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Being gold bug’s lots of fun.
We’ve
got the bad guys on the run.
The
autumn season does behoove
For
price of gold to make its move.
Al
Abelson, he was a fool.
He
sold his gold and broke the rule.
He
sold his gold, what do you know
At
price that was the very low.
Above
we have the monthly basis price of gold (www.timingcharts.com) for the past 10 years. For the past 10 years, there has been
a pronounced advance through the autumn, usually into the winter and
sometimes lasting until May. Gold
usually hits a bottom in July and then makes a secondary test in August. Then in late August it starts to rally
and after Labor Day begins a steady advance. The up move in early August is unusual
and is probably a hint that this year’s autumn rally will be stronger
than usual.
If
you buy gold at the end of August and are good enough to catch the
“winter” top, you usually have a nice gain. For example, if you bought at the end
of August 2009 ($953) and held through the end of November ($1,182) –
and I caught that top almost to the day –you had a gain of 24% on fully
owned gold. This, of course, is
more if you used margin or were in the more volatile gold stocks. 2008 was a rough year for gold, and I
missed the summer decline.
However, I toughed it out (which is sometime, not always, the thing to
do), held on for the Nov., Dec., January rally and sold within days of the
Feb. ’09 top. A person who
bought at the end of August ($842) and sold at the Feb. close ($942) made a
gain of 13%.
A
person who bought at the end of August ’07 ($681) and sold at the end
of February ’08 ($975) made a whopping 43% gain on fully owned
gold. (Again, I caught that top
within days.) For ’06, if
you bought at the end of August ($632) and sold at the end of March ’07
($669), you made 6%. For 2005,
which was an exceptional year because of the silver ETF, if you bought at the
end of August ($446 and sold at the end of April ’06 ($660), then you
made 48% on your fully owned gold.
How
sweet it was.
Going back to the early part of the decade we find
similar bullish autumn moves in 2001, 2002, 2003 and 2004. They are smaller in absolute numbers,
but the semi-log chart tells the truth and proves that these moves were very
close in percent gain to the ones later in the decade.
I
believe that the 2008 decline was a unique situation. I knew that the New York Times was powerful, but even I underestimated their
ability to move markets. And in
2008 they pulled out all the stops.
They started to scream “FINANCIAL CRISIS,” and they kept
repeating similar headlines through the last 2 weeks of September.
The
two biggest headlines in the New York
Times over the course of the 20th century were Pearl
Harbor and the landing of men on the moon. The “financial crisis” of
2008 was only slightly behind these two in size of headline and quantity of
space. And it surpassed them in
frequency of repetition. Both Pearl
Harbor and the moon landing only happened once. But the “financial crisis”
of 2008, not being a real event, could be strung out and reported over and
over. (If I have a good sense of
the world – and my record shows that I do – then I would not be
at all surprised to learn that the New
York Times was maneuvering behind the scenes at that time to get the
Japanese to attack a second time so that there could be another headline.)
The
astonishing thing about the “financial crisis” was that the Times had been telling the country how
stupid President Bush was since his election in 2000. But when he declared a financial
crisis, they believed everything he
said. The only financial
crisis that occurred in 2008 was the collapse of the NINJA loans made during
the financial bubble. It was a
crisis for the Wall Street firms who had made these loans and held toxic
assets, but it was not a crisis for the country.
Who
benefited from the housing bubble of 1997-2006? It was housing speculators. Young couples searching for their
first homes were priced out of the market. People were buying houses, not to live
in them but to “flip” them, meaning sell to a greater fool, who
also would not live in them.
Housing affordability collapsed.
Around
World War I, major advances were made in homebuilding techniques, and houses
were built much more cheaply and were much more affordable. The people of the day had the brains
to realize that this was a good thing. You could buy more house for your
money, or you could have more money left over after you made the
purchase. Today’s media
treats a decline in prices as something bad. They say, “there is a threat of
deflation.”
Well,
if a decline in prices is bad, then how come 1955, the last year in American
history to see a decline in prices, is called “Happy Days.” It must be that the average American
knows more about economics than all these fancy idiots running around with
big titles. Or, try the following
experiment. Go into a small town
in America,
sit down in a local eating place and strike up a conversation. “Hey, remember two years ago
when gas prices dropped from $4.00 to $1.50? Was that a good thing or bad?”
“What,
are you kidding fellow? My gas
bill for the quarter was down. My
heating bill was down. The family
could go out for a drive without worrying about spending too much money. The money was flowing from the oil
companies and the Saudis into my pocket.
I
wish those days would come back.”
As I have noted previously in these pages, there was
a much bigger decline in prices in the late 19th century
(1866-1896). A succession of
geniuses (Edison, Tesla, Bell,
etc.) invented wonderful new products which made American life the envy of
the world. Real wages rose by 90%
in real terms. Immigrants flooded
into the country to become part of America. And the country became the number one
economic powerhouse in the world.
And
yet the New York Times is telling
us that in 2008 a financial crisis began. Well, Mr. Sulzberger, why don’t
you get your own house in order before you tell anyone else what to do? You took all your money around 2000
and used it to buy your own stock for $40 per share. By 2009, it was down to $4 per
share. That is, you lost 90% of
your money. During the same
period gold bugs multiplied their money by almost 4 times. Now that was a financial crisis
– for you – precisely because you took your own advice.
But
I don’t take your advice, Mr. Sulzberger. No, the One-handed Economist has a responsibility to make money for its
subscribers. The One-handed Economist has to tell it
like it is. The One-handed Economist is saying that
prices are not going down. That
is nuts. Prices are going way,
way up. The rise will start with
commodity prices, spread into producer prices and then into consumer
prices. At some time in the
future, we will get the modern equivalent to 1979, when the CPI rose by 13.3%
and the price of gold multiplied by a factor of 3.8 (except in the future
both these numbers will be much higher.)
RETIREMENT
A few months ago, U.S. News & World Report noted:
“Early retirement is no longer the goal of most workers. Even
retirement at age 65 seems unattainable to many people. The majority of
Americans now expect to work until age 65 or later.
The number of Americans planning to retire before age 65 has dropped
from 50% in 1996 to 29%, according to a Gallup survey of 1,020 adults. Meanwhile the proportion of people
planning to work until after age 65 has increased from 15% in 1996 to 34%.
This is the first time in the 15-year-old survey that more workers plan to
retire after age 65 than before it. Another 27% plan to retire exactly at age
65.”
U.S. News & World Report, May 18, 2010
I
have repeatedly commented in these pages that retirement had become
impossible in America in principle.
It takes some time for a principle to be actualized in reality, but
gradually fewer and fewer people are making the decision to retire. The US News & World Report article makes it clear that we have
passed the half way mark toward the society where retirement is impossible
for most people.
The
reason is simple. To retire, your
savings must grow, and the traditional way of doing this was by compound
interest. But when the New Deal
abolished the gold standard, it started to print paper money at a rate just
about equal to the rate of interest.
This, of course, means that you have been getting 0 real interest rate
for the past 77 years. But at 0%
interest money cannot grow, and this means that you cannot accumulate money
for retirement.
Americans
have responded by trying to make money for retirement by speculating in
stocks. This is like making up
for a cut in pay by beating your buddies in the Saturday night poker
game. Speculating is a zero-sum
game. Some may win, but an equal
amount must be lost.
The
myth is perpetrated today that the stock market always goes up. The stock market has gone up since
1933, but this has happened because the Fed stole money from bond (and other
fixed income) investors to give it to stock speculators. FOR EVERYONE TO BENEFIT, NET WEALTH
MUST BE CREATED. That is a point
that the “Brain Trust” did not understand.
Do
you want to speculate in the stock market intelligently? Then watch the Fed. When the Fed eases credit and prints
money, then stocks will go up (and bondholders will lose via the depreciation
of the currency). When we are on
the upswing of the commodity pendulum (as now), then be in gold or other
commodities. When we are on the
downswing of the pendulum, then be in stocks (or real estate). That is, in broad scope, the name of
the game.
The
specifics to implement this strategy are discussed fortnightly (every two
weeks) in the One-handed Economist.
($300 per year). You may
subscribe by visiting my web site at www.thegoldspeculator.com. Or you
may subscribe by sending a check for $290 ($10 cash discount) to The
One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. Both the price of gold and the gold
stocks are looking explosive, and I am confident of a good autumn.
Howard Katz
The Gold
Speculator
Howard S. Katz is the editor/publisher of the One-handed Economist, a
financial letter which combines fundamental and technical analysis. He was a
bug on gold in the 1970s and became a bug on gold again in late 2002.
Subscribe
to the Gold Speculator (the One Handed Economist)
You can subscribe to Howard Katz’s thoughts on commodities,
stocks, bonds and real estate are available in a letter entitled The One-handed
Economist and published every two weeks giving specific advice on trades in
stocks and futures. This letter is available (both electronic and paper copy)
for $300/year with a 3-month trial for $100. Send to: The One-handed
Economist, 614 Nashua St. #122, Milford, N.H. 03055.(Include both electronic
and mailing address.)
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