The next support of any substance would appear to be around 91 with the
next serious support after than in the low 80's. In other words, it looks
as if the dollar could very easily decline another 15% to 20%, which would
take it back to 1995 when the Clinton Administration with the help of the
Fed orchestrated a phony strong dollar policy, which we are quite sure was
orchestrated by manipulating the price of gold lower and of course by
"talking up" the economy by babbling fictitious stories of the
"productivity miracle." Mr. Greenspan, who was nearly run out of town in
1996 for speaking honestly about his views that the market at 6000 was
"irrationally exuberant", quickly thereafter "got with the program" and
became a key spokesperson for our official propaganda machine. What a
contradiction to what our Founding Fathers had in mind!
Mr. Greenspan, may only be a puppet for the people who really run America
(read "The Creature from Jekyll Island," by G. Edwin Griffin) but he
certainly deserves much of the "credit" for the disaster that is starting
to unfold in the American and global economies. Not only did Mr. Greenspan
help the Politicians in Washington (from both parties) deceive the American
public and global investors that things were better in America than they
really were, but following his "conversion" to the propaganda campaign post
1996 he began to gun the money supply like no other Federal Reserve
Chairman in history. So by assisting in the gold manipulation, by printing
of enormous amounts of money and engaging in a pro-U.S. dollar
disinformation campaign, Mr. Greenspan became a willing accomplice to the
construction of the bubble, which, as of this moment in time, has only
begun to contract.
The dollar is undoubtedly the most important price in the world because it
is the world's reserve currency without any serious competitors. Because of
its importance, the misbehavior of our government in promoting a phony
dollar strength played a major role in sucking trillions of dollars of capital into the U.S. during the late 1990's, which in turn has led to enormous economic dislocations around the globe, not the least pernicious of which from an American's viewpoint is the sudden insolvency of American mining, manufacturing and agriculture as a result of a fictitiously strong dollar that led to unfairly undervalued imports and the impossible task of American companies exporting.
The "money center" banking interests that are the power behind the throne
in America may have enriched themselves enormously in the short run. However, economic dislocations cannot be promoted by the rich and powerful
forever without mother-nature finally saying "NO MORE!" It would seem that with the dollar now entering a secular bear market, the phony strong dollar policy, which benefited our banking industry at the expense of our
manufacturing sector, may have now met its own threshold of lethality.
If the dollar's strength was based upon the trashing of the gold price (to
make the dollar look better than gold, the only currency superior to it
back in the 1990's), the dollar is now unquestionably weaker than most all
other major currencies around the world and with good reason. Returns on
investment are still way below where they need to be to justify equity
prices. For example the S&P 500 Earning Yield at the end of this week was
at 3.62%, which means its trailing GAAP P/E ratio was at a still very, very
high 27.59 times. Perhaps even more telling is the "Core" EPS which strips
away items like "pension fund income" assumptions and accounts for option
as expenses. According to Decisionpoint.com, the "Core" P/E ratio for the
S&P 500 was 39.56 at the end of last week which equates to an Earnings
Yield of 2.52%. The Dividend yield, which unlike earnings, is for sure
"real" remained at a paltry 1.96% this past week.
We would become less gloomy about the market if we could envision decent
earnings growth. The trouble is, as even Mr. Greenspan suggested last week,
the consumer may now be about tapped out. So with the U.S. economy so
dependent on consumer spending, that puts the burden on the capital goods
sector. But as Stephen Roach said again last week we have global excesses
of supply that are left over from the excesses of the 1990's that continue
to suppress pricing power which puts the damper on any real plans to increase Capital spending. Moreover, even if cap x were to increase, it
normally begins to take place considerably after a recovery is underway so
it is not reasonable to expect cap x spending to lead us to a recovery as
many talking heads are suggesting. Add to that the fact that the
politicians and CEO's have already "shot their wads" in pushing consumer
durables like housing and autos during the past two years, which means
there is not likely to be the normal pent up demand for those big ticket
items that normally provide major lifting power for the economy. No wonder
Warren Buffett is talking in apocalyptic terms about the U.S. markets and
Michel B. O'Higgins was talking last week about another Great Depression.
Of course Ian Gordon, David Tice and Dr. Ravi Batra all started talking
about another Great Depression in the pages of our newsletter back in 1999.
Other Bearish Markets
Equity Markets. Nothing new here except to say that the decline of the
primary trend in the Dow is accelerating. A decline below the October low
for the Dow of 8176 could set the stage for an avalanche in equity prices
and the long talked about, often hoped was over "capitulation." When this
day arrives, the younger among us are unfortunately going to gain a new
concept about what that word means. The picture for the S&P 500 remains
pretty much the same. Stocks remain in a secular bear market with the
Bullish Markets -
US Treasury Bonds - Defying all the experts, US Treasuries remain
extremely bullish. We think this suggests a flight to quality prior to a
collapse in the dollar and the U.S. financial markets. It also suggests to
us that there is little or no fear of inflation at any time soon despite
the huge rise in the amount of money being printed, which fits the Austrian
schools definition of inflation. Although Treasuries remain in a bull
market, we are hesitant to own anything but short term Treasuries (one year
or less) because when foreign capital finally stampedes out of the U.S., we
are likely to see a major rise in U.S. treasury interest rates, which will
be devastating to those on the long end of the yield curve. The bond market
is appealing given our deflationary views, but we think because of the
likelihood of massive amounts of foreign capital eventually leaving the
U.S. and given our huge dependence on foreign capital, bond price rises are
likely to signal a number of other devastating market declines including
housing and equities.
The following email from a mining engineer and former colleague of mine at
the mining department of ING Barings in New York illustrates the bearish
sentiment for gold:
"I recently read your interview with Frank Holmes...The attached article
(Titled "Commodities-Gold dip on al Qaeda Report, Ignores Blix" published
by Reuters), seems to suggest that there is still very little supporting a
sustainable upward movement in gold prices, much less a move to +$600.
"Put terrorism and Iraq aside, which it would seem are going to be dealt
with in a material way in the short term, that should also subsequently
take some of the pressure off of energy prices, and in that scenario, I say
gold will be doing well to settle in the $300-325 range.
"The Barrick press release today on their hedging strategy was very
interesting...Amen for full disclosure! With hedges of 20% of their
reserves ABX hasn't sold their future down the river. It is a brave man who
can argue against ABXs success; success being defined as $2 billion in
hedging profits. As for the long-suffering shareholders of most gold mining
companies they can continue to hope. The sad reality is that if there is
another spike in prices, many of them will double-down and not fair any
better than they have in the past (save those, of course, that decide to
use the price spike as an opportunity to take their chips off the table.)
You know for as long as I've been in the business, it is remarkable how few
people I know that have made it big, I mean really big, investing in gold,
and from that I'm excluding all those people involved in what were
ultimately proven to be scams.
"To tell you the truth, I find it remarkable, but not surprising, after
several years of reading about conspiracies, the evils of hedging, etc.,
nobody ascribes any of the industry's problems nor the investment
communities disaffection with it to the scams or the perception that the
game is rigged in the venture equity markets. Recall this has been the case
long before the dot com bubble burst or the more recent Wall St.
"Hope you and your family are well. Stay in touch."
(end of letter)
Well I think my ex-colleague is still definitely among the brainwashed
majority in the financial community who have a deep seated hatred for gold
and who also displays a rather normal negative sentiment during the early
stages of a bull market. With regard to the prevailing sentiment toward
gold, I think Richard Russell has once again hit the nail squarely on the
head in his Friday March 7, 2003 commentary.
"Opinion -- Here as the Dow is within 410 points of its October low, the
implications are momentous. A violation of the Dow's bear market low of
7286.87 could easily trigger a waterfall or even a crash. The main European
markets are down across the board today. The losses in Europe have been huge.
"Obviously I can't prove it, but I sense an all-out push to hold the Dow
above the 7286 level, and at the same time even as the dollar sinks to new
lows there seems to be major a manipulation to knock gold down.
"These moves have come at a critical time. They've come at a time when Bush is on an all-out campaign to try to convince the UN "partners" that he is on the right path, and that they should not block his way with a veto. The
last thing Bush needs now is a plunging stock market and a surging gold
price. I believe that today "someone" (the government?) has gone all-out to
hold the stock market up and to knock the price of gold down.
"One concept that subscribers should understand. Once the primary trend of an time such as gold or the stock market is established, the more activity
or manipulation against the primary trend, the stronger the primary trend
"Why is this? Take the stock market. The primary trend is down. Every
rally, every upside correction, every intra-day pop puts stocks in weaker
hands. The people who buy stocks on these counter-primary trend advances
are buying stocks against the primary trend. Ultimately, they'll be forced
to sell these same stocks at lower prices. But during the counter-trend
rallies, stocks are moving from stronger hands to weaker hands.
"The same process applies to gold. We're now in the first or early phase of
the gold bull market. Every time gold dips, every time some central bank or
some manipulator dumps gold, the metal moves out of weaker hands and into
stronger hands. Finally, gold establishes a rock-bottom base. The weak
hands have either been knocked out of the market -- or sold out or scared
"Once that happens, gold will be ready to move higher and ultimately into
its second phase. The second phase is the phase where the public finally
becomes interested in the item. But we are not near the second phase yet.
Skepticism towards gold, fear of buying or holding gold, is the condition
of the market at this time.
"Actually, picture yourself as a large investor who wants to accumulate
gold. You're convinced that gold is cheap, a bargain below 400. The last
thing you want at this time is higher gold. You are patient, you're in no
hurry. What you really want in this area is the cheapest gold possible for
your dollars. In fact, you welcome any scare, any manipulation, any action,
which might knock gold down and allow you to buy more gold at what you
consider bargain prices."
The major manipulation that Richard is talking about is demonstrated in the
sharp decline in the price of gold on Friday between 9:30 and 10:15 in New
We think it is interesting and most likely revealing, that gold made its
biggest move upward immediately upon the resignation of former Treasury
Secretary O'Neil. Never while we were without a Treasury Secretary did we
see any significant down days like that displayed above, which had become
common during the strong dollar manipulation days of the Rubin and Summer's regime. But immediately upon the new Treasury secretary taking office, we have begun to see this kind of quick and sudden down plunges in the New York market. Then as was always so common from 1995 onward, the gold markets rise throughout the global markets, only to be trashed once again in the New York markets. Now that a new "fox" (Treasury Secretary) is in charge of the chicken coup (The Exchange Stabilization Fund), the old
pattern has once again commenced.
But we remain quite certain that the times have changed. The ability fool
the global market participants about the dollar by trashing gold can no
longer work. And as we discuss every week, the deflationary depression that
we are beginning to face is to reveal that emperor Greenspan indeed is
wiring no cloths. Having their fill of dollars, foreigners are very happy
that our short sighted politicians and Fed chiefs are willing to hand them
gold at bargain basement prices. They want out of the dollar. The only
question is when will the slow trickle out of the dollar and into gold and
other currencies turn into an avalanche.
Technically, gold remains in a primary bull market, no matter what my friend
from ING thinks. Although demonstrating some short-term weakness, gold
remains firmly in the bullish camp. At its Friday close of $350.10, it is
significantly above its 200-day moving average of $329.92. I view the
recent pull back, which has taken place exactly with the insertion of our
new Treasury Secretary, to be constructive from a technical point of view.
And if you believe the work of Frank Veneroso as an increasing number of
people including the Ex-Royal Bank of Canada gold analyst does, and as
hundreds and hundreds of people outside and inside of the GATA camp do, the fundamentals of the gold market remain extremely bullish. The basic
fundamenal supply and demand gold numbers run something like this. 4,000
tons of annual demand. 2,500 tons of supply from mines and recycling.
1,500+ tons from dishording form central banks. The 64 trillion dollar
question is, "how long can this grand deceit by our policy makers go on?
How much gold do the western central banks have that they can use to keep
fabricating their lies about fiat money? It looks like perhaps ½ of the
34,000 or 35,000 tones the banks claim they have, have actually been leased
out, never to be returned again to the central banks. No doubt the western
central banks will "forgive" the repayment of gold and accept paper instead. But what will that do to America's financial viability when its Central Bank is built upon the quick sand of liability money (fiat money) rather than asset money (gold). It is a very foolish and shortsighted policy that our ruling elite have propagated, and one I am unfortunately confident will led to national financial ruin.
March 11, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
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