Brace yourself.
World events are building up toward a peak in the cycle of war — a combination of forces that could drive financial markets until the end of this decade.
More on this in a moment. First, let’s take a look at what’s happening right now:
Finally, a Decent Price Dip in Gold
And Oil. A Great Opportunity to Buy!
In great bull markets like we have today in gold and oil, the best corrections are the ones that seem to come out of nowhere.
Thinly capitalized professional traders are usually the first to jump ship and sell. They’re either on the exchange floor … or glued to their computer screens, watching every price tick with bated breath.
They tend to be short on patience and quick to the trigger.
Next to run like the dickens are individual investors who have stuck their necks out too far, speculating with money they can’t afford to lose, or worse, using margin — money they don’t have.
Before you know it, a mini-selling panic breaks out — all based on emotion rather than reason.
What do these mini-panics look like on the charts?
Gold: Sharp Correction
But No Change in
Longer Term Trend
Gold’s sharp correction this week has zapped nearly three weeks worth of gold’s gains.
Sure, that’s enough to scare the heck out of thinly capitalized investors.
But it’s precisely what you want to see happen to create a good buying opportunity.
Remember: The best time to buy is when weak hands are selling.
Now, step back for a moment and look at the past seven months. You’ll see that gold’s dip this week is still well within the confines of its longer term uptrend.
For level-headed gold investors who don’t jump with every firecracker, this chart pattern is reassuring. It implies that, despite the mini-panic, nothing has really changed.
But let’s run what I call a “gut check” to put some meat on that conclusion:
Is the supply of gold still very limited? Yes. It’s going to take years before mining companies can gear up to pull more ore out of the ground.
Is demand for gold still ramping up? Absolutely! It’s surging in the Middle East, in Asia, and from the massive flow of petrodollars.
Is fear-driven demand for gold going away? Not at all! Quite to the contrary, much of the world is careening, head-long, toward violent confrontations that will drive new and old investors into the yellow metal. (More on this in a moment.)
Oil: Similar Pattern —
Short-Term Correction;
Long-Term Opportunity
Oil’s correction is similar — a minor zig in a continuing upward zigzag.
This is nothing new. We’ve seen very similar minor corrections four times just in the last year and a half.
In September 2004, for example, oil declined by almost an identical magnitude and then promptly marched on to new, all-time highs. Ditto in early 2005, mid-2005 and in December.
Now, let’s run our “gut check” for oil:
Has demand for oil suddenly receded? Of course not. That can’t happen until and unless there’s a real slowdown in Asia.
Have new supplies of oil magically appeared on the market? Hah! Nothing of the kind!
Has the threat of sabotage, riots and war gone away? Has the fear of major supply disruptions disappeared? You don’t have to be an oil expert to answer these questions. Just look at the news …
Anyone Who Thinks That Iran or Venezuela
Are Going to Back Off … or That the U.S. Is
Going to Back Down, Had Better Wake Up!
I’ve just run a Google search on Iran and Venezuela news. I turned up over 84,000 of them! Clearly, this is not what you could call an “invisible crisis.”
Here’s just a very small sampling of the headlines that popped out:
IRAN ENDS SNAP NUCLEAR INSPECTIONS
KHAMENEI BLASTS NUCLEAR AGENCY’S VOTE ON IRAN
NEITHER U.S. NOR IRAN CAN BLINK
BLAIR WARNS IRAN OVER NUCLEAR AIMS
VENEZUELA‘S CHAVEZ THREATENS U.S. ON OIL
CHAVEZ TO ARM RESERVES AGAINST EVENTUAL ATTACK BY U.S.
IRAN SANCTIONS TO HURT OIL MARKET
JAPAN THE SUSHI IN THE SANDWICH BETWEEN THE U.S. AND TEHRAN
THE APPROACHING WAR WITH IRAN
VENEZUELA REMOVES EXXONMOBIL FROM PROJECT
Plus many, many more
Mark my words: The events unfolding in Iran and Venezuela should not be underestimated. They could be the beginning shades of nightmares to come.
Both of these countries are led by zealots who despise the U.S. Both appear ready and willing to use oil as a weapon. And both have a history of stubborn, sometimes foolhardy aggression.
This should come as no surprise to you. As you know, I’ve made it abundantly clear that war or some sort of military conflict with Iran is in the cards.
Can’t believe Iran’s leaders could possibly be so stubborn as to risk war with the United States?
Then just look back at Iran’s 1980s war with Iraq. Despite one million dead and despite nearly $2 TRILLION in losses, it lasted for a full eight years.
Time Magazine called it the “War Without End.”
Historians consider it the longest major war of the twentieth century.
And never forget: We are now fighting on the soil of one of those vicious and stubborn adversaries … while … at the same time, confronting the other, equally vicious and stubborn adversary in a major international showdown. Not exactly a comforting thought.
Is war also likely against Chavez and Venezuela? I don’t think so. But I would not be surprised to see a coup d’etat, or worse.
Sound crazy to you?
Then just look at what happened on April 11, 2002.
That’s when the Venezuelan military overthrew and arrested Hugo Chavez … when anti-Chavez protests paralyzed their oil industry … and when pro-Chavez riots nearly shut down the entire country.
Could this happen again? Give me one reason why not.
Look. Venezuela is a major oil producer to the world. If he can’t control himself, other powers will likely step in to restrain him.
We live in wild, strange times that are about to get a whole lot wilder and stranger. One of the chief reasons …
This Cycle of War Is
Reaching a Crescendo
Back in the 1980s, my colleagues and I researched the patterns of war over a period of 2,600 years of recorded history, drawing much of our data from the Wheeler Index of International and Civil War Battles, one of the most authoritative statistical chronicles of war ever published.
The pattern was clear: An 18-year cycle of war that has continued to prevail through modern times.
We published our results in a 1988 report, “Cycles of War.” And looking back over the last couple of decades, I see its conclusions have largely withstood the test of time. But I’m not the first to research cycles in the history of war.
Back in the 1930s, President Roosevelt asked a professor by the name of Edward R. Dewey to study the Great Depression.
Later, in 1942, as the United States was plunging full force into World War II, Dewey began the Foundation for the Study of Cycles, with a focus not only on economic ups and downs but also on the cycles tied to domestic and international armed conflicts.
Needless to say, no historian can follow human events with anywhere near the precision of an astronomer tracking celestial bodies or an ecologist measuring biorhythms.
But on average, we found the length of the cycle of war is 17.71 years. And given the vagaries of history, it’s remarkably regular, going all the way back to 600 BC.
Some other analysts, also familiar with Dewey’s work, date the cycle lows and highs somewhat differently than I do. But we all agree that the statistical pattern provides a firm basis for helping to anticipate the ebb and flow of major conflicts. My current observations:
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The last major war was in August 1990, when Iraq invaded Kuwait, about 18 years after the Vietnam war.
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Projecting forward, it would appear that the current cycle of war is just two years from reaching its next peak — sometime in 2008.
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The actual cycle lengths can often vary by a year or two. But in recent experience, I have rarely seen them crest earlier. Either the peak arrives roughly on time, or it’s delayed for a year or two. This time around, if there’s a similar delay, we may not see the worst of the conflicts until around the end of this decade.
This is just one indicator. But now you know one of the reasons why I think the saber-rattling of Iran and Venezuela should not be taken lightly: My research on the cycles of war is telling me that all heck could break loose. I suspect that …
Iran’s and Venezuela’s latest moves could be just the initial stages of an accelerated ramp-up to the war cycle’s peak, coming about two to four years from now.
Question: Who wouldn’t want to own gold in this environment?
Question: Who wouldn’t want to own cream-of-the-crop oil companies trading at less than 10 times earnings?
I can assure you: Smart money will be buying this recent correction in oil and gold like crazy.
If You’re Not Yet in
The Gold Market …
First, make sure you own some gold bullion for the long-term.
One of the best vehicles, in my opinion: The StreetTracks Gold Trust Fund (GLD), an exchange-traded fund or ETF that holds the physical gold for you, hence eliminating storage and insurance costs. (Each share represents 1/10th of an ounce of gold.)
Second, consider putting some of your money into a mix of my favorite mining shares and precious metals mutual funds. For starters, I like the Tocqueville Gold Fund (TGLDX).
And for the complete recommendations in the gold market, see my latest Real Wealth Report.
Plus, I highly recommend Sean’s hot, recently-published report: The Gold Rush of 2006.
If you’ve been looking for an inexpensive way to get started, his report is it. And if you’ve been waiting for a temporary gold pullback before you invest, you’ve got it now. To order Sean’s report, call 800-400-6916.
If You’re Not Yet in
The Oil Market …
Start with the Oil Services Holders Trust (OIH), an exchange-traded fund that gives you a diversified stake in some of the best oil companies, with a concentration in oil services such as drilling and exploration.
Plus, get my latest alternative energy recommendations, also in the current issue of my Real Wealth Report.
And never forget: Always be sure to keep a big chunk of your money in Treasury bills or equivalent money funds. They’re yielding over 4% right now. That’s not huge. But in these turbulent times, I’d even pay interest for the 100% protection of principal they give you.
The cycle of war is creeping up on us — and more quickly than we’d like to believe.
Best wishes for your health and wealth,
Larry Edelson
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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