I started writing a gold-oriented newsletter at the start of a 20-year bear market for gold. Talk about bad timing!
I have proven the old adage that “a broken clock is right twice a day.” But also proven was the view of chartists that when you have a long, long base-building timeframe, the stage is set for a spectacular bull market. And now of course we know, thanks to the excellent work of The Gold Anti Trust Action Committee (www.gata.org), that the reason the gold price stayed so low for so long was because of a line of propaganda and manipulation by policymakers and bankers aimed at conning humankind into trusting intrinsically worthless paper money.
The chart above, dating back to 1976, shows how powerful and rare this move in gold is. However, this is an illusion, because gold is measured in dollars, which is not by any means a stable unit of measure. I like what Ian McAvity said several months ago when he started out his monthly newsletter with the following: “A barrel of oil is a barrel of oil. An ounce of gold is an ounce of gold. What is a dollar?”
In fact, most of what has been going on is a debasing or cheapening of paper money at an accelerated rate of speed as more and more money is created out of debt. Actually, the price of gold is just beginning to reflect the debasement of the dollar, which is represented by the chart on your left, compliments of The Dollar Vigilante newsletter written by Jeff Berwick, who will be one of my guests next week on Turning Hard Times into Good Times.
This picture, which is worth a million words, explains why gold has risen as it has in terms of paper money, which is becoming worthless. In fact it isn’t that gold is rising in value. It’s just that it’s retaining value while paper money is turning to its intrinsic value of zero.
But the red chart is only our national debt. The chart above on your right shows total U.S. dollar debt, which is now north of $53 trillion, because it does not capture massive new money created out of thin air following the Lehman Brothers failure of 2008. But the chart on your right also shows why our nation and the global economy are in such big trouble. If we could grow income (GDP) as rapidly as debt, we would not have a problem. But in fact, income is growing in a linear manner (if at all), while debt is growing exponentially. And because more and more income is required just to service debt and thus is not available to use for the purchase of other goods and services, Bernanke is in the position of needing to print more dollars at a faster and faster pace just to keep the global economic wheels of commerce turning.
The only question in my mind is which of two highly undesirable ways does this economic pathology play out? Will it be through the fires of hyperinflation or through a deflationary depression? I have had many people on my radio show who argue that a deflationary depression is inevitable because the more Mr. Bernanke prints, the deeper the debt and therefore the more bankrupt our nation becomes. Some of the people on this side of the argument who have been on my radio show have been people like Robert Prechter, Ian Gordon, Mike Shedlock, and, to a great extent, Bob Hoye.
On the hyperinflation side of the argument are folks like Ron Paul, John Williams, and James Turk, to name just three. There have been quite a few more hyperinflationists on my show. You can listen to the arguments of all of them by going to http://www.voiceamerica.com/Show/1501.
Where do I come down on this issue? Well, I tend toward the deflation side, but I also think Ron Paul knows what he is talking about when he says that a mechanism exists now that was not well developed to channel money to the masses. We saw it demonstrated in the aftermaths of the Katrina Hurricane and the Lehman Brothers decline, but not on a scale sufficient to trigger hyperinflation. So far, neither democrats nor republicans have given two hoots about average folks. Both groups have simply taken care of the bankers, who own and control our society and our economic system in this post-1913 Federal Reserve Era. As Marshall Auerback agreed and as Dr. Robert McHugh suggests, only if money is channeled to the middle classes and poor are we likely to have a problem with hyperinflation, especially given global labor conditions. Actually one of the guests who most closely reflects my views of where we are in the great inflation/deflation debate is John Rubino. You can listen to John by clicking this link: http://www.voiceamerica.com/episode/51956/gold-or-silver-when-the-dollar-collapses/54801.
For the moment though, economic stimulation appears to be working, at least in generating higher asset prices. Our IDW keeps hitting new highs, with the week just ending having it at 153.11.
But it is doing nothing for the real economy. Moreover, as John Williams points out, despite unrest in many countries in the Middle East, the dollar is not gaining in value, suggesting people are starting to look at gold and other tangibles as a store of value rather than the dollar as used to be the case.
John Williams also pointed out in his letter last week that the markets are likely going to be disappointed in both lower than expected GDP and higher than expected unemployment. Both of those data points could trigger a decline in stocks and commodity prices that could send our Inflation/Deflation Watch lower.
And so, I remain cautious. I continue to believe we are in a secular bear market that began in 2000 and that another shoe is likely to drop that could take us below the March 2009 lows. That would be most devastating for our country and could lead to some very significant political changes. Given the potential for a massive credit deflation, I continue to suggest taking profits when you have a chance and keeping some cash on the sidelines. I would suggest a combination of 25% cash and short positions (BEARX or FAZ).
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Jay Taylor
TSX Gold
Mr. Taylor is editor of J Taylor’s Gold, Energy & Techn Stocks newsletter. A native of Ohio, he has resided in New York since 1973 when he began working there for Barlcay’s Bank International. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares.
In 1981 he began publishing North American Gold Mining Stocks, which preceded his current newsletter. His continuing interest in gold mining prompted him to study geology at Hunter College in New York City, supplementing his MBA in Finance & Investments. Throughout his career Mr. Taylor worked as a commercial, then as an investment banker. Most recently, he worked in the mining and metals group of ING Barings in New York. Prior to that he was involved in the first gold loan made in modern times in the U.S. to Amax Minerals, a 250,000 oz. loan facility led by Citicorp.
In 1997 he resigned from ING Barings to devote himself full time to researching mining & technology stocks, writing his newsletter and assisting companies in raising venture capital.
Miningstocks.com
Gold Bull Market of a Lifetime
I started writing a gold-oriented newsletter at the start of a 20-year bear market for gold. Talk about bad timing!
The chart above, dating back to 1976, shows how powerful and rare this move in gold is. However, this is an illusion, because gold is measured in dollars, which is not by any means a stable unit of measure. I like what Ian McAvity said several months ago when he started out his monthly newsletter with the following: “A barrel of oil is a barrel of oil. An ounce of gold is an ounce of gold. What is a dollar?”
This picture, which is worth a million words, explains why gold has risen as it has in terms of paper money, which is becoming worthless. In fact it isn’t that gold is rising in value. It’s just that it’s retaining value while paper money is turning to its intrinsic value of zero.
But the red chart is only our national debt. The chart above on your right shows total U.S. dollar debt, which is now north of $53 trillion, because it does not capture massive new money created out of thin air following the Lehman Brothers failure of 2008. But the chart on your right also shows why our nation and the global economy are in such big trouble. If we could grow income (GDP) as rapidly as debt, we would not have a problem. But in fact, income is growing in a linear manner (if at all), while debt is growing exponentially. And because more and more income is required just to service debt and thus is not available to use for the purchase of other goods and services, Bernanke is in the position of needing to print more dollars at a faster and faster pace just to keep the global economic wheels of commerce turning.
On the hyperinflation side of the argument are folks like Ron Paul, John Williams, and James Turk, to name just three. There have been quite a few more hyperinflationists on my show. You can listen to the arguments of all of them by going to http://www.voiceamerica.com/Show/1501.
Where do I come down on this issue? Well, I tend toward the deflation side, but I also think Ron Paul knows what he is talking about when he says that a mechanism exists now that was not well developed to channel money to the masses. We saw it demonstrated in the aftermaths of the Katrina Hurricane and the Lehman Brothers decline, but not on a scale sufficient to trigger hyperinflation. So far, neither democrats nor republicans have given two hoots about average folks. Both groups have simply taken care of the bankers, who own and control our society and our economic system in this post-1913 Federal Reserve Era. As Marshall Auerback agreed and as Dr. Robert McHugh suggests, only if money is channeled to the middle classes and poor are we likely to have a problem with hyperinflation, especially given global labor conditions. Actually one of the guests who most closely reflects my views of where we are in the great inflation/deflation debate is John Rubino. You can listen to John by clicking this link: http://www.voiceamerica.com/episode/51956/gold-or-silver-when-the-dollar-collapses/54801.
For the moment though, economic stimulation appears to be working, at least in generating higher asset prices. Our IDW keeps hitting new highs, with the week just ending having it at 153.11.
But it is doing nothing for the real economy. Moreover, as John Williams points out, despite unrest in many countries in the Middle East, the dollar is not gaining in value, suggesting people are starting to look at gold and other tangibles as a store of value rather than the dollar as used to be the case.
John Williams also pointed out in his letter last week that the markets are likely going to be disappointed in both lower than expected GDP and higher than expected unemployment. Both of those data points could trigger a decline in stocks and commodity prices that could send our Inflation/Deflation Watch lower.
And so, I remain cautious. I continue to believe we are in a secular bear market that began in 2000 and that another shoe is likely to drop that could take us below the March 2009 lows. That would be most devastating for our country and could lead to some very significant political changes. Given the potential for a massive credit deflation, I continue to suggest taking profits when you have a chance and keeping some cash on the sidelines. I would suggest a combination of 25% cash and short positions (BEARX or FAZ).
—————————————————————————————————————–
Jay Taylor
TSX Gold
Mr. Taylor is editor of J Taylor’s Gold, Energy & Techn Stocks newsletter. A native of Ohio, he has resided in New York since 1973 when he began working there for Barlcay’s Bank International. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares.
In 1981 he began publishing North American Gold Mining Stocks, which preceded his current newsletter. His continuing interest in gold mining prompted him to study geology at Hunter College in New York City, supplementing his MBA in Finance & Investments. Throughout his career Mr. Taylor worked as a commercial, then as an investment banker. Most recently, he worked in the mining and metals group of ING Barings in New York. Prior to that he was involved in the first gold loan made in modern times in the U.S. to Amax Minerals, a 250,000 oz. loan facility led by Citicorp.
In 1997 he resigned from ING Barings to devote himself full time to researching mining & technology stocks, writing his newsletter and assisting companies in raising venture capital.
Miningstocks.com