Right now the financial markets are telling us a story which is so incredible, so fantastic and filled with such opportunities for profit that I am in awe. I can only remember two comparable opportunities in my lifetime, the bottom in gold at $35/oz. in the summer of 1970 and the bottom in stocks in the summer of 1982 at 780 DJI.
The purpose of a financial market is to value economic goods. The successful speculator is one who correctly values goods; the unsuccessful one fails at this crucial task. All you have to do is to look at history and you can see that the majority of speculators have done very badly at their job. Why did the speculators of the day sell gold for $35 in 1970? Couldnâ€™t they see that gold was one of the few economic goods which had failed to triple in price since 1933? A check with the Bureau of Labor Statistics â€œInflation Calculatorâ€ shows that a basket of goods whose average price was $1.00 in 1935 had risen to $2.83 in 1970. And yet gold had first been set at $35 in 1935 and was still $35 some 35 years later. Since everything in the country had close to tripled by 1970, then wasnâ€™t that some kind of a clue that gold also should have tripled?
But their incompetence is our good fortune. When the majority of speculators wrongly value goods, they create opportunities, sometimes fantastic opportunities, for us to profit. And since we have truth and truth is good, it is only right that we should profit. The key is to be sure that one has the truth.
We know that from the summer of 1970 to January of 1980 the price of gold rose by a factor of 25 times. You could make 25 times your money â€“ without having to use margin. Again from the summer of 1982 to October 2007, the DJI rose from 780 to 14,200. You could make 18 times your money.
Yet what were speculators doing at that time? They had been fanatically bullish on stocks from the mid-1960s all through the long, painful bear market. They used to say, â€œBuy and hold good, sound stocks for the long pull.â€ And so they did. And then, after 16 years of losing money, they suddenly turned bearish. Suddenly they pulled a crackpot from out of the refuse which litters Wall Street, a crackpot named Henry Kaufman (and nicknamed Dr. Doom). Suddenly the entire nation was told that Dr. Doom (whose name I had never even heard up to that time) was the greatest economist in the country. Whatever he said, one must believe.
What Dr. Doom said in 1982 was that interest rates are going up, and stocks are going down. The prime rate was then 20%, and the DJI, as noted, was 780. That was the exact top in interest rates and the exact bottom in stocks. What a disaster. From 1966 to 1982 the value of the U.S. dollar (related to real goods, not other currencies) had fallen by 2/3. All stock speculators had to triple their money JUST TO STAY EVEN IN REAL TERMS. Did they do this? No. Their capital shrunk by 22% in nominal terms AND BY 74% IN REAL TERMS.
How could the people of America go so badly wrong by listening to â€œthe greatest economist in the country?â€ Perhaps we can gain a perspective on this by considering an equal and opposite error. Let us shift forward in time to the year 2,000. Now the DJI is no longer 780. Now it is 11,000. The people who refused to buy stocks at 780 are screaming to buy them at 11,000. Oh, please excuse me. Most people were not buying the DJI in 2000. They were not buying â€œgood, sound stocks for the long pull.â€ They were buying internet start ups for a short term profit (they thought).
You know what happened in that case my aspiring speculator. These people bought internet stocks with the NASDAQ composite at 5,000. Over the next 2Â½ years it fell to 1,000. These NASDAQ stocks had no earnings. All they had were aspirations. They were the wave of the future. They were as progressive as a Democratic politician. The only difference they had from the Democrats was that they had to pay for their own mistakes. At that time, the New York Times, which had just published a book predicting that the DJI would go to 36,000, was so full of itself that it purchased large blocs of its own stock at $40/share. Earlier this year it got down below 4. They had to mortgage their new office building and take a loan from Carlos Slim. (I am sorry for bringing you into this, Mr. Slim. You are probably a very nice man, but you got mixed up with some bad characters.) My point is simply that the New York Times does not know anything about economics, and anybody who takes their advice is likely to lose money.
â€œAlright, Mr. Katz, what has this to do with me? I donâ€™t read the New York Times. I am living peacefully out here in Podunk Hollow. All I want to do is to make money in the markets.â€
Not so, dear critic. You may think that you do not read the New York Times. But the editor of your local Podunk Weekly News does read the New York Times. He believes every word, and he passes these words on to you without your suspecting their source. So you think what the New York Times wants you to think even though you do not know that the New York Times exists.
This is the world in which we live, dear people. Most everyone is running around obeying the orders ofâ€¦they know not who. But they all think the same, and they all act the same.
The larger tragedy here is that the New York Times was once a great paper. That was when Adolph Ochs took it over in 1896. At that time the Times was for the gold standard. In 1896, supporters of William McKinley were called gold bugs, and Adolph Ochs was a gold bug of his day. After McKinleyâ€™s election, the gold standard was reaffirmed by the Gold Standard Act of 1900, which defined the dollar as 25.8 grains of gold, 9/10 fine (approximately 1/20 of an ounce). This kept the country on the gold standard for (almost) the remainder of Ochsâ€™ life. In all, America went 140 years (1793-1933), and prices came out exactly the same at the end of that time as they had been at the beginning.
But Ochsâ€™ descendents were small men. They inherited a great paper, and they are in the process of destroying it. All of the political and economic knowledge which Ochs had back in 1896 has disappeared, and the paper is now operated by socialists and other reactionaries.
One of the prime motives of todayâ€™s Times is to continue F.D.R.â€™s policy of robbing from the poor and giving to the paper aristocracy. This is why they crow so loudly about doing the opposite. Socialism (or a far left agenda) is their cover. They are not very far to the left, as they claim. They are very far to the right. They donâ€™t want to rob from the rich to give to the poor. They want to rob from the poor and give to the rich.
Do you know what the economic crisis of 2008 was? It was that the Timesâ€™ rich Wall Street friends might go bankrupt. What was the Timesâ€™ solution to this â€œcrisis?â€ It was to rob the average American and give the wealth to Goldman Sachs et al. How was the average American robbed? Not in his role as a taxpayer. The much discussed taxpayer bailout of Wall Street never occurred. The money for Wall Street did not come from a tax increase. It came from massive printing of money by the Federal Reserve.
Prior to the Chrysler bailout of the 1980s there were never any government bailouts of large corporations. If you couldnâ€™t make it on your own, then have some friends take up a collection. (This quaint custom is still practiced here in New Hampshire to this day.) You say that the whole system would have collapsed if the government had not bailed out Goldman Sachs? Well, in truth, every failing business is in the process of destroying wealth, and destroying wealth makes the country poorer. (Somebody ought to tell this to Barack Obama.) If a company is failing, then the best thing one can do for the whole country is to put it out of its misery ASAP. The longer it struggles on the more wealth it destroys. Too big to fail? That is New York Times thinking. No. Too big to be allowed, while failing, to continue in existence.
And donâ€™t be fooled by the fact that many of the rescued banks are repaying their Government loans. They were bailed out on two levels: 1) a chunk of cash from the (Democrats in the) U.S. Congress. (The Republicans did something right for once.) 2) a second bailout from the Fed when it printed a trillion dollars in the autumn of 2008. It is this second bailout which is bringing in the big money and is being used to repay the first. That is, on an emergency basis the Wall Street banks robbed us from our front pockets. And now they are robbing us (big time) from our back pockets. And the editor of the Podunk Weekly News doesnâ€™t even have a clue.
What fools many people is that this false news hits most people from several different corners. The Times influences many sources. It influences many newspapers in the country. It influences the national TV news. You read it in your daily paper. You hear it from a friend (who read it in his paper). You see it on TV. All these sources say the same thing. â€˜EVERYTHING IS GOING DOWNâ€
And then you know what the truth turns out to be? EVERYTHING IS GOING UP.
Think about it. How could everybody be wrong? And yet we know from studying the financial markets that everybody is wrong. Everyone is wrong, and then wrong again, and then wrong yet again. As Humphrey Neill used to say, â€œWhen everyone thinks alike, everyone is likely to be wrong.â€ And the reason for this is that they all follow the New York Times. There is really only one guy who is wrong, but the whole rest of our society is following him like a pack of sheep.
And what is the reason for these outrageously wrong predictions at crucial times over and over in our society? The reason (in most cases) is that the Fed needs cover in order to be able to print money. The Fed needs a society which is convinced that there is a â€œdeflationaryâ€ crisis (which they have to solve by creating an â€œinflationaryâ€ crisis).
Just in case anyone is interested in what is really happening, for 145 years prior to the time the Fed was given the paper money power prices in the U.S. were stable. If the Fed is the nationâ€™s â€œinflation fighter,â€ then how come â€œinflationâ€ began at the precise time that the Fed acquired the power to print money? If the Fed is trying to balance the forces of â€œdeflationâ€ vs. economic growth, then how come before the Fed this country had the greatest economic growth in the world? How come the most prosperous country in world history had no central bank?
As one of this countryâ€™s greatest Presidents, co-founder of the Democratic Party, stated in the campaign of 1832: â€œThe people can have a [central] bank and no Jackson or no bank and Jackson.â€
-Andrew Jackson, campaign of 1832.
So everything you heard last year was a lie, the purpose of which was to generate public support for the printing of money. The monetary base increased by $700 billion in autumn 2008; then it paused in the first half of â€™09, and since July it has increased by another $400 billion. Look at the chart above. Gold is going up because paper currency is going down. This autumn gold broke above $1,000 and raced to $1,200. Now it may dip to $1,000 again, but if it does, this will be a time to buy. It will be similar to the gold bottom of summer 1970 and the DJI bottom of 1982.
Once again, the Podunk Weekly News, the New York Times, the TV news, pretty much every newspaper in the country/world and your friends will be wrong and will lose their money. They do not learn from their mistakes. This is the difficult part of being a great speculator. You must stand alone and see reality as it is. Harder to do than to say.
Hard to do, but very rewarding. It takes a different kind of courage from the kind which leads you to â€œcharge that hill.â€
My name is Howard S. Katz, and I am looking for men who have that kind of courage. I write the One-handed Economist, and I sell subscriptions for $300//year. You can get one by visiting my website, www.thegoldspeculator.com, or sending $300 to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. You can also visit my blog (no charge) at www.thegoldspeculator.blogspot.com. This weekâ€™s blog is â€œThe Origins of Christianity.â€
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A wonderful post, Mr. Katz. With respect to the deflation vs inflation argument, I suppose I’m six of one and a half dozen of the other. I’m no economics scholar but it seems logical that a massive credit bubble bursting would unleash monstrous deflationary forces into the world.Â Regrettably, in orderÂ to combat these ‘monsters’ our elected officials, arguably being directed by self-dealing financial institutions, are deploying their arsenal of Financial Weapons of Mass Destruction (apologies to W. Buffett). They’re trying hard to reflate. At some point, that effort may reach a critical juncture.Â One possible outcome is that theyÂ propel our economy into an inflationary spiral to the stars through the debasement of our currency. Hello Zimbabwe! However, the US predicament is not unique and we are not alone, wedged between the rock and the hard placeÂ in these dark days. And therein lies my question. If all of our trading partners similarly debase their currencies, is the net effect of our debasement zero in terms of global trade? Furthermore, would not such a situation defeat the inflationistas’ intentions by maintaining a deflationary cycle? It’s all so confusing!
Excellent article Mr. Katz. I have asked myself the very same question on why the Federal Reserve even exists, when we had enormous prosperity and stable prices for 140 some years prior to their inception. And since they were established, we’ve seen consumer prices increase more than 26 fold! Clearly they are not the inflation fighter they claim to be. Their purpose is to create monetary bubbles (which have always existed since this country had a working economy), but also to take advantage of those bubbles by engineering them in the first place. Big difference.
TomOfTheNorth, you’re not alone. I spend half my day being confused about this stuff. This is the way I look at it. Since all our trading partners are in the act of currency debasement, this means the depression will be global. I think perhaps the US government will want the debasement to be orderly around the globe, so as not to spark a panic. But the 800 lb gorilla is the enormous deficits and debt. It continues to rise, and eventually I’ve got to believe that the debasement will not be orderly and the US dollar will start to take a huge beating in the markets. Hello inflation.
Comments…..your comments will hopefully lead the sheeple to water… will they drink is the ??, before it is too late for most. God bless us all.
” Well, in truth, every failing business is in the process of destroying wealth, and destroying wealth makes the country poorer. (Somebody ought to tell this to Barack Obama.) ”
Believe me, the sorry sack of schit knows this.
RESPONSE FROM MR. KATZ:
In regards to Tom’s comment above, please see the following article where Mr. Katz addresses this question: https://www.shtfplan.com/howard-katz/happy-days-are-coming_12212009