Taylor On The Markets & Gold
Jay Taylor
Financial Markets
Will the Year of the Monkey Bring Some "Monkey Magic" in 2004?
I've gotten tired of the "good hair day/bad hair day" guys on CNBC in the
morning, so as Mrs. Taylor and I prepare to start our day, we normally turn
on CNNFN, which provides global information and news that the guys from
CNBC think is not significant enough to mention. But CNN is not without its
share of nonsense either. On Wednesday morning of this past week, viewers
were treated to some amusing projections for 2004 by a Hong Kong
soothsayer. He suggested that 2004, the Year of the Monkey as far as the
Chinese are concerned, would bring some "monkey magic" into the economy and the stock market. The soothsayer suggested that things would continue to get better in Asia and that the trend toward rising levels of wealth
relative to the western economies would continue.
Will President Bush Be Reelected? It won't be a real good year for
President Bush since he comes under the "sign of the dog" but the
soothsayer projected he would be re-elected anyway.
What about the Markets? The Hong Kong soothsayer said that telecom and
power companies, among others, would do very well in 2004. As for gold, he
predicted a $500 gold price by the end of 2004. He reminded the audience
that at the start of 2003 he predicted $420 gold.
I See No Monkey Magic
As a Christian, there is no room in my thinking for magic, monkey or
otherwise. I don't rule out the possibility that certain patterns in the
stars might provide some hints about our future and the direction of
markets, because the billions of galaxies each of which contain hundreds of
millions of stars, were after all created and put in place in an unfathomably intricate balance that ultimately rules out any chance of chaos. So it seems reasonable enough to me, that there may very well be some scientific explanations for certain correlations between the stars and markets that some analysts have outlined in the past. But that would not be magic. Rather it would be a characteristic of design. Not luck or magic.
This design was understood by most of America's Founding Fathers, as well
as Adam Smith and other classical economists. They perceived that when
politicians begin to mess with markets rather than allowing them to
self-correct, the long-term consequences are dire. But power hungry
politicians and greedy bankers have been, for self-serving reasons,
increasingly delighted to work their "monkey magic" on the public and the
public markets, most notably through the manipulation of the money supply
and thus the money markets. So Mr. Greenspan is engaged in all manner of
"monkey magic." When he floods the markets with huge new supplies of
dollars, created out of thin air via computers, he is selling to Americans
and to the world that he can create wealth and play God in terms of
circumventing market laws. This is in fact nothing short of a gigantic
fraud perpetrated by our Federal Reserve bank and the self interests it
serves.
So the big lie that we hear every day-that by keeping interest rates low,
all that ails the U.S. economy can be resolved-was pushed forward by Alan
Greenspan in another of his "feel good" speeches. While this short term
"narcotic" is pleasing in the short run to the equity markets and the U.S.
economy, the problem over the longer term is that it is exactly the wrong
treatment for growing global market imbalances that threaten to inevitably
bring our global economy down. In fact, the handwriting, as spelled out in
our latest interview with Ian Gordon, is on the wall. Debt is the single most important driving force of the capitulation phase of the Kondratieff
winter, and the Fed's policies are encouraging more debt and less savings.
Does Greenspan Need Jay Taylor to Tell Him What's Wrong?
So why doesn't Mr. Greenspan resort to the correct policy? Does he need a
small time newsletter writer like Jay Taylor to tell him how to construct
monetary policy? Hardly. I think Mr. Greenspan knows entirely what he is doing, which in my view makes him even more culpable for the extreme harm
that he is engineering for Americans. There are credible theories out there
that the Federal Reserve bank has been in fact created to serve a few
powerful global banking families primarily in England and the U.S. who are in the process of shaping our one-world government, with themselves of
course in charge. For some insights into what I believe to be well-founded
theories, subscribers are encouraged to read "The Creature from Jekyll
Island," by G. Edward Griffin (see www.therealityzone.com). For
confirmation of the views of Ed Griffin, I would also suggest you read
"Tragedy & Hope," by Carroll Quigley, who was President Clinton's history
professor at Georgetown. Why would Quigley, who was near the inner sanctum of these ruling elite families, spill the beans on this issue? Because, in his view, the ruling elite have already become so entrenched in the
political and economic fiber of the western world that their power cannot
be reversed.
Griffin believes that these ruling elite families don't care two hoots
about America's Constitution (which may be why it is being violated more
and more over time). In fact, some believe these families see economic
and/or political chaos as a means of securing more power and even more
wealth for themselves. A little war here and there. A little depression now
and then and people will be willing to give up their liberty without a
fight, to ensure safety by "Big Brother."
I believe from a big picture perspective, that may well be part of what is
going on with the Federal Reserve policy. Its policies drive the global
economy further and further out of balance and thus ensure an ever more
devastating collapse. And when the collapse comes, helpless citizens will
turn ever more willingly toward Big Brother for help and will gladly submit
to Big Brother's conditions in exchange for a morsel of food and clothing.
Nor are the benefits to the ruling elite accruing only in the long term.
Banks create money out of thin air. Money is the banker's inventory. Do you
know of any other business that can create its inventory out of thin air
and then sell it? So in the short run, while it is laying the ground work
for total control, the banking system continues to shift wealth in its
direction by money that is not wealth, but only claims against the
wealth-actually created by hard working honest Americans who, like sheep
being led to the slaughter, have not a clue about all of this. In fact
Americans are led to believe by CNBC's Curley and Moe and the Good Hair/Bad Hair guys that the Fed is a not-for-profit government agency acting kindly in favor of all Americans. So let the good times roll. Why worry about global trade imbalances or budget deficits that will never be paid, or
rising bankruptcies even in an environment of low interest rates?
When will the laws of nature catch up with the lies and distortions caused
by growing interventionist policies of America, a country that once stood
for freedom and free markets? Only God truly knows and quite frankly, from
a Christian theological perspective I believe God our Creator has already
determined the date when America is set to face some very stark realties
attached to our national violation of His laws, among which are those
natural laws of economics that the Keynesian proponents of socialism are,
for whatever motive, increasingly violating.
Markets Can Be Wrong Long Enough for You to Go Broke
Markets will eventually return to equilibrium, although for self-serving
dishonest reasons the politicians do all they can to fool Mother Nature.
That is why I think it is so important to keep up with what is going on in
the gold manipulation case. Because gold is so important to other markets,
its behavior, contrary to natural market forces, can tip us off to (a) the
existence of market manipulation and (b) to when those manipulative forces
are being overcome. But make no mistake, politicians can feed upon the
ignorance and indeed perpetuate that ignorance by misleading TV operations
like CNBC and CNNFN. More and more, I see these networks as a medium for disinformation aimed at keeping the truth from people rather than revealing it to the population. That is a tragedy for our democratic republic, for freedom, and for the well-being of our citizens. Independent thinkers and newsletter writers, who do not have the power of the printing press behind them, are fighting a gallant fight to try to overcome this evil, and it
will ultimately be overcome. But in the meantime, we must be ready for a
number of setbacks as they con their way to getting folks to direct their
funds in a direction that best serves not the populace but the ruling elite.
At least some of the flows Richard Russell was talking about above had to
do with money moving into stocks. In a dream Richard had, he interprets it
as meaning that he must stop fighting against what seems to him to be the
illogical flows of money into overvalued stocks.
I view Richard Russell an unusually gifted, independent, and freethinking
market analyst. But perhaps most important is his wisdom that is partly
inherited and partly acquired by his God-given willingness to be humbled by
the forces of the markets. Richard is able to see the longer-term picture
of death and destruction for our financial markets, but in the meantime, he
isn't going to fight power stemming from the market interventionists who
are screwing things up royally in the longer term.
Clearly the equity markets have been given an enormous push upward by a
huge dose of inflated money as well as a constant dose of misinformation
via our major media participants, especially television. It is also clear
that the economy is growing now as we head further into this election year.
To use Richard Russell's analogy, the only question we have in our mind is
how much longer will the remaining "spokes on the wheel" support the
structural integrity of the wheel? Election year politics guarantee that
question won't even be asked, but we are asking it because election year or
not, the spokes that are required to support the integrity of the global
monetary system are disappearing. Whether the bicycle breaks down before or after the election, only God knows. And at least for now, a huge dose of
liquidity pumped into the banking system is powering this significant bear
market rally.
****
GOLD
Well, it finally happened! We had a sharp correction in the price of gold
this past week, especially on Thursday when the spot price dove by $13.10.
But it closed the week at $406.40. Those of use who stayed long during the
20-year bear market were so toughened by that experience that we have the ability to shrug a decline like that of this past week as if it were almost
meaningless. Indeed, the chart above, which includes this past week's price
action demonstrates that over the longer term, the moves on Thursday and
Friday were non events. What we are seeing is a powerful move in the gold
market that suggests to me that not all things are right with the existing
world order.
In fact, as noted above, the huge and growing amounts of yen intervention
required to keep the dollar up artificially high suggest the structural
integrity of the bicycle wheel with missing spokes may indeed be nearing
its state of functionality. Which may explain why the G-7 countries are
planning to talk about policies to put a floor under the dollar and why the
parties to the Washington Agreement are also planning to get together in
early February to set up a strategy for more gold sales.
From my observations in the past, the closer to a breaking point the
markets get, the politicians who sense they are on the losing side dig
their heels in all the harder to defend their position; hence the need on
the part of the powers that be to set policy to try to keep an overvalued
dollar overvalued still longer. A policy to keep the dollar strong is an
unspoken policy to keep gold weak. But how much longer will the established
order succeed in that regard?
In fact they have been failing now for the past couple of years, evidenced
by the rise in the price of gold. If policies were in place to allow global
imbalances to return to equilibrium, then you might argue in favor of a
leveling off of the gold price and the dollar. However, as noted above, the
policies in place are only designed to worsen trade and other imbalances.
Markets are not stupid. At some point, they can no longer be fooled to
participate in efforts to overcome Mother Nature. And so we are seeing
signs of growing unrest with respect to the holding of dollars. The rapidly
worsening condition of the dollar vis-à-vis the yen is but one example of
markets overcoming the established order. The desire on the part of Islamic
countries to use a gold dinar in place of the dollar as a medium of exchange among themselves is but another example, as are increasing talks on the part of the Saudis to require Euros for payment of the oil they sell.
Evidence of a Powerful Gold Market
The chart above provides a picture of enormous power for gold, vis-à-vis
the dollar. But the failure of gold to drop below $400, even as the
establishment seemed to pull out all the stops this week to drive gold down
and the dollar up, should be seen as very encouraging to dollar bulls.
Indeed Robert Shields, CEO of Piedmont Mining (OTCBB- PIED), noted once
again that the open interest for gold forward contracts maturing this month
is remarkably high with only seven or eight days left before contract
notice day. This suggests that there are some powerful interests on the
long side of the gold market who are ready to put their money where their
mouths are, so to speak-in other words, to force the sellers of gold to
deliver the physical product on the maturity date of the contract rather
than to simply speculate by trading paper and then closing the contracts
before the expiration date. Here is what Robert Shields said in an e-mail
note to me on Friday, January 15, 2004.
" Jay - I see that the latest open interest reported for gold on the NY
Comex is now an incredible 300,273 contracts. That must be a new record,
or very close to it. That is a LOT of gold! Every one of those contracts
represents 100 ounces - so that is more than 30 million ounces of gold and,
at approximately $400 per ounce, it represents more than $12 billion!
That's a lot of money. "I see that 184,257 of those contracts, or more than 60%, are February contracts - which means, of course, that most of these must be closed out within the next two weeks! First notice day is only about 7 trading days away. Under normal circumstances, most of the longs sell their positions, rather than paying the $40,000 per contract required to take delivery of a 100 ounce gold bar. This weakens the price of the nearest contract. So, once again, if gold prices are going to correct, one would expect them to do so in the next week or so.
"While gold prices have already corrected about $20 per ounce in the past
few days, I noticed a couple of news items today that should concern gold
bulls. Representatives of the big central banks will be meeting the first
week of February to establish a floor under the US dollar. Also, I saw a
report that the central bankers will be getting together in the next couple
of months to work out a new gold sales agreement. The dollar shot up
like a rocket today - it was up 1.18 points to 88.05. Yet the gold price
dropped only US$1.90! While the stock indices were all up, so were the gold stock indices. In the face of such a technically weak period for gold - right before first notice day - and in view of such presumably ominous developments for gold, the gold price should have tanked. But it didn't. It certainly suggests that gold has some big supporters out there.
"Did you see Gold Fields latest report on world gold supply and demand that
was released yesterday? Mine production was essentially steady in 2003,
rising just a touch to over 2,600 metric tonnes, while fabrication demand
was about 3,000 metric tonnes and investment demand was up to 875 metric
tonnes. The gap between new mine supply and demand continues unabated -
and it has to be supplied with refined gold out of someone's inventory. As
we have discussed many times, you can't print gold and you can't make gold
in the kitchen like my wife bakes a chocolate soufflé. You have to find it, dig it up and recover it from hard rock - and that is hard work! It is a very expensive, complicated and risky process. There's no other way. All the gold on earth was created long before our solar system ever formed. That's it. You can't make any more gold. At some point the available inventories of refined gold will run dry - and at that point, the music stops.
"None of us know when that might occur, but during this past year big new
markets for gold have opened up in China, India, Vietnam and many other
countries. India alone already consumes about 1/4 of world mine
production, and Chinese demand will be growing rapidly. With relatively
inflexible mine production, it will be interesting to see where this gold will be coming from. The Bank of Canada has already emptied its cupboard. (I have never understood why a central banker would prefer to receive 2 or 3% interest on a paper currency when he could instead receive a 30 or 40% increase in the value of his gold holdings. But, then again, I am not a
central banker.) A number of other countries have amassed large holdings
of US dollars. A few percent interest on US Treasury securities doesn't
really make up for a 20% drop in the value of the dollar this past year.
If a tiny percentage of these large US dollar holdings are quietly
exchanged for gold (as Vietnam has now publicly announced they are doing)
the gold markets could become very interesting. Will the relentless gap
between supply and demand finally start to take effect?
"The playout of the February gold contracts over the next 10 days should be
very interesting to watch. If gold holds in this $400 area, it would certainly suggest that there are some very big fish lurking just beneath the surface."
January 20, 2004
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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