Market Myths, Busted!

While we await perhaps two of the most important developments this year — the next Fed rate hike and the Brexit vote on June 23 — I thought I’d take a little time and bust some of the myths that many investors get tripped up on.

Let’s take a look at my five favorite market myths, myths that cost investors tens, if not hundreds, of billions of dollars.

Myth #1: Gold can’t go down when there’s so much money-printing going on. This one is my favorite. All the shrills out there who constantly talk about fiat money and money-printing have egg all over their faces.

They said gold could never go down when central banks are printing so much money. I said bull: Listen to that garbage and you will lose your shirt.

And that’s what happened to oodles of investors who didn’t listen to me when I said gold had topped back in September 2011. Despite even more accelerated money-printing, gold crashed, losing as much as 46% of its value.

The facts of the matter are this:

First, what goes up must go down, and vice versa. There is a time for every move in the market, based purely on cyclical and technical factors. So if you get stuck to any one particular theory, vision, or even a set of fundamental forces you believe in, if you don’t realize that there is a time and place for every move the markets make, you will get caught — with your pants down.

Second, money has always been fiat! It was fiat even when the dollar was tied to gold. Why? Because the powers that be, the rule makers behind the monetary system, always have the power to change the rules, and devalue the dollar, as Roosevelt did in 1932.

In fact, Webster’s dictionary defines the word "fiat" as "an official order given by someone who has power: an order that must be followed."

So as long as there are authorities who can change the rules, money, no matter what it is tied to, is always going to be fiat.

Moreover, money is merely a medium of exchange, not a store of value. Throughout history, money has always been fiat. It was fiat in Roman times, fiat in Byzantine times, fiat in every great civilization and economy in the world, from Asia to Europe.

You might argue that some currencies are more fiat than others. Sure, I can agree to that. But my point is that all money is fiat. Consider even Bitcoin, which is entirely fiat and secured only by its cryptography and the confidence — or lack of confidence — its users have in the digital currency.

Don’t buy into the fiat money nonsense when it comes to gold.

Bottom line: Don’t buy into the fiat money nonsense when it comes to gold. Sure, it’s a part of it, but we already saw that part of the fiat argument play its hand in gold’s first leg up, from $255 to its high at $1,920.

That force is now dead, kaput. Gold’s next move higher will largely be due to the war cycles and how they are now showing massive social and geo-political unrest breaking out all over the world for the next four to five years!

Myth #2: Stocks can’t go up when interest rates are rising. Another great one. Fact: Most strong bull markets in equities occur when interest rates are rising!

Why? It’s simple: When rates are rising, they are rising because the demand for money and credit is going up. And if the demand for money and credit is going up, that in turn means that either …

A. The economy is improving, or …

B. That investors want to take on more risk for potentially greater returns, due to other motivations, like getting away from sovereign bonds, investing in stocks as a safe haven against government bank confiscation, and more.

The bottom line is this, especially at the turning point we are now in with historically and artificially low interest rates: Rising interest rates should be nothing to fear and instead should be music to your ears for the equity markets.

Myth #3: Hyperinflation is the end result of money-printing. I used to subscribe to this one. Until I realized that throughout history there has never been a major core economy that experienced hyperinflation. Not one.

Hyperinflation only occurs in peripheral economies that do not have deeply liquid stock, bond and currency markets or that have been bombed out and have little or no infrastructure to them.

If you want to bring up Weimar Germany, fine. The Weimar Republic had no bond market, no stock market and in the aftermath of WWI, no infrastructure either.

As I have been saying now for some time, the U.S. will not suffer hyperinflation. Deflation, yes. But hyperinflation, no.

Myth #4: The dollar is dead. Likely to be replaced as the world’s largest reserve currency — yes. But dead, NO.

We all know the existing debt-based monetary system with the dollar at its core no longer works in today’s globalized economy. And that a new monetary system is needed.

A new Bretton Woods, if you will, that learns from all the errors of the past and designs and implements a new monetary system without a single currency at its core and certainly not one based on debt.

That time is coming. That is where the world is headed, toward a new electronic reserve currency unit that is used for international trade and transactions only and with all countries maintaining their existing currencies for domestic use only.

The dollar will lose its reserve status, but long before it does, it will also gain incredible strength. Put another way, the U.S. dollar will eventually lose its reserve status because it becomes too strong, not too weak.

Myth #5: Real estate prices are sure to collapse again as mortgage rates rise. I love this one, too, since so many pundits subscribe to it.

But in my opinion and research, it’s a bunch of baloney. Mortgage rates typically negatively impact real estate prices when and only when they exceed the real rate of inflation and/or the anticipated appreciation in property prices.

Plus, at this juncture in the real estate cycle, as mortgage rates do begin to rise, potential homeowners will want to buy now, rather than later, in anticipation of still higher mortgage rates, helping to push property prices higher.

There are many more market myths I could go into, but you get the picture.

The bottom line is this: Wipe your head clean of all the junk you learn from the supposed pundits out there, even the bigwig names from places like Yale or Harvard.

Instead, use common sense, think things through on your own, and question everything. I can virtually guarantee you that by doing so you will make much more money, both over the short term and the longer term.

Speaking of which, keep your eyes glued to the dollar and to gold right now. They’re both signaling big developments lie dead ahead. 

Best wishes as always …


P.S. One year from today, you could be celebrating the outrageous gains you’ve made in the bull market of a lifetime … profits that could let you retire early and rich! OR you could be kicking yourself, muttering, "I wish someone had told me this would happen and how to take full advantage of it." Well, that’s exactly what I am going to tell you in this report! Click here for information!

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 40

Sandra G June 15, 2016

So, Larry, is this the bounce you spoke of in gold before Falling.

Hulio Valdez Jr. June 17, 2016

Ya, this is da bounce. Hit went a little higher than we expacted hit to go bot no worry, ve cone bock down. Hulio

Kathy June 15, 2016

Thank you for your insights. They save me from a lot of mental agony.

Richard June 15, 2016

Good inclusion of Weimar Germany, because I have seen that mentioned elsewhere as a reason for why we will be pushing around barrelfuls of currency.

Tim June 15, 2016

which big developments for gold? a move up or a re-test of lower support?

Bill June 15, 2016

If the world is heading towards a different currency for payments ( SDR) between countries, and they stop using the dollar, all the excess printed dollars will come back home . This alone should cause major inflation.

Liam June 15, 2016

Yes, once the Dollar loses it's world reserve status. That will happen sometime after the war cycles reach their peak and global debt strain hits the fan and bursts. Then the Dollar will fall to the sidelines and a new monetary order will be put into place, such as the SDRs.

quickresponse June 15, 2016

Good article! During volatile markets it is good to invest in safe stocks such as GE, PFE, VZ, T, JNJ, … and enjoy the dividends!

Paul B June 15, 2016

Larry, you completely side stepped the main issue we are all concerned about: It's mid-June and gold is testing recent highs rather than falling to support. It would take very little bad or unexpected news to have it break out to new one year highs. The question is, at what gold price would you say your predicted decline is off the table and start buying gold & miners??

Jack Hughes June 15, 2016

Is there any possibility that the USA will revert back to the Gold Standard ????

Hulio Valdez Jr. June 17, 2016

Not only NO, bot hail no.

Ray June 18, 2016

You'll need a time machine. Wake up! That's history, common sense will tell you a gold standard have absolute zero chance of happening in a modern era economy. Don't be fooled by the saying "Those who owns the gold makes the rules", instead "Those who count the votes manes the rules".

F151 June 15, 2016

This is a good article, Larry. There are so many market canards out there. Another one quoted all the time is: "Increased earnings raise markets." Check historical charts and you can debunk this one.

Doug June 15, 2016

Actually Larry gave an alternate scenario where the metals could continue their ascent and it would not be a move he would like to see because he doesn't see it being a move that will sustain itself and only bodes more time before a buying opportunity bottom arrives.

charger john June 15, 2016

Larry, Please comment in detail on Harry Dent's research. $700 Glod? Is he nuts or will that eventually happen when the boomers all start dumping it in retirement? Thanks

Tom June 15, 2016

Speaking of which, keep your eyes glued to the dollar and to gold right now. They’re both signaling big developments lie dead ahead. Most obscure statement and the most vital time.

Tom June 15, 2016

After this article I wish I new where Larry stood regarding the direction of gold in the short term.

Andrew Michyeta June 15, 2016

All your pronouncements would be right on if not for a very big fact, the U.S. has a national debt that is terminal. No govt can sustain a debt level that our nation sees itself. At some time in the future the IMF is going to step in a close the Fed. You will wake up one morning finding all your dollar denominated assets are now in SDR's, and the IMF is going to tell what exactly they are worth. 3 months, six months a year, but it is not a matter of if, it is now a matter of when.

Andrew P June 16, 2016

By what means is the IMF going to close the Fed? If the US debt is terminal, then Japan's debt is even more so. As long as the US debt is in USD, US military power remains preeminent, and the USA is reasonably self sufficient, the Fed can keep the show on the road.

$1,000 gold™ June 15, 2016

myth #6: stocks go up gold will go down. compare gold to anything you want - rates, inflation, dollar, etc., but one myth that cannot be debunked is #6, because it is a fact.

Gerald H. June 15, 2016

Hey $1000 gold, Long time no hear. I agree w/ you on gold going down, But do not think the markets have anything to coincide w/ Gold. The last run in Feb.- March both was heading higher and May and June. If or If not a BREXIT happens gold will go down. Because the $ will strengthen and the Sterling or Euro or Both will weaken.

terry June 15, 2016

Our government will raise the amount of money they pay to the poor for housing in order that they have the best schools for their children at our cost TO $2600/month regardless of their wanting to learn more; than their wanting to be in your area and increase your support for them or other intentions when there is war ie: civil unrest to spread the cost of enforcement and control. . You cannot deny their rental or buying by law and what do you think will happen to your house when they rent it ? Also it takes so much time to evict for no payment and many are minorities that are or will be more protected. People are selling rental homes for their fears. Forget about myths and smell what make plants grow but people do not want to step in. This may be the reason for the next housing bust in which the gov will win and pay less for the same result. Is this not a great idea or what. Really it is not for us but for control and to let interest rates rise. Okay Larry what is our best plan for this decision at our cost every way there is.

Andrew P June 16, 2016

Major powers can have hyperinflation when they are losing a major war. The perfect example is the Confederate States of America. This makes sense as nobody wants to hold the currency of a country that probably won't exist in a few years. If the USA gets into a major war with China or Russia, and starts losing, hyperinflation can happen here.

Panagiotis June 16, 2016

Gold following Larry's forecast to the tee:)

Henry June 16, 2016

You think is a good time to short here?

bob June 16, 2016

yes to the tee $1311 today what happened to $1160-80??????

anthony g June 16, 2016

Soros could be right after all. Time will tell

James June 16, 2016

Have we missed the boat if gold closes above $1307?

Jim June 16, 2016

Gold was supposed to be going down by now but it seems shooting up. At some time there will be profit taking and then we jump in. Patience is hard to bear sometimes.

Kirk June 18, 2016

I agree 100% it is confusing cant see how this masdive correction in gold and miners will happen. Especially when it looks like dollar will be going down not up like everyone thought at least till Bexit vote?

Liam June 16, 2016

Dear Larry, It's obvious that a broken EU without GB will be like hitting the gold payload for the market. So then what force do you believe will be sending it back down to $1160 which you have projected according to your AI models, which you have been calling for for two months? Will the USD make a comeback? The fundamental picture for gold at this time is enormously bullish with governments fracturing, not to mention the war cycles increasing and what could only be described as an outright attack on US soil yesterday by Omar Mateen. Hopefully you can elaborate on all of this in your newsletter before the 23rd. I think many subscribers are anxious to know, should we be buying gold? Do we "back up the truck"?

Festus June 16, 2016

When it comes to gold mining stocks 'backing up the truck' would have been best towards the end of last year. They have doubled since then when they were at an over decade low.

Kirk June 18, 2016

Dittos still waiting to get on train after missing huge run up in miners so here I sit wondering and waiting when this so called blood on there shirts holders of miners will get smoked. When it appears were the ones with blood on there shirts sitting impatiently to pick up there cheap shares really?

James June 17, 2016

For an overbought situation in gold to correct itself, in theory we could get a correction over time through sideways action. Or a drop in price. A sideways correction would keep people out of the market who are looking for a spike lower to load up the truck. Isn't this a risky wait and see game at this point to risk being locked out of this market?

jim stephenson June 18, 2016

Larry says there will be Deflation - but home prices will go up? That is a real conflict. Does he mean just a little deflation - or big deflation like Elliott Wave Theorist says, with home prices declining by over 50%.??

Kirk June 18, 2016

It appears no follow through on gold going down from Thursday's move down even when dollar was ralling gold went up now it appears dollar rolling over oil looks like it had reversed so I think everything goes up together after Brexit vote. So I read Larry's newsletter and he still thinks gold and miners going down I"m

har govind June 18, 2016

in my opinion gold would be on a rising spree at least until the UK referendum has taken place and the equities would behave in the opposite direction. so longing gold and shorting equities should be profitable and commitments in both should be squared off before the outcome of the said referendum is out as when the result comes out profit booking may be there in both.

Gerald H. June 18, 2016

I agree w/ James above, But will give Larry 1 last chance until the BREXIT vote. I believe long gold is so overbought and Miners are so over valued according to AUS. CME, GS by 36%-68%. That if there is No BREXIT, We will have a Huge Worldwide Dump of Gold by the largest Hedge Funds, Billionaires ( Soros, Druckenmiller, Ican, Etc.), Countries, Large Investors, ETC. And if there is a BREXIT, I will sell my shorts and keep my Longs. I am just Glad I was able to purchase all of my Physical Gold and Silver bullion at the Lows, That I will never sell ( It is for emergency insurance only).

Michael b June 24, 2016

Hit 1330 today not the decline and Larry said was going to happen

Derek C Howie July 15, 2016

Love It Love It. Do Join Us Trading The Markets With Pill Poulos . Great Presentation Larry take care out.