first majestic silver

Corruption, Gold, China, The Fed And A Timely Option

May 21, 2014

We are very rapidly approaching a point in time where the citizens of the US and the inhabitants of the free world will be faced with the true reality of the simple fact that there is no such thing as a “free lunch” and the bills must be paid!

For years, laws have been passed and executive orders have been signed, by both parties, which when taken individually mean very little until combined together as pieces to a puzzle.  As the puzzle takes shape there remains no doubt that those in authority have granted themselves the power to unconstitutionally control every freedom and liberty they desire including your services, your possessions and every dime you have set aside. 

On a foreign note, which may be a glimpse into our future, the bank depositors in Cyprus can attest to the risk associated with the banking industry today.  Ask anyone who had in excess of 100,000 Euros in a Cyprus bank last year how safe their money was?  These depositors wound up making involuntary contributions of 47.5% of any excess directly into the pockets of those they entrusted with their savings.

Not only did the bankers responsible for the prudent management of their depositors’ money not go to jail but Countries throughout the world quietly passed laws, which enable them to react in a like manner in the event their banks suffer similar financial setbacks.

Adding insult to injury was the impeccable timing shown by privileged insiders and investors of the banks as they moved their funds to what they believe to be safer ground immediately before the doors closed.   

Cyprus turned out to be a world-wide trial run gaging public sentiment and reaction to the new “bail in” policies established by those responsible for the theft of their depositors’ money in the first place.  The world-wide silence to this theft from the public and their elected officials was deafening flashing a green light setting the stage for the thieves, with the blessing of their government, to rob the depositors again!  The precedent is now established for this theft to repeat itself all over the world, where the laws already exist in the US to do so.


For those who would like a peek into the future of retirement savings of US citizens we now have the introduction of MyRA and all the unpleasant surprises it will offer investors going forward; amazing how it rhymes with ACA!  Just wait until the day arrives when our elected officials choose to steal the retirement savings of the hard working middle class to temporarily fund programs and debt obligations guaranteed to live far beyond the life of the stolen funds.

In my opinion, the freedom to choose from a wide variety of investment options to fund traditional retirement accounts will be replaced with the mandatory purchase of long term US Government Treasury Bonds, which today yield less than 3.4% for 30 years. 

Anyone who feels this is a good investment need only remember the fact that the 30 Year US Government Bond traded with a yield in excess of 15% in 1982.  Back then our nation’s debt was listed at less than $1.5 Trillion versus $17.5+ Trillion today and another $100-$200 Trillion in future unfunded liabilities.  I know some of you may be thinking that we have no inflation so therefore rates will not rise.  To these people I propose that the exponential growth in our fiscal and monetary debt is inflation of the worst magnitude and the recognition of this unfolding nightmare is a Pandora’s Box about to be opened.

In 1982 the thought of our Country defaulting on this debt never crossed my mind; today I can find no possible way for a workforce of 140,000,000 people to mathematically retire this debt with anything other than more worthless paper. 

Simple math would show $17+ Trillion divided by a 140,000,000 work force is debt of $121,400 per employed worker without setting aside one penny to fund future obligations; then again I could be wrong as I am using simple arithmetic and not incorporating the genius of problem solving today as taught through Common Core!

The irony to this theft lies in the fact that not only is it probable the 30 Year US Government Bond will become virtually worthless but this massive redistribution of wealth will be sold to the American public under the guise of bringing guaranteed safety, stability and predictability to the retirement savings of the American people.  In reality those in authority are simply stealing funds; they so desperately need to keep their voting constituents “happy,” while replacing them with IOU’s future generations will commonly refer to as an archaic relic bond buyers wouldn’t touch, as a long term investment, with a ten foot pole.  In the end, the life savings accumulated from decades of hard work will be wiped out on nothing more than a short term fix to a long term addiction.

Make no mistake about the fact that the leaders we have elected to office, whose sworn obligations are to uphold the Constitution and serve the bests interests of the citizens of this Country, have completely lost their way.  Rather than recognizing the harsh reality that changes must be made in order to insure the future existence of much needed programs our leaders are pursuing with reckless abandon a path in the exact opposite direction.

For decades the people have been sold out by those they trusted the most, in both parties, whose only intentions are to fatten their own pockets, get re-elected, forward personal agendas and gather as much of the corrupt corporate pie as possible. 

In the end, those who have been the staunchest supporters of these puppets will also be the victims who are hurt the most.  “It is time the people realize the greatest weapon of mass destruction being used against them is each other through the exploitation of individual selfish wants, desires and political correctness.” 


Physical gold ownership is the answer to many of these financial uncertainties.  China is fully aware of the safety, peace-of-mind and store of wealth offered by gold versus an IOU from a Country being manipulated by a private entity called “The Fed” which can simply press a button printing trillions in paper at their leisure.

Imagine the politics of a private organization currently owning $4.2 trillion in US Government Bonds with the ability and perceived responsibility to buy more.  With the simple press of a button, unlimited buying power is created, out of thin air, giving those who wield this power the ability to enslave future generations for decades to come while they are forced to make a meaningless attempt to pay this debt off.  Where do you think the final resting place for these bonds will be when The Fed realizes it is time to exit?

In my opinion The Fed should be ordered to buy every US Government Bond in existence.  Once ownership of these bonds is acquired dissolve The Fed sending both The Fed and the Bonds on a long over-due ride off into the sunset!  This strategy not only guarantees the bonds will disappear in the same manner they were created, but it also protects IRA accounts from eminent disaster, while guaranteeing the US will balance future budgets as no one in their right mind will ever lend the US another dime until they do!  Are you listening Detroit? 

Make no mistake about the fact that China and the rest of the world are buying every ounce of gold they can get their hands on.  They know the US is incapable of ever retiring their debt with anything other than more worthless paper. The idea of trading their goods, services and natural resources for a continually growing mound of paper just doesn’t make a whole lot of sense to them anymore when the option exists to convert that paper into an asset of finite supply. 

The opportunity exists for China and their allies to make some real serious changes in the financial structure of the world by offering an alternative World Reserve Currency backed by gold versus the current structure backed by more worthless paper issued by and for the benefit of a very select few.  You might say this select few is the TRUE WORLD-WIDE 1% of the 1%.

China, their allies and even Janet Yellen fully understand the out-of-control and irresponsible spending policies of the US are clearly “unsustainable.”  They also know that continued pursuit of these policies will eventually force the US to face its ultimate challenge the same as any other debtor nation; in the financial markets.  Imagine the price of gold if the US were forced to back its currency with an asset other than more paper and empty promises.


An important question investors should have centers around the fact that with the demand to buy physical gold at all-time highs how is it in the face of this unprecedented demand the price has fallen from a high of $1,900/oz to a low of below $1,200/oz? 

In my opinion, gold was due for a correction as is normal and healthy in all bull markets. 

I also believe additional weakness resulted as the Chinese and their allies continually rid their vaults of unwanted paper using that paper to fund the sale of commodity gold futures contracts.  This ploy creates the illusion that gold has peaked driving the paper price lower enabling them to capitalize on the fickle emotions of gold that is held in weak hands. 

This ploy has allowed the Chinese to buy and take possession of large quantities of gold at prices I am sure they find hard to believe by selling parcels of a never-ending supply of paper at prices I know they can’t believe.  Naturally I can’t prove this is what the Chinese and their allies are doing but if I was in their shoes this is exactly what I would do with a huge smile on my face.  If I was The Fed, I would print up a few billion more each month and do the same; but then who would be there to sell the gold to the Chinese?   

In addition to China, US financial institutions happily took full advantage of the opportunity to jump on board and sell what they openly profess to be the end of the gold bull market.  These institutions would like nothing better than to put an end to gold once and for all burying forever their felonious transactions of the past.

With the remarkable success these entities have had in creating weakness in the price of gold while simultaneously increasing the supply of gold, all at a time of record demand to buy gold, I have to wonder who says China doesn’t like capitalism?  Seems to me they are taking it to a whole new level aided by the desperate measures of The Fed and their backward buddies, who very likely do not fully understand the end results of the very dangerous game they have created as a result of the mistaken belief that they are “The Ultimate Masters of The Universe.”

For decades the futures market has dictated the paper price of gold.  The day is rapidly approaching where the physical market will step forward and the paper market will disappear as the World wakes up to the fact that paper claims on gold mean absolutely nothing.


Those who have taken the time to do their homework understand there is a very strong probability of another 1929 in our future.  Armed with this knowledge does not mean it is going to happen tomorrow. 

As long as the Dollar remains the World’s Reserve Currency and The Fed is still calling the shots the game will continue played under their rules.  In fact, I believe there is a strong possibility the Dow still needs to put in a technical pattern commonly referred to as a rhinoceros horn to bring about the ultimate conclusion of the 30+ year bull market in equities that started in August of 1983. 

As the world wakes up to the fact that a finite supply of gold carries considerably more weight than an infinite supply of fiat paper the powers of The Fed will begin to slip away, the dollar will suffer a timeout culminating in a panic to dump stocks, bonds and leveraged assets to buy gold and silver. 

Unfortunately, for most, when this day of reckoning arrives, the option to buy and hold physical gold may no longer exist.  Those who have it will be through accepting paper for goods, services and diminishing natural resources.  Those who used to have it will be blaming the other guy for exerting pressures on them to liquidate archaic and useless relics “you can’t eat” doing nothing but taking up space in the vaults; simultaneously doing everything within their diminishing power to reacquire the precious assets they gave away for pennies on the dollar.

In my opinion, it is at this point in time, when the availability to purchase physical gold disappears, The Dollar as the World’s Reserve Currency and The Fed will face their ultimate challenge and most likely extinction leaving an investment in precious metal equities as one of the few desired investment options available.


Homestake Mines was one example of thriving during the hard times of the depression in the 1930’s.  This stock went from $85/sh in 1929 to $495/sh at the end of 1935.  This in and of itself is a terrific return but the fact remains it also paid cash dividends to its shareholders over this timeframe of $128/sh with $56/sh being paid in 1935 alone. 

Anyone with a percentage of their net worth in Homestake Mines understood exactly why investments of this nature are a must in times of deep financial and economic uncertainty.  The irony of this statement lies in the fact that the leverage of the 1920’s would qualify as a cash transaction in relation to the gargantuan derivatives markets of today!

Not only were investor returns unbelievable but imagine the buying power these funds had in 1935 after the depression and deflation took its toll on the leveraged assets in the US.  Imagine the buying power that China and any other country with the foresight of trading paper for gold will enjoy as they gobble up the most cherished assets of the world at bargain basement prices. 

The performance of Homestake Mines in the 1930’s proves it does not matter whether we are looking at inflation or deflation going forward.  This sector should easily flourish under both scenarios not only giving investors a very viable option to protect their assets but quite possibly a vehicle to change their standard of living if at all possible under the economic conditions we may have going forward.


Vast amounts of paper money and wealth are sitting in bonds and banks awakening to the fact that Cyprus is going to happen again and Detroit is just the beginning of what could be a very long line of Municipal and corporate bankruptcies.  This change will usher in an end to one of the greatest “Bubbles” in the history of mankind as interest rates begin to rise reflecting the true reality of a debtor nation losing its AAA+ Rating.

The first dominoes are just beginning to fall and the end will not come until the greatest debt monster of all, Uncle Sam, is forced to reign in its deficit spending.  Unfortunately the elected shills have no intention of ever accomplishing that task by choice as that feat would cost them their jobs!  In short, there will be no voluntary end to Fed easing.

The never-ending creation of paper currency guarantees an infinite source of fiat funds to purchase both finite gold supplies above ground and ownership of underground gold resources to corner future market supplies.

The Fed openly admits to creating $55 billion/month or $660 billion/year in fiat paper.  There are roughly 2,800/tons gold mined/year or roughly 90 million oz X $1,300/oz = $117 billion/yr new gold production.

In other words, annualized, The Fed is openly admitting to the creation of fiat paper at roughly 6X the amount of worldwide gold production/yr.  My gut instinct tells me that this figure is a fraction of the total amount created yearly by The unaudited Fed.

As the world wakes up to the fact and begins to experience the pain felt when the realization that 30+ year bull markets and 0% interest rates carry substantial risk to those who overstay their welcome; trillions in additional funds will desperately be seeking a place to hide as the storm ravages on.

If my thinking is correct just imagine the return to shareholders if you own a junior mining company which just happens to come into production at a time when we find that the supposed quantities of gold behind door #1, #2 and #3 is much less than reported amounts or Heaven forbid not there at all; just ask the Germans how they feel about having large quantities of their gold safely stored in US vaults?

Under these circumstances you might say your equity returns will be “solid gold” and the price of physical gold will skyrocket!  It is at this point in time I expect the dollar to collapse as the world recognizes there is a New Keeper of “The Golden Rule.”

Gold prices will continue to be volatile, in fact there is a possibility that gold may still have some downside before it begins its next leg to the upside.  Who cares?  Not me!  With precious metal stocks trading at give-away prices my only concern is where I believe gold prices are headed in the future.  As long as debt continues to exponentially expand I believe the need to own and be exposed to investments in the precious metals sector grows more obvious each and every day.  With The Dow at all-time highs and gold equities at historic lows it makes perfect sense to me to take full advantage of what could be the ultimate example of selling high and buying low.


The one common characteristic to all mining stocks over the last few years with gold prices falling from $1,900/oz to $1,200/oz is the fact that the total sector was pummeled in price.  There was no discrimination here as it clobbered them all regardless of whether you were overpriced or underpriced at the time.

In my opinion, from these levels, the main problem investors face going forward in the junior mining sector is one of being able to establish positions.  Volume in the mining sector has dried up and just because share prices are depressed one cannot assume that the desired quantity of shares to buy is available at the current prices.  Be prepared to pay more as investor sentiment begins to change.   For these reasons I do not mind short-term downward pressure in gold prices as that volatility gives investors a chance to build positions and acquire shares at prices they will brag about for years to come. 

In our own portfolios I have a junior mining stock I feel has been underpriced since coming public three years ago.  Not only does this company have some very exciting projects including one which is awaiting production permits; but this company has several unique options in raising capital to advance their projects forward keeping shareholder dilution to a minimum.

Many of the most pressing hurdles faced by Junior Mining Companies in today’s world where dirt cheap market caps, no cash and heavy shareholder dilution are a daily challenge to quality management teams do not apply to this company. 


For anyone who would like to be introduced to this company I invite you to join my Free E-Mail List where I share with my readers stocks in our portfolios and additional opinions I have on the markets.  Anyone with any questions or comments on this article is invited to share them with me as well.

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As always, everything in this article is my own opinion and it is up to each of you to do your own homework as your opinion may vary from mine.  I have not been compensated in any way to write this article. 

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Mike Hoy is a graduate of the University of Nebraska with a business degree and a minor in economics.  Upon graduation in 1978 he was employed as a broker with a series 7 brokerage license.  Today, Mike is an investor who occasionally writes an e-mail update where he shares his favorite stocks and his opinions.  Occasionally Mike will take on companies as a public relations consultant.  

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.
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