Economic contractions come and go, but the imprints they leave on people vary a lot. One of the good things about economic contractions is that they allow one to take the time off and reflect on the past in terms of personal finance. How did I end up spending so much? Why didn’t I save more? How come I bought assets when they were overvalued compared historical averages? I don’t think I’m the only person who is torturing himself (or herself) with questions like this. There must be millions like me. However painful these questions are, one has to start answering them to prepare for the future. It is the duty of present you to find answers and solutions to these questions for the benefit of future you. We humans have the strange habit of finding good in situations and relationships that are filled to the rim with pain, insults, face-slaps and humiliation. The current crisis is a prime example of the negative emotions that can arise, but after a short period of self remorse and blaming everyone else, we have to pick ourselves up and move one.

Moving On

The first thing you should do is start investigating what really happened. Pick up a few books and start reading. You might also want to add a couple of blogs to your reading list – there is plenty of free and reliable information on the internet, you just have to be a bit skeptical about what you read (if it doesn’t make sense of smells like a conspiracy, it probably is). If you already have a good overview of what happened the next step is to evaluate your own behavior and see if there is anything you could improve on the next time. Before the crisis I didn’t have the habit of saving money but a 15% fall in my home state’s GDP (I live in Estonia) and the bankruptcy of two media companies that paid me for content did plenty to change that . I now have a clear goal in mind – I want to grow my savings account to a minimum of three months’ expenses (the ideal would be a one year cash cushion). I don’t care that my savings account doesn’t yield much because I don’t want to risk my emergency funds. The bigger the potential reward, the bigger the risk.

Historical Averages

I remember buying stocks in October 2008, one of the worst times to be entering the stock market. I wasn’t too worried about my investment because I used money I could afford to lose, which is what one should be doing. Scared money will only bring you losses and misery over the long term. I bought the stock when it was trading around $25. When it fell to $5 in March 2009, I felt stupid. Really stupid. I knew it would rebound so I had no problem holding it. But I knew I had made a grave mistake. When buying stock in that company, I was so enthusiastic about it that I didn’t care about the broad market or the economy. I thought their products were positioned so good that there was no way they could suffer. Besides, the stock had already come off from its highs in the $70 range.

I should’ve kept the money and waited for a better opportunity. In hindsight I can see clearly that the dollar was in an uptrend (bad for US dollar denominated stocks) and the broad market was in terminal decline due to a credit crunch (due to the failure of Lehman). I eventually sold my stocks when it reached the $20 range.

When making an investment in any asset class, be it stocks, commodities or real estate, always check the historical averages and look at the trendlines. Estonia, much like the rest of the world experienced a spectacular real estate boom (without the option ARMs and RMBSs, luckily) and I always knew it was going to pop. I’m not saying I’m an expert, because that knowledge was largely based on the magazine cover indicator and the number of real estate shows on TV. But now I know how experts do it. The experts look at historical averages. There are many such as standard deviation plotted on a price chart, all the numerous housing affordability measures, population growth to asset price ratios, inflation adjusted prices etc. To top it off, it doesn’t hurt to buy a couple hundred bucks worth of books before buying a house. I’ve heard many people call in on the Financial Sense Newshour Q-lines saying that they avoided buying a house during the boom times and are now starting to look around for a bargain. Most people buy one house during their lifetime and it doesn’t really matter if you push the purchase forward a few years. They probably got at least 50% compared to the height of the boom.

Recession come and go but if we learn from our mistakes, we will most certainly benefit from them or, at the very least, we’ll be able to weather the storm the next time it hits. I’ve read about some great deals over the last year. People that are older than me and have more experience, who know the ins and outs of business cycles, picked up some great deals at bargain prices and are now selling at 100% or even 300% gains. They didn’t go along with the euphoria, held on to their money and bought assets when they were truly cheap, not just attractive.

In the end, we can’t do much to change the business cycle. They exist in every economic system so doing away with capitalism, as some have suggested, isn’t going to solve it. Swinging from one extreme to the other is a recurring theme in nature and since prices are a reflection of the collective action of all the market participants: private individuals, companies and organizations comprised of people; economies are bound to have booms and busts. The best we can do is adapt and prepare. Do a service to future you and start learning today. Future you will thank you for that.

Gerald Celente is a trend forecaster, owner and founder of the Trends Research Institute. He is a citizen of the United States and lives in New York State. He was born (29-11-1946) and brought up in Bronx but originally he is of Italian descent.

Mr. Celente has appeared on numerous TV networks and is well known for his trend following and forecasting capabilities. He is one of the many who warned of the dangers that were lying ahead when the financial crisis started to escalate into an economic crisis. During the weeks and months that followed the bailouts of 2008, Mr. Celente gained audience as alternative and mainstream news media was eager to have him on due to his skills as a trend forecaster.

What does he do?

Mister Celente is a trend forecaster. He is not “the messenger” or “the prophet”, but rather someone who absorbs all the news and information out there and gives his best guess as to what might happen next. Mr. Celente describes it with the following phrase:  “current events form futures trends”. Not everyone is able to put two seemingly unrelated pieces of information together, but somehow, Mr. Celente and his team of 25 at the Trends Research Institute have managed to do that time and again. Mister Celente takes great pride in being a “political atheist” or in other words, someone who is not fooled by political religions (after all, Democrats and Republicans are two heads of the same dragon).

Mister Celente started his trend forecasting business back in 1980, after having been a government affairs specialist from 1973 to 1979. He named it The Socio-Economic Research Institute of America, a name which has now been substituted with a new name – The Trends Research Institute. Each quarter, Mr. Celente gives out a new publication, titled the Trends Journal which forecasts and analyzes business, socioeconomic, political and other trends. He also writes special forecasts for individuals and companies who have an interest in a particular topic.

What does his track record look like?

People that can “forecasts” events pop up all the time only to fade away when people discover their track record or when they realize that their forecasts were as good as anybody’s. Given Mr. Celente’s track record, it is no surprise that the media is all over him. Here are just a few trend forecasts from the recent past:
2007 – The “Panic of ‘08″
2005 – Dollar Down, Gold to Soar
2005 – Alternative Energy Biz to Boom
2002 – Go for Gold – Beginning of gold bull market

And here are some from the previous century:
1996 – August 1998 Russian economic collapse
1988 – Rise of deep discount and warehouse shopping (think WalMart)
1986 – October 1987 world stock market crash

Why trust Mr. Celente’s forecasts?

The thing is, you don’t have to. As Mr. Celente says himself: “Don’t be a parrot, think for yourself!” He usually says that to illustrate the fact that too many Americans believe what the politicians and news media says. But I’d also apply that to what Mr. Celente says. What I’m saying is that no one piece of information should be taken as pure truth, especially if it’s a forecast, but it should, rather, be analyzed.

When I read the Trends Journal or listen to one of the radio broadcasts Mr. Celente regularly visits, my brain is constantly analyzing the information. I try to evaluate the validity of the information and compare it to what I’ve heard and read from other sources. The Trends Research Institute goes a long way to sift through all the information and make a forecast and their accuracy rate is pretty darn good, but in the end, you still need to use your own brain to decide to what degree you trust their analysis. There are no free lunches and this one is not an exception.
And remember, he forecasts trends, not specific events.

Where I can find more about him and his work?

The easiest way is to go to the Trends Research Institute website. Mister Celente is also a regular guest on many American TV and radio stations and more often than not, the video clips of his appearances are uploaded to YouTube (link to unofficial Gerald Celente channel on YouTube). Don’t be surprised to find a line or two from him or from his publications when you read the newspaper – every now and then, he is quoted in The New York Times, The Washington Post, The Los Angeles Times, The Economist and other major news publications.

Mr. Celente is also the author of three books:

1991 – Trend Tracking: The System to Profit from Today’s Trends
1998 - Trends 2000: How to Prepare for and Profit from the Changes of the 21st Century
2002 – What Zizi Gave Honeyboy: A True Story About Love, Wisdom, and the Soul of America

Just out

Gerald Celente’s most up to date trend forecasts can be found here.

Recently, Mr. Celente has been interviewed by Jim Puplava as well as Eric King. Here are the links to the interviews:
Gerald Celente on Financial Sense Newshour (interview starts at 19:10)
Gerald Celente on King World News (you have to listen to this!)

In these days, financial and economic news are not only reported on financial news media websites and personal blogs like Naked Capitalism or The Big Picture, but on online radio shows too, or in web-speak, podcasts. There is a large array of different podcasts available, some of which are downloadable versions of previously aired radio shows. Here is a selection of top three podcasts that I keep track of.

1. Financial Sense Newshour with Jim Puplava and John Loeffler
This has got to be one of my favorite radio programs! Jim Puplava is an excellent interviewer and has the best finance and economics book authors appear on his show each week. Jim and John make a great team and their jokes spice up the show only to make it more enjoyable. John also has his own show, called Steel on Steel.

Guests this week: Robert McHugh, Peter Schiff (of EuroPacific Capital), Joseph Dancy, James Turk (founder of GoldMoney), John F. Wasik (2nd hour book guest), Eric Coffin. Previously he has interviewed James Howard Kunstler, Gerald Celente, Michael Panzner, Bud Burrell, Charles R. Morris, William Fleckenstein and many more (see archive).

2. King World News with Eric King
I don’t know how he manages it, but somehow Eric gets all the best guests on his show on a consistent basis. This show is definitely a must listen for each weekend. There is also a special section for gold bugs, which is also updated each week. Like Jim Puplava, Eric King is an excellent interviewer.

Guests this week: Peter Barnes (CEO of Silver Wheaton), Bill Fleckenstein (Fleckenstein Capital), Gerald Celente (Trends Research Institute), Ted Butler and a guest from GATA.
Previously on KWN: Harry Markopolis, Barry Ritholtz, Marc Faber, John Mauldin, Alan Grayson, Jim Rogers, Peter Schiff and many more available in the King World News archive.

3. McAlvany Weekly Commentary with Don and David McAlvany
Weekly shows that are uploaded every Wednesday. MWC has a different style than the shows above and that’s what I like about it. Who would enjoy listening to the same stuff all over again? The show is well worth listening to and I suggest you check it out.

This week on MWC: Richard Bookstaber (an excellent interview!)
Previously on the show: G. Edward Griffin, Marc Faber, Thomas E. Woods Jr. and more (see arhive).

You can subscribe to all of the above podcasts using RSS/Atom feeds! This video helps you understand what a feed is. Look for the feed logo to subscribe.

Whether or not the price of gold, as many have been arguing here and elsewhere, is being manipulated or not, interestingly enough, doesn’t matter.Gold is told to be an excellent preserver of wealth, especially in rough times like these and I agree with that but I don’t think the manipulation hypothesis should be given as much focus as it’s been given so far, simply because there is nothing wrong with central and commercial banks occasionally pushing the price lower.

Why? Well, the central banks, led by the Federal Reserve, have been printing huge amounts of new ‘money’ and as soon as it gains velocity, inflation will propel gold to new highs. One way to preserve wealth is to buy gold and the best time to do it is before inflation kicks into high gear. Let’s assume that the manipulation hypothesis holds true and the price of gold is being artificially suppressed. As an individual who is trying to buy gold I could not wish for a better setup, I would be glad to be able to buy gold at a suppressed price.

If gold exploded in a manner that it did almost 30 years ago, the hypothetical manipulators would be unable to hold the price of gold down. Margin calls would be all over the place and the hypothetical manipulators would have to exit positions en masse. That is very likely the scenario that would play out during another violent push higher. If you factor in the amount of deliveries that would be taken in the case of a price explosion, there would be nobody left to manipulate the price of gold.

If the price of gold will not explode, I still won’t be worried about the effect of the alleged manipulation because even the ‘manipulators’ have been unable to stop the price from rising so far. I will preserve my wealth with or without intervention by the banks.

Manipulation or no manipulation?

I’m not saying the manipulation hypothesis holds true. I’m not saying it is completely wrong either. In fact, I don’t even care much because in the long run, it really doesn’t matter. If there is merit to the manipulation argument, I don’t care because I can’t do anything about it (let’s face it, manipulation hypothesizers, you’ve been all over it for years and you haven’t had any influence on the CFTC). If the manipulation hypothesis is just that, a mere hypothesis, I don’t care either. All I care about is the price of the yellow stuff and as I pointed out earlier, the ‘manipulators’ have been unable to keep gold price from rising from the low $200s to almost $1000.

There are much larger forces in play that will determine the price of gold in the coming years. We have all heard the inflation story, but added to that are growing signs that China is diversifying its foreign reserves away from the dollar and into gold. The population of the planet is in an uptrend and will continue climbing for the foreseeable future, this means that there will be less ounces per capita – more wealth and more people makes for a greater need for wealth protection. Of course, I haven’t listed all the factors that contribute to the rise of the yellow metal and that is not the point of this article. The point I would like to make is this: buy gold when it dips and don’t fret about the manipulation hypothesis. We are in a secular bear market for stocks and a secular bull market for gold (see the chart of DJIA/gold) and market intervention, real or not, doesn’t make a difference.

Disclosure: long AUY and silver bullion.

The financial media, in its quest for news stories to sell its ever growing audience, has been providing surprisingly little value to its consumers. Take the latest catch phrase ‘green shoot’, which are supposed to be sprouting up all over the place. In reality, it looks more like dead grass to me, as the only things that are improving are equity prices, but not the real economy (unemployment up, GDP down, working hours down, trucking association tonnage index down etc.). Even the Beige Book admitted that a possible recovery would be tough to achieve.

But the thing that really confuses people is when the financial media starts telling people that investing is dead. There was a study done which compared the average performance of bonds and stock market indeces over the last 30 years. The conclusion of that study was you would be better off putting your money in bonds, but this completely misses the point of long term investing. If you are an investor, you would not put your money on the S&P 500, rather, you would find a sector or a company that exhibits growth potential. It doesn’t matter if we’re in a recession or a depression, one can still find growth stocks and growth sectors.

Of course, this raises the question as to which sectors/companies are best situated to grow in the next five to ten years. As far as I’m concerned, it’s pretty straight forward.

1) OIL & CONVENTIONAL ENERGY
Recession or not, we’re in a peak oil environment and though crude oil got down to about $35 a barrel and most producers announced heavy cuts in production, the fundamentals of the oil sector are still strong. In fact, they’re getting better by the minute as inventories are falling and the price of oil is on the rise. Once the inventories are depleted, companies will have to start expanding production. Natural gas is down as well, due to a combination of oversupply, warm winter and falling demand from the agrochemical sector. In the long term, though, each and every fossil fuel is in a bull market.

2) ALTERNATIVE ENERGY
There’s been a huge influx of funds to the alternative energy sector over the past decade and there are no signs of decline for the long term. Yes, the bubble in oil price created an oversupply of silicon wafers used in the production of solar PV panels, but again, over the long term, as the price of oil and other fossil fuels goes up, demand for wind turbines, solar panels, smart grid solutions and other alternative solutions will rise dramatically. Added to that are environmental concerns, which is a huge factor influencing the Chinese renewable energy sector.

3) BASE METALS & OTHER COMMODITIES (EX ENERGY)
The global population growth rate is not showing any signs of slowing in the intermediate term. Though production is down for the time being, we are still in a situation where the amount of recoverable resources per capita is falling – this only means one thing: a bull market for all commodities, especially food. Lithim might be in for a price spike as well, if the plan to produce electirical vehicles on an industrial scale goes forward (lithium is used to make batteries, the same type that power your phone and laptop).

The bottom line is that you should do your own research and not take the financial media too seriously, as business model is not really built around sound advice, but only ad dollars. Take a look around you and think about the changes that are going to affect the world in the next ten years. Then put your money to work.