If you wait until Christmas to make a decision about drastically restructuring your investment portfolio, you will have waited too long.
A bold statement to be sure. Until today, I've never attempted to (publicly) time the market. The best Christmas present you can give yourself is a wakeup call regarding the USA's economy. Make a plan to make money during this downturn or … lose money by doing nothing.
The following essay is a quick read. It is a call to action. Align yourself with economic conditions rather than fighting them.
Mainstream thinking may not like to hear it, but gold is an important part of the economy. While Fosters spells beer in Australia, the "Price of gold" spells inflation in the USA.
But first, if you're wondering how things will look in Japan by Christmas, here's the latest from the world's second largest economy.
August 23, 2001
The difference between what Japan exports and imports shrank from 649 billion yen (June) to 335 billion yen (July). This is a 48% drop in one month. On this news the most widely monitored stock index in Japan (the Nikkei 225) fell to its lowest level in 17 (that's s-e-v-e-n-t-e-e-n) years.
Japan is an exporting country. They're like a big corporation. When sales decline, the company has to tighten its belt. If things get really bad, the whole company goes under. For a country, this translates to an economic depression. Japan has been in an economic recession (off-and-on) for years. Now their sales drop 48% in one month.
Ask yourself, "Is Japan's economy going to a) get better, b) get a little worse, or c) get much worse?"
Now let's take a look from a golden perspective.
The price of gold has always been used to measure inflation. Historically, the purchasing power of gold (what it will buy) has been stable. Currencies of the world "Inflate" against gold. For instance, in the early 20th century, gold cost about US$35 per ounce. It now costs about US$275 per ounce. However, in 1980 the price of gold peaked at about US$850 per ounce. Extremely high inflation marked that period.
The Conspiracy - why, under the reign of Bill Clinton (president of the USA from January, 1993 until January, 2001), didn't the price of gold rise with inflation? What inflation, you say? That's the point. In order for Clinton to produce the "Great economy of the 1990's," the term "New Economy" was coined. This "New Economy" meant that the USA's economy could rise substantially without inflation (in this case meaning that prices get higher). Clinton (for several reasons) wanted everyone to "Feel" rich, which meant that a) people had to feel like they had a lot of money and b) inflation had to be masked from view. Part a) - feeling rich - was not only simple enough (and not the focus of this essay), but is evidenced by the masses feeling wealthy by having their money in the stock market and counting on the stock prices to rise perpetually. Part b) - hiding inflation - had several facets. Among them were two biggies.
Biggie #1: Government statistics that measure inflation had to be doctored - and so they were. For instance, when a person or a company buys a powerful computer for a higher price rather than a less powerful computer at a bargain, the raw result is that computers cost more. To offset this effect, government statisticians adopted a policy where they said something like, "The powerful computer will do work faster than the less powerful one, so its cost is actually less on a work-unit basis." This is the same thing as lowering the cost of the computer to the level of the less powerful one and then using the cheaper price in calculating the government's inflation statistics.
Biggie #2: Keep the price of gold down. This would aid to the validity of doctored inflation statistics. People who like to invest in precious metals (especially gold) and mining companies (especially gold) are called "Gold Bugs." For a several years now, many gold bugs have been wondering how the price of gold has stayed so low with the supply of gold not meeting the demand of gold - by an enormous amount. Somewhere, somehow, physical gold was being dumped regularly into the market. Every time the price of gold tried to say "Inflation" through an increase in price, it was silenced (the price came down). Although this is evidently still in practice, some gold bugs have come to the realization the US Treasury or the Federal Reserve was behind the price manipulation. They have become worried that gold belonging to the citizens of the USA is part of the gold that is being dumped into the market to keep the price down. If so, this is illegal because USA gold cannot be sold without an act of Congress. In the search for truth, a fellow by the name of James Turk has uncovered a horror.
It has to do with the Exchange Stabilization Fund, a fund set up exclusively for use by the Secretary of the Treasury, needing only one person's concurrence, the President of the United States. The ESF has issued about 10 billion certificates against the USA citizens' entire gold supply held by the government. These certificates have been drawn down to about 2 billion. You will hear much more about this scandal - yet another one of Clinton's numerous scandals - in the near future. What is important about the number is that there aren't many left to hold the price of gold down. Even if there were, the news of this scandal will uncover the US dollar for what it is, and prices will inflate rapidly just as they should have all along.
The value of gold in dollar terms will go through the roof. If you own some before this happens, this will help offset other negatives which the collapse in the dollar will bring.
I do not use phrases such as "The collapse of the dollar" lightly, especially in an attempt to time the market. I am aware that I have "Crawled out on a limb," however I think it will hold me just fine.
I have been talking about an economic downturn since the beginning of 1999, when I convinced a couple of family members to invest in precious metals and exercise various stock options. They listened to what I had to say, thought about it themselves, and acted by placing precious metals in their investment portfolio. They also went ahead and financed some of this reallocation by exercising stock options. The stock options (which would have been worthless today) have ended up financing the precious metals added to their portfolios. And that part of their portfolios are making 5 - 10% per year…basically for FREE. I don't dare pat myself on the back. It's they who were the courageous ones - bucking the mainstream mentality of the day - they deserve the pats on the back.
Well, since then things have gotten bad in the stock market. "Buy and hold" folks are feeling the pain, but not as much as will be felt in the months to come. Act now. Economic cycles happen. It's a fact. It's not a "New Economy." It never was. If you wait until poor Christmas sales show up in the retail sales statistics, the stock market will have made another correction. Once this happens, many fellow investors will get sick and tired of the stock game, pronounce it as a pure game of chance, and exit. Then another down leg will follow. You will not see this honest of coverage in the media.
One final note. "Bears" like me are never welcomed in a "Bull" market (especially a struggling bull market). If you are not happy at what you've just read, you are in dire straights, my friend. Your emotion is getting the way. My opinions are just that, opinions. They are nothing to become emotional about. They are not meant to substitute for the advice of professional money managers. And hey, I'll…
See you after Christmas!
Don Smith :)
August 27, 2001