INSIDERS KEEP BAILING OUT OF STOCKS

As you can see from the chart on the left, inside shareholders continue at a torrid pace to sell out of the companies they manage. The statistics on the left, which break down buying and selling by insiders for the latest week as reported by the SEC, are sourced from the Wall Street Journal. The Journal reports numbers on a daily basis, but each Wednesday, it reports numbers for the past week on the largest personal buyers and sellers and it also breaks them down by industry sector.

For the latest week, insiders purchased $15.8 billion of equities in the companies they manage but sold a whopping $731 billion of equities in the companies they manage. That works out to a ratio of $46.20 sold for every $1 of purchase.

Perhaps the most dramatic sellout came in the Consumer Services sector where $187.90 was sold for every $1 that was purchased. Also, on a smaller scale but even larger ratio, insiders in the Consumer Durables industries were exiting in mass from their shares. For every $1 purchased in that sector, insiders sold $238.30.

There will be a time to buy stocks. But our Kondratieff cycle view suggests that aside from gold stocks and for the time being energy stocks, there will be little reason to "buy the market" for quite a few years to come. The chart on your left was devised by my good friend Ian Gordon, whose Kondratieff cycle work your editor believes to be valid. I include it here in this week's Hotline so you can once again grasp the long-term picture. With the 2000 peak in the equity markets, we have begun the long and painful Kondratieff winter season. Because this period will most likely last for more than a decade, to anticipate an immediate collapse in prices once the seasonal equinox was crossed over on January 2000 would be like expecting an immediate blizzard in a temperate climate on December 21 of each year. In other words, the fact that certain commodity prices continue to rise even after we crossed over the Kondratieff seasonal equinox should not obscure the truth that we have entered a long season in which equities in general will be very bad investments and a season in which gold, gold shares, cash, and later on bonds, will be the best investments.

Given our view that commodity inflation will at some point in time (perhaps very soon) not only be tamed but will turn into outright deflation due to Kondratieff winter dynamics, we are keeping our eyes on the price of copper as well as the Global U.S. Dollar liquidity measure which we chart each week. At this juncture, there are no signs of an imminent decline in commodity prices, but in addition to signs of illiquidity and soft copper prices, we will also continue to look for signs of a slowdown in the global economy. As long as we can, we will try to continue profiting from our commodity inflation hedges, which are the Rogers Raw Materials Index Fund and energy stocks.

The Dow's Declining Tops Suggest Major Topping and Distribution Pattern

As the "smart" money continues to sell out of the market, we see the above-noted bearish pattern for the Dow of lower lows and lower highs. This suggests a distribution pattern where money is moving out of the strong hands of insiders (and others) into weak hands of mutual funds and other shorter-term investors, who are obligated for one reason or another to buy stocks. That process will of course end as people start pulling their money out of mutual funds, which I expect will begin to occur en masse as the public finally begins to realize that the bear market that started in 2000 is not over but is still in the very early stages of what most likely will be the most devastating stock market decline since the 1930s. Remember, what we anticipate at the bottom of this equity market decline is a Dow to gold ratio of 1 to 1. At present, with the Dow at 9865.76 and gold at $423.20, the ratio is 23.3 times. In other words, gold has a long, long way to run on the upside and/or stocks a long, long way to fall on the downside before equities reach their bottom and before we begin thinking about buying stocks. Also, at market bottoms, the strongest companies in America usually sell at PE ratios under 10 times and provide dividend yields between 5% and 10%. Now what we want to do is preserve what wealth we have and if possible increase it so we are in a position to buy stocks at bargain basement prices. However, given our Kondratieff cycle views, we expect that day to be many years away.

GOLD

World Gold Council-Misleading, as Always!

If you are a shareholder of a major gold mining firm like Newmont or Placer Dome or any number of other large gold mining firms that send millions of dollars of shareholder money to the World Gold Council, the following comments should be of concern to you. I say that because the modus operandi of the World Gold Council is in my view, hostile to gold shareholders-unless you own shares in companies that profit from lower gold prices, like Barrick Gold. In other words, major mining companies pay millions of dollars of fees to the World Gold Council which actually harms the gold price rather than helps strengthen it. The World Gold Council is to higher gold prices what the fox is to a long life of a chicken.

Clearly it can be seen that lower gold prices are a boon to the jewelry industry. When the price of gold drops, the industry consumes more gold. When the price of gold rises, the jewelry industry consumes less gold. So to promote jewelry is to promote a decrease in the price of gold. Clearly that is not in the best interests of gold mining shareholders, unless of course you are a shareholder of Barrick Gold, which still has a huge short position in gold and wants nothing more than to see the price of gold decline. In fact, Barrick had been the largest contributor to the World Gold Council in the past. And the jewelry industry, which covets lower gold prices, has had more than their fair share of jewelry industry folks calling the shots at the World Gold Council in the past.

What is amazing to me is the fact that the World Gold Council doesn't really understand the product it claims to promote. Gold is money. GoldCorp understands that but seemingly few of the other gold producers that pay dues to the World Gold Council understand that. And so they pay millions of dollars of dues to lobby groups that hurt rather than help shareholders.

How do we know gold is money? Because there are some 55 years of above ground gold supply in the world. The next closest in terms of years of above ground supply is silver, which has a 5 to 6 year supply. Compare the supply of these monetary metals with copper and other base metals and industrial metals, which usually have around 6 months of above ground supply, and the reality of gold and silver as monetary metals begins to emerge. People horde gold and-to a lesser extent-silver, because they value them as a store of value. They don't buy those metals to consume them, but rather as a means of storing wealth for long periods of time.

It is true that some gold jewelry is also used as a store of value, though that is less true among Americans where cheap 14 karat gold is sold as jewelry. Other cultures where recent economic and political instability has been more common than in recent years in America have experienced how gold retains value while paper money is not to be trusted. Many of these people-even people of average means-buy 24 karat gold jewelry and hand it down from generation to generation as family wealth. Gold jewelry purchased by these people is really more like monetary jewelry and as such, is bullish for gold. But these are not the people the World Gold Council is appealing to. The Council is appealing to citizens of Western countries who buy cheap 14 karat gold. Americans have been brainwashed to trust in paper money through gold manipulation and propaganda, of which the World Gold Council is sadly a part because it ignores the real function of gold as money while pushing an incidental function of gold as jewelry.

If the World Gold Council spent a fraction of its resources to educate people as to the fact that gold is money, they would not only be helping to boost the price of gold by educating Americans and others in the West as to gold's highest utility; they would also be doing a world of good by helping push countries back toward a more just and stable monetary system-one based on gold rather than fraudulent paper money as is used now by every government in the world.

Paper money is an outright scam, which Alan Greenspan himself (the biggest printer of paper in our history) acknowledged in his 1966 essay titled, "Gold & Economic Freedom." In that essay, Greenspan said the following:

"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."

"This is the shabby secret of the welfare statists' 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 case by his current actions you think Mr. Greenspan may have changed his thinking regarding this statement, that was certainly not true as recently as 2002, when he told Congressman Ron Paul that he had lately re-read his 1966 essay and "would not change a word."

Why do I pick on the World Gold Council now? What set me off was an Internet article titled, "The Midas touch of gold charms investors" published in The Telegraph, a Calcutta, India-based publication. But the following illustration published in the article is really what got my blood pressure up.

At no place is there any mention of gold as money, and gold as jewelry is the dominant application of above ground gold stock, according to the World Gold Council. This is exactly the kind of propaganda that hurts gold producers and leads people to think of gold as just another commodity, when in fact its highest utility is for money, not for jewelry.

In his 2000 essay, Dr. Larry Parks said the following about the usefulness of gold as jewelry, as opposed to gold as money.

"The above data suggest that jewelry is a low-value/low-utility marginal market for gold, albeit one that can, as the price decreases, suck up an unlimited amount of gold. It's as if Perrier Water was diverted from its primary high-value/high-utility market as drinking water to a much lower-value/low-utility market, such as crop irrigation. It's not worth $2 a bottle, or even five cents per bottle, to water crops. "When the gold price is perceived as cheap, more of it is fabricated into jewelry. If gold demand for a higher-value use increases, then the gold price increases, and gold demand for jewelry fabrication falls off. In other words, jewelry fabricators are akin to marginal salvagers; they use more gold when the price decreases. By promoting gold jewelry, the producers have diverted gold from a higher-value use to a much lower-value use. This is confirmed by the empirical data."

Also, the World Gold Council has steadfastly refused to consider mountains of evidence of gold manipulation by the Federal Reserve, the U.S. Treasury and a host of other Western central banks. And so the amount of gold that they claim is in the coffers of central banks is no doubt greatly distorted, and thus the amount that is being held by private individuals as money is also understated. This is important from an investment perspective because it means a huge amount of gold has been dishorded by the central banks in the past number of years, which has served to suppress the price of gold and thereby impress a false image of the value of paper money over the past number of years.

However, those who recognize that the price of gold is artificially low as a result of government's suppression of it will and do recognize that the price of gold has much, much higher to run on the upside before it reaches its equilibrium price-which, in my view, is most certainly somewhere north of $600/oz. to $700/oz.

TRADER ROG'S CORNER

THE NEWS IS NOT GOOD: THE WOLVES ARE CIRCLING

"If money is your hope for independence you will not have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability." -Henry Ford (1863-1947)

Deflation and Pushing on a String

In my opinion, the most important thing in the news this week was the decimation of the insurance industry by New York's Attorney General to the tune of $50,000,000,000 (yes, that's 50 BILLION) in stock losses with more damage to come. The great protector of the little investors in New York just executed the retirements of all the little people with money in those stocks. Reminds me of the Arthur Anderson execution, where 25,000 innocent employees were destroyed to get at a handful of crooks. I do not dispute some things probably needed attention, but do they really need a sledgehammer when a quiet lawsuit with fines would solve the problems? Spitzer can now claim he instituted a weapon of mass extermination on thousands of shareholders he had sworn to protect. Pretty expensive disaster, just to become New York's next governor; wouldn't you say? This economic atom bomb is spreading to the pharmaceutical industry and some very big banks. Do we really need this kind of help in a very fragile economy? Big stocks were faltering; now they've gotten horsewhipped.

The next nasty news was the U.S. dollar closing under a main support level of .8700. The slide started early in the day, and at one point hit a low of .8625. It finally settled at .8845, down a big 0.48 for the day. The folks at CNBC are normally very careful to tout the party line of, "It's all stocks and bonds, rosy forever." However, today, Rick Santelli at the bond pits (he's terrific) said the dollar crunch was so serious, the Japanese would be coming into buy Treasuries to prop the dollar and save the day. I was shocked that this truth was finally uttered on CNBC. I do not know how much "saving" they did, because of the close below main support, but they probably held their collective noses and bought with both hands, simply because they had to. I would think the Japanese are getting real tired of cleaning up after Greenspan and Snow, but their economy depends upon it. We crash and they crash; and they know it. I watch the Japanese overnight news each day. Every day for weeks, they have been warning their countrymen to watch the link between oil prices and deflation. They are terribly caught between 100% oil imports and trying to keep a slow economy under control. Last week they stated, "Securing new oil resources is priority number one."

Gold, Silver, and Energy

Since the U.S. dollar has gone from 121 to under 87, I would say we need to find an alternative cash for savings. Keep enough American cash to pay necessities, but your savings should be in precious metals, the Canadian dollar, or Swiss francs.

Since the dollar went down, metals rose nicely today, with December gold settling at $424.4, and silver was up to $7.33 from under $7.00 a couple of days ago. Copper has had a rocky ride this past week, but is back over $1.30.

Our markets have been non-directional for several weeks, but now the charts are coming together and new trends are being formed with greater clarity. Look for a precious metals rally that might be brief but large, high in numbers, with a quick sell-off of profit taking. The problem we analysts are having here is getting a fix on the real action in this mess while dealing with proposed terrorism and this national election. I think the answer says not much can go right, but I can think of 50 things that can go wrong, some of them really bad.

Get out of debt, buy gold and silver stocks and coins, set up a Canadian stock trading account in Canadian dollars, stock up the pantry, and don't pay attention to anyone on CNBC except Art Cashin or Rick Santelli. Read Dave Tice, Dick Hoy, Jay Taylor, Steve Roach, and Richard Russell. Anything you hear from Washington D.C., trade the opposite. Pray for our men and women in uniform, and pray the elected politicians' powers are evenly divided so nothing they touch can ever be completed. Pray for peace in this world. -Trader Rog

October 22, 2003

Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
http://www.miningstocks.com