All that Glitters is Gold

September 30, 2012

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered…" --Thomas Jefferson

I am for doing good to the poor, but...I think the best way of doing good to the poor is not making them easy in poverty, but leading or driving them out of it. I observed...that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer." -- Benjamin Franklin


The US Dollar and the Euro seem to be acting irrationally, trading more on rumors than on any hard news (i.e. The Euro rallied against the US Dollar on meaningless statements from Draghi and on expectations of Bernanke implementing QE3). And sure enough, Bernanke announced a new inflation policy of injecting $40 billion per month until 2015 supposedly to help housing, which is exactly the wrong thing to do for both housing and the economy, but it sure gave the market a bounce. Next will come what? a release of oil from the Petroleum Reserve before mid-October. In reality, these are two meaningless inflationary moves that have been timed to do the most benefit to Obama's RE-ELECTION aspirations.

The markets have not been resting during the previous few weeks - the consolidation in gold and silver is now over. Both precious metals soared and broke through their medium-term resistance levels just as the US Dollar Index broke below its long-term support line. These are major events for everyone interested in the most promising markets of our time. No matter if you're a long-term investor or a short-term trader, these breakouts and breakdowns mean a lot to you. Here's why:

All in all, the main thing to keep in mind now is that the short and medium-term stock market and PM trends are now up, just as I projected they would be. But nothing has been fixed and doing more of the same while expecting a different outcome is the height of stupidity. (Long-term subscribers and investors of mine know to keep their Precious Metals positions intact.)

But now more than ever, you better renew your subscriptions because although we should be making a new ALL TIME HIGH in the near future, we are NOT in a new BULL MARKET. Rather, we will soon be entering the worst BEAR MARKET in history. I am also expecting a Black Swan event and by definition they are impossible to predict. (but I try anyway) This is by no means sour grapes on my part as you all well know. It has been only McHugh and me who have called for what's happening today in the stock market (looking for NEW ALL TIME HIGHS) and I have been the only one beating the drum for higher gold and silver for the last 4-5 months or so.

Bill Gross, the co-chief investment officer and founder of Pacific Investment Management Co., manager of the world's biggest bond fund, said in a Twitter post, "that all signs are that the European Central Bank will be taking increasing steps to boost economic growth all of which are "very inflationary" and an obvious indicator that investors should "buy gold, and real hard assets. A continuing succession of higher gold prices to above the inflation adjusted high of $2,500/oz is likely at least until we see interest rates return to more normal levels and zero percent interest policies are supplanted by positive real interest rates."

This is exactly what I have been postulating for going on two years NOW. Finally, other people are waking up to the Real Laws of Economics, but the enlightenment has not yet reached the political classes and especially the MEDIA; therefore all I see is more of the same. The REAL PROBLEM affecting the USA and the World's economies have not yet even been discussed, let alone have there been any proposed solutions except for more of the same.


The idea of a coming Fiscal Cliff is presently in vogue among most economists and analysts (unless Obama and the Congress can come together, which is highly unlikely) and will virtually overnight erase about $500 billion out of the U.S economy beginning January 1, 2013. This massive loss is just from deficit cutting alone. Combine this with other so called deficit reduction actions, such as tax increases, that are already scheduled to be implemented and you have the largest anti-stimulus package in American history. Worse yet, this doesn't take into account the burden of massive tax INCREASES including those associated with OBAMACARE; the end results of which I don't even want to think about. But even all that is not as bad as the Government's complete lack of understanding of how economics really works. I say this because if you have no idea of how economics works, you have NO idea how to fix the problems, especially when you have NO IDEA as to what the underlying "seen and unseen" problems are. (The so called seen problems are not problems at all, but are rather effects or consequences of the real unseen problems. Unseen problems, which are always lurking in the shadows have not yet even being recognized, let alone addressed.

All told, the financial pendulum will soon be swinging from stimulus to anti-stimulus, the result of which I will leave to others to speculate on. Once again, Washington's dysfunctional and unbalanced approach has little regard for the lives of everyday Americans. Their only concern is "how do I get re-elected" and how do I take care of myself #1 and my friends #2.

There are FOUR deadly financial time bombs now set to explode ON NEW YEAR'S DAY 2013...and this crisis will be far worse than most experts can even have nightmares about.


One main reason is China's recession, because she affects so much of the world economy, especially as it relates to commodity prices - and commodity stocks. A friend of mine forwarded me a story where a certain strategist said it was time to start adding Chinese exposure. He said, "Where else can you buy an economy with 7%-8% growth prospects at less than 10 times estimated earnings?" To believe his statement, you have to take two things at face value:

  • China's GDP numbers are accurate.
  • China's earnings are, at least, roughly equivalent to the way earnings are calculated at other markets.

I don't buy either statement as their GDP numbers are not any more accurate than ours are and as I have been harping on for the past 2 years, are most likely a lot less reliable than ours.

China, like the USA, is in the exact same SITUATION AS JAPAN morphed into and is still mired in after 20 years. I have been warning all but no one listened ever since Japan instituted their zero interest rates back in the early 80's that the NATURAL LAWS OF ECONOMICS apply to Japan and that their economy must go into Recession followed by Depression if they don't change their policies. Using similar reasoning, in 2006, I started warning that our Real Estate and economy will follow the way of Japan's with even more dire consequences because they at least have a surplus in both their Balance of Payments and Balance of Trade. We, on the other hand, suffer from huge deficits and therefore our consequences will end up being much worse since we only have a credit card (printing press from being the only reserve currency) but no reserves. China still has over $3 trillion in foreign exchange reserves.


Officially, China's government says its economy is growing 8%. Lots of people don't believe it. Charles Dumas of Lombard Street Research is one. He says, "We don't believe official data. We think GDP slowed to a 1% rate in the first quarter." I don't believe official data either and I certainly would not make investment decisions based on it. Two other quick points about relying on GDP:

  • GDP figures are backward looking. They tell you nothing about the future. Even if you think they do, then you have to say the trend is not good. China's first quarter GDP was at a three year low.
  • GDP as a concept is also absurd since Government spending is counted as being a positive. We have spent $16 trillion over the last 3 years and where is our GDP GROWTH? It should have at least doubled. Was it?

Who knows at what rate China's economy is really growing. A third point that I question is on China's corporate earnings. As Ivy Pan, an analyst with ABN AMRO said recently, "Forecasts of company earnings have been continuously revised downward since the beginning of the year." Besides, there is the issue of earnings quality and trustworthiness. So there is a lot of guesswork. There are also things we do know. The Bulls cite healthy increases in imports of coal, iron ore and copper as a plank to their bullish thesis on China. They say the increase is consistent with an economy growing 7%-8%. Again, I have to question how the figures come about. I think it is safe to say that Chinese government mandated investment drives these figures and I tend to think of that as more of a bad thing. Will it prop up commodity markets to some extent? Of course, but it's not a game I care to play. Anyway, it seems a one off thing to cite these commodities since despite these high Chinese import figures, iron ore prices recently hit 2 ½ year lows and prices are down 17% since mid-June. Coking coal is down 23% since the start of July. Copper prices are down more than 20% from a year ago. Chinese steel mills are hurting. The China Iron and Steel Association said recently that the Chinese steel industry's profits fell 96% in the first half of the year compared with last year.

These anecdotes don't square with the image of a booming economy. As you all know, I have been bearish on China for the last 2 years and I think some of the air has already come out of China's boom. Take a look at housing prices for instance. Chinese housing prices registered nine months of decline. So, they just had an uptick - according to whom?

There are definitely China themes I would own - those that play on China's need for fresh, clean water and food for instance. These are very good long term investment themes.


My short-term indicators have now turned from sideways to UP. By Friday, we are due to get the latest plan from the ECB to cure Europe's financial woes. I DOUBT VERY MUCH that they have come up with a workable solution, however it may give the markets a 1 to 4 day bounce, which would be a perfect opportunity to short into Euro Stocks and Euro currency. Maybe even take some profits in the US.

On the Other Hand: We are sitting on a VIX Buy signal that I pointed out in my last missive, which suggests markets should rally over the coming few weeks. But it may be that the rally was triggered by anticipation of the widely expected Federal Reserve QE3 announcement and/or the ECB announcement.

The U.S. August Jobs report came and even though the numbers were far from good, there was only a mild selloff before bottoming and rallying. Even after being massaged, they still looked terrible and looked more like a resumption of the Recession. But remember that is all history.

Moreover, the declines from the Augusts highs were not impulsive, which suggest prices should be higher over the next few weeks. The question is: Do markets have another drop left in them before resuming their rally to complete THE JAWS OF DEATH BULL TRAP RALLY?

CNBC reported that the S&P 500 until last Friday has not moved more than 1% in any day for 22 straight days. This sideways lethargic price action has only occurred 10 times in the last 15 years. Sideways moves are typically corrective, suggesting once complete, prices should continue in the same direction as they were headed into before the sideways pattern. In this case, that would be up. Such a rally could take prices close to the top boundary of the Jaws of Death pattern but that rally, should it materialize, will lead to a top that is followed by the most powerful decline in history.


Most Elliott Wavers are speculating that the coming top will mark the end of a Millennium Third Wave TOP. I, on the other hand, expect it to be a FIFTH WAVE TOP. Most will say that is a meaningless difference, since either labeling calls for a severe drop. The difference being if it is a Fifth Wave, then we are looking for a 68 to 100+ year BEAR MARKET. Put that into your pipe and smoke it and tell me that the difference is meaningless.


Gold and silver broke decisively above the year-long descending triangle's upper boundary Friday, suggesting gold is headed for new all-time highs over the coming months, with silver headed sharply higher as well. Precious metals sense that the World Central Banks concerted efforts to debase all fiat currencies will drive the Precious Metals to unimagined highs before their Bull Market is over.

Short Term gold and silver have just breached the upper boundary of a declining triangle pattern. If gold rises above 1,725, the odds are that this sideways corrective pattern has been completed and a powerful rally has started to reach new all-time highs. If silver breaks above 35, the same thing will happen. It is still possible that gold could have one more down move toward 1,625ish and silver could move down toward 26ish due to the continuing manipulation of the PM markets by JPM. However, I believe that is highly unlikely as the fundamentals are too strong. Should these downside levels be reached, precious metals would then very rapidly reverse and head to new all-time highs. Even JPM cannot take on the World's Central Banks desires to accumulate more reserves of Gold and Silver. It would be your last chance to buy cheap. The only doubt is being caused by the fact that we are in the most important political season of our nation's history. If for some unexpected reason there is one more selloff in Precious Metals, we would then be in a 2006 and 2008 situation all over again. The only thing to do then would be to hold on for dear life and buy more if you can. What will then follow will be something to behold as the JPMs of this world and the gold exchanges will be forced to close their doors as they will not be able to cover their shorts or deliver all the gold and silver that they owe. The chickens will be finally coming home to roost.

We have only scratched the surface of the banking scandals.


Eric Sprott says silver prices are going to $100 (I say $250 by 2017). Sprott is a legend in the resource industry. Many of his clients have become wealthy listening to his advice. He, like me, made a similar "bold" forecast on gold about 10 years ago - when the price was $250 an ounce. Today, gold trades near $1,700 an ounce or 580% higher.

Today, Sprott believes silver prices can follow a similar path and even if he is only half right. If silver hits $50 an ounce, silver companies would see their revenues jump much more than 50% from today's levels.

It is now most likely too late to wait to buy on weakness and the time has come to BUY on Break Outs to new highs. Use selections from the last 2 lists I sent out during the last 6 to 8 weeks or so. For those of you that have not received these lists, email me and they will be sent out to you post haste.


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Please Note: This article is for education purposes only and is designed to help you make up your own mind, not for me to make it up for you. Only you know your own personal circumstances so only you can decide the best places to invest your money and the degree of risk that you are prepared to take. The Information and data included here has been gleaned from sources deemed to be reliable, but is not guaranteed by me. Nothing stated in here should be taken as a recommendation for you to buy or sell securities.

Gold's special properties mean that it has a greater variety of uses than almost any metal.

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