I done this again?

For the following reasons: I believe gold is in a major or primary bull market. I believe the gold bull market is currently in its second phase. This is the phase where sophisticated and seasoned investors and the funds enter the market. I don't believe the public is in the gold market to any extent. They are interested and watching the action, but they do not have the nerve to buy gold. In fact, the public doesn't know how to buy gold, although ads are now appearing telling them of the "wonders" of gold and how they can buy the coins (at huge premiums over spot gold).

I believe the bear market in stocks will continue erratically and the deflationary trends will persist. This will drive Fed Chairman Bernanke up the wall, and I think he will stop at nothing (including massive printing of dollars) in his effort to halt deflation. The real story will be as I've been saying for years --


This will serve to feed the gold bull market.

I'm in no hurry. Gold will ultimately fully express itself. The gold bull market, like all bull markets, will do its best to shake us off its back. The gold bull market wants to go up without us. The gold bull market will roar when least expected, after it's worn out many of its followers.

(excerpts from several recent interviews carried on YouTube Jim Rogers Channel)

Q: Do you see commodities as an inflation hedge?
Absolutely. This is the only time in history where you¡¯ve got every central bank in the world printing money at the same time. Consumer prices are going to go way up. The public is already getting out of paper money, which is why you¡¯re seeing gold go up.

Q: Are we going to see another food-price spike sometime soon?
Definitely. I think you should move back to Indiana and marry a farmer. There are times in history when the money lenders have been in charge, and we just came through one of those periods. But it wasn¡¯t always that way. Wall Street was a backwater in the ¡®40s, ¡®50s, ¡®60s, and ¡®70s, and it will be again. Farmers are going to be the ones driving the Lamborghinis, and the traders are going to have to learn to drive tractors.

Other comments:
I¡¯d love to invest in equity markets around the world, but I can¡¯t find any I want to buy shares in, including the US. The only place other than currency I advise putting money now is commodities. We¡¯re going to have a period where the people who produce real assets are going to take over from the people who are money shufflers, and the power is moving to farmers. All of which is great for commodities. We¡¯ve got the lowest inventories in 50 years for agricultural products. Fundamentals at Citibank and General Motors are not getting better, but fundamentals for commodities are improving rapidly. If the world economy is going to revive, commodities are going to lead it back up. If the world economy is not going to revive, commodities are still the place to be ¨C especially with governments printing so much money. Look at the 1970s. The world economy was in the tank, but commodities did very well.

Q: How are you investing in commodities?
I use my indexes (He created the Rogers International Commodity Index in 1998), because my lawyers won¡¯t allow me to buy individual commodities, because I¡¯m always talking about them in public.


Here are a few brief observations on the above comments, as well as those from several other of my experts.

  1. All of them are more-or-less on the same page, and all use a variation of the Permanent Portfolio strategy, meaning specifically, they are hedged against both inflation and deflation. Thus, they have a significant cash reserve (some with two or more different currencies). They are all essentially out of stocks (with the exception of a moderate allocation to the better mining shares). Their inflation hedge is in physical commodities, including gold, silver, energy, agricultural, other metals, etc.
  2. Although the Rogers Commodity Index includes 36 different commodities, the percentages in each vary widely, based on his research on supply and demand around the world. As I have previously explained, his entire index can be purchased with RJI. His agricultural index can be purchased with RJA. RJN buys his energy index, and RJZ his metals index. I will be using RJA, RJN and RJI for my commodity investing other than my gold and silver.
  3. Rogers often warns against over-diversification, or against buying anything you don¡¯t know about and understand. That¡¯s the reason I let my experts pick my investments. Although there is diversification in Rogers¡¯ commodity investments, his overall portfolio is essentially cash and commodities. That¡¯s it, very little diversification. The cash protects against continued severe deflation (major depression), and the commodities protect against high inflation.
  4. My portfolio is pretty much a composite of all my experts, allocated as follows as this is written: 13.7% mining stocks, 13.5% physical gold, 18.7% physical silver, 18.4% other physical commodities and 35.7% cash. As I have previously recommended, if you wish to replicate my allocations, I suggest you dollar cost average in measured steps and time intervals to move from where you are to where you want to be. For example, if you are under-allocated in gold and silver, buy the decided upon amount at the end of each time interval, with the following exception. Accelerate your next purchase when gold trades at 875, 830, 800, 760, 720, 650. Complete your buying if gold trades above 1000. (See A Strategy for Accumulating Gold and Silver.)  This is a plan for phasing into a maximum allocation of 30% (or whatever target you choose) for gold plus silver. You will note that the 875 level on gold has already been hit, so under this plan you would add gold or silver now.
  5. In a similar fashion, if you hold any stocks other than mining shares, this is a plan for phasing out of them in measured steps and time intervals, beginning now. I would suggest accelerating your sell steps if the Dow hits the following levels: 8500, 9000, 9500, 10000, 10500. These are arbitrary, and can be changed based on your conviction.
  6. An important note on stocks: Many people believe the bear market in stocks is already over and we are in a new bull market. If this is true, and it could be, then the outlook of my experts could prove to be too pessimistic. This doesn¡¯t bother me in the least because I know that the cost of being overly pessimistic is trivial compared to the cost of being overly optimistic. If you prepare for a depression by, for example, getting out of debt and building substantial reserves of cash and gold, and things turn out to be better than expected, you won¡¯t lose much. On the other hand, you will probably lose a lot if you prepare for a rosy scenario and a depression occurs. The current stock market rally, which probably has further to run, and the associated economic optimism, are creating a reasonable setting for following the plan in number 5 above.
  7. An important note on gold and silver: The biggest correction we have had in the secular gold bull market to date has been 30%. History teaches us that most secular bull markets have at least one correction of 40%-50%. Never forget that the secular gold bull of the 1970s had a 50% correction (1976) following which it took three years to reach a new high, after which gold went up an additional 4 times. The entire bull took gold up 24 times, from 35 to 850. Taking that perspective on the current gold bull suggests that gold could easily fall to 600 or lower and not negate the bull market. I would consider 700 an outstanding buy price for gold (and silver at the same time). Try to set aside your emotions, and make yourself meditate on two questions: (1) If gold fell back into the 600s, how do you think the average person would feel, especially all who bought gold between 700 and 1032? (2) Knowing the Federal Reserve is in the process of creating between $2 trillion and $11 trillion on a printing press, how would you feel about a chance to buy gold in the 600s? History records gold has outlasted 10,000 paper currencies which have become worthless.  

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"Well done, good and faithful servant; you were faithful over a few things,
I will make you ruler over many things.  Enter into the joy of your lord"
(Mt. 25:21 NKJV)

If you have not been faithful in the unrighteous mammon, who will commit to your trust to true riches?" (Lk. 16:11 NKJV)

The Apostle Paul wrote, "Now godliness with contentment is great gain. We brought nothing into the world and it is certain that neither can we take anything out. So having food and clothing we will be content with that. But those who want to get rich fall into temptation and a snare and into many foolish and harmful desires, that plunge people into ruin and loss; because the love of money is a root of all kinds of evil; in their greediness some have been led away from the faith and have impaled themselves on many distresses." (1 Tim. 6:6-10 NKJV)

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The information in this article is the responsibility of Jay O'Keefe and Ted Spaeth, but all your decisions are your own responsibility.

This web page was last updated on 21 April 2009 .