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“The
old order changeth, yielding place to new."
So
wrote Alfred Lord Tennyson, a British poet of the 19th century. And indeed, Tennyson saw many changes
in his life. There are some
periods of human history when people go through mind-numbing centuries of
absolute sameness, such as the great age of Egypt. But Tennyson lived in one of the most
rapidly changing countries (Britain) at one of the most rapidly changing
periods (the late 19th century) of history.
Tennyson’s
changes, however, were all to the good.
Men (largely) ceased to devote themselves to war. They spent their energy in the service
of creation, not destruction.
They made great advances in the useful arts and sciences. The standard of living rose more
rapidly in Tennyson’s age than it ever had before in human history and
more than it has since.
After
Tennyson died, the changes continued. But they were changes in the direction
of evil. Two massive wars
engulfed the world. The twin
evils of communism and fascism emerged to torment mankind. For a time, the world seemed consumed
by hate and destruction.
And
here, in early August 2009, the world is once again perched on a
knife-edge. Or, perhaps a better
analogy would be that it stands at a fork in the road. Which way shall we travel, it asks? The night is dark, and we can see only
dimly into the future. This is the moment of decision.
 
The
key decision for our time will be made by the market for the U.S.
dollar. This chart last ran in my
June 8, 2009 article. Since then
we have had a weak rally. In
July, the rally failed, and we once again rest on the Dec. 18, 2008 low.
The
difference between now and June 8 is that the first time that a chart pulls
back to a support level the support is still intact and should cause a rally
one order of magnitude smaller than the support itself. (This refers to my theory of the 4
levels of market cycle: grand cycle trend, major trend, intermediate trend
and short term trend. These last,
roughly, 1-2 decades for the grand cycle, 2-4 years for the major cycle, a
few months for the intermediate cycle and a few weeks for the short
cycle.) Thus the Dec. 18, 2008
bottom was part of an intermediate rally in the dollar. This leaves it with enough support to
spark a short term rally the first time the support is tested (which was
early June).
This
means that the action in the dollar over the past two months must be viewed
as follows: There is a bearish
force, of either intermediate or major term significance. This is putting the dollar down and
has been operating since early March.
And there is a bullish force that is trying to put the dollar up and
which consists of those people who had resolved to buy at the support
level. For the past two months,
buyers have battled sellers. What
is the result?
First,
since the selling is intermediate/major term and the buying is only short
term, the sellers have an obvious advantage. When a bearish trend meets a bullish
force like this, pretty much the only chance the bulls have is to delay the
decline for a time in hopes that the basic bearish trend will turn. We can imagine an advance platoon
trying to hold off the main enemy army in hopes that its own forces in the
rear can come up in time. Second,
in this case the larger forces are easy to diagnose. The dollar rallied last autumn as a
part of the general world view that a massive “deflation” was
about to engulf America and the world.
“Deflation” is simply a word for an appreciation of the
currency. And so the dollar
appreciated from 71 to over 90.
But
that general world view, variously called “recession,”
“depression,” “financial crisis,” is now
reversing. Suddenly, the stock
market is rising. Favorable
articles are appearing in the newspapers. On July 24, an article entitled
“The Economy Has Hit Bottom” by Alan Blinder appeared on the Wall Street Journal’s Op-Ed
page. The dollar rally of last
autumn was an interruption of a much larger down trend, which itself was
caused by very strong fundamentals.
The U.S. trade deficit is horrific, telling us that U.S. prices are
too high in relation to foreign prices.
And to top things off, the massive Bernanke easing, which started in
2007, has caused international hot money to flee America, and this
traditionally has been a very bearish force on any nation’s
currency. It is an obvious
conclusion that, as the “recession” fades into distant memory,
the impulse to buy dollars will fade with it, and the trends which were in
operation prior to March 2008 will resume.
And
when the real economists look back on this period from the future, they will
say, “You know, in the first part of the 21st century the markets were
in a 20 year rise in commodity prices, and seven years into it, there was a 3
month (Sept. to Dec. 2008) pull back.
This commodity price decline, although very small, scared the dickens
out of the people of that day.
Many of them were shouting, ‘Great Recession.’ Many others were shouting
‘Second Great Depression.’
Yet here in 2020, on the new, much larger scale charts, we have to
draw to accommodate $14,000 gold and a 5,000 CRB index, those tiny declines
are barely noticeable.”
Prices
are going up because the dollar is going down. That is all ye know and all ye need to
know.
And
if there were any question on the subject, then all one has to do is to
contemplate Obama’s projected trillion dollar deficits. These deficits will not be financed by
borrowing from the American people.
That is a lie. No democratic
government has ever borrowed from its own people since the beginning of
democracy in England in 1688. THE
GOVERNMENT WILL PRINT MONEY AND “LEND” TO ITSELF. The U.S money supply will balloon from
$1.3 trillion in early 2008 to somewhere in the neighborhood of $5 trillion
by 2012. What do you think is
going to happen to the value of the U.S. dollar with that kind of a massive
increase in the money supply?
(The only thing which can stop this and invalidate my $14,000 gold
prediction is some kind of political “miracle” such as a sweeping
Republican victory in 2010. And
even that would require some new-fangled type of Republican who will balance
the budget.)
All
this has happened before. In
Britain after WWII, the (left-wing) Labour Party was elected. They brought in Keynesian advisors,
printed money and depreciated the British pound. The pound collapsed on the foreign
exchange markets and ceased to be the world’s reserve currency. The British Empire fell apart and
Britain’s period of greatness in world history came to an end.
So
here we are, in America, following the same Keynesian policies which led to
such disaster in Britain a half century ago. That is, of course, the definition of
a fanatic: a person (or nation)
who keeps repeating the same actions and expects somehow a different result.
And
here in early August we have come to a decisive point in the depreciation of
the U.S. dollar. As the chart
above shows, the dollar has formed what technicians call a double (or M)
top. This is a chart which traces
out the shape of the letter M. It
is complete when it breaks below the low point of the M (in this case, 78.20
in the Sept. dollar future). It
predicts a further decline (below the low point of the M) equal (in
percentage terms) to the decline from the top to the low (13%). This would be a decline to 68, which
would be an all-time low in the U.S. dollar index.
It
is a no-no in technical analysis to anticipate the breaking of a technical
pattern. The pattern is not valid
until the break has occurred. But
I am going to be a bad boy here and speculate a bit. Here we are on a quiet weekend in a
quiet month when many people in the northern hemisphere take their
vacation. Friday’s action
closed almost perfectly on the break point. Not only are we right on the break
point for the dollar, but we are close to the break point for head and
shoulders bottoms in both gold and a good many gold stocks. At this writing, the dollar is exactly
poised on its break point. If
78.20 breaks, we will have a completed double top in the U.S. dollar and head
and shoulder bottoms in both gold and many gold stocks. $1000 gold will be in the bag.
As
noted, if the dollar breaks, the double top will forecast a 13% decline (over
a period of perhaps 5-6 months).
This will mean that world commodities will all rise by 13% in price. Excuse me, that 13% is the U.S. dollar
versus foreign currencies. The
fall in the U.S. dollar versus goods will be worse (because all those foreign
currencies are themselves falling versus goods. On top of this, commodities bottomed
on Dec. 5, 2008. They have been
going up for 8 months and are well on their way to recovering their 2008
highs. (Gold, as you know,
recovered its 2008 high on Feb. 20, 2009.
Think
about what the situation will be like in early 2010. Prices will be sharply on the
rise. The Canadian dollar will be
worth more than the U.S. dollar.
The last time the country had a serious bout of rising prices was
1979, when prices rose by 13.3%.
By early 2010, we should be within spitting distance of that figure. On top of this, Obama has antagonized
the country with his socialized medicine proposal and his trillion dollar
deficits. At this writing,
Rasmussen reports that his approval rating has slipped to negative 8% (38%
strongly disapprove, 30% strongly approve). (Rasmussen is one of the few pollsters
who poll only likely voters. His
prediction for the 2008 Presidential election was exactly on the nose.) The conservative Democrats are running
away from Obama as fast as their little legs can carry them. Rasmussen also reports that, if asked
whether they plan to vote Democrat or Republican, then voters would vote for
a generic Republican by 42%-39% over a generic Democrat.
In
short, by early 2010 it is very possible that Obama’s program will be
in tatters, and the future prognosis for the country will be much
improved. Along these lines,
Rasmussen also reports that Ron Paul’s movement to audit the Fed now
has the backing of 75% of all likely voters..
These
events could be the culmination of what happens here and now in the foreign
exchange market. This is the time
when America has to make her decision.
It
is an overwhelming idea, but to succeed in the markets you have to understand
that the entire structure of our society (academia, the media, everyone whom
you trust and respect) is deceiving you.
They are not directly deceiving you to cheat you in the markets. Rather, they are making a large-scale
effort to deceive all Americans for the purpose of getting political support
for a policy of printing money and lowering interest rates. This policy will rob wealth from the
average American and give to themselves.
If one can steal a dollar from each of 300,000,000 people, then he
will have $300,000,000. Then he
can take a small part of that $300,000,000 and “influence” (bribe
is such a harsh word) important politicians, academics and media. They will tell the average person that
he is getting richer when in fact he is getting poorer.
That
has been the name of the game since March 9, 1933 when F.D.R. took the nation
off the gold standard and gave commercial bankers the privilege to create
money out of nothing. Since they
profit from creating paper money and steal the product of your labor like the
medieval aristocracy, I call them the paper aristocracy. Since that time, the whole
system has been based on fraud.
Not
all of the people feeding you misinformation, of course, are engaged in
direct fraud. Many people are
just too stupid to know what is going on and believe the misinformation
themselves. That is not much
comfort to your bottom line.
Through
this entire period, during which the economy of the U.S. first slowed and
then went into decline, the media have been screaming to us about our
wonderful economic growth. After
all, if a counterfeiter moves into town and starts printing money, he will
steal the real wealth created by the people. But since the people experience no
drop in their (nominal) wages, most of them will not think anything is
wrong. The only way they can tell
that they are poorer is that the price of all goods and services rises.
You
have to protect yourself from this printing of money, and right now the best
way to do that is by putting your money into gold and gold stocks. Your only friends are myself and my
companion gold bugs. We are on
your side. NBC, Fox, CBS, the New York Times, the Wall St. Journal, Barney Frank, Henry Paulson and Barack Obama are
stealing your wealth to give to the paper aristocracy.
Howard Katz
The Gold
Speculator
Howard S. Katz was
one of the early gold bugs of the late ‘60s and ‘70s, turning
bullish on gold in 1965. His favorite gold stock, Lake Shore Mines, went from
$3/share in 1970 to $39/share in 1980 (sold at $31).
He turned
increasingly skeptical about gold as it mounted its final rise in 1979, and
he called the top after the close on Jan. 21, 1980 (with gold at
$825.50/oz.). Katz traded gold in and out during the ‘80s and
‘90s and once again turned long term bullish in Dec. 2002.
His thoughts on
commodities, stocks, bonds and real estate are available in The One-handed
Economist that is published every two weeks giving specific advice on trades
in stocks and futures. He went to Harvard, but rather than turn left, he
refused to take courses from the Harvard Economics Department and studied
economics on his own, concentrating on the classical economists and the
Austrian school.
He has published
several letters, to include The Speculator (1964- 1972), The Gold Bug
(1973-1986) and The One- handed Economist (1996-present). He is the author of
3 (published) books on money: The Paper Aristocracy (1976), The Warmongers
(1979) and Honest Money – Now! (1979).
He was the head
of the Committee to Establish the Gold Standard and worked with Congressman
Ron Paul for the passage of the American eagle gold coin bill of 1986. He is
at present an advisor for Kenneth J Gerbino & Company, a Beverly
Hills money manager.
Subscribe to the
Gold Speculator (the One Handed Economist)
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