Taylor On Russell On Gold
Jay Taylor
There is little I disagree with Richard Russell on. About the only thing I
can find that I disagree with him on is his "inflate or die" thesis. I say
it is inflate and die because I believe that the more money that is created
brings about an even more certain and more deadly deflation. In other
words, in the end, it is not possible to avoid a deflationary depression
simply by printing paper money and spreading that paper which is deemed by
law to be money as Ben Bernake says he will do to avoid the next Great
Depression. But aside from that and perhaps some theological and moral
issues where I may differ from him, I find this man to the most remarkable
market analyst I know. I read him every day he publishes.
But when I read his missive of December 7th, I knew when I read it I had to
pass this on to you because he hit the nail squarely on the head with regard to the precarious economic and political status American now finds itself. You must read this piece from the December 7, 2005 issue of "Richard's Remarks!"
"December 7, 2005 -- I've seen a lot of bull markets that headed north
month after month -- but I can't remember seeing a bull market that looks
like this one. What I mean is that this rising channel (as seen on the
chart below) is truly remarkable. Yes, this is a monthly chart of gold,
running from April 2001 to the present. And what's so remarkable is that
only the so-called "gold-bugs" seem to know what's going on.
"All right, I'll say it -- this is one of the most spectacular bull markets
I've ever seen. And because so few people seem to have caught on to what's
happening in gold, I call this "the great stealth bull market."
"Note how each time the monthly bar hit or slightly exceeded the upper
trendline of the channel, gold dropped back to either the middle or the
bottom of the band. Now again, gold is approaching the upper trendline, and
I'm obviously wondering whether gold is just going to keep rising along the
upper trendline or whether gold is going to correct. There's obviously no
way of knowing, but if gold does correct it will be a buying opportunity
for those who have not yet climbed aboard.
"I've said before that once a bull market starts rolling, it doesn't often
give people a good opportunity to enter. This may be one of those times.
However, as you can see, gold has been up on a monthly basis four out of
the last five months -- thus, it shouldn't be a surprise to see a
down-month coming along. Ah, but will it happen? And when?
"I've got five kids, and when you have five kids, you tend to think a lot
about the future. What will the future be like? What will their lives be
like? What will the United states look like in five, ten, twenty years?
"I'll tell you something, I don't care for the picture. I've been doing a
lot of thinking about the big picture over the last few weeks, and this is
what I see. The US is losing its manufacturing base to China. A huge
migration of hundreds of millions of Chinese is moving into their coastal
cities, and that means that Chinese competition for manufacturing will be
increasingly intense as these people seek work, any kind of work, any kind
of wages. The operative fact is this -- WE ARE LOSING OUR MANUFACTURING BASE -- PERIOD.
"Now we are starting to lose our service base. Company after US company is
outsourcing its back-office work to India. Large corporations like Google
and Microsoft are increasingly turning to India for research as are many
medical companies.
"China and India are now graduating far more engineers than is the US. All
of Asia is coming alive and ready to produce and create -- at 10 percent of
what it costs here in the US.
"So China and India and Asia are producing manufactured goods and services
at terrifically competitive prices. And what is the US producing? Basically
-- Federal Reserve Notes. Really, then why is the standard of living in the
US STILL SO HIGH? The reason is that the world still accepts Federal
Reserve Notes (US dollars) as the reserve currency, created by the Fed at
no cost and in any quantity that the Fed desires.
"Yes, China and India and Asia's Central Banks are also producing junk
paper money. But the difference is that they are also producing something
of value and relatively speaking, we are losing -- we're losing in
manufacturing and we're losing in services.
"The investors of the world are not stupid. The markets of the world are
not stupid. They see the inequities that I've described above. They see the
writing on the wall. The writing on the wall says that paper money is
doomed because there's nothing behind it. All balloons eventually deflate
and the world's paper money system is a balloon -- full of propaganda, hog
wash and hot air.
"And suddenly, the great unconscious of the investment world is saying,
"All paper is sinking in purchasing power, it's time for me to accumulate
true wealth. True wealth is gold. And that, in one sentence, is why gold is
rising. Seasoned, experienced, history-wise investors know the great secret
-- TRUE WEALTH IS NOT PAPER -- IT'S GOLD. The great secret -- gold is not rising solely because of inflation, gold is rising because faith in fiat
money is declining..
"Once an item is in a bull market as gold is now, at some point people
start asking, "What's going on? What's happening? Why is gold rising day
after day?"
"At that point, and we are not there yet, the process speeds up. More and
more people come up with answers. And the answer is -- "Fiat paper is a
fraud. I'm working for something my government can manufacture with no
sweat, with no work, with no creativity -- with just a click of some damn
computer. Listen, I want real money for my work. I want gold."
"I read dozens of advisories every day. Most are bullish on the US economy,
and most are bullish on the US economy for 2006. But literally none are
talking about what I've talked about above. I've said before that the
Achilles Heel for the US is the dollar. Currently, the dollar has been
strong. It's been going up against its two major competitors, the euro and
the yen. Of course, the reverse side of the strong dollar is that the new
"expensive dollar" is going to kill our exports. As the dollar rises, US
goods for export become more and more expensive.
"But somewhere ahead as the economies of the world take in the fact that
the US is losing both its manufacturing base and its service base -- the
world will realize that the US has become a "a tissue-thin, paper-tiger
economy."
"When that realization takes place, there's going to be a panic to get out
of dollars. This will trigger the third phase of the gold bull market. And
that, dear subscribers, will be something to see.
"As an aside, the US is now spending itself into one enormous mess. We're
spending a staggering over $400 billion a year on our military. Add to that
another $5 billion a month for the wars in Iraq and Afghanistan. Then we
have the unfunded liabilities of other programs such as Medicare and Social
Security. The incredible debts of the US will have to be covered with
either higher taxes, more bonds or monetization of the debt.
"All this has to put enormous future pressure on the dollar. As I've been
saying, the Achilles Heel of the US is the dollar. The dollar must fall.
People who understand that this -- people who are willing to act on this
thesis -- buy gold.
December 10, 2005
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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