first majestic silver

What do the Tea Leaves Say?

April 10, 2010


Is it not absurd that the whole world was waiting for the Congressional testimony of a man who has nothing to say? Reminds me of the time when everyone used to wait with baited breath every Friday afternoon for the money supply numbers; also to no avail. Ben Bernanke can talk tough, but the economy would sputter if the cash stopped flowing or so he and all the main stream Keynesian economists believe. And that my friends is the main problem of our times; ever encroaching Socialism. While almost everyone believes this seemingly obvious statement, "IT JUST AIN"T SO" as any rudimentary examination of the empirical evidence would clearly indicate. The "gap between the fantasy of an economy and stock market based on lies...versus the reality of the real economy (private sector) is already worryingly large, but risks are becoming dangerously large.

Once again markets are miss-pricing risk: In their frantic pursuit of high returns, investors are oblivious to the true risks they're taking. But what choice do they have with interest rates artificially kept down at ½%, or so they think. Did they ever hear of preservation of capital?

There has not been any sustainable recovery in private sector demand and there won't be for some years to come. Furthermore, there is nothing that can be done about it. Empirical evidence, over the centuries, teaches that major economies cannot generate growth by devaluing their currencies (printing Fiat Money) and trying to export their way out of trouble,

The other massive delusion that is buoying markets is that governments can keep pumping/printing and borrowing for a long enough time to compensate for the slump in demand from the private sector while at the same time, promising but will unsuccessfully attempt to cut back spending and pay back debt. Time limits on this strategy are drawing near as Greece will soon demonstrate, and give or take a few months, so will the rest of the PIGS as well as the United Kingdom. At best, give or take a few quarters, so will be the case for the US. The only way out is the implementation of Free Market Capitalist solutions. The problem is that there does not seem to be any Free Market Capitalist Economists left; at least none that any government will listen to.


In terms of stated objectives of maintaining stable prices and full employment, the Federal Reserve Bank (FED) has been a horrible failure. However, the FED has been a raving success in terms of its unstated goals-that is to privatize profits while socializing risk, even as it pretends to be looking after the "Folks". It's bad enough that a fascist government has evolved to protect the rich and powerful at the expense of the middle class. But do these sinister forces have even bigger goals in mind than the rape and pillage of Americans? Is the Ideal of national sovereignty largely a thing of the past and being replaced by One World Government objectives in co-operation with huge corporate interests aligned with the IMF and World Bank that are now dictating the policies that national leaders are to follow?

The conclusion is inevitable; the bubble must burst. The longer we are forced to wait, the bigger the bubble will be and the more destructive the bursting process will be. The last time, the FED bailed out Wall Street and the Banks but this time, while it is possible to bail out Greece, who is big enough to bailout England and the US?


The latest reports show that new home sales dropped 11.2% after expectations of a 3.5% gain and consumer confidence also declined significantly. This drop in consumer confidence may be a starting point for all that I have been expecting. There is some sign of wavering in people's certainty that a self-sustaining recovery is under way. As I have stated many times, this is a phantom recovery brought about mostly by massive propaganda, stock, bond and Gold market manipulation and accounting Chicanery. Comparing today's accounting gimmickry and engineered earnings to the last two years of ultra depressed low earnings does NOT indicate robust profits. The massive amount of government money printing has mostly gone to Wall Street and the BIG BANKS, while next to nothing has filtered down to the man in the street.


Governments around the world are continuing to run massive budget deficits and interest rates are close to zero. The markets don't seem to be worried about the enormous explosion in government debt, because they figure it will just mean that governments will have to keep interest rates at historic lows while they continue to pour liquidity into the banking system so that they can stay on life support. Governments aren't going to let their own debt bubbles implode, are they?



Young Mr. Greenspan was a disciple of Ayn Rand and waxed eloquently that Gold was the only "protection" against the "confiscation of wealth" by the bankers, through the permanent "inflation," which was an inherent part of the bankers' paper/debt empires. He warned that the bankers' "tirades against Gold" were specifically because without Gold, "there is no way to protect savings from confiscation through inflation".

However, all the older Greenspan was interested in talking about was how the Fed could manipulate the price of Gold in order to maintain "confidence" in the bogus, banker-paper which they erroneously call money. "So why risk investing in a rigged market?" The obvious answer to that question is to simply point out two facts. It is a basic aspect of economics (and arithmetic) that any "good" which is under-priced will be over-consumed. This is the same thing as simply saying that when something is "cheap" - people will buy more of it. The effect of this basic principle is that all "price-fixing" must fail.

During the first two decades of Gold and Silver price-fixing, prices were kept flat or falling. However, during the last decade of precious metals manipulation, Gold and Silver prices have quadrupled.

The Central Banks for nearly thirty years have been the principal suppliers of the Gold that has been dumped onto the market to suppress the price. Despite the fact that the price of Gold has quadruped, last year for the first year since 1988, Central Banks went from being (huge) net-sellers of Gold to net-buyers. They are buying Gold today because they know the correction in the price of Gold back to its fair market value has justbegun.

John Williams ( calculates U.S. statistics the same way they were calculated in 1980 - before an infinite number of statistical gimmicks were added to 'doctor' the numbers. Using Williams' inflation numbers for the last thirty years, the price of Gold would have to rise to $7,494/oz, just to equal the 1980 high.


Prior to 2009, it had been illegal for Chinese citizens to own Gold or Silver. In 2009, the government not only began to permit citizen ownership of precious metals, it began running "infomercials" telling viewers exactly how to buy Gold and Silver and why. There are many possible reasons for this about-face, all of them positive for Gold and Silver. A chart showing the performance of Gold and the China Fund, a closed-end mutual fund representing a broad swath of China's economy, shows that the relationship, though not one-to-one, is very close, In fact, it is a lot closer than one between Gold and the Euro since the end of 2009. And don't think it's mere happenstance. Keep in mind that the Chinese, by a huge margin, now have more control over the price of Gold than anyone else. The total value of Gold in all Central Bank vaults amounts to approximately $1 trillion. This equals about 40% of China's foreign exchange reserve, of which only a bit more than 1% is invested in Gold. Among many other possibilities, China is putting itself in a position to enrich its population. We think that putting yourself in the same position as a Gold-owning Chinese citizen will prove very rewarding.

The key message: Gold's value is far more timeless than that of any currency and the failure of any currency that Gold has been tracking won't significantly affect the future of the Midas metal. Or to put it differently, own Gold for its own sake, not as a hedge against other currencies.

The amount of Silver supposedly available for purchase today has plummeted by 90% in less than 20 years. Thus, thirty years of price-fixing has set-up the Silver market for the "Mother of all Supply Squeezes". That is onereason why you should not be afraid of the "rigged" markets for Gold and Silver.

Our other markets are rigged even more except in the opposite direction. The fact that this market has been manipulated for so long is the only reason why investors can still purchase Gold and Silver at near-giveaway prices. This manipulation is clearly failing and indicates that we will not be able to buy Gold and Silver at current, cheap prices much longer.

What the media and the politicians are presently terming, "the Great Recession" is only the first leg of the second great economic depression.


The Unions have destroyed Europe and the WEST. Slowly but surely, they have broken the back of capitalism as they systematically have eaten into the centuries built up pool of savings and whatever was left has been eaten up by the steady inflation that COLA clauses must inevitably bring. The latest causality was GM - the world's largest car producer has now become a ward of the state. The next causality will be Greece as their workers will not accept even a freeze let alone a decrease in their ever expanding salaries and benefits, especially pensions. The Auto Bailout was primarily designed to bail out the Unions' Pension Funds and Health Care benefits, not GM. The $870 billion stimulus package, less than 1/2 of which has been spent, bailed out more Unions and did not create even one job that could pay for itself. But all that is just the beginning; every Pension fund is not only under funded, but they are actually bankrupt and so are the insurance companies. How much junk bonds do they have on their balance sheets that have not been marked to market?


The two largest bubbles in all of history have been in a super inflating mode for over a year and have pushed valuations of both bonds and stocks completely into unrealistic and unsustainable territory and are nearing Bubble Bursting status. The Stock and Bond Markets are now in full blown Bubble mode just waiting for that pin that will burst them. (Since most of the States are also bankrupt, how much faith should you have in their Muni's?)


The coming sell-off will be worse than the 1930-32 crash. We had an inkling of what it will look like back in 1987, so don't get too cute. If you get caught long, you might not be able to get out. Let the PIGS chase the last 5% or so upside.

There is no way for me to tell exactly when the bubbles will burst or what will be the trigger. Just like the most recent Bubbles that burst, I was among the very few who realized that we were in a rapidly expanding Bubble while Bernanke and the rest of the Economist/Analysts kept on trying to justify the inflated P/E ratios, just as they are doing today. They are so locked into their stupid econometric models; they will not recognize a Bubble until long after it has already burst. So, let the bullish pigs chase after what's left of the short term upside gains and think of how good you will feel when you find that you and I are the few last men standing?

As you know, I was the first to warn about the coming Derivative Debacle as far back as early 2005 as well as the Real Estate Bubble back as early a February 2007 and later in my "Recession 2008 - Depression 2009-10" as early a April 2007.

It's not that I have a crystal ball or something; it is just that unlike everyone else who says that the market is a discounting mechanism, I really believe it. So while they continue to focus on today's manipulated news releases, I instead focus on analyzing today's government actions and what effects they will have on the economy in the future. As an example, everyone should by now know that beginning January 1st, 2011, when the Bush Income Tax Cuts expire, the US will be hit with the biggest tax increase in history. This will be in addition to a whole host of new tax increases from Obama Care to Cap & Trade. Yet no one is even talking about it, let alone figuring them into their projections. To make matters worse, I cannot even keep track of the hundreds of tax increases and increased user fees coming from the states. No wonder they are crowing about being in a new BULL MARKET. Listen to them at your own peril, but remember you were forewarned.

Technically speaking, the markets have been in over bought territory since August 2009, begging for a correction of at least 10%-15% at best. But you need look no further back than the last 3 weeks: What we have seen is the Dow opens up 50 to 75 points within the 1st half hour, then back and fills until about 3:00 pm and finally sells off into the close, but still closes up. Mostly what you see is sector rotation, which is a sure sign that a market TOP of huge proportions is forming. GET OUT WHILE THE GETTING OUT IS STILL EASY.


The core fundamentals for Gold mining haven't changed. The price of Gold still drives the ultimate profits of the gold miners today, just as it always has throughout history. Buying low and selling high is the key to multiplying your wealth in the financial markets. In Gold stock terms, this means buying when the HUI is low relative to Gold, which is certainly the case today. However at this time, most analysts assume the Gold price will stay flat at best or sell off to as low as $600. But Gold's intrinsic supply-and-demand fundamentals remain super-bullish. You cannot continue to expand the money supply by both the printing press and the monetization of debt and not expect all this money to not eventually show up in the price of Gold. On a short term technical basis, precious metals are entering their usual seasonally-strong Spring Rally time frame. To add fuel to the coming precious metals markets rally, the US Dollar's Bear Rally is rolling over, which is also very bullish for Gold.


The new GDXJ Junior Gold Miners ETF is one that definitely merits your consideration. It offers investors a quick and easy way to get a diversified Junior Gold exposure. For non professional investors, it eliminates key problems that have long plagued Junior Gold investing. These include the problem of researching foreign securities to separate the high-potential Junior Gold's from the dogs, and overcomes the difficulty that Americans have in buying Junior Gold's outside the US where the great majority of them are listed (mostly Canada). It is time to start scaling into the GDXJ. By the way, if the GDXJ does not offer enough leverage for you, it also has options. How is that for leverage?


Technically speaking, I do not really see any of the Bearishness that a great many of my colleagues see. Perhaps it's just wishful thinking on my part, but what I see looking at the GLD (6 month chart) is a reverse Head and Shoulders pattern forming. With the left shoulder being the Low made in December 2009 bouncing off the lower Bollinger Band (BB). The Head is the January 2010 low, also bouncing off the lower BB and the most recent low is the right Shoulder and it is now bouncing off that same lower BB. All it would take is a move by the GLD above $112.50 to give us a confirmed buy signal. That, in conjunction with the ever increasing Long Term Bullish fundamentals for precious metals keeps me firmly in the buy and hold camp, where I have been in since 2001.


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Aubie Baltin CFA, CTA, CFP, PhD.
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China is the world’s biggest gold producer with more than 355 tons annually. Australia is second.
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