Taylor On Markets & Gold
Financial Markets
A look at the charts at the end of this week shows that commodities (CRB)
have now cut through a downtrend line dating back to the beginning of this
year, like a knife through hot butter. The Rogers Raw Materials Fund as well was strong last week, having advanced almost 1% for the week.
The most important event again this week in the financial markets had to be
the continued drubbing taken by the bonds markets. We don't want to overstate the pessimistic case, but Art Cashin said at the end of this week
that the traders on the floor of the NYSE are going to be watching very
carefully the latest mortgage applications next week. He noted that with the rising rates, they are falling off a cliff in a most dramatic fashion. In fact, mortgage applications have fallen 60% since May! And as Art noted,
consumers have been "using their homes as a gold mine," not to so much to
pay down past debt but to consume, consume, consume. This kind of fool
hearty behavior will sooner or later kill us. And it could be sooner rather than later, given the kind of apparent sensitivity the mortgage market has
to rising interest rates. Seeing What we Believe.
It is incredible how the establishment continues to spin their yarn into what they want to believe and more importantly, what they want us to believe. Here are some examples of how our establishment continues to encourage us to "see what we believe rather than believe what we see."
- The higher than expected GDP number was celebrated in the headlines. But in fact, most of the growth was caused by government spending for the war. As Art Cashin noted, unless we plan to have another war next quarter, we can't count on that to source of income to jack up growth in the future.
- Consumer income was up 0.3% which was also given as evidence of growth. But barely mentioned in commentary at least, was the fact that consumer spending grew by 0.4%. In other words, the trend toward spending more than we save is continuing. We are definitely leveraging up our future to live for today with a "go to hell" attitude for tomorrow. Unfortunately, "tomorrow may be very nearly at hand."
- Still another example of how the media played down certain facts it doesn't like was the celebration of a lower than expected unemployment number. Barely mentioned in the headline discussions were two huge negatives: 1) Approximately 500,000 people being discouraged about prospects for finding a job, simply stopped looking for work and thus dropped out of the "work force." For that reason, and not because of job growth, the unemployment rate declined. 2) Some 44,000 jobs were lost in America. That compared to an expectation of 28,000 new jobs would be created.
Rumors of a Huge Equity Short Position - Did the Cartel Have Inside Info?
On Thursday afternoon there was apparently a rumor on the floor of the New York Stock Exchange of a very large purchase of Spider puts. That would have been a good trade because the economic news on Friday, especially on the jobs front was much weaker than expected. Add to that the continued bond market carnage which may in fact be already starting to knock our economy on its heels and signs on Friday that the recent dollar rally may again be fading and Bingo! The Plunge Protection team was called to work one more time even without Peter Fisher? Gold Suddenly was thumped up side the head for an immediate $8 plunge during the final ½ hour of trading on Friday. Why so? According to Ron Insana on CNBC it was because of a rumor that Saddam had been cornered in Iraq by U.S. troops. Art Cashin noted that rumor did not touch the equity or bond markets which prompted him to suggest if it were true Saddam must have had enough food and water to last for the next three years. Talk about a smokescreen for what is really going one. Not only does the cartel act quietly behind the scenes but they apparently plant stories to provide cover for their dastardly deeds.
The Great Bond Collapse of 2003. Good news or Bad?
The Larry Kudlows of this world would have us believe that rising interest rates are a good sign, indicating that the economy is on the mend. I think the chances are very good that just the opposite is true. Weakness in the U.S. debt markets, starting with the agency issues, may in fact be occurring because of a flight of foreign capital from the U.S. "Beggar-thy-neighbor" currency and gold rigging policies may be temporarily suspending the dollar in mid air. But with the enormous amounts of debt in the American economy and with our huge reliance on foreign capital not to build for the future but simply to fund our lavish consumer orgy and momentary pleasures, the handwriting for America is now on the wall. Notwithstanding all the spin we hear week after week, I have unfortunately never been more convinced that we moving inexorably toward the Kondratieff winter.
The entire world depends on the U.S. to continue spending its fool head off. If the U.S. had income with which to spend one could argue this process could continue for a long, long time. But in fact the U.S. has been drawing down its savings at an alarming rate and the U.S. is digging itself into debt to the point at which the global system can be expected to ultimately break down. As Morgan Stanley economic Stephen Roach on Friday, America's current account deficit, which now stands at 5.1% of GDP is going from bad to worse. He also noted that "history tells us that a breaking point usually occurs when the current account deficit hits 5% of GDP.
Ramifications of Dollar Demise
With the dollar being the currency of the World's long super power and with
various countries having various vested interests in seeing the dollar remain strong, massive intervention may manage to keep the dollar from collapsing still further in the immediate future. But then again it may not because it is the very overvaluation of the dollar that is at the heart of what Morgan Stanley Stephen Roach complains about, namely the U.S. centric global economy, which is getting further and further out of balance. The more the wrongfully overvalued dollar becomes, the more dangerously unbalanced our global economy becomes. And the further out of whack the price of the dollar is with economic reality, the harder it is to allow an adjustment back to equilibrium to take place. But return to equilibrium it must and when that day arrives, one wonders how the world as it currently exists can survive. Perhaps it won't.
One of the most frightening evidence that we are inevitably heading into the Kondratieff winter in my view is the "beggar thy neighbor" currency devaluations that are now taking place. We are seeing many countries, most
notably the Japan, print enormous amounts of money in their own currency
which they then use to buy the dollar to keep the dollar strong, thus
preventing a balance of trade with the U.S. And it is now finally well documented that the Chinese are keeping their currency artificially weak for the same reasons. It is as if the nations of the world were playing a game of chicken with the U.S. And what makes it even more scary from the U.S. point of view is that with the U.S. now such a huge debtor nation, it can't do anything about China's unwillingness to allow its currency to float to its true market value. China is waging an economic war against the U.S. and the way I see it there is no way we can win it now. This war with China should be front and center stage in America because it is far more important than the war with Iraq.
The kind of beggar-thy-neighbor policies that helped contribute to the last
Great Depression are indeed being played all over again. They will end one day, but unlike the 1930's the U.S. is now not only a debtor nation rather
than a creditor nation as we were then, but we are by far the worlds' largest debtor nation. Truth be known we are now a bankrupt nation and with no manufacturing capability any longer, we have little in the way to help pull ourselves out of the muck. Ultimately, the dollar will not only decline but it will appear in the obituary column along with all the other fiat currencies throughout history. It will happen in no small part because we Americans have been all too wiling to believe a lie, namely that fiat currency equals wealth and that we can simply print our way to prosperity. Funny how a nation run by elite humanists who pride themselves in rationally getting rid of God, can be so irrational when it comes to money. But on second thought perhaps that isn't so strange. After all, the process by which our elite have "eliminated" God has been most irrational and unscientific as well.
As the dollar does decline, whether suddenly or gradually, the Prudent Bear
Safe Harbor fund should perform well whether the dollar falls due to a
deflationary or inflationary depression. During a deflationary depression,
the dollar will collapse because as debt is repudiated, the dollar will be
destroyed. This is true because in fact the dollar is nothing more itself
than a promise to pay. In other words it is nothing more than debt money,
unlike gold, which is an asset money with intrinsic value not depending on
the willingness or ability of other to pay their debts. Hence the destruction of debt, which occurs during a deflationary depression, equals the destruction of the dollar. That did not happen in the 1930's because the dollar was in fact backed by gold and also because the U.S. was a net creditor nation as is Japan during its current 10+ year depression. But now
there is no formal gold backing at all for the dollar. Moreover, given the
views of our ruling elite, during this impending deflationary collapse,
America may well have dishorded all its gold in a stupid and arrogant but
vain attempt to defend our worthless currency.
In an inflationary environment, the dollar will lose value because as it loose purchasing power relative to other currencies and gold. Such was the case in the 1970's.
In a more moderate "muddle through" scenario, the dollar would likely survive, but given the enormous trade problems and reduced profitability of
the U.S. economy, it most likely will weaken as foreign savers begin to slowly but surely sell dollars in search for better returns elsewhere.
Gold & Gold Shares
Based on the extensive evidence compiled by www.lemetropolecafe.com and
www.gata.org. we are confident in saying that one of the reason the global
financial system is so out of balance is because of the "capping" of the gold price by the Clinton Administration from about 1995 onward. We know from academic work by Lawrence Summers that he was fully aware that if real
interest rates trended lower, the price of gold had to be in his words "capped" if the currency was to remain strong.
And so that appear to be exactly what the Clinton administration did during
as the cornerstone of its strong dollar policy. We think this same policy has been adhered to as much as possible by the Bush administration as well. What that means is that the gold price remains terribly far below its
equilibrium price which, based on a through fundamental analysis by Frank
Veneroso is somewhere north of $600, without any additional panic from fiat
money into gold.
It is on the basis of this fundamental disequalibrium price of gold that we
believe the price of the yellow metal should be at least moderately strong
during the years to come even in a "muddle through" environment. On the
other hand, any panic out of paper money during an inflationary environment
or especially during a deflationary collapse of the monetary system would
likely result in a gold price measured not in hundreds of dollars but rather in thousands of dollars.
*********
GOLD
Plunge Protection Team back at Work.
"Someone" planted a rumor that Saddam had been captured which, according to CBNC's Ron Insana, caused the late Friday drop in the gold price pictured
below.
The following commentary on gold was provided Friday after the markets
closed by GATA's Bill Murphy.
"With gold trading in the mid-$360 area the investment banks in The Gold
Cartel, along with the Exchange Stabilization Fund, collectively stopped gold's advance. Concerted activity such as this is a violation of the Sherman Anti-Trust laws. Nobody seems to care. Perhaps the specs who donated hard-earned money to The Gold Cartel might offer some objection. How many times do pockets need to be picked before someone screams BLOODY
MURDER? This constant stuffing of the specs, after they have piled into
gold, is nothing more than grand larceny by a bunch of white-collar thugs.
"Bonds, stocks, and the dollar all reversed course today. But not gold.
There were more specs to flush out while the cabal crowd covered their
shorts, pocketing another grand or two per contract for a week's work.
"The open interest dropped 10,947 contracts yesterday, giving us a two-day
total drop of close to 20,000. Another 15,000+ should have been flushed out
today. The new total stands at 209,032 contracts.
"Today's gold bashing on a late Friday afternoon brings back sour memories
of the last half of the 1990's and 2000/01. Gold was routinely trashed late
on Fridays back then. This is sickening to watch. Bonds were routed this week due to increasing inflation fears. With good reason, if the surging
oil market is a sign of things to come. So why did gold get hit for $20 in four days? Meanwhile, the employment news was terrible for the stock market, but The Working Group on Financial Markets was there on all dips to keep the feel good mood intact for the investing public. If I sound like an unhappy camper, it's because I am. I am sick and tired of this outrage. Year in, year out, same drill.
"John Brimelow notes that up until 1 PM EDT the COMEX volume was 56,000, which is large. However, in the last half-hour alone it was 75,000 as the cabal did their thing: http://www.kitco.com/charts/livegold.html
"When gold recovered from an early $5 bashing after the Comex opening (only down 50 cents on the day), the HUI was flying, up 3, and only 3 points off early Monday's spike-high. That's all The Gold Cartel needed to see,
especially after the bond market debacle this week. Every able bodied goon
squad hit man in New York was recruited to smash gold going into the close.
See bond market investors, there really is no big inflation threat out there. Just look at the sinking gold price.
"The dollar closed down .27 to 96.87, while the euro rose .25 to 112.51.
"Bonds managed a half-point gain, but the 10-yr. note barely eked above
unchanged.
"Maybe gold was assaulted because the price of oil crashed. Nope, it was
roaring higher with many of the oil contracts moving into contract high
ground. Sep WTI closed at $32.31, up a whopping $1.77.
"After the close, the COT report was released. As of last Tuesday:
"*the commercials decreased their longs by 5,365 and increased their shorts
by 36,542 contracts.
"*the large specs increased their longs by 33,243 and reduced their shorts
by 2795
"*the commercials were net short around 110,000 contracts
"*the large specs were net long around 75,000 contracts and the small specs
long about 19,000 contracts.
"Even with the known big spec liquidation of the last three days, the pundits will put a bearish spin on this report. Been doing it for years. We know why. The good news is we are building to the day when these same Gold Cartel shorts will be blown out. The open interest will rise to 240,000, gold will take out $370, and the open interest will rise even further to over 300,000 as gold heads for $400. A Commercial Signal Failure is on the way, but will only kick in when the crooks are beaten! Gold will never make the big move until that occurs. Based on the bond market action, etc., that could come at any time.
"The registered COMEX silver stocks fell a sizable 4.7 million ounces
yesterday, which is more than 10% of the "not spoken for" supply on COMEX. The silver open interest rose 3356 contracts to 112, 011. Silver might take out $5 early next week, but should turn right around and move to take out $5.20. If it were not for the blatant take down of gold by the bad guys, silver would be there now.
"The action in silver, bonds, oil and the gold shares could not be more gold friendly. The Gold Cartel bums won another battle, but they are losing the war. The "Paradigm Shift" is still in play the way I see it. Once this
orchestrated spec liquidation is over with, gold will turn around and go right back up. Some time after an orchestrated rout like this, gold is going to open up $5 higher and never look back."
Richard Russell Sums up the Evils of Fiat Money & Our Current Predicament
If there is one piece of financial information I most look forward to
reading every day it is "Richard's Remarks" by Richard Russell. Richard writes every day except "the Lord's Day." He takes Sunday off because it is
a day of rest and I'll tell you this man really deserves it too. I understand that investors have only so much money to spend on newsletters so in a way, to suggest you spend money on any other newsletter than J Taylor's Gold & Technology Stocks may not be self serving for me except my job first of all is to serve my subscribers. So I have to tell you that if you can afford at least two letters, consider putting The Dow Theory ahead even of J Taylor's Gold & Technology Stocks. Richard Russell is remarkable. He is the "Babe Ruth" of the newsletter writing industry. He hits a home run almost every day. You are strongly encouraged to write out a check or hand over your credit card to this fine man. Go to www.dowtheoryletters.com to find out more and to sigh up.
Not only is Mr. Russell a highly skilled purveyor of financial wisdom, but he understands that our nation is quickly approaching financial and moral ruin in no small way because of the plotting in 1910 of a handful of men who plotted then a strategy to sneak a National Bank" on an unsuspecting American Public. As G. Edward Griffin points out in "The Creature from Jekyll Island," this effort was put forward to ensure this handful of "gentlemen" who at the time, held 1/6 of the worlds' wealth, could form a banking monopoly to ensure New York money center banks would not lose wealth at the hands of smaller country banks as the wealth of the U.S. continued to move westward, away from Europe and New York. This move toward fiat money and away from honest money was also supported by the socialist of that day, influenced in no small part by England's and America's intellectual elite, who armed with a Humanist and socialist world view, set out to gain control of America's printing presses and from there to destroy America's monetary and moral fiber as well as major institutions like the media, colleges and universities and even churches.
The unholy alliance between the socialist and communists on the one hand
and the bankers on the other can be explained by this symbiotic relationship between these two groups which you might otherwise expect to be "strange bedfellows." The creation of the Federal Reserve Bank, elite bankers centered in New York and Europe got what they wanted, namely a banking monopoly and the left of center groups like the Fabian socialists got what they wanted, namely a clandestine means of financing a move from
capitalism to socialism in America with of course their own ruling elite in
charge. The ability to dictate to the American people that they must use
paper money rather than gold has as Alan Greenspan himself has observed,
help deceive the American people into thinking they can have a free lunch. And as Larry Parks has pointed out at www.FAME.org, the ability to print
money out of thin air has allowed them to fund their various "not for profit" foundations used to "educate" America.
In the process of selling the "free lunch" lie to American people, namely that through the creation of umpteen rate cuts (printing paper money) the Fed can usher in economic prosperity, America has pushed itself to the precipice of a major economic catastrophe. It is obvious to me and more and more independent thinkers like Richard Russell see the connection between dishonest paper money and those dastardly deeds set up by the "Creatures
from Jekyll Island" who were in fact representing the interests of folks
like J.P. Morgan, The Rothschilds, the Rockefellers and other major money
interests not only in 1913 when the Fed was pushed on the American people,
but to this very day. Now these men own our elected officials - almost all
of them save one we know for sure. His name is Congressman Ron Paul, M.D..
Richard Russell hit a grand slam in the following remarks which were
published on July 29th and which explain how the ruling banking elite are
very rapidly taking our beloved country to the "grave."
Richard Russell on how Fiat Money is leading America to Ruin and Damnation
"July 29, 2003 -- Is there anything ethically or philosophically wrong with
the central bank system of money as it has evolved? My answer is yes. As gold was systematically removed from the system, the system became a
"fantasy system." I say fantasy because the central banks are able to
create money at will. with no discipline to stop them. This I believe -- is
immoral, even evil. The current system allows a central bank to create money out of nothing -- whereas I and my fellow Americans have to work for that same money.
"Is it ethical, even logical, that I have to work my whole life to make say a million dollars when the Federal Reserve can, in a minute, create billions of the same fiat dollars that I work so hard for? The system defies logic and defies reality. It's a scam.
"But because there is no limit to the fantasy-dollars that the system has
created, the system has simultaneously created a giant edifice of debt.
Nobody is certain how much debt has been built into the US structure, but
the accepted figure is around $38 trillion. If you figure that the average
interest on this debt is 5%, then you are talking about $2 trillion a year
needed to service that debt.
"Thus, the system now requires inflation to handle the debt. You see,
inflation renders debt less onerous through time.
"This explains why the Fed is so terrified of deflation. In deflation, debt
become increasingly difficult if not impossible to handle. In deflation dollars become scarcer and more potent, while the debt remains constant. This, is a nutshell, is why the Fed is so frantic to thwart the forces of deflation.
"The forces of deflation? What forces? During the '90s people, cities, states, the federal government, corporations -- they all borrowed heavily. A huge world of "prosperity" was created. But alas, the structure toppled over starting in late-1999. We refer to that as the "bursting of the bubble."
"Why did the structure topple over? It toppled because "no tree grows to
the sky." It's as simple and yet as mysterious as that.
"But worse, at the same time, a number of deflationary forces came to the
fore. They were -
"The Internet, which allowed people to find the cheapest item.
"China and Asia, which gave manufacturers and service providers a way of
drastically cutting their costs.
"Wal-Mart, which now accounts for 1.3% of the GDP of the nation. WMT gave people an outlet for Chinese goods. WMT is now a giant, fast-growing chain that cuts prices mercilessly.
"The global economy, which allows every nation to compete for exports with
every other nation. This resulted in what I call "the end of pricing
power." Today nobody can raise their prices and no manufacturer can raise
its wage scale.
"The US negative current account, which exports tens of billions of dollars
to other nations, and which has allowed Asians to built up their
manufacturing facilities and thus compete with US manufacturers.
"The relentless rise in unemployment, which is a fear factor for the US
population -- and also a force for deflation.
"All the above represent the forces that now threaten the current system of fiat money. Above all they threaten the edifice of debt that was built up
during the '90s.
"What is the Fed to do in the face of these forces of deflation, and the
death of pricing power?
"The Fed's answer is that "We will absolutely not allow deflation to enter
the picture. We'll preempt deflation. Since deflation is basically 'too
many goods confronting too little money,' why we'll defeat deflation by
creating so much money that deflation will be swamped. We'll drown the
forces of inflation with a veritable ocean of liquidity."
"Can it work? Can the Fed defeat the natural forces of correction and
contraction that is following the collapse of the greatest financial bubble
in history?
"The Russell answer -- It can work for a while, and, in truth, it has
worked for a while. But what has also happened is that in its inflationary
frenzy, the Fed has injected even more debt into the system. As I see it,
three major problems have been rendered even worse.
"First, a housing bubble has been built. Due to low mortgage rates,
Americans have rushed into housing, driving home prices up to absurd
prices. And with the housing boom, more debt has been built into the system.
"Second, the stock market bubble has been brought back. Is the stock market a bubble? With the S&P selling at 32 times trailing earnings and providing yield of 1.70%, I say that the stock market is now most definitely in a bubble.
"Third, in driving short rates down, the Fed has created a bond market
bubble. At the recent low, 10-year T-notes were yielding 3.1%, rates not
seen in almost five decades. The bond bubble has now suddenly and totally
burst, sending bond rates and mortgage rates higher. This morning the rate
on 30-year fixed-rate mortgages rose to 5.71%.
"So what lies ahead? What I see is a continued battle on the part of the
Fed to thwart the forces of deflation. The more persistent the forces of
deflation, the greater will be the Fed's inflationary efforts. The Fed will
use every resource, every "trick in the books," to thwart deflation. I call
it a "death struggle." It's a battle the Fed has vowed not to lose.
"In the end, the Fed's all-out inflationary war will impact on the dollar.
Too many dollars will be created (of course that's happened already), but
as the dollar is systematically destroyed, bonds will become suspect, and
the whole world of financials will come under suspicion.
"The flow of funds will turn from the financials that are denominated in
"funny money" to tangibles which possess an intrinsic value of their own.
Among the financials that will stand out, I believe, will be the precious
metals. Gold and silver possess intrinsic value based on 5,000 years of
human history. Gold and silver are the financial equivalents of a Picasso
painting or a ten carat D-color VS-1 diamond. The difference is that gold
and silver are priced every minute of the day while the price of a Picasso
or a diamond is ultimately determined by auction."
August 4, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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