Likely Bear Markets And A Stronger US Dollar: An Interview With Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, a 24/7 service geared to traders of stocks, options and index futures.  He has more than 40 years of trading experience, including 12 in the pits of the Pacific Stock Exchange.  A former newspaper reporter and editor, he has written on a wide variety of topics for numerous publications, including Barron’s, Stocks, Futures & Options magazine, Fleet Street Letter, The Daily Reckoning and the Sunday San Francisco Examiner, to which he freelanced a regular column.  He worked as an investigator for several years under Hal Lipset, famed San Francisco private eye, and also was a senior reporter for an arm of Dresdner Bank that prepared research reports for institutional clients. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted…and the story was retold on FBI: The Untold Story.   

Indeed…Rick Ackerman is an outstanding icon in the international investment Industry. His website is http://www.rickackerman.com  -- In deserved recognition Gold-Eagle is proud to interview the venerable Rick Ackerman:

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Question:  What asset classes are grossly over-valued today? And which are historically under-valued?

Rick:  Residential real estate is at the top of the heap, just as it was in 2006. Seems we never learn.  The cable carriers’ shares  are also extremely overpriced, but for an interesting reason:  Their customers hate them more than ever just as some attractive alternatives are about to come online, including the fiber network Google has quietly been building.  Absurd valuations for some virtual companies deserve mention, particularly Uber, Yahoo, Twitter, Pinterest, DropBox, LinkedIn, Zynga and Yelp.  All of these pumped-up companies are based in San Francisco, which makes income property there perhaps the most overvalued investable of all. 

As for S&P500 stocks selling at 22 time trailing earnings, that may seem to fall within the high end of “reasonable,” but only if you believe the US economy is actually recovering. We non-believers think the stock index will sell for only five times earnings before the next bear market has run its course. 

As for undervalued assets, nothing is cheap these days, although Midwestern farmland may be headed there.  If you want to know which assets are reasonably priced, Buffett’s portfolio is a good benchmark. He’s been buying the basics:  the food chain, rail carriers and rights-of-way, and insurers. Every six months, I write a big check to Mutual of Omaha for one reason:  I have to. Ditto for Geico.

Question:  What assets classes are considered today very inexpensive relative to historical standards and current global economic conditions?

Rick:  Nothing worth owning these days is “very” inexpensive. I view long-term US Treasuries a great buy, however – not because they are especially cheap historically, but because their price is going to soar as interest rates plunge during the coming economic collapse. I see rates on the 30-year coming down to 1.64%. If this happens, there are huge capital gains to be reaped owning the long end of the yield curve.  

Question:  In light of the US Fed fueling US stocks via the levitating action of Quantitative Easing (QE), do you foresee an imminent crash in the DOW and S&P500 Indices during 2016?  And If so, what percent do you expect US equities to crash?  And in this event, how will this effect stocks in the Euro Union? Indeed, can the Euro Union even survive?

Rick:  Many investors seem to think it’s impossible for stocks to crash with the central banks doing everything they can to pump up share prices. In other words, this time it’s different. I would argue that bear markets have always happened; that they will continue to happen; and that the next one, like every bear market before it, will show permabulls to have been out of their “effing” minds at the top.  As for the EU and the euro, they are the deadest of dead ducks. Trillions in stimulus has done nothing to revive Europe’s moribund, statist economy.  As a s result, the delusion of cradle-to-grave security, as well as the idiotic notion that  “Government” can somehow afford to pay for things that we as individuals can no longer afford, is about to go down in flames – perhaps not just metaphorically, either.

Question:   To date the only member of the Euro Union that has been living high on the hog (i.e. referring to the PIIGS – Portugal, Italy, Ireland Greece & Spain) has been Germany.  What might Germany do to salvage what it can?

Rick:  Germans are not exactly big spenders, but if they live better than most of their European komrades, it’s because they’ve earned it through hard work, thrift and continual innovation in manufacturing.  But under the euro regimen, it was a mistake for Germany to effectively co-sign loans to the likes of Greece, Spain, Italy and Portugal.  It may have helped sell more German cars in those countries, but the net result is that Germany is on the hook for their debtors’ insoluble problems.  However, it is predictable that in the EuroDepression that’s coming, Germans, ever resourceful, will suffer least.

Question:  And if indeed US stocks commence a new secular Bear Market, where might prudent investors seek safe haven?

Rick: Gold is an obvious answer. I am not in the $5,000-an-ounce camp, and I doubt that hoarders of bullion will be able to exchange a handful of Krugerrands or Maple Leafs for acres of farmland if the price of gold should spike to fantastic heights in a hyperinflation.  However, come hell or high water, and speaking as a hard-core deflationist, I expect gold to hold its purchasing power at least as well as any other investable asset one could acquire right now.

Question:  What is your 2016 forecast for gold and silver during these troubling and volatile times?

Rick: My bear market targets for gold and silver, respectively, are $814 and $7.86. However, this scenario is not chiseled in stone, and I keep a very open mind to the possibility that the long-term bull market in bullion could resume at any time.  Just last week, I covered a short position in gold from $1176 and went long just above a $1044.50 downside target I’d been using for the December Comex contract.  I don’t pretend to have a crystal ball, and I can’t say whether the very encouraging bounce that we’ve seen so far will mark the end of the bear market begun in April 2011. But I’m content for now to be in at a great price. Like most bullion investors, I’ve got my fingers crossed.

 Question:  What do you see for the US Dollar and the Euro during the next 12 months?

Rick: I am very bullish on the dollar and correspondingly bearish on the euro. I expect the latter, which spiked to $1.10 on Friday, to fall to at least 80 cents over the next five years.  As for the Dollar Index, currently trading for around 98.35, I foresee a test of 2001’s high at 121. A dollar that strong would reflect the by-now-inevitable triumph of deflation, despite the best efforts of the central banks to avoid it.

Question:  As you well know, The Peoples Bank of China and Japan’s Central Bank are the world’s largest holder of US Treasuries. They own $1.3 TRILLION and $1.2 TRILLION, respectively. In your estimation do you feel the Peoples Bank of China and Japan’s Central Bank will soon awaken to the imminent FOREX danger this represents…and will subsequently dump Uncle Sam’s fiat paper to diversity their dire FOREX risks?

And in the event The Peoples Bank of China and Japan’s Central Bank divest themselves of Uncle Sam’s fiat paper, might that cause a crash in the US Bond market…and a related crash in the value of the US greenback?  

Rick:  China and Japan are sensible enough to have written off their US Treasury holdings by now. A few years ago I would have said that both had sufficient savings to take the hit. But probably no longer, since they will be dealing with the collapse of their own economies when the global financial system implodes.  Since the implosion is all but certain to be deflationary, their reserves will paradoxically increase in value to the extent those reserves are denominated chiefly in dollars. Thereafter, if a dollar hyperinflation marks the final phase of the global financial collapse, as seems at least possible, that would zero out the value of their USD reserves.

In the meantime, there is zero chance the dollar will be replaced as the world’s reserve currency.   It is not only the banksters’ currency of choice for facilitating their quadrillion dollar derivative shell-game, it is the only currency in sufficient supply to keep the game going.   I see a gold standard as unlikely in any event because the world could never get used to paying for “stuff,” especially crude oil, with real money.

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Gold-Eagle is very grateful to Rick Ackerman for taking the time to do this interview…and we look forward to enhancing Mr Ackerman’s growing international image via Internet:   http://www.rickackerman.com/