It’s easy to be pessimistic.

Today, Japan’s Nikkei 225 and just about every other international stock index on earth plunged about 10%. The Dow is down 40% on its all-time high last October. Iceland’s krona just lost 73% of its value. Bankers there, reports the WSJ, are becoming fishermen.

But Eric Roseman says the doom and gloom is overdone. He says “heavily oversold and stocks are going to post at least a big bear market bounce at any time.”

I’m certainly not predicting a new bull market any time soon. The United States and the majority of foreign economies will continue to come to grips with a protracted slowdown that will curtail consumption, inhibit expansion and result in a long economic recession. But stocks and weaker credits are going to muster a spectacular short-term rally — and soon.

The fear gauges I track are completely off the charts heading into Tuesday’s trading. The most telling of these indicators is the VIX, the Chicago Board Options Exchange Volatility Index. The VIX is down more than 8% today and that’s a good sign because it’s been on a ceaseless upward march since late August.

Fear Bubble About to Burst

The VIX hit the record books on Monday as global markets reeled from international news. At 52.05 before the start of today’s trade, the VIX is trading at maximum pessimism as investors scramble to survive the worst global panic since the 1973 to 1974 crash.

History suggests that a significant turning point lies ahead for stocks, which are tremendously oversold. A rally will ensue and it’s likely to be quite powerful.

The smart investors are selling into strength or on days when stocks advance. Other smart investors are even buying their favorite stocks at big discounts compared to just a few weeks ago. Warren Buffett is one of these investors. You can cherry-pick or average-down some great companies right now but you must have at least a five-year investment horizon.

Also, gold should be at least 10% of your personal net worth at this point – if you can get it. There’s a major shortage of physical gold right now in the United States and Europe. I’m disappointed gold isn’t trading north of US$1,500 right now amid the panic.

With supply shortages now becoming acute and production growth almost non-existent this year, I’m still forecasting at least US$2,500 gold before this bull market is over.

Gold is the only physical asset out there right now that isn’t deflating. And I have a feeling that gold prices can rise in a deflationary economy. This might yet be its finest moment.

Source: Maximum Pessimism Cannot Hold