How Palos Passes Judgment on, Makes Assessments of, and Forecasts Stock Market Returns Over the short term, stock prices can from to time run far-away above or below fair value. However, over the fullness of time, price stability, economic growth and monetary policy are the three main fuels that propel stock market returns. In this connection, it is crucial, with the use of metrics, to numerically define what fair value is, and what constitutes price stability, causes economic growth and determines monetary policy.

A Long Way Off From Normalization The roles of interest rates are manifold. The crucial ones are:

  THEY STILL DON’T GET IT: “Fewer workers are needed today IN MOST BUSINESSES.” Too many people just cannot understand this fact or refuse to accept it! I have written for six years that less people are required for the production of goods and services. Fewer people are needed in most industries today. More is done by less! The 1960’s term “replaced by a computer” is so true today. High technology and robotics have replaced people. No matter what industry we examine, less people are required for it to function-from underground mining operations to the floors of the stock exchanges. This will continue to have an enormous impact on employment levels. The point is that most people are not indispensable.

Reprinted from Bull & Bear Financial Report VOL. 26 NO. 06 • Sept.-October 2014 By KC Grainger & Bob Pellerin* “True market makers are a thing of the past and this has a huge impact on the small cap mining stocks’ price movements…old support levels are not support anymore.” That is what I wrote eight years ago for the “Bull and Bear” and it still holds true.

I want to emphasize that we are not short sellers and we believe that investors should always be invested in the stock market. Our difference with the view of many others is that we believe that profits should be taken and at all times there are numerous stocks that have been hammered down in price and are quite undervalued that merit investment consideration. By the way, we are positive on gold mining stocks and hard asset stocks. We feel that we are in a bottoming formation in gold stocks; we like many of them as we feel the true bottom for gold is between $1200 to $1350. The downside risk in gold is far less than the downside risk in the industrial stock market.

We like  to study the charts of “value” indicators that show under valuation and over valuation. As you know,  the “value of US stocks to US Gross Domestic Product” is currently between 140% to 150%. In the past this level has led to market declines of 30% to 50% twice in the last 100 years.

Stock Market Value to Gross Domestic Product looms over everything we do…and? $16,617,000,000,000 ! Be aware that the dollar value the Standard and Poor’s 500 which represents approximately 74% of the value of all the United States publicly traded stocks is currently at $16,617,000,000,000 ($16.6 Trillion). We also estimate the dollar value of the non-Standard and Poor’s 500 stocks to have a value of approximately $4 Trillion. (By the way, at its 2001 high, just NASDAQ carried a value of $6.7 trillion which was a ludicrous overvaluation but very few paid attention.)

From www.Canadianmineanalyis.com site 1-Shareholders of gold mining stocks must keep in mind that we do not have the requisite start of a bull market in gold bullion yet. It is coming and we think that it will begin soon, but note that last summer of 2013, we suggested that many gold stocks were in the process of making their bottoms which they have now completed.

                               The Ominous Indicator….Stock Market Value to Gross Domestic Product Generally speaking, we are always fully invested in the stock market. We look for stocks that are suffering through bear markets and take positions. We are bottom fishers in every sense. For three years we were expecting on average 20% declines followed by returns up which would have washed out or at least limited overvaluations. However with near zero interest rates, the reasonable and normal corrections have been avoided. Corrections and bear markets permit investors the opportunity to invest when stocks are on sale. Simply stated, better and cheaper buying opportunities present themselves regularly. It is when excesses are flushed out.

 What are our requirements for the gold mining stocks to start an exceptional performance that our analysis suggests will soon occur? Well, minimally a $1400 Gold price, plus severe weakness in the industrial stock market (Dow Jones and S&P 500) and more true physical delivery demanded for gold purchased, for example it cannot be left at the New York Fed for “safekeeping.” Safekeeping?