Taylor On The Markets & Gold
Jay Taylor
Financial Markets
Pinocchio's Nose and Government Statistics
What most investors fail to realize is that inflation and deflation are, so to speak, two sides of the same coin. Our government has sanctioned a dishonest monetary system because it is a system that encourages theft by the ruling elite. How so? First governments, by fiat, circumvent the markets and the choice of the people as to what they will use as a medium of exchange for trade with one another. The removal of this most basic freedom provides the underpinning of our emerging fascist state because by
eliminating gold and silver as money, we have paved the way for our ruling elite (bankers/politicians/corporate executives) to rob the poor and average hard-working folks by creating money out of cyberspace. In the old days, they simply printed money. Now they create bookkeeping entries on computers. All these powerful thieves need to do is type higher numbers on their computers and, Bingo!-the money supply, which they control and dole out according to their own selfish needs, is multiplied.
This process results in swelling bank accounts and an illusion of wealth. With more and more of this kind of money created out of thin air, we have surging real estate prices, a still grossly overvalued stock and bond market, and a feeling, at least among those who are close to this pig-feeding trough, that all is well. Would it be that creating wealth were so easy. The Fed buys some Treasury debt and puts cash in a New York money center bank, let's say "Bank A." Bank A, makes a $10 million loan which in turn is deposited in "Bank B," and then Bank B makes a $9,500,000 loan. The recipient of the loan places the proceeds of his loan on deposit with "Bank C" (it could be Bank A or Bank B as well) and Bank C now has an excuse to make a $9,025,000 loan to still another corporate client. Bingo! Out of thin air in just these three "small" corporate loans, the money supply has risen by about $28.5 million. The same process takes place with consumer loans and mortgages but on a smaller scale.
On the surface, it looks like times are good. With the proceeds of those loans, companies go out and build new buildings or develop new products and
perhaps even hire some new employees. But what is seldom talked about by
our ruling elite these days is the process I described above. In other words, from what is money manufactured in a fiat money system such as ours?The answer of course is DEBT. This omission is highly deceiving because any
Accounting 101 student knows that wealth is measured much more accurately by net worth rather than assets. In other words, we must subtract debt from assets to find out what we really own.
In my speech at the New York Institutional Gold Conference on June 2, I
suggested that the two main economic theories that our university students
have been indoctrinated with and continue to be indoctrinated with, namely
Keynesian and monetarist theories, are both theories that lead to major
economic disequilibria over time. To hide those disequilibria, policy makers begin by engaging in little "white lies." But each white lie begets a bigger and bigger lie until finally attempts to hide the truth become so obvious that the belief system that was built on those lies breaks down.
On a macro economic scale, what we have seen is that to try to keep the
markets from deflating back to equilibrium (that would be politically too
painful, especially given the size of the disequilibria and the accumulation of lies over the years), fiat money which is manufactured from thin air as discussed above, has to grow faster and faster and faster just to keep the forces of deflation at bay. In other words, to disallow the natural forces of markets to work, more and more money is being created at a faster and faster pace. I equated this behavior on the part of our politicians to the fairy tale story of Pinocchio and used the following two slides to make my point.
In my talk I noted how the growth of money leads to bubbles and with each
successive bailout, new bubbles are created. Another slide that I showed
outlined some recent historical bubbles, each of which led to even bigger and more dangerous bubbles until the present, when we have bubbles in equities, debt, and real estate on a scale more massive than ever before. And now we have a global dollar bubble as shown in still another slide in my presentation, which reveals that global U.S. dollar liquidity is now ballooning by an unbelievable rate of over 20% per year!
(Incidentally, my New York slide show, along with an explanation of each
slide is now posted on our Web site at www.miningstocks.com.)
A NEW RECORD FOR NYSE MEMBER BUYING
"In the week ended May 15, 2004 NYSE Member Net Buy/Sell numbers hit a new, all-time high of net buying of +741,439,000 shares. There are only two
other occasions of net buying that even come close to this -- +540,105,000
shares in the week ended November 14, 2003, and +588,248,000 shares for the week ending March 28, 2003. As you can see by the chart, there is no other week that even comes close to these three huge buying spikes. "You will also note that each of the two prior buying spikes occurred immediately prior to a significant market advance, and, in my opinion, the current buying spike is an extraordinarily bullish event. NYSE Members are the middlemen who make their money by accumulating stock during declines and selling back it to us at a profit during the next advance. If they have acquired this much inventory, I think we can assume they expect to distribute it at higher prices over the next several weeks. "Can they be wrong? I suppose so, particularly if there is a catastrophic event affecting stocks prices (and highly likely that they have this position fully hedged), but it makes no sense to me that they would load up on stocks to this extent unless they are pretty sure they will be able to turn this inventory at a profit. "As you can see on the chart, most of the time it is hard to make much sense of the net buy sell numbers, but significant amounts of NYSE Member buying or selling should serve as red flags, because it is their business to insure that their positions unwind in their favor.
"NOTE: NYSE Member Net Buy/Sell numbers are available from Barron's (print and online), and they are released by the NYSE two weeks in arrears so that we can't know what they are doing in real-time.
"--Carl Swenlin "CAVEAT: Charts featured in Chart Spotlite are intended as examples of how to use technical analysis, not as trading recommendations. "
Insider Buying or Insider Deceit?
My first reaction was, Wow! Could this be a legitimate sign that we are
ready for a new super bull market? So once again I forwarded this off to my
good friend, Wistar Holt of Holt & Shapard Capital ( www.holtshapard.com )
to see what his reaction was. Wistar pulled no punches. Based on the
following it is clear Wistar thinks this is nothing but evidence that the
equity markets, like the gold markets, are RIGGED, Big Time! Here was
Wistar's response to me.
"Jay,
"Let there be no doubt about these three examples of market manipulation.
This appears to be to the PPT "juicing" the market via the Wall Street
firms/NYSE Members. It is almost comical. Nobody could time these "bottoms" so perfectly without being the actual catalyst itself. No firm would expose that much capital at any given moment unless they were assured that the risk was eliminated. The Fed controlled PPT provides unlimited fiat dollars to make sure the market recovers. It is very sad to comprehend that this is the way the markets operate today."
I would also like to contrast the report from www.decisionpoint.com with a
statistic that was passed along to me by Wistar Holt who sent me the
following email that was passed on to him from a friend.
"According to the Vickers Weekly Insider Report, corporate insiders have been selling stock at a furious pace throughout 2004. Fourteen billion dollars worth in the last four quarters. David Coleman states that insider sales have NEVER been higher, since the company started tracking the data in 1971.
"I put up an article not long ago that pointed out that corporate insiders were selling 1500 shares for every share they were buying ... I wonder what
THEY know ... something the lumps don't know, that's for sure ... David"
For all of these reasons and more, we remain very bearish on stocks and the
dollar, and very bullish on gold.
GOLD
Because in the post-Bretton Woods era, paper money has been deemed by
governments (not by markets) to be better than gold, all manner of lies have had to be told over and over and over again to try to convince us it is true. As all great dictators have known, if a lie is told often enough it eventually is believed to be the truth. So it is with gold. In our university educations, we were told that if policy makers could only liberate themselves from gold, they would be able to manage the economy better, and reduce depressions and economic downturns.
What eliminating gold did was allow market imbalances like Stephen Roach
complains about to get all the worse because it enabled policy makers to
delay market equilibrium. Those days will surely end when, due to market
forces, the dollar will no longer be a viable currency. When that day arrives, gold, or perhaps another asset money like silver will, due to market forces and a lack of confidence in paper and policy makers, once again become money.
So what we have now is a tug of war between the dollar and gold. The
negative correlation between the dollar (fake money) and gold (real money)
is something in excess of 90%. While I believe the tail (gold) wags the dog
(the dollar) and not the other way around as most believe, it is nonetheless, still valuable to look at dollar forecasts to get a sense of the likely direction of gold.
One view of the currency markets that I find most valuable comes from
Everbank World Markets. Chuck Butler, President of that bank writes a daily
missive about the currency markets in a publication called "A Pfennig For
Your Thoughts." Following is some of what he had to say about the dollar on
June 11:
Ganging Up...
Good day... And a Happy Friday to one and all! Management meetings on Long
Island... Lots of sawdust left on the floor yesterday... Glad that's over!
Now I can get back to my job, as long as I still have one...
Well, I left Chris Gaffney with the con, and I come back and see the euro
barely trading above the 1.20 handle! OUCH! What happened? Well...First it
was Greenspan... Then, as Chris so deftly explained, it was technical trading, now it's St. Louis Fed Gov. Poole ganging up on the euro with his statement about interest rates going higher faster than the markets expect. Yeah, and my first wife was a young Elizabeth Taylor... Yeah, that's the ticket!
Really, let me explain this... Recall last year when the Bank of Japan bought over a trillion yen worth of dollars to keep their currency weak? Well, this is the opposite... The Fed, which is not even going to start intervening in the markets, had decided that the dollar was falling too fast... Recall, a 5-cent move in three weeks, right? OK, let me be perfectly clear here... The Fed would like to see the dollar remain weak, which when you consider where it was 3 years ago, it certainly is... But they can not, I repeat, can not, allow Foreign investors and Foreign Central Banks get the feeling that they (the Fed) will not support the dollar... Talk about gloom, despair and agony on the U.S. should Foreign investors and Central Banks ever get that feeling!
So... The Fed wants an orderly decay of the dollar... Just like the Bank of
Japan wanted an orderly rise of the yen... Ain't it a shame... That Central
Banks manipulate their currencies? Yes... It's called a "dirty float"...
So, the Bank of England and the Reserve Bank of New Zealand came through
with rate hikes this week, just as I thought they would... It's about time we start to take a look at New Zealand as a bond buying opportunity... Not quite yet, but soon... I'm going to have to get caught up with the Reserve Bank statement to see if there were any clues to what they have on their minds regarding monetary policy... I doubt they are finished, with commodity prices still high, and in demand from China... But let's put this one on the radar, and check in every once in a while to see if the time is right!
The Bank of England's monetary policy was stated as unchanged, which means their tightening bias remains on the table. Now, it may take a few months for them to come back to that table, but they will... I thought Chris
Gaffney did a great job explaining why the pound sterling lost ground after
the rates were increased... The markets are looking for more... And this
will also happen to the dollar at the end of the month when the Fed moves
25 BPS... I don't care if they say there's more to come, the markets are
going to be disappointed, and take their frustrations out on the dollar at
that time.
You see I'm a believer in the law of diminishing marginal returns... Which
is exactly where the markets are going to be once the Fed starts hiking
interest rates! So, chew on that thought for a while, and let me know what
you think!
June 14, 2004
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
Email this Article to a Friend 
Printer Friendly Version
