PERSONAL CENTRAL BANKING
Rodney C. Cook, Ph.D.
Steady as she goes. Events are unfolding as expected. Our strategy remains intact (Are We Rich Yet, 11/3/01).
The primary trends remain in place and continue to define major lines of probability. The primary trend for gold and its shares remains up. The primary trend for debt based financial instruments including the general stock market remains down. Action in the dollar has reinforced the more recent primary downward trend in fiat currencies.
These primary trends continue to overpower secondary trends. Strong channels are established. Breakouts are the exception. Even gold, despite anticipation to the contrary, continues to bump along the top of the recent channel, threatening to break out at any time, as today's action indicates. Gold shares have lagged gold, and the imbalance seems to be holding gold under the channel top. Resolution of this imbalance will not be boring, as it will most likely be driven by war and rumors of war.
If the upcoming battle in Iraq goes badly, then primary trends will accelerate and establish new steeper channels. If the war goes well, then a false dawn for debt based financial assets may appear on the horizon. But most likely any rebound in these financial markets will ultimately resolve itself to the downside.
Front Running the Fed
The primary trend for gold remains up in a trend firmly established over the past few years, breaking-out of a decades old bear market. A bear market so severe that legions of explorers, miners, refiners, fabricators and investors eroded away in the face of relentless head winds. Total defeat appeared certain. The industry wandered, like a battered fleet of crippled war birds searching for a place to ditch. A place to settle, and quietly sink below the waves of Keynesian commerce.
But key producers, stalwart analysts, and Austrian fundamentalists held tight to the war birds' controls, easing hedges, accumulating physical, and charting new courses. The nose turned up on those best piloted. Dodging the maelstrom of downdrafts and shears of manic derivative activity, the golden birds powered along, waves lapping at the undercarriage of many. More than a few continued to be taken by the sea.
But many of the pilots' instincts were sharp. Seeking pockets of heavy air created by nascent central bank and insider unwinding, this fleet of phoenixes began to buoy upward. Erratically at first. More consistently as weather improved. While turbulence remains, catastrophic downdrafts can now be avoided.
The fundamentals have changed. There are storm clouds all around, but pockets of clear weather are visible to the astute. And a course to prosper can be laid in.
The scarred war birds have gained altitude. With profits taken, tanks are refueled, repairs made, and new ordnance loaded. A golden mosquito fleet piloted by sovereign thinkers is prepared to attain new altitudes.
And the tail winds are building.
Buying Fort Knox
The gold bullion market is extraordinarily simple. When central banks divest, the fiat price goes down. When central banks accumulate, the fiat price goes up. So with the price going up in so many currencies the past few years, are central banks buying? Yes. Well, at least the insiders.
The Fed always telegraphs its actions. At least to its member banks. Its owners. Other monetary authorities also telegraph their actions. Who else but a central bank would announce gold sales in advance and depress the price that they receive? Who else but "insiders" would respond by buying gold at this depressed price? Could these insiders be accumulating because they know that the net sales by central banks are reversing course? Ya think?
Thus it seems surprising that the mainstream financial press is totally ignorant regarding recent Fed commentary. Those that have bothered to actually investigate are either dumbfounded or shocked. Gold Cover? Huh Wha?
Clearly most remain in the bubble. Blissfully ignorant. For now. Just wait 'till they dig a little deeper. Or the facts are thrown in their face.
It seems abundantly clear, by now, that central banks and global monetary authorities will emerge as overt buyers during the coming year. The subtle shifts in policy and subsequent action will be impossible to ignore as they hit the mainstream press. This is already happening outside the bubble, that is, in the foreign press. A run on the dollar and a break out in gold is a distinct possibility at any time, and highly probable in the longer term.
This fundamental force in the gold market has spawned a cyclic reversal of historic proportions. We are in a primary bull market in gold. Brain dead strategies such as "buy and hold," "buy on the dips" and "dollar cost averaging" will continue to result in genius level outcomes over the long haul. So continue to accumulate your own personal gold reserve. While achieving Fort Knox stature is not the objective, a reserve requirement proportionate to the fractional reserve currency you have personally put in circulation would be most prudent.
Printing Fiat
Say what? I haven't put any currency in circulation. Have I? The ability and authority to create money no longer resides exclusively with central banks. It has been atomized and distributed throughout the system (Tiny Bubbles, 12/5/02). And you are part of the system.
Your debt is money. Buying a home creates fiat dollars for your lender. The GSE Ponzi scheme punches property prices higher. So you can refinance. This creates fiat dollars for you. You can spend this fiat on financial assets and perpetuate the Ponzi scheme, or you can spend this fiat on stuff. Like gold.
The Fed is moving from a fractional reserve system based upon fiat, or a pure Ponzi scheme, to a system where gold will have a role. If you have no gold reserve, the Fed will be front running you. So you have a choice. Behave like a central bank or a GSE debt junkie. The central banks are likely to monetize the GSEs. Sounds painful.
Trade some of your fiat for gold, and become and be the first on your block to own a central bank. A central bank using a fractional reserve system based upon gold. A central bank more tangible, tractable and survivable than government sanctioned alternatives.
Confiscating Mines
The Fed has discussed buying gold mines with fiat. Fiat soon to become worth less if not worthless. Effectively confiscation. While the process may be much more complex and certainly opaque (Dirt Poor, 12/31/02), it seems prudent to capture a piece of the action.
In your new capacity as a central banker you can now buy the hardest money of all with fiat from thin air. Should work for gold mines as well. (See Investing in Gold Shares, 11/19/02). Effectively confiscation.
A particularly attractive class of gold shares can provide excellent leverage to a budding central banker. The strategy for these companies is to accumulate mining properties. Seabridge and Minefinders come to mind for gold. SSRI applies similar strategy to silver.
If you are exceptionally ambitious you can apply similar strategy yourself. There are abandoned mining claims throughout the American West. For a bit of sweat, and very little fiat, you can gain the mineral rights to land where assays are largely complete. For less than a thousand dollars, you can acquire the mineral rights to hundreds of acres of federal land with, perhaps, many thousands of ounces in the ground. Now these lands are a long way from being productive mines. And these federal lands may be nationalized or monetized, but compensation, while not fair, would certainly be lucrative. And you might get compensated with new fractional reserve dollars from our Treasury, as opposed to fiat from the Fed.
After all, being a central banker, I've got to get those "deep storage reserves" built up sufficiently to finance the social engineering projects so close to the hearts and minds of my owners and masters.
Personal Sovereignty
Owners? My owners and masters!!! Not so sure I like this part about being a central banker.
But think again. There is a megatrend in this world: Decentralization and Demassification. Driven by knowledge and technology, war, both conventional and financial, now favors the defense. Centralized structures are in decline. The individual is in ascendancy.
So perhaps the flow of gold from central banks to insiders and astute individuals is a natural phenomenon. A biological survival mechanism whereby power shifts to those most able to contribute to civilization moving forward. After all, in the extreme, central bank gold supplies can disappear in a terrorist's mushroom cloud.
The collapse of socialism did not end with the Soviets. The American welfare state is next. With 4 dollars of debt being created for each dollar of GDP, there is no hope that the political and financial system will survive in its current form. Neither can China's debt be serviced. In this regard, it is a true paper tiger.
The governments of the world are bankrupt. The owners and masters will be gone soon. Washed away in the driving blizzards of the Kondratiev Winter.
But spring follows winter. And, in a decade's time, summer will dawn. Not a false dawn of Keynesian socialist resurrection, but a true golden dawn orchestrated and financed by the free. Free men and women throughout the world, with a glint of Fort Knox in their pockets.
January 25, 2003
Rodney C. Cook, Ph.D.
CTO & Founder
Sightward, Inc.
425-688-9921 x1029
rod@sightward.com
www.sightward.com
"Power from Prediction"
www.ObsceneProphets.com
Copyright 2003. Rodney C. Cook, Ph.D. All Rights Reserved.
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