A word to those looking for financial/economic advice: Buy me at my low.
There are, from time to time on Wall Street, a number of analystsâ€”brokers, mutual fund managers, newsletter writers â€“who emerge from obscurity to shine brightly. These people are making big profits. Their customers are making big profits. It appears that they have found the secret to the markets.
However, if you study such analysts, you find that things are not as bright as they seem. Let us call them hotshots because for a time they are indeed hot. But what happens next is like a rocket. The take-off is beautiful, but soon they reach the peak of their trajectory. They descend to earth, and then they crash and burn. In terms of profits, they are back where they started, and it is clear that they do not have the secret to the markets.
But what happens to the followers of such hotshots is indeed sad. The hotshot may be back where he started. But the client who followed him is not so lucky. This is hard to comprehend, but every analysis of such situations proves it to be true. The clients buy the hotshot at his high (when he is very successful and the talk of Wall Street), and they are with him all the way down. The hotshot breaks even, but the client takes a big loss. In other words, some evil force brings them in at just the wrong time.
A good example of this is the gold bull market of the 1970s. When I turned bullish on gold (in 1965), no one would listen to the gold bugs. But in 1979, they were beating down our doors. They were buying us at our high.
I was not a hotshot at that time as I managed to turn bearish on gold in January 1980. Most of the other gold bugs, however, hung on to gold through the 1980s and â€˜90s. They did not come out even because they had bought close to $35/oz., but they did come out with diminished profits. The problem was that their clients played them wrong. Most of the clients did not buy them low but rather bought them high. The clients thus took a winning position and turned it into a losing position.
This is very frustrating to an analyst. He wants to make money for his clients. He can be making the correct plays on the markets. But the clients buy him at his high and sell him at his low. Over time, he may make money, but they lose money.
These remarks are in view of the Abelson low in gold of July 27. It bears evidence of being an important intermediate low â€“ AN OPPORTUNITY TO BUY. And yet, my clients were buying me back last November (as gold neared an intermediate high), and today they are walking away.
Here is the problem. The client has not come to appreciate just how ignorant and irrational todayâ€™s media is. You can count on it. The media will speak with one voice and with great confidence. They will be humiliatingly and embarrassingly wrong, over and over and over. And then they will refuse to acknowledge their horrific error. One would think that the media would apologize to its readers. â€œGee, we told you back in 1990 that there was going to be a great depression. It never happened, and you lost a lot of money. We are sorry.â€
That is all I ask of the media. Tell your readers you are sorry. Apologize for costing them money. Admit that you donâ€™t know anything about economics. And then retire to your cave and do not bother us any more.
But no, this is not what happens. So now the ball is in your court. You the client are living in a society where the overwhelming voice of the media is shouting at you from all sides, and they are almost always wrong.
â€œFool me once, shame on you. Fool me twice, shame on me.â€
This old saying has to be amended for the modern media. I would prefer to change it to â€œFool me a thousand times, shame on me.â€ Because in the financial markets todayâ€™s media is so repeatedly and reliably wrong and shows so little conscience about it that it must be setting some kind of record in human history.
You all know the story of Galileo. He developed the theory that a heavy weight would fall at the same speed as a light weight whereas the majority of physicists of his day believed that the heavy weight would fall faster. He performed an experiment from the Leaning Tower of Pisa by dropping a 10 pound weight and a 1 pound weight at the same time from the top of the tower. It was obvious to all that both weights hit ground at the same time. The opposition physicists were convinced, and Galileo won a great victory
This is proof that Galileo did not live in the 20 th-21 st century because we know what would have happened to him if he tried his experiment in our time. The two balls would have landed at the same time. Then the opposition physicists would have said, â€œThis doesnâ€™t prove anything. How do you know that the wind didnâ€™t affect the experiment? Who is Galileo anyway?â€
We know that this would have happened because this is exactly what happened to Jim Dines after he predicted, in 1963, that the price of gold, then $35/oz., would rise significantly over the coming years. Indeed, while gold was still close to $35 and the DJI was still close to its high above 1,000, Dines predicted that the two numbers would cross. This occurred on Jan. 21, 1980 when gold hit an interday high of $875 (Comex, near future) and the DJI closed at 872.
`Dinesâ€™ broker fired him in 1963 for his gold prediction. They later went bankrupt, but they never apologized to Jim Dines and never even admitted that they had been wrong. In general, gold bugs were insulted and denigrated in the media. The New York Times, for example, argued against Harry Browneâ€™s book (How You Can Profit from the Coming Devaluation, 1970) by accusing him of not getting along with people. This book, by the way, is an excellent exposition of the Austrian theory of economics, and had the Times had the brains to read it they might not have lost 90% of their investment in their own stock over much of the past decade.
The problem is that, in our society, the inmates are running the asylum. One can certainly forgive a human being for making an error. But when a human being looks reality directly in the face and says, â€œGet thee hence reality,â€ something is seriously wrong. If I could get Moses to rewrite the Ten Commandments, I would ask him to add an eleventh and give it the number one position.
Thou shalt see reality as it is.
What is wrong with our age is that virtually no one is obeying this commandment.
And the outrage of it is that the overwhelming majority of people are suckers. They are consciously and deliberately being lied to. This all began in the 1930s when FDR slipped through economic legislation (on his first day in office) to give the commercial bankers the privilege to create money (all the while saying that he hated the bankers and was â€œa traitor to his classâ€). This creation of money could only work on the theory that the country was in a depression (or recession), and such phenomenon do not exist. So these bankers hired a collection of crackpots to argue that the early 1930s were such a period. In previous articles, I have pointed out that from 1929-33 real wages rose. People ate more meat and switched from margarine to butter. They gave a bigger percentage of their income to charity. Recently, I checked, and average wages in the U.S. in early 1933 were above 50 oz. of gold per year for working people. Today they are around 30 oz. In the 1950s, these crackpots were infiltrated into American colleges as economic professors, and today the teaching of economics in the U.S. is essentially corrupt.
There is not one thing about this period which is correct. For example, credit for the â€œnewâ€ economic theory was given to a sexual pervert named John Maynard Keynes when the same theory appears in a book (The Road to Plenty) written in 1928 by two Americans, William Trufant Foster and Waddill Catchings. I read this book in the New York Public Library. Donâ€™t tell me it doesnâ€™t exist. All one has to do is to read it to realize that it is a statement of â€œKeynesianâ€ economics 8 years before Keynes published. That is, Keynes plagiarized his work from Foster and Catchings. Not only is his theory phony, he is phony too.
But the Foster and Catchings analysis was very useful to the bankers because it provided a rationale for the bankers to create money out of nothing and thus make more loans. It was also useful to Wall Street because the low interest rates bulled the stock market and increased volume. All one has to do is to redefine the economy as the well-being of the commercial bankers and Wall Street and, lo and behold, the government can stimulate the economy. This lie continues in force to this day and has the same reality as the Salem witchcraft trials of 1693. And, of course, as we speak, the Federal Reserve (using the powers that FDR gave them) is lowering interest rates to â€œstimulate the economy.â€
The problem is that the more they â€œstimulate the economyâ€ the poorer the country gets. The same theory has been tried in many other countries. Last week (â€œHyperinflationâ€) we saw how the exact same economic theory, applied in Zimbabwe over the past decade, reduced the life expectancy of the average Zimbabwean from 60 years to 40 years and resulted in an unemployment rate of 95%. But Iâ€™ll bet that it made a lot of money for the power structure.
You see, when the bankers are given the legal authority to steal from us, it is just human nature to always want a little more. So they have to continually invent more and more absurd economic crises. Right now the establishment is screaming about an imminent â€œdeflationâ€ when in fact the last year in American history in which consumer prices declined was 1955. As noted, the 30 year period of actual price decline, 1866-1896, was the greatest period of economic growth both in America and any country in human history. So if a â€œdeflationâ€ were coming, it should be welcomed with young girls strewing flowers in its path.
No such luck. The period of sharp price increases which is being caused by the money the Fed started to print 2 years ago looks just about to explode. Gold has made its â€œAbelson lowâ€ and is ready for an attack on its highs. Cocoa and coffee are right behind gold. The CRB index is within striking distance of its July 2008 high. And, as I featured in last weekâ€™s One-handed Economist (2010-08-6), wheat has just broken out from a triple bottom, signaling a possible move in the grains. If you want to track consumer prices, then start with commodity prices. Once they have begun to move, the rise will pass through to the Producer Price Index, and from there it will pass to the Consumer Price Index.
So, I urge you not to buy me at my high. Buy me at my low. In that way, you get my maximum benefit. Do not listen to the media. They are staffed with the students of these banker corrupted economists. They donâ€™t know the difference between supply and demand, and their predictions have an almost perfect record of being wrong. To bring a small amount of rationality to the science of speculation, I publish a financial letter which analyzes the markets with special emphasis (at this time) on gold and gold stocks. I make my decisions on 1) standard technical analysis, 2) Austrian theory economics and 3) the commodity pendulum. For example, right now the commodity pendulum says that any significant increase in consumer prices has to be preceded by a corresponding increase in commodity prices.
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Thank you for your interest.
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