Taylor on The Financial Markets

July 29, 2001

From 1996, the year Alan Greenspan declared stocks to be "irrationally exuberant", to March 2000 one of the greatest theft schemes in American history took place as Americans willingly followed one another to their financial demise like, like millions of lemmings blindly following one another into the sea. The lack of ability displayed in the financial realm, to think independently and also to carry out one's activities with integrity and objective truth is rather frightening because it means our democratic republic is in deep trouble.

Except for an increasing level of American ignorance and lack of objective reasoning, how could so many of our citizens decided that O.J. Simpson was innocent on the basis of a rap ditty like "if it does not fit, you must acquit" rather than compelling scientific evidence? Or, how could objective thinking Americans suggest that simply because the stock market was making new highs every week that we should not remove President Clinton from office?

It is obvious to this writer that Americans have abandoned a search for objective truth. On the whole we have chosen to select what ever feels good as our truth. Unfortunately, this attitude that truth is what ever you want it to be carried over - big time - into the financial behavior of Americans. For example, Americans have somehow believed they can borrow as much money as they like without ever suffering the consequences of paying it back.

A similar willingness to believe what one wants to believe was and still is obvious in the behavior of Americans in the stock market. Responsibility for this delusional thinking is most greatly due to our policymakers and bankers who printed money with reckless disregard for the repercussions. With huge amounts of money being created out of thin air far in excess of the wealth of our nation, people began to feel much more wealthy than they were. To "help" Americans know where to put all that newfound "wealth" along came CNN and CNBC.

But in serving the American people, these media institutions have been worse useless! Rather than being a resource of wisdom, they have enhanced the delusions of our society and thus played a large part in transferring wealth from common ordinary citizens who work in our factories, fields and mines to the shady characters on Wall Street who print our currency, the value of which is increasingly a mirage.

OUR READERS AVOIDED THE TRAP

Of course, ultimately the blame for getting suckered into a scam rests with the persons who allow themselves to be abused, no matter how good the con artist is. Indeed, readers of "J Taylor's Gold & Technology Stocks" have been provided with an alternative view point which if followed would have served them well. Had they followed the advice of a host of investment professionals interviewed in our newsletter, they would have avoided having their financial blood drained from their bodies by the CNBC and CNN "hookers."

So for example, back in June 1999 while the stock market mania was about its move toward full bloom, Goldman Sachs super star Abby Joseph Cohen was picking the wallets of millions of Americans by talking them into buying the latest and technology craze, Ian Gordon warned our readers to stay out of stocks entirely and put their money into gold, gold shares and cash. The proof is in the pudding! Ian's advice has served everyone who listen well while Ms. Cohen lead many folks to the poor house.

Likewise other interviewee contributors to our newsletter like Dr. Larry Parks, Dr. Ravi Batra, GATA's Bill Murphy, David Tice, Hugo Salinas Price, Congressman Ron Paul, M.D., James Cook, Ed Bugos, James Turk and most recently mathematician and economist Dr. Antal Fekete. What all of these folks have in common is an ability to think objectively and independently. By passing on their thoughts to our readers, we have been able to help at least a few folks avoid joining the parade of lemmings to their financial death.

MARKET DELUSIONS CONTINUE - DON'T BE A SUCKER

According to Richard Russell in his daily remarks of July 25th, Wall Street strategists are now the most bullish they've been in 16 years! As Richard noted, "These are the people who deal with the overall picture, such as how much you should be invested in stocks, bonds, bills, etc. As a rule, when the bullish percentage of strategists is above 60%, the market is NOT a buy. The percentage is now over 70%. These people are BULLISH."

Of course, for many very good reasons, Richard thinks we are in a primary bear market. With respect to where we currently are in the bear market he said the following on July 25th.

"I'm asked what phase this bear market is now in. If you remember, the phases of both bull and bear markets have to do with sentiment, not price movements. The first phase of the bear market has passed - it's over. In the first phase the bear erases the foam and froth of the preceding bull market's top. I believe this occurred when the Nasdaq collapsed and when the whole nutty dot-com syndrome fell apart.

"We're now in the early part of the second phase of the bear market. This should be the longest phase, and it's the phase where stocks go down as they reflect deteriorating social, political and economic conditions and, of course, declining corporate earnings. Whether the social and political conditions are fated to take a beating, I don't know. But certainly we a re seeing declining corporate earnings."

During the second phase of the bear market, psychology will begin to change dramatically. At this point, too many people remain bullish and anticipate a new bull market is "just around the corner." Even though they believe it may not be as wonderful as the last, the masses still believe that in the long run you can't loose in the stock market.

What makes bear markets really tricky is that within the bear market you frequently get some of the most powerful bull markets ever! With the joys of rising prices still fresh in the memories of investors, they are easily suckered back into the markets. Be careful. As Richard Russell points out, bull markets do not start when stocks are overvalued as they are now. A glance at my copy of "Barron's" this week S&P 500 PE ratio showed these companies are still extremely expensive at 26 times. In other words, every $100 you pay to buy the S&P 500 gets you only $3.77 of which only $1.30 is made up of dividends and $2.47 is in the form of retained earnings. How real are the earnings? Who knows, but given the games played by management these days in an attempt to exercise their options, it is probably not really $2.47. In any event, you can buy ten year U.S. Treasuries and get a yield of 4.78% or $4.78 per $100 invested, plus you get to deduct interest income when computing local taxes. Or, you can buy the highest grade Corporate bonds and get almost 7%. Why would you buy stocks rather than "risk free" U.S. treasuries unless you believe the fairy tails being constantly drummed at you on CNBC, namely that earnings are going to soon begin to rise. You believe such tales at your own peril.

18 karat gold is 75% pure gold.

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