"As you listen to the current blather from talking heads about where gold is going, keep in mind most of them are just journalists, reporters that are parroting what they heard someone else say. And the "someone else" is usually a political apologist who works for a government. Or a hack economist who works for a bank, the IMF, or a similar institution with an interest in the status quo of the last few generations." -- Douglas Casey, 4/18/11
Dear All,
On the subject of blather, here is an example of the type of empty patriotic platitude -- in this case from U.S. News & World Report -- which the clueless elite love to toss about: “It has always been a bad idea to bet against America and our ability to prosper even against overwhelming difficulties. America will cut back its spending, innovate, and pay off its debts. We will earn our way out. It’s just how we do it…”
Pay off its debts?'...It's just how we do it?' What country are they referring to? In the first place, the United States in its entire history fully repaid its debt on only one occasion -- in 1835, under the second Jackson Administration. The U.S. began its life with federal debt at 25% of its Gross Domestic Product immediately following the Revolutionary War. Debt peaked in 1792 at 35% of GDP and in the ensuing 43 years of fiscal responsibility, the US progressively reduced its debt until discharge in 1835. Other than spikes following the Civil War and the two World Wars, U.S. debt levels as a percentage of GDP were subsequently relatively contained. In 1982 the debt trend accelerated and never looked back. Total U.S. debt today of $14.3 trillion now well exceeds 100% of GDP and is growing. The numbers are actually worse than this because GDP includes government spending, making apples-to-apples debt/GDP comparisons difficult since government spending today is so significant. In 1835 for instance the federal operating deficit (the federal budget then was then almost entirely defense expenditure) was about 1.5% of GDP. Today it is 25%.
If a major news publication cannot grasp (for public consumption, at least) the essence of where this is headed it should not be be surprising that most Americans will be blindsided by what will happen to the dollar.
Among the few worthwhile analyst comments following the Fed meeting and Bernanke's press conference this week were from Peter Tchir of TF Market Advisers. Referencing the obligatory parade of Fed governors making hawkish statements between FOMC meetings (Note Richard Fisher's quote from the last post), Tchir observed:
"The vote was unanimous. I keep hearing this is a strong indication that everyone backs the policy. To me, it just means there is no point listening to any other Fed governors speak as in the end they will all do what the Chairman wants. If there ever was a time that the vote was meant to be a real vote that is long gone and the Fed is clearly a dictatorship at this point."
When asked about Fed policy effects on the dollar Bernanke employed the old 'It's not my job' diversion:
"I learned that the man who sets interest rates and prints dollars has nothing to do with creating a 'strong' or 'weak' dollar. I'm still scratching my head, as I would have thought interest rates and supply of dollars had more impact on exchange rates than the Treasury Secretary saying he supports a strong dollar, but clearly I'm wrong on this."
The central bank of the United States has increased the Adjusted Monetary Base by $.55 trillion thus-far this year, an annualized rate of 82.5%. Watch what the Fed is doing -- ignore what it is saying. The Federal Reserve will continue debasing the dollar because rhetoric notwithstanding, it has no choice.
Worth viewing...Here's a tutorial on the Fed's use of derivatives (among the variety of methods it employs) to manipulate interest rates. It should be pointed out that selling unsecured guarantees on one's own debt is on its face, fraudulent. The moral perversion that characterizes the U.S. Federal Reserve and the banking cabal it serves permeates the entire financial sector. We have not had freely operating financial markets in the U.S. for quite some time. The setting of false (low) interest rates and manipulation of asset prices with inordinate credit (not to mention direct market intervention) by central planners skews risk taking and capital allocation. Price distortions result in every asset class. -- leading to mal-investment, bubbles, and ultimately systemic failure.* YouTube: FRAUD: How the Fed Sells Put Options On Treasury Bonds To Drive Down Yields
Presented without comment...Time: Bank of America Lawyer, Consultant gave Foreclosure Probe Chief $15,000.
The following story ran in the June 24, 1974 issue of TIME Magazine: TIME: Another Ice Age? Reading the article about 'global cooling' -- the apocalypse du jour advanced by climate charlatans at the time -- your first inclination will be to laugh as it appears quaint, but that is only because you have been conditioned to accept much of the global warming "science" that has infected your intellectual sensibilities these past few years.
"Scientists have found other indications of global cooling. For one thing there has been a noticeable expansion of the great belt of dry, high-altitude polar winds — the so-called circumpolar vortex—that sweep from west to east around the top and bottom of the world....Telltale signs are everywhere — from the unexpected persistence and thickness of pack ice in the waters around Iceland to the southward migration of a warmth-loving creature like the armadillo from the Midwest"
Here's the April 8, 1977 TIME cover a few years later:
Earth is 4.5 billion years old and estimates of the length of its habitation by Homo sapiens range from 50,000 to 400,000 years. Yet in the space of a mere 20 recent years two entirely contradictory scientific theories emerged, each predicting eco-Armageddon by antithetical means. Putting aside entirely the issue of which of the theories (if either) might actually have validity, what distinguishes the more recent of the two -- the global warming camp -- is not the science itself but the formidable political movement and business interests that have embraced it. The cult of global warming is about political capital and money. Canada Free Press: Cover up - UN tries to erase failed climate refugee prediction
Six major sources have estimated that Pakistan (which I single out solely because it has the world's most unstable nuclear regime) alone possesses between 40 and 100 nuclear warheads. Should the habitable world ultimately cease to exist as a result of either freezing or melting, we should consider it a success for our not having blown each other to the heavens well before then.
About that "Recovery"...
McDonald’s receives over 1 million applications for 62,000 minimum wage jobs
Wal-Mart: Our shoppers are 'running out of money'
The trend...
IMF bombshell: Age of America nears end
Bloomberg: Texas Teacher Pension Needs 21% Return to Keep 80% Funded Ratio
MarketWatch: BRICS Make Move to Shove Dollar Aside
WashingtonPost: Top-Secret America This is a trend that should be as disturbing as any, but how can Americans be expected to care about the fact that right out in the open, the U.S. is turning into a police state? After all, there are Real housewives to concern themselves with:
On to gold and silver...
It took him a while, but at last he sees it. Russell is to be forgiven because he came of age when the U.S. had relatively free financial markets, a notion he apparently found difficult to accept as no longer being the case: "The action is now so blatant that it literally screams of manipulation." MarketWatch: Russell endorses gold manipulation thesis
In the last post I discussed the severe under-performance of the silver and gold stocks relative to that of the metals for the past several years, and included Dan Norcini's chart reflecting this. I thought I would go a bit further and share something else that may prove worthwhile for those who have not been in the precious metals bull market from its inception. Being in the relatively unique position of having held a precious metals stock portfolio for the entire duration of the bull market, that portfolio serves in effect as a proprietary index. It is a managed portfolio so its not a a pure index, per se. However I consider it a fairly stable representation of the performance of a particular type of precious metals company. Where there has been turnover in the portfolio's composition, it has been low (I estimate it at 10 - 15% % per year) and significantly -- when shares have been sold proceeds were simultaneously re-invested in alternative precious metal stocks, resulting in 100% exposure to the sector for the past 13 years.
As I do not make specific stock recommendations on this blog I will refrain as well from providing further details on the portfolio such as large cap/small cap, producers/explorers etc. The only additional information I'll share is that the average gold/silver weighting has remained at very close to a constant 60/40 ratio (favoring gold) throughout its history. Suffice it to say, I believe that it has characteristics that make it a unique and useful tool in addition to the HUI, XAU and other precious metals stock indexes. I will refer to it as "The goldmap Index." or "The Index')
The Index measures the absolute change in the portfolio's value since its 1998 inception.
The Index commenced in 1998 at a level of 1 with an ounce of gold and silver that year commanding an average price per ounce of $292. and $4.88 respectively. With gold and silver at roughly $1,560. and $48. today the Index is at 24 (This is the all-time high for the Index and the second time it has reached this level) meaning that $1. invested in the Index at inception appreciated 2,300% and is worth $24. today.
The weighted (i.e. 60/40 ratio) increase in the two metals since the inception of the index in 1998 to date is 614%. while the increase in the Index to date is 2300%. Thus, the Index has outperformed the metals themselves by a factor of 3.8 (2300/614). We will refer to this measure of out-performance of the goldmap Index vs. the rate of price movement in the metals themselves as the goldmap Out-performance Index or "GOI." The GOI has a current reading of 3.8. This of course is the only reason to own the stocks vs. the metals themselves -- for the potential out-performance.
The GOI measures the cumulative out-performance of the Index vs. the metals since the portfolio's 1998 Inception.
To the point of the relative performance of the stocks vs. the metals more recently, let's examine where things stood in the fourth quarter of 2007 when the Index hit its high of 24 for the first time. Gold and silver during the quarter averaged $788. and $14.22 and the weighted appreciation in the metals since 1998 at that point was 178%. Note then that the GOI in Q4 of 2007 also his its all-time high at 12.9 (2300/178).
In other words, although the metals since the fourth quarter of 2007 have (on a 60/40 weighted basis) increased by 154%, the goldmap Index has not appreciated at all. From Q4 2007 through the end of 2010 the Index was in fact negative for most of the period and only recently recovered to its former peak. It would have been better to have owned the metals themselves (for the period). You'll see a close correlation to this on the following chart from Casey Research tracking the price of gold against the Toronto Venture Exchange Composite, whose components bear some similarity to the securities comprising the goldmap Index:
This poor relative action in the stocks vs. the metals since 2007 has reduced the current GOI to a reading of 3.8, the absolute low since the Index's inception, while the 12.9 reached in 2007 is its all-time high. I am of the opinion that while the GOI of 3.8 is as close to a bottom as we'll see during the bull market, we'll see it make new highs as the mania phase gets into high gear. If the GOI were today at its historical high of 12.9, the Index would currently sit at 79.
The precious metal sector right now is a dangerous place to be short. Short sellers are playing for fast pennies when there are dollar bills for sale on the long side. When the sector ignites it does so with fury. If you entered the sector in 2009 or 2010 you've had a wonderful run but the best is ahead. The moves in silver and gold the next several years will send the Index and the GOI to successive new highs. Be patient and wait for the real fireworks.
My best,
Jeff
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* The price distortions work both ways, of course. Therein lie the continued opportunities in silver and gold, where false paper discovery mechanisms continue to artificially suppress their prices. The free market retort is now playing out however the full reaction will be inversely proportionate -- at the least -- to the full degree of suppression, which has been in place for two decades.
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