Ominous Clouds Emerging over Equities Markets
The talking heads on CNBC would have you look at the charts above and suggest that stocks are inexpensive. While they may be less outrageously overpriced than they were in 2000, they remain hugely overvalued. The NASDAQ high tech bubble must compare to some of the great manias of past eras like the South Sea Bubble and Tulipmania because so many stocks in that index were inflated to ridiculous values on the strength of Alan Greenspan's printing press and on the huge coverage these companies received from CNBC and other major media. The NASDAQ actually did collapse on a par with the 1929 crash as it lost more than 80% of its value. In spite of the massive credit creation and fiscal stimulus, it has managed to crawl back to around 2000, which is still over 60% below its year-2000 mania peak of over 5000.
The S&P 500 is more representative of the loss of stock valuations as a whole since some of the air began to escape from the equity bubble in 2000. But notice its current level at 1112.81 is still far, far below its 2000 peak of over 1500.
The Dow Industrial Average, which is perhaps the most watched index in the world, is comprised of just 30 stocks. As such, this index can be easily manipulated by the Plunge Protection Team and other policy makers by simply printing money and using it to buy into the futures markets at key moments to break a gathering "meltdown" psychology in the market as took place in 1987. Has that been happening? I am less sure of that than the gold manipulation problem, but following the meltdown of 1987, at which time there were no buyers for America's strongest companies, one former Federal Reserve Board member suggested it should be done. And there have been rumors and plenty of circumstantial evidence to suggest the ruling elite are, from time to time, dickering with these markets to keep the little guy suckered into stocks.
What I think is hugely revealing is that despite the enormous amount of money created out of thin air by the Greenspan Fed and the Federal Reserve Banking system, and despite the biggest fiscal stimulus since World War II, and despite foreign capital continuing to pour into the U.S.-which has served to keep interest rates artificially low-the equity markets have failed to do better than they have done, as pictured in the charts above.
But this in fact was exactly what Ian Gordon predicted when I interviewed him in 1999 and again in 2000. He always maintained that the market top was reached in March of 2000 and that no matter how much Mr. Greenspan and his Fed attempted to inflate the economy, they would never be able to drive stock prices to new highs during this Kondratieff cycle. There is simply too much debt that acts as a drag against rising prices. And so the stock market is doomed until the Kondratieff winter wipes the balance-sheet slate clean. That will be a very, very painful experience, but as is true with hurricanes, tidal waves, earthquakes, or any force of nature, ultimately, market forces cannot be denied. Our policy makers can deceive us, if we let them, but ultimately they cannot deceive Mother Nature.
And so now there are growing signs that the Dow, which is the most easily manipulated market and the one containing America's strongest and most financially stable companies, is getting ready to resume its return back to what we believe is a long, long-term secular bear market in stocks.
What are some of the reasons equities led by the Dow are looking extremely vulnerable at the moment? To start with, look at the declining tops in the shorter-term chart of the Dow. Note that the bear market rally, which peaked in February of this year, now seems to have topped out. We see a pattern of lower highs and lower lows very much in place. This is always a bearish pattern. But Richard Russell, who I think is the best overall market analyst in the world, noted in his June 9 "Richard's Remarks," the following negative signs for stocks, all of which suggest the bear is beginning to emerge from his hibernation that began in 2003.
In fact, since I have begun tracking the daily reports of insider selling reported in Section C of the "Wall Street Journal," I have become aware of just how lopsided insider selling, compared with insider buying, is. Over the past two weeks, as reported by the Journal, insiders have bought $79.4 million worth of the shares of the companies they manage. However, insiders have sold $1.4 billion worth of stock in the companies they manage! That works out to a ratio of $17.50 of stock sold for every $1.00 purchased.
This I believe is what the topping pattern we see in the equity markets is all about. I am old enough to recall how the little guy lost big time at the end of the bull market in the 1960s and throughout the 1970s. This is the way it always is. The rich and powerful are in a position to exit before the masses and the ruling elite are there to keep suckering the little guy into the market. As Richard Russell reminded us again on Friday, Wall Street likes to talk about how they made people wealthy. But in fact Wall Street is basically a sales organization, which is why newsletters like this one and many other independent letters are left to tell the truth about what is happening on Wall Street. And so, I am not surprised, though I am incensed, when I hear deceitful stats thrown around to keep people in equities-such as one person who suggested on Bloomberg radio the other day that because insiders are purchasing twice as much stock in the second quarter of this year compared to the first quarter, you should too. He failed to even consider the fact that insiders are taking $17.50 for every $1.00 they are putting into the market because that information was not self serving.
But this deceitfulness will pass when the Kondratieff winter finally wipes out most of Wall Street and returns Americans to a more realistic view of markets and indebtedness. That will not be a happy day for anyone, but those who are not prepared will find it far more devastating than those who are prepared for it; and preparing you, of course, is what we are trying to do in this letter.
Can Greenspan Keep Inflating Us out of Trouble?
Now that we are seeing another banking crisis, this one in Russia emerging as well as signs that the U.S. economy may not be growing as rapidly as previously thought, we can expect Mr. Greenspan to speed up his money printing machine at an ever greater clip. But this raises the question-or at least it should: Can Greenspan keep the economy from collapsing by printing money every time there is a crisis?
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GOLD
Gold was very strong last week after a shaky start. On Tuesday the Gold Cartel, made up of the bullion banks notorious for playing a key role in the establishment's anti gold-as-money propaganda campaign, started to trash the yellow metal at 10:00 a.m. sharp. Wave after wave of selling caused the price of gold to plunge $9 in about 30 minutes, as the chart below illustrates.
My good friend Wistar Holt was so outraged that he sent the following message out to his clients later that day:
"If there was ever a doubt that gold is being manipulated, take a look at this $9.00+ decline in a span of 30 minutes against a backdrop this morning of:
"Despite this ridiculous near-term price action, eventually the laws of
supply and demand will prevail which should allow gold to trade much higher.
"Wistar Holt
"July 6, 2004"
A couple of years ago, it would have taken weeks if not months for gold to recover from this huge hit. But that is no longer true, as the following chart demonstrates:
Clearly, there are some very big buyers of the yellow metal out there now and they are sitting and waiting for paper money apologists at these bullion banks to hammer gold so they can pick it up real cheap. Who are these big buyers of gold? That is a question the establishment never talks about. They like to publicize when various central banks are SELLING gold. But they never talk about who is BUYING gold because they don't want you to know what the smart money is doing.
The subjective bias against gold is not unlike what I heard one talking head mention Friday morning on Bloomberg Radio. He suggested that we should get bullish on stocks because insiders are buying 50% more stock now than they bought during the first quarter. What he ignored was the fact that insiders are selling $17.50 for every $1.00 they are buying in their companies. He failed to tell the listeners that Michael Dell and Larry Ellison sold $351 million and $59 million, respectively, of the shares in their companies the past two weeks.
And so it is left up to independent newsletters like this one to bring these facts to your attention on gold. With respect to gold, they don't want you to know about the mountains of evidence compiled by GATA that the gold price is fixed or that the anti gold-price-fixing case brought against JPMorgan Chase and Barrick Gold is now in discovery and headed for trial this fall. The establishment is happy to let you hear loud and clear that various countries are selling gold. But they never tell you who is buying gold. They don't want you to know it's the Chinese, the Russians, Middle Eastern countries, and perhaps people like Soros or Buffett or Temple, who are buying the yellow metal because that would blow their cover and the masses would be jumping out of paper money into gold. That would be the end of the paper money scam!
And so when Barton Biggs (then at Morgan Stanley) made the mistake of "letting the cat out of the bag" by advising CNBC listeners that he was advising his clients to buy gold, he was obviously summoned back on CNBC the following business day to recant his unfaithfulness to our dishonest fiat currency monetary system. In usual broken-sentence style, Biggs told Ron Insana that he didn't know anything about gold and that he wasn't putting his clients in it after all.
So there is no question about gold manipulation and there is no question about why gold is being manipulated. It is to prolong the use of a monetary system that further empowers the ruling elite at the expense of average, hard-working citizens around the world. But the action of this past week tells your editor that the Cartel is nearing the end of their con game. And that figures to be very, very bullish for gold. Think gold quoted in 4 digits, as John Hathaway of the Tocqueville Gold Fund suggests. When an intellectual like Mr. Hathaway (who is prone to caution and understatement and who thinks carefully before he speaks) comments on this subject, you had better listen. You had better be into gold before Maria Bartaromo starts talking about gold from the Comex and the mainstream catches on.
Meanwhile, now we are hearing about a rising banking crisis in Russia. The only solution Alan Greenspan and other policy makers among the ruling elite know is to print more money, just as they did during the 1990s with the Mexican crisis, the Long-Term Capital Management crisis, the first Russian crisis, the Asian crisis, and the non-event Y2-K crisis. The problem of course is that the imbalances in the global economy just keep getting worse and worse and worse with these false solutions to the problem. With each foreign dollar we take in, America just keeps digging itself deeper and deeper into insolvency as foreigners take those dollars that we print and they win from us and then lend them back to us. The continued supply of more and more dollars created out of nothing against a fixed gold supply (that is being slowly but surely horded by the Chinese and Russians and Muslims and some of the world's wealthiest people even as the dollar is becoming worth less and less with each Greenspan printing) is the only bullish fundamental you need to know in order to take a long-term, long position in gold and gold shares.
July 13, 2004
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com