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"We inflate our paper currency, we repair commerce
with unlimited credit, and are presently visited with unlimited
bankruptcy." - R.W. Emerson, The Young American, 1844
Joseph Goebbels was Germany’s Minister of Propaganda from
1933 to 1945. He once said that if you tell a big enough lie and keep
repeating it, people eventually come to believe it.
World governments, together with their media lackeys,
seem to have taken Goebbels’ comments to heart. They omit facts and distort
the truth to suit their agenda, while a completely different point of view is
presented by highly qualified, intelligent analysts through blogs, websites
and Internet articles.
Marc Faber
reminds us that while Gold has been a miserable performer since 2011, it’s up
more than four times since 2000: “Gold hasn’t done that badly, it has done
actually better than stocks. But I’m telling you I want to own a lot of
Gold and silver because I no longer trust the financial system.” In answer to
a question about Goldman Sachs’ negative outlook on Gold, “I would say
Goldman Sachs is very good at predicting lower prices whenever they want to
buy something.”
Jim Rickards,
economist and best-selling author of Currency Wars, says that his
target price for Gold is in the range of $7,000 to $9,000 per ounce. “That’s
not something that will happen tomorrow, It’s a 2 to 3 year forecast, for the
price to rise by about five to six times.” According to Rickards, there are
two means to restore confidence: You flood the world with liquidity (highly
inflationary), or you return to a Gold standard. “I’ve done the math on that
and the non-deflationary price for a Gold standard today is about $9,000 per
ounce.”
As you all well know, I have been calling for Gold to hit
$6,250 by 2017 since 2003, based strictly on Elliott Wave and Fibonacci
theory. In the area of economics and finance, the manipulation, distortion
and outright lies should be obvious to anyone who cares to do even the
slightest amount of self directed research outside of the normal
channels. At the root of the coming economic disaster is Keynesian
economic philosophy of increasing debt implemented by Western Governments and
their central banks, all pushed on by the world’s Socialist educational
institutions that will not tolerate free speech, free market economics or the
Bible on their campuses. The experiment that started in 1933 and peaked
in 1971 with the abandonment of Gold convertibility has gone into the
hyperbolic stage with Japan being the poster child of an economic system gone
completely mad. The printing of Monopoly Money only keeps
working until someone wakes up and realizes that the Emperor has no clothes.
Then the house of cards comes crashing down. We are fast approaching that
time. We are now in the biggest bubble of all time and God help those who get
caught holding the “Bag” when, like every bubble, it eventually bursts. Just
make sure you are not one of the BAG HOLDERS when reality finally SETS IN.
A LOOK BACK
I am really not that much interested in commenting on the
obvious, especially when all it’s doing is reaffirming my past predictions.
Unlike most economists, I enjoy looking over my past writings to either
examine my mistakes and try to figure out where I went wrong or to pat myself
on the back and now seeing where I had been right, asking that most important
of all questions: Where to now? To that end, I think it would be a good
idea to re-examine an article that I wrote back in 2005.
FIAT CURRENCY: GOLD & INFLATION
According to the Chambers Dictionary of Etymology, the
verb “inflate” means increasing the money supply. “The US currency has been
increasing at a rate of 10% above its GDP growth rate for more than twenty
years.” There is a continuous spread of inflationary damage now creeping soon
to be galloping in to the world's currencies and its happening not only to
the dollar, but to all paper currencies, which while nobody appears to be
watching, all seem to be engaged in a race to the bottom. Continuous monetary
inflation is uniquely a late 20th and 21st century problem that is most
assuredly reaching its breaking point in the not too distant future.
Prior to central bank controlled monetary systems, money
consisted of commodity-backed money. Inflation, then, was most often a
product of temporary suspensions of the commodity standard, usually occurring
during wars or panics. At times, inflation occurred as the supply of Gold and
Silver grew sharply (the discovery of Gold in America).There were spikes in
some countries and regions during certain periods of time when the supply of
Gold jumped due to new discoveries (California during the 1849 Gold Rush).
But, by and large, a dollar in 1900 had held its purchasing power with the
dollar of 1800.
The 20th century American had a vastly different
experience. A dollar bill put under the mattress 106 years ago would today
have less than 2 cents of purchasing power. That is, two cents in 1900 had
the same purchasing power as $1 in 2015. Put in another way - that's a loss
of more than 98%. Furthermore, the pace of price increases was much greater
in the period subsequent to 1971 (after Nixon broke the US Dollar’s link to
Gold) where, annual prices rose at an average 5.1% clip compared to 2.4% for
the first seventy years of the century. Makes you think how and why today’s
FED thinks 2% per year of rising prices is not inflation. What is
particularly scary about the dollar is that it has been the
third-best-performing currency in the world. Only the Swiss franc and the Dutch
guilder have held up better. In the UK, for example, the rate of price
increases over the same full 106-year period was 4.5%, compared to the 3.5%
in the U.S. - a seemingly small difference. And yet, compounded over time,
U.K. prices increased 55-fold, a factor more than 2 times that of the U.S.!
Keeping in mind, that the dollar has lost 96% of its purchasing
power... it still beats almost all of its rivals, sometimes by very
large margins.
The performance of fiat currencies in the past century
has been dreadful. So what has changed? If anything, the monetary setting of
today is much worse than that of the 20th century, for at least in the
earlier part of that century there was still a Gold Standard in operation.
From 1947 until 1971, there still remained some semblance, of an
international Gold Standard. The monetary restraints on today's central
bankers are now non-existent. Hence, the threat of inflation is far more
probable. As horrid a performance as the dollar turned in for the 20th
century, the 21st might make it look pretty good in comparison. Paper
monetary systems have a tendency to blow up into what is commonly referred to
as hyperinflation. They are really not so rare. Looking back at the
20th-century experience, who has not heard of the famous German hyperinflation
of 1922-23, where price inflation was 3,422% in 1922 alone (in January 1923,
a dollar could buy 20,000 marks - but by early November, it took 630 billion
marks to buy that same dollar). The numbers are simply staggering and hard to
comprehend. Yet, Hungary's hyperinflation of 1945-46 was even more
spectacular, with price inflation of 19,800% per month. Phillip Cagan wrote,
in the 1950s, what many consider to be a classic study of hyperinflation, in
which he set the definition of the term hyperinflation at an arbitrary
inflation rate exceeding 50% per month. Even so, Cagan still manages to find
seven hyperinflations meeting his definition, the limiting factor being that
these seven were the only ones where monthly price data was available. They include
the great German hyperinflation, two in Hungary and also hyperinflations in
Austria, Greece, Poland and Russia. These all occurred between 1921 and 1946.
Witness, then, that the phenomenon was not a rare thing. To update Cagan, the
more recent hyperinflations were mostly in emerging markets like Argentina,
Bolivia, Brazil, Peru and the Ukraine and that is just a partial list since
it is about to expand into Europe. Other examples of devastating
hyperinflations occurred in Zimbabwe (recently printed the 1st
billion unit note), Zaire, Georgia and Nicaragua. Large inflations, but not
quite hyperinflations have occurred since 1998 in Malaysia and other Far East
emerging countries as well as Russia and now about to engulf China. I suspect
there are many more, but they did not keep records. The most interesting part
of the IMF researchers' essay was their conclusion. They wrote: "The
benign inflation environment of recent years may lead some to believe that
chronic high inflation and hyperinflation have been eradicated for good.
History suggests that such a conclusion is not warranted." Indeed, that
is precisely the point. Do not be deceived by only the most recent
experience. Structurally, all the pieces are in place to experience very high
levels of price inflation, even though here in the good old USA, it was only
2% last year or so the Government reported. Don’t forget the magic of
compounding; it works both for and against you. I don’t have a crystal ball,
so predicting the precise timing or final outcomes of monetary systems
remains extraordinarily difficult.
Hyperinflation is imminent in the U.S.; it may take a
little longer to develop than it does in every other country because the U.S.
dollar is the world’s only reserve currency. However, with the EU now
expanded to ten countries (with roughly the same GDP as the USA), the Euro
could possibly either take the dollar’s place (which I highly doubt) or
become a dual reserve currency. It seems to me that the Chinese Yuan is much
more likely to become part of the Dual Reserve currency, just as the British
pound was for a while in the early to mid 1900’s. Or of even greater danger
is China’s call for the expanded use of IMF special drawing rights, which is
made up of a basket of currencies and to include Gold would pose a real
danger to the reserve currency status of the US dollar. That, in conjunction
with the re-emergence of Gold and the Gold Dinar, give emphasis to the
dangers of central banks with printing presses. All point to the eventual
weakness of the dollar - or any other paper currency - as a long-term “Store
of Value.”
To be Forewarned is to become Forearmed. In spite of what I think of Greenspan as an economist, he has
been one hell of a FED Chairman, prolonging and forestalling what I had
thought to be the inevitable for more than five years. In January 2006,
Greenspan was replaced by Bernanke, the question being will he have the same
acumen and worldwide trust to carry on successfully. Even if Ben
Bernanke, Greenspan’s replacement, was every bit as flamboyant as Greenspan
was, how much longer could one central banker go on manipulating and fooling
the whole world, let alone just us lowly Americans? And now we have Janet
Yellen. Will she be able to carry on the charade?
Unless every definition and every book ever written on
INFLATION is completely wrong, rampant monetary inflation followed by
deflation and depression is inevitable. The only question remaining is not
if, but when does the big charade begin to unravel?
Don’t let the extensive Gold price consolidation fool
you. After a 7 year 400% ($750) surge in prices, it is only normal for Gold
or anything else for that matter to have both a time and price consolidation.
So far, we have witnessed an approximate 38% Fibonacci price consolidation.
But time wise, the Gold Market has only been consolidating for a little over
3 years. I think that a likely additional 3 to 6 months of sideways to
downward movement may be necessary to set the stage for Gold’s Next Wave III
price explosion.
The FED’S Conundrum is not a conundrum at all. A
continuing series of straight Discount Rate decreases down to ¼% to zero%
interest in conjunction with an attempted exploding money supply expansion is
the world’s Keynesian Central Bankers way of forestalling the inevitable. But
the emphasis is on forestalling, not on the inevitable which is still staring
us in the face.
The Bible teaches us that there is a “Time and a place
for everything.” Well, I think the day of that long Suffering Gold Bug is
awful close to having it become our day “every dog has its day”. And the
“time and the place” for Gold will be upon us shortly as the whole world
comes to fully recognize Gold’s rightful place in today’s finances. I
suggest that you go back and re-read my previous articles, “The Bull Market
in Gold that Few Believe” “Riding the Golden Bull” and “21st
Century Gold Rush” especially since all those things that I have been warning
about have been unfolding over the last 8 years almost exactly as foreseen.
When will the Gold explosion begin? When we see a
completed Elliott Wave consolidation. I am confident that I will be able to
recognize it when Gold’s time has come. The reason that I have been warning
you all NOT TO SELL your core positions but to only write out of the
money calls against your open positions is because just like the
“end times”, Gold’s price explosion could start tomorrow.
Will it start tomorrow? One cannot force or rush the
onset of the fear and panic that will precede Gold’s price explosion nor can
one predict the exact time that it will begin. Especially if the government
continues to try to manipulate both the Gold (down) and Stock Markets (up).
But the Natural Laws of Economics always will out in the end.
SO WHAT DO WE DO NOW?
The same thing that I have been recommending for the last
6 months. Buy Gold and Silver coins to make sure you have an acceptable
currency on hand when the shit hits the fan! Then do your homework and buy
quality Gold and Silver mines, starting with FNV and SLW. Instead of trying
to pick Solid Junior Miners, you can by a basket of them, GDXJ. My favorite
Silver Junior that has the potential to become a major producer is MVG.
Now For The Short Side: Short the S&P 500 ETF
(SH)
Since I am expecting the biggest crash in history Bigger
than the 1930’s and I think the major banks are technically bankrupt, they
are short $700 trillion in Derivatives and haven’t been marking to market
since at least 2007’ which will all come crashing down as soon as interest
rates start to rise by more than 1%. You can start with buying 6-9 month
calls on reverse ETF on the banking system and/or PUTS on individual banks:
BAC, JPM, DB, and C. That’s enough to keep you busy for awhile.
Stocks fell sharply again on Monday, January 12th.
There have been a lot of sharp reversals up and down over the past few weeks:
Which has also whipsawed my key trend indicators a few times. Experience
tells me that when this happens, it usually means the stock market is tracing
out either a Triangle or Wedge pattern. I lean toward believing that both the
Industrials and S&P 500 are tracking Rising Bearish Wedge termination top
patterns. If so, these five wave overlapping patterns are in the latter
stages of formation. It would mean stocks may have one more rally leg for the
final wave “e”-up, left to track, which could give us one last manipulated
upside targets of 18,300 to 18,500 in the Industrials and 2,125 to 2,175 in
the S&P 500. A decline in the Industrials below 17,067 and below 1,972 in
the S&P 500 would eliminate this possibility and confirm that the Major
Down trend is underway.
If my short term analysis is correct, a rally may soon
start toward the above levels. Then a major top would be in. I maintain high
confidence that stocks are going to fall sharply in 2015, especially later in
the year.
A third Hindenburg Omen observation for 2015 occurred on
Monday, January 12th. There are been more than one H.O.
observations within a 30 day period; there were three from January 5th,
6th, and 12th, 2015. This supports a probable market
plunge occurring sometime within r the next two or three months. What is
strange is that I also had several H.O. observations in the first half of
December 2014. The close proximity of the January observations with the
December observations is unusual. The December H.O. is valid through April 2nd,
2015. The January H.O. is valid through May 6th, 2015. That is
three months of overlap from two independent official H.O.s. That tells me
the stock market remains in a very precarious condition at this time and for
the first third of 2015.
The NDX issued an Enter Short positions signal Monday,
January 12th. The NDX 10 Day Average Advance/Decline Line Indicator triggered
a Sell signal Monday, January 5th, and again on Monday, January 12th.
The past few days' decline was strong enough to move the
intermediate Secondary Trend Indicator to a new Sell signal Monday.
Mining Stocks and Precious Metals
As for Gold and Mining stocks, the HUI indicators remain
on a Buy signal, telling me that upside momentum has the power it needs to
generate a sustaining rising trend. The HUI Indicator generated a new Buy
signal Tuesday, January 6th, 2015.
The HUI 10 day average Advance/Decline Line Indicator was
showing a large Bullish divergence with HUI prices, suggesting a strong rally
trend is coming, Gold and Mining stocks were both higher on Monday, January
12th.
Gold's pattern since November 5th as represented by GLD,
formed a five wave rise since its bottom arrived on November 5th, 2014. The
pattern is a textbook Ascending Broadening Wedge, with at least three
well-defined touch points for both the upper and lower boundaries which have
stopped all rallies and declines during this choppy rally. The decline since
December 9th is wave ii-down, which may have now be completed.
Gold should rally hard once Wave iii-up is underway and new Buy signals
suggest wave iii-up may have started. However GLD could still drop toward
115.5 for wave 2's bottom. If this is correct, GLD should rise sharply toward
122ish once wave 3-up takes over.
To put everything into proper perspective: We are sitting
on the cusp of a major worldwide Stock and Bond Market crash on the one hand,
while at the same time we are clearly at the climax of a 4 year
Precious Metals BEAR MARKET that is about to explode to the upside. The
way I see it, we are about to embark on at least 4 of the greatest money
making opportunities of all time.
The question is that since the HUI 10 day average Advance/Decline
Line Indicator was showing a large Bullish divergence with HUI prices, is it
suggesting that a strong rally trend may be near at hand?
GOOD
LUCK AND GOD BLESS
SHORT
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UNCOMMON
COMMON SENSE
Aubie
Baltin CFA, CTA, CFP, PhD.
2078
Bonisle Circle
Palm
Beach Gardens FL. 33418
uncommon@aubiebaltin.com
This letter/article,
like all my others, 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. Although I
include recommendations from time to time, being a bi-monthly publication, it
is not meant to be a trading letter. 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.
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