Taylor On US Markets & Gold
Financial Markets
"The markets today are in the hands of professionals, and on a trading basis they're in the hands of hedge funds and speculators. Thus, we're seeing very erratic moves. Market up big time one day, down big time the next day. A trend looks to be established, but suddenly the trend reverses.
"This makes it very difficult for amateur traders. Today you're competing
with the smartest, toughest traders on earth, and if you try to match wits
and trade with them (I should say against them), you're going to end up
wearing shirts and pants purchased from your local Salvation Army store."
(Richard Russell - Richard's Remarks, October 2, 2003)
Richard struck my funny bone with that one. Somehow it just kind of hit me
funny. The harder most of us try to use our wit in the market the more
likely we are to fail. As Richard points out constantly, you need to identify the primary trend in the markets (as defined by he Dow Theory) and then stay on the correct side of that trend over the long term. Of course
identifying the primary trend is not that easy. Russell's ability to use his years of experience as a Dow Theory practitioner is what makes him so
valuable to me. In addition to identifying and investing with the primary
trend, Richard also emphasizes the need to avoid major losses and to
compound your earnings and gains.
Funny though Richard's Salvation Army remark was, I think the action in the
gold and equity markets of late suggest Richard is right. This is a traders
market so to get caught up with the daily noise of this statistic or that can be extremely dangerous for those of us who are not traders. I readily admit, trading is not your editor's forte. So, if you are looking for a newsletter that will give you trading ideas, you will need to go elsewhere. That doesn't mean we won't take a quick profit when a stock becomes overvalued much sooner than we anticipated. But generally, the kinds of companies followed in this newsletter are early situations that may require years before the markets recognize the value we anticipate when we first recommend them.
Equity Values Remain Hugely Excessive!
The daily noise of the markets, against which the professional traders trade and pick your pockets, is very dangerous to most investors because it obscures the big picture. Chances are the news that the news of an increase
of 57,000 non-farm jobs were added to the economy turns out to be a fluke
only to be adjusted and smoothed out in months to come. But for the Wall
Street casino, the house used it to sucker average folks back into to the
stock market game on Friday. A large number of Americans have apparently
been suckered back to the casino to roll the equity dice a few more times
in the hope of getting back their the lost values of their 401-K accounts.
The payoff has to come just often enough to keep you playing but not more.
Does the need to keep the suckers coming back to the casino play a role in
some dishonest economic statistics from our Federal government numbers from time to time? So much is typically made of positive news and yet negative news is not mentioned or downplayed. From all we can see, the big picture remains the same. We are in the early stages of a Kondratieff winter. The freezing temperatures, which lead to a debt repudiation and deflation, have not arrived yet. But with each monetary pump priming by Mr. Greenspan, the day when our exponentially growing debt load asphyxiates our economy and sets the inevitable debt cascade in motion is that much closer.
Do not be deceived by one bit of good news on Friday. Our economy is sluggish and jobs are being lost, not added to our economy. CNBC and Wall
Street in general ignored or downplayed the announcement that wages
actually declined 0.1%. Nor was hardly a peep heard out of these Wall
Street cheerleaders about the a 150,000 downward revision of jobs believed
to have existed earlier this year. In fact, as Kurt Richebacher has pointed out, these monthly revisions of prior employment numbers have been
occurring almost every month, thus obscuring the actual numbers. It almost
seems as though our Labor Department makes a set of assumptions that gives them a good number one month and then is forced to revamp the employment downward the next month to square their numbers. But if the media doesn't pay attention to prior month adjustment, this spinning scam keeps investors viewing the world through rose colored glasses. Also ignored on Friday, was the fact that virtually all of the other economic news released this week like lousy consumer sentiment numbers, sharp declines in durable goods orders and more. All this flies in the face of this single jobs report which was played up so big by the Kudlow and Kramer crowd.
The politicians, bankers and paid spinners on CNBC can spin this thing all
they want. But don't be fooled. As Kurt Richebacher pointed out in an essay
written and published at www.lemetropolecafe.com last week, "There has been much talk to the effect that America has just had its slightest recession in the whole postwar period. That is measured in real GDP growth, being bolstered by many statistical tricks. Measured, however, by job losses, which certainly are far more important gauge, it is already America's worst
recession by far.
"In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar
recoveries has there been any employment decline. Immediate strong job
growth has been the regular characteristic of all business cycle recoveries. On average, payroll jobs increased 3.8% in the 20 months following the end of recession."
We need to avoid being distracted by the noise coming from Wall Street and
its pimps that sell its wares. I don't mean to imply that all of Wall Street is knowingly misleading folks. I think they just are not thinking about what they are doing. They Hope and they want you to hope so you keep buying their stocks. And hope doesn't cost you anything. Or perhaps it does if it causes you to act irrationally by buying over valued stocks.
Speaking of overvalued stocks, at the close of this past week the S&P 500
was selling at a P/E ratio just a whisker under 30 times. Those of us who do not have our bread buttered by Wall Street, are free to tell you that such rarified valuations mean if you equities now, your chances of earning high returns over the next decade or so are extremely low. Keep your eye on the primary trend. We remain in a bear market for stocks so that we think it is extremely likely that the prior lows in this bear market will be taken out, most likely within the next year. We think the Dow will inevitably fall to 5000 or perhaps much lower. At that point in time, we expect to be buyers of stocks when the S&P 500 sells below 10 and dividends for Americas strongest companies are providing yields approaching double digits.
GOLD
Take That! You Dirty Rotten Gold Bugs!
The liars, cheats, pimps, and whores of the financial world came out full force and swinging on Wall Street with all their might on Friday just a few
minutes after 12:00 noon. The results of their efforts are visible from the
chart above. Gold took one of its biggest nosedives in several years when
the Gold Cartel began to trash the gold price for all it was worth.
Most people are of course still not focused on the fact that gold is a
manipulated market. When gold goes up they think that's a bad sign because
they assume it is a free market outcome. When gold goes down they are happy because they sense that is a validation of the dollar as a strong currency. No need to look any further. If our Treasury Secretary says gold
down/dollar up is good, it must be true.
But that naiveté is quickly changing as gold continues onward and upward in
the early stages of a major, multi-year bull market, notwithstanding the
above pictured one-day manipulated price. Anyone who examines the global
financial system understands our dollar-based system is in deep doo-doo.
That is no doubt why countries like China and Russia are increasing their
gold reserves as a basic reserve currency.
And now this week we learn that India has just begun trading gold futures
for the first time in four decades, linking the world's biggest consumer of
the metal with global gold markets, the Consumers Affairs Ministry said. India banned futures trading in gold and other commodities in 1962 to rein in speculation in the wake of a war with China. The ban forces traders in India's $9 billion jewelry market to buy and sell $220 million of futures contracts daily overseas. This is expected to make the 24-hour gold market
more efficient and transparent.
Also the ability of individuals and mutual funds to buy shares of gold rather than gold mining stocks is expected to soon be in place in the U.S. All of these factors combined with a global financial system that is becoming ever more imbalanced and ever more likely to collapse makes gold an increasingly important asset to own as an insurance policy against collapsing fiat currency values.
Against this background, the manipulative ploy by our policy makers to
trash the price of gold should be seen as a positive rather than a negative. It provides you with an opportunity to buy gold and gold shares at a much better price than just a few days ago. Those who understand these kinds of gold thrashings are not legitimate market driven activities, but rather the actions of an increasingly desperate financial sector that has its wealth stored in the increasingly unstable U.S. dollar, can take advantage of that knowledge to acquire gold assets before the general population is treated to the rude awakening of a worthless dollar.
Why do our Elitist Policy Makers Hate Gold So Much?
The actions seen in the markets on Friday like so many similar moves,
especially since the Clinton Strong Dollar con game was put in motion, has
always been to CON people into holding on to their paper dollars rather
than exchange them for real money, namely gold. These kinds of games are
required in order for the establishment to continue its legalized but
clandestine counterfeiting scam without public outrage. Sadly, our policy
makers and elected officials and even the American people no longer
understand how honest money and freedom go hand in hand. They no longer
appreciate the fact that freedom is rare throughout history and that a gold
backed monetary system is a must if freedom and free market economics are to survive.
In fact, most of our elite policy makers now are much more comfortable
philosophically with a collectivist system (like communism and/or fascism)
than they are with free market economics. Allan Greenspan has "turned
states evidence" against the bosses he answers to - those people who really
call the shots at the Federal Reserve and who really are the power behind
the American Throne. (Read The Creature from Jekyll Island by G. Edwin
Griffin, or the Shadows of Power by James Perloff, or "Tragedy & Hope" by
Carroll Quigley, who was President Clinton's history professor at
Georgetown.)
We know what Mr. Greenspan really thinks about some of the really big,
philosophically issues of free market economics vs. a collectivist system
like communism or fascism. He knows very well that his puppet position is
being used to lead America toward tyranny of one collectivist stripe or
another. How can we know Mr. Greenspan currently believes that is where
America is headed? We can know that because as recently as February of
2001, he told Congressman Ron Paul that he still believes every word of
what he wrote in an essay titled, "Gold and Economic Freedom" in Volume 5,
Number 7, of Ayn Rand's "The Objectivist" newsletter. In that letter,
which was dated July 1966, Greenspan said the following:
"An almost hysterical antagonism toward the gold standard is one issue that
unites statists (e.g., fascists and communists) of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire-that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other."
"Thus, under the gold standard, a free banking system stands as the
protector of an economy's stability and balanced growth."
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all their bank deposits to silver or copper or any other good, and there after declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
"This is the shabby secret of the welfare statists (e.g., fascists &
communists) tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
In other words, if you can see the big picture here, major downturns like that which took place on Friday should not cause you to fearfully run out
of your gold or gold stocks. Rather, if you can understand that the powers
that be are now being overrun by the forces of nature and that actions like
those taken on Friday in the gold markets and quite possibly in the equity
markets as well, and that these moves are merely drastic attempts to keep
the paper scam game going a little, you will be in a position to profit from these actions rather than be ruined by them.
The bigger economic picture does not change with one day's worth of gold
market manipulation or one change in the employment number. As Richard
Duncan, Stephen Roach, and others have pointed out, global economic
disequilibria point toward an inevitable, drastic decline in the value of the world's reserve currency, namely the dollar. Gold, which is the only reserve currency on the balance sheets of central banks that is asset money, will be seen as an increasingly necessary monetary asset. In fact, who is to say but that games played in the gold market like that which took place on Friday may not be carried out in order to allow those central banks with huge short positions to cover their positions before the price of gold explodes on the upside.
Moreover, even if you don't buy the conspiracy viewpoint as I do, from a
technical point of view, the gold market was due for a correction. This I believe will prove to have been a healthy decline that shakes gold out of
the Johnnie-come-lately, momentum players and allows those of us with a
longer term perspective on gold as money, not a commodity, to build our
positions in both the metal and the shares. The elitist policy makers gave
you a gift on Friday when they trashed the gold price. My advice is to take it!
October 7, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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