Jordan Roy-Byrne Suggests Dumping U.S. Stocks For Gold

Both gold and U.S. stocks undergo long-term cycles; their length is such that it's impossible for them to be equilibrated away. When one asset is in a long-term bull market, the other languishes. Back in the '80s and '90s, gold languished while stocks took off. For a decade or so, it's been the reverse. Given that reversal, a call to move from stocks to gold makes sense.

Jordan Ray-Byrne is aware of U.S. stocks' range-bound performance. He's recommending a switch from stocks to gold as the former approach a multi-year resistance level.

Data from a Bank of America Merrill Lynch survey of asset managers and hedge funds who cumulatively manage nearly $1 trillion shows what percentage are overweight or underweight US equities. The percentage of managers overweight US equities has soared in recent months and is basically at a 10-year high.

The 12-week MA of Investors Intelligence bulls is at its highest level since January 2007. There is good chance it will surpass the 2007 level in the coming weeks.

This growing bullish sentiment will coincide with the S&P 500 hitting major multi-year resistance. Excessive bullish sentiment coupled with multi-year resistance is not exactly a recipe for a major breakout. It’s a recipe for the end to this cyclical bull market.

Moreover, as we’ve noted time and time again, the factors that will cause stocks to reverse are the same factors that will propel Precious Metals into the early stages of a bubble. Increased monetization will be required as interest rates begin to rise and as the economy fails to grow fast enough to mitigate the debt burden. New debts and the rollover of old debts will be financed at higher rates, thereby increasing the debt burden which in turn, impacts the governments ability to juice the economy....

The reason he gives for switching into gold is that it's underowned despite the inflation risk. Bullish sentiment for gold is low, and the metal seems to attract a lot of media attention only when it pulls back. There's still a lot of disbelief in the metal, which means it can keep climbing a wall of skepticism.

Gold is providing an excellent opportunity. Its holding up well while the focus is currently elsewhere. The hot money is out of Gold, yet its only 3% off its highs. In the long run, that is scary bullish. In the coming months look for stocks to peak and for Gold to regain its leadership....

It's hard to argue with his reasoning. A lot of the enthusiasm for stocks has been caused by the doubling of the S&P from its March '09 low, but some of it is rooted in the hope for a "Bernanke put." In this stage of the game, any such put is likely to be under gold - not stocks. We're stuck in what's likely to be a stagflationary period.