Taylor On US Markets & Gold
Financial Markets
Your editor has held the view that we may get a mild recovery for a quarter
or two but that economic growth would be way too tepid to allow earnings to
grow sufficiently to justify current share price which remain absurdly high. So amid all the self serving hoopla from the main stream media, who suggest economic paradise has been reclaimed, I think it is important to take a close look at those claims. How strong and lasting is the existing economic recovery?
First of all, we know that despite the most dramatic monetary and economic
stimulus perhaps of all times, the economic recovery can at best be termed
"lackluster" According to economist Robert Brusca, Chief economist at Native American Securities. He noted that GDP is several percentage points
lower than is normal at this stage of an economic recovery. Moreover, no
policy initiatives seems to be stimulating growth.
With respect to improving job data, Brusca noted that statistics at this
time of the year a really very unreliable. And with respect to productivity
numbers, he pointed out that it is being achieved mostly by laying off
workers and requiring existing workers to work harder or longer hours. That
action in fact is reducing the demand side of the economy while during
normal recoveries, hiring increases would now be underway.
Even the GDP growth from 1.4% to 2.4% in the most recent quarter is suspect because 70% of the increase in GDP resulted from war related defense expenditures. Unless we are planning another war (I don't rule that out) the worry on Wall Street is where will the growth come from next quarter?
With respect to increased capital spending, most of the time it is also
resulting in a loss of jobs which further weakens the prospects of sales
growth. Yes, our bankers and politicians will continue to try to lie and
cheat their way to growth via the printing press. But their ability to convince voters they can produce "free lunches" is highly dependent on help from foreigners willing to lend their surplus dollars back to us. Problem is our balance of payments now are reaching dangerous levels. The system
surely will not continue on this way much longer. The rest of the world will not continue to lend us money forever to fund extravagant consumption as we Americans push ourselves ever more certainly toward "debtors prison."
And therein lies the huge concern of folks like Stephen Roach, Chief
Economist at Morgan Stanley and Rchard Duncan in his book, "The Dollar
Crisis." Our U.S. centric world is moving further and further toward a
catastrophic end where the U.S. increases its debt load in relation to its GDP. Our balance of payments deficit is now at 5.2%, which based on
historical experience is at a dangerous level. There are little prospects of this trend of the U.S. over consumption and under saving to be reversed
because of the short term political pain related to doing so. Not only would this be painful for the U.S. but also for the developing countries that rely on the U.S. consumer to keep their economies afloat. What is happening is that the U.S. is in the process of being run into bankruptcy but the pain of tightening our belt to avoid that catastrophic end is just politically too painful to allow it to happen.
The Dollar Crisis by Richard Duncan
I have begun reading this book by Richard Duncan. I think it is the best
book I have read in recent years for explaining how the detachment from
gold as money has set our one-way trip toward an economic hell for
Americans and perhaps the entire world. Here is the thesis of the book, as
described on the cover of the jacket:
"The world economy is sinking into the worst industrial and financial
downturn since the 1930s. Stock markets are plunging, major corporations
are going bankrupt, and governments are begging for bailouts from the IMF.
In the Dollar Crisis, Richard Duncan explains the nature and the origin of
the imbalances that have destabilized the global economy.
"The books' them is that the global economy has been destabilized by the
United States enormous trade deficit which now exceeds US$50 million…AN
HOUR or 1.5% of Global GDP per annum. The trade imbalance, financed through debt, has created tremendous disequilibrium in the global economy and an economic bubble in the United States. When that bubble pops and the global economic disequilibrium unwinds, the world will not be able to avoid a very serious economic slump."
Richard Duncan is no wild-eyed, rabid ideological "gold nut" by any means. He is very much an establishment guy who has independently analyzed the
emergence of global trade imbalances that Stephen Roach and other
reasonable people are so frightened about these days. Duncan has worked as
a financial analyst in Asia for more than 16 years, conducting research and
publishing investment reports on companies, industries and economies from
India to Korea.
In 1993, Mr. Duncan was one of the first to warn of the impending collapse of the Thai economy and the Thai stock market in a series of published
reports and speeches directed at institutional investors. At the height of
the Asian crisis, he worked as a consultant for the International Monetary
Fund in Thailand. Subsequently, he joined the World Bank in Washington DC
as a Financial Sector Specialist focusing on issues related to the economic
crisis in Asia. Duncan studied economics and literature at Vanderbilt
University and business and finance at Babson College.
Duncan has come to realize what Ludwig von Mises said in 1949, namely that
"There is no means of avoiding a final collapse of a boom brought about by
credit expansion. The alternative is only whether the crisis should come
sooner or as the result of voluntary abandonment of further credit
expansion, or later as a final and total catastrophe of the currency system
involved."
Greenspan and others concocted all kinds of reasons for the boom of the
1990's but they always failed to focus on the real cause, which was the
creation of enormous amounts of fiat money out of thin air. As David Tice
so bravely told CNBC viewers time after time during those fateful years,
the party we were "enjoying" then had nothing to do with productivity or a
new paradigm, but simply was caused by the money printing machine of the
U.S. banking system. And so the conclusion of the great Austrian economist,
von Mises is unfortunately about to be born out.
It is unfortunate that when the Clinton boys chose to rig the gold price
and thus create an illusion of a "strong dollar," a longer term currency
pathology was enabled that served the short term political aims of that
administration very well, but all but ensured increased instability in our
financial markets and the likelihood of ultimate death of the dollar based
global monetary system. Lawrence Summers understood based on academic work he carried out at Harvard that if interest rates were to be decreased, gold would have to be "capped" else the dollar would decline and the U.S. would not be able to enjoy the enormous prosperity it enjoyed during those years by way of the great dollar lie. I believe Alan Greenspan tried to send out a warning signal with his "irrational exuberance" speech of 1996. But that speech caused all hell to break loose in the markets and in Washington so the Green Man caved in and played ball with the boys who call the shots.
Clinton had a chance but refused a "voluntary abandonment of further credit
expansion." Nor would the Republicans not tried to gain politically from
such an honest effort had Mr. Clinton undertaken it, so they are equally to
blame in my view.
And so now the Piper must be paid. The international monetary system,
according to Richard Duncan is likely to spin out of control. How much time
to do we have? Only God the Creator knows for sure. But anyone who wishes
to open his/her eyes should be able to see the handwriting on the wall. The
U.S. is broke and one a collision coarse toward ultimate economic ruin. How much longer we have really depends on how long it will be before our lenders (China/Japan and many others) pull the plug on us. And when they do, I believe the most likely scenario will be an economy characterized by a cascading debt default that leads to a huge decline in value as everything is put on the auction block in search for liquidity. By the way, Richard Duncan believes the system will collapse in the midst of
deflation, not inflation.
GOLD
The action in the gold market was very encouraging last week, especially given a steady dollar. Also very encouraging was last week's powerful move in the XAU, as pictured below. You can see this index rose convincingly above a resistance line dating back to the start of this year. A rise in the gold shares is usually very bullish for the metal. And with the metal rising last week even as the dollar was stable and in the midst of some of the best economic news we have had in a while, I think is very bullish.
Beware the Establishment's Tricks
But in spite of these bullish signs, investors need to be ever aware of a
giant battle that is raging with respect to gold. The establishment hates gold and will do everything possible to diminish its role as money. They can be counted on to do that because as Alan Greenspan himself noted in his
1966 essay (in which he recently told Congressman Paul he still agrees)
gold gets in the way of the confiscation of private property. The bankers
and politicians hate gold and they love paper. Why? They love paper money
because they have a license to print it and then use it to steal from the
general public. When gold is money, they cease being able to force "taxation without representation" on citizens. It is as simple as that.
So that is why the scoundrels who run our big banks and who have purchased
our political establishment, will do everything in their power to convince
you not to own gold. They will tell you it is a barbaric relic and with most economists being indoctrinated along those lines, supposedly talking heads will spin that line day in and day out on CNBC so that most Americans now believe it.
But Mother Nature can only be fooled so long. I would urge you to read "The
Dollar Crisis" by a mainstream author named Richard Duncan to learn why this game of legalized theft is about to end. I don't have time to go into
this now. But the long and short of it is that with the discipline of gold
removed from the global financial system, we are quickly approaching a time
when the global fiat or paper money system breaks down. By default, gold
and possibly silver will be our money. That will happen only after the
establishment does everything within its power to keep their current
counterfeiting privileges in tact. And part of that struggle is a mind control game to keep you convinced paper money and things denominated in paper money, like stocks and bonds are where true value lies.
And so we get the usual pap from the establishment like an article from Dow
Jones this past week titled "Expiration of Bullion Sales Pact Hangs Over Gold Market." The leading remarks quote Pierre Lassonde, President of
Newmont Mining that gold would hit $450 per ounce in the next 12 months.
Then the article refuted that notion by suggesting that when the Washington Agreement expires, in September 2004, central banks would not renew this agreement which limited the amount of gold central banks could sell.
The implication of the article is nothing new by establishment folks who
totally ignore the work of Bill Murphy's GATA which suggests the amount of
gold left in the coffers of western banks may not be nearly as great as the
establishment is suggesting. Indeed the work of Frank Veneroso, which was
subsequently collaborated by Reginald Howe and James Turk, using differing
methodologies, all have concluded that an enormous amount of gold, perhaps
as much as ½ of the gold various countries (including the U.S.) claims to
have in their vaults are not in fact in their vaults. Nor will any of the
governments allow the physical gold in their vaults to be audited as Jimmy
Rogers pointed out in my recent interview with him.
We believe GATA, not Goldfields Minerals Services, which is the
establishment's disinformation mouthpiece. GATA started out on the
intellectual capital provided by the brilliant gold market analytical work
of Frank Veneroso. Frank concluded the Goldfields Mineral Services gold
short numbers were way too low and that the central banks were dishording
enormous amounts of gold either by outright sales, leases or swaps. Then
independently, and using differing approaches, both James Turk and Reginald Howe confirmed Franks analysis. This analysis suggests that upward to 15,000 tonnes of gold has been sold short by the central banks. That
contrasts with about 4,500 estimated by Goldfields.
With China now reportedly seeking to add gold to their balance sheet as a
replacement for dollars, and with the dollar now living literally on borrowed time, we think the day is fast approaching when the central banks of the west will be unable to even entertain the idea of selling more gold because the currencies which they now use as reserves will suddenly become worthless. The only asset of any value left - to the extent they have any
left, will be gold. If our nation ever wakes up to face the cause of our
impending poverty, we will one day look back with horror and enormous
remorse for trashing our future fore the sake of prolong the fiat dollar lie.
Which by the way is another reason I like GoldCorp (NYSE-GG-$13.13) so
much. GoldCorp is more than 100% long on gold. How can that be? Goldcorp
not only avoids selling gold short, but it hordes a percentage of its production. Why so? Because it understands it product. It not only knows
that gold is money, but it knows that it is SUPERIOR money. So rather than
storing its retained earnings in fiat money, it is storing it in gold. In fact, GoldCorp now owns more gold than the Government of Mexico and perhaps also more than Canada since the Canadians have long ago bought the fiat currency lie hook line and sinker!
August 11, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
Email this Article to a Friend 
Printer Friendly Version
