Taylor On US Markets & Gold
FINANCIAL MARKETS
Reflating the Bubble
From a Dow Theory perspective, Richard Russell points out that with the Dow having bettered its November 23rd peak has now provided a bullish
confirmation of a Transport high about a month ago. As such, it has paved
the way for a still higher move in the Dow.
On the negative side, this has now become a very overbought market so in
the short term we should see significant correction. Whether following that
correction we head back up to pursue some of the prior Dow peaks in the
bear market remains to be seen. But what we can say with some assurance
is: 1) Stocks remain hugely overvalued, with the S&P 500 selling at over 33
times earnings and 2) Insiders are big, big sellers! Also there is extreme
bullish sentiment which most of the time sets the stage for a major decline.
The market is clearly being fueled by a money pumping of Mr. Greenspan and
also in my view a huge amount of unwarranted optimism from the general
public. They want to believe this market is coming back and that we are at
the start of a new major bull market. They remember how good the last one
felt and the public wants more of it. Apparently, this bear market has not
yet been severe enough to teach people their cyclical bear market lesson,
namely that money may grow on trees compliment of Alan Greenspan, but
wealth does not. When this bear market is over, we will see PE ratios below 10, not above 30 and the best surviving companies will pay dividend yields
in the 5% to 10% range. At least that is the way all cyclical bear markets
have ended in the past.
That insiders are selling suggests the people closest to real business
conditions are not optimistic or at least they think their share prices are
fully valued. Throughout the bear market, Wall Street has arrogantly looked
down their noses at CEOs for the pessimistic view. How stupid! How selfish!
How arrogant of Wall Street pumpers and dumpers. And of course people want to believe. So they do. But as Richard Russell points out, bear market
rallies last just long enough to convince almost everyone that a new bull
market has begun. The bear comes out of hibernation to claw wishful
thinkers and Wall Street purveyors of lies to death.
Sadly, our policy makers are not able to face the reality of what really needs to be done to bring about a legitimate, long term prosperous economy. America is going deeper and deeper into debt compliments of the rest of the
world. At some point very soon, the debt burden will overwhelm our economy
to the point we will have a devastating deflation. Why can't the Fed print
our way out of debt? Because the fed can't create wealth by printing money,
that's why. The can print debt money (which is what fiat money as opposed
to gold is) so that people have claims against wealth. But more and more
claims against wealth will ultimately result in a breakdown of the system
though debt repudiation.
In summary, our message is very simple:
Do not be deceived by this rally in stocks. This is a long-term bear market that will end in tears by most everyone who is now being suckered back into the market.
FRANK VENEROSO SPEAKS ON GOLD
I listened in part to a lecture given to Canarc's shareholders today by
Frank Veneroso. I hope to listen to the tape more closely in the near
future, but a couple of views I picked up from Frank were the following:
- He still views the commodity price for gold at around $600/oz. A panic out of paper for investment/monetary purposes would make it rise much higher.
- If I understood him correctly, Frank thanks the major short positions of the bullion banks have been largely unwound. This was probably achieved by way of a cash repayment to the central banks rather than a gold repayment. In other words, the gold is gone forever from the central banks even though they still show it as being in their vaults.
- Two basic factors led to the demise of "managed" gold by certain central banks. First was a rising demand from Islamic countries post 9/11 because they wished to avoid having their dollars confiscated by the U.S. The second major demand stimulus then came from producer hedging.
June 9, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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