Fanaticism has been defined as the policy of repeating the same actions while expecting a different result. If that is the case, then we live in a society of fanatics, and it is absolutely essential to know this if one is to succeed in the financial markets.
In mid-September 2008, the New York Times began to scream, in a series of big headlines, that the nation was in a financial crisis. I have studied the American media, and it is absolutely amazing. The overwhelming majority of newspapers will pick up a line of propaganda from the Times and repeat it mindlessly ad infinitum. After 2 weeks of Times propaganda the nationâ€™s media had fallen in line, and in 10 days in early October the DJI fell by 3000 points (as the public read a large number of bearish articles about the financial system).
It is interesting to compare gold, gold stocks and conventional stocks from that period. Over the years, even the establishment had come to admit a small role for gold, and by 2008 this was summed up in the policy of keeping 10% of oneâ€™s assets in gold stocks.
Therefore, when the â€œcrisisâ€ hit, ordinary followers of the establishment were faced with a dilemma. They were getting margin calls on their 90% of ordinary stocks. What to do? What to do? The margin clerk does not take â€œnoâ€ for an answer. He just sells you out.
â€œWell,â€ the establishment follower thought. â€œStocks just donâ€™t go down. I canâ€™t sell my stocks.â€ So he sold his 10% gold stock position to protect his conventional stocks. Thus gold and gold stocks fell sharply for a brief period at that time.
What was the result? By March 2009, the DJI had fallen by more than 50% from its October 2007 peak. Gold itself fell 30% from July to October. It recovered its old high by February 2009 and is now an additional 25% higher. The HUI recovered its late 2008 decline by early December 2009, which is where it rests today. Today, the DJI is down 25% from its â€™07 high, gold is up 25%, and the gold stocks are flat. So the establishment followers managed to dump their 10% gold stocks at a panic low. They did not get the protection which gold offers to you and me. They are losers every which way.
This teaches us that it is not gold or silver, per se which ensures protection against the attempt by the establishment to rob us. It is a study of that establishment, a familiarity with its economic theories and a knowledge of its tactics which can confer that kind of protection. The idiots who accepted the theory that putting 10% of their money into gold stocks would protect them were looking for a simple answer. They did not try to understand the cause of the problem, and the result was that they were destroyed. Gold (or silver or gold stocks, etc.) is essential, but equally essential is the knowledge of cause and effect.
It is very tempting to see this as a battle between good and evil, and indeed there is a moral aspect to it. (Thou shalt not steal.) But the evil guys are not attacking the good guys (us). Indeed, we have an immunity from them and are capable of actually making money off the depreciation of the currency. The evil people in the establishment are making their profits at the expense of their own followers. It is not evil versus good. It is evil versus evil (sort of Nazi Germany versus Soviet Russia on the Eastern Front during WWII). This is a subtle point, and most people will miss it.
Let us take the American black community (most of it). It is well known that the large majority of blacks vote Democrat, and it is widely believed that blacks are a major beneficiary of government jobs and handouts. But then I stumbled across a rather astonishing fact. Studying the unemployment statistics in the U.S. by race I came across the fact that, according to the Bureau of Labor Statistics, in 1940 (the first year in which the figures were broken down by race) black unemployment was almost the same as white. Today black unemployment is regularly double white.
How can this be? Havenâ€™t you heard all those stories about the Civil Rights marchers chanting and singing? Canâ€™t you read those anti-discrimination notices posted in every workplace in the nation: â€œDISCRIMINATION BY RACE, RELIGION OR BLA, BLA, BLA IS ILLEGAL.â€ Well, it may be illegal, but there is one heck of a lot of it going around. Right now, unemployment among black teen-agers is approximately 40%. Many of these unemployed teen-agers get into trouble from their idleness. Many of them get into drugs and wind up in jail. The crime rate among American blacks is 8 times that among whites, and most of this is blacks murdering and stealing from other blacks.
Or we can study the union movement of the 1930s and â€˜40s. It had been normal in the late 19 th and early 20 th centuries for the average American worker to increase his real wages by 60% over a generation (30 year period). After the New Deal was elected and adopted supposedly pro-labor policies, this went down to 40% for the 1942-1972 period. Then after the Republicans accepted those â€œpro-laborâ€ policies, real wages topped out in 1972 and have been declining ever since. So the big â€œaccomplishmentâ€ of the New Deal was to cause the wages of American labor, which had been rising since 1623, to go into decline. This is the first generation of Americans to be poorer than its fathers.
And again, we see the same thing with regard to the feminist movement. What benefits accrued to women from the â€œwomanâ€™sâ€ movement of the late 20 th century? Well, they won the â€œrightâ€ to go into combat; so that America is now the only country in the world which puts its women into harmâ€™s way. They elected a rapist (Bill Clinton) to be President of the U.S. Their husbands divorce them. They find themselves in middle age struggling to do the womanâ€™s job of raising the children and the manâ€™s job of earning a living. They are hassled and harried. Many times they are abandoned in their old age when they have lost their youthful beauty (e.g., Mia Farrow, who was abandoned because her boy friend took up with her own daughter). Prior to the rise of modern feminism, American men stuck by their women. Love, not sex, conquered all.
In all these cases, it is the supposed beneficiaries of the establishment who are its victims. Indeed, it is my heartfelt advice to all of you that; if the establishment ever comes out in favor of a group to which you belong, then fight them with all of your might. And this is true with regard to economics.
The people who lose money from the system of â€œlegalizedâ€ counterfeiting are those who give their consent to it. They may take a college course in Keynesian economics and believe the professorâ€™s line. They may read a popular newspaper and believe the editorâ€™s line. They echo the propaganda from the Fed.
I refused to take any economics courses when I was at Harvard because the professors there said that the Federal Government did not have to balance its budget. Even at that young age, I knew that this was gobble-de-gook. When I graduated college, I found some economists who made sense, and I began to explore the subject. These were of the Austrian school, which begins with classical (Adam Smith) economics and adds to it the time preference theory of interest.
The time preference theory of interest says that interest is the price we pay for time. We pay interest when we want a good sooner than we can earn the money for it (such as an auto loan). We receive interest when we produce a good but then refrain from consuming it for a period of time (allowing someone else to use it). Since stock prices are very sensitive to interest rates, Austrian theory can use the Fedâ€™s policies on interest rates to predict the stock market.
For example, the Fed is now easing to beat the band. When I look at the grand cycle (20 year) trend, I see a stock market which is very overbought and vulnerable to correction. But since the Fed is in a very powerful easing mode, I am predicting that the stock market will be up for the foreseeable future (until the Fed tightens). Despite this, I prefer gold and gold stocks to conventional stocks because gold is still near the beginning of its rise from its very oversold level of 1999.
I first began using Austrian theory analysis in 1969 and predicted the bear market of that year. Defining a major term trend as 2-4 years I caught every single major term stock move with one exception. (A second â€œexceptionâ€ was the bear market of 2002, which was caused by the Iraq War but which I was able to predict.) So here I have been calling the markets for 40 years, beating the pants off the establishment. I predicted the giant grand cycle bull market in stocks which began in 1982. I predicted Black Monday, October 19, 1987. I predicted that there would be no â€œGreat Depression of 1990.â€ And I predicted that 2007 would be the grand cycle top for the stock market.
In other words, the people walking around with economic titles ten inches long are a collection of phonies and frauds, and there is more economic knowledge in my little finger than they will ever see in their lives. They were hired, not by the university to teach its students, but by the paper aristocracy to excuse away its counterfeiting of money. (For example John Kenneth Galbraith was hired by Harvard in name only. He was actually hired by the Manhattan Bank and spent his life defending their privilege to create money.) This amply compensated them for the money they â€œdonatedâ€ to fund his chair.
This establishment not only lies to us, they tell the same lie every time. The funny thing is that they only have one lie, and it comes from Franklin Delano Methusela. It says, â€œWeâ€™re in a depression [deflation, great recession, etc.].â€ This is bad. Therefore the Fed has to print money to get us out of the â€œdepression.â€ Printing money makes us rich. Printing money is the road to plenty. (These theories were advocated by two Americans, William Trufant Foster and Waddill Catchings, who wrote a book, The Road to Plenty, arguing that printing money is the road to plenty for a society. This book was later plagiarized by John Maynard Keynes, and its theories are today known as Keynesian economics.)
This week my newsletter, the One-handed Economist (dated Sept. 3, 2010), features a chart of silver on p. 1 showing a breakout from an ascending triangle. This is one of a number of triangles in the precious metals group which are on the verge of breaking out and which have amazingly high price objective lines.
Every time we get the â€œdeflation/depressionâ€ propaganda what happens in reality is the exact opposite. There is a massive increase in the supply of money, and prices accelerate to the upside.
Here is the most recent example. In Sept. 2008, there was a spate of â€œdeflation/depressionâ€ propaganda. It started with the New York Times, and measured by the size of headlines it ranks close behind the two biggest events of the 20 th century, the Moon landing and Pearl Harbor. (Except both of these events received big headlines for one day. The â€œfinancial crisisâ€ kept being resurrected every few days for 2 weeks. These lies were used as the excuse to print massive amounts of money (represented by the monetary base because the Fed is lying about the money supply). What will happen next is a rough doubling in U.S. prices starting with commodity prices, then moving to producer prices and finally consumer prices. This is a simple example of cause and effect. Gold, and the other precious metals instruments will lead the way.
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