The Gold Boom of 2005 and Beyond

By Roger Wiegand February 14, 2006 www.tradertracks.com

Finding Security in a Dangerous World with Gold

“Power always has to be kept in check; power exercised in secret, especially under
the cloak of national security, is doubly dangerous.” –William Proxmire

All the markets, particularly the stock markets prefer predictability. This is also quite true in bond markets which are many times larger and more difficult to move and rearrange. We have all seen the results when markets are surprised. Trading becomes erratic, investors and traders exit positions, make guesstimates and install new reactionary trades all while predicting what happens next and hoping to be on the right side of major move. This chaos creates huge losses, anger, doubt and fear. Notice that Greenspan telegraphs his intentions in advance for the bond traders so they can ease into and out of positions not rocking the boat. On the other hand Sir Alan and his merry band of Fed Governors have accidentally misled on occasion with casual remarks and all hell broke loose rocking the sinking boat. Question is can Bernanke keep up the mirage? We say no.

We are beginning to enter uncharted economic waters. No economy ever in history has been able to withstand the magnitude of the mess we have today. To make matters worse, astute market observers and economists (yes there are a few astute economists) have road mapped the end game and none of our remaining choices are inspiring to say the least. To put it bluntly, we have a choice of two disasters and the Fed is taking the lesser evil that being inflate it all away. This one’s not going to float like the early 1970’s or 1980’s. This one will rock the world and if you get in the way you will be crushed. My northlander reporter has a brilliant mind and keeps rolling out scenarios that are not only plausible but probably correct. He thinks the economy will be the main issue in 2008 which many agree to be true. Since the Republicans are setting the table for our next moves, he thinks Bernanke can reload the Fed Funds rate to at least 5% leaving space for lowering rates going into the election while keeping the housing bubble fully inflated. The printing presses are running white hot keeping the dollar moving and producing more votes by providing pay raises to the military, government employees and hiking social security. This buying of votes with taxpayer money is old news but it works. Congress can smash through with more big spending programs like road construction and defense contracts plus a variety of other neat spending tricks. Then of course we have the Plunge Protection Team to corral those wild markets and suppress precious metals. All this is then coupled to those magnificent propaganda machines known as the Bureau of Labor Statistics, Labor Department numbers, CNBC and the National Budget Office. This is a plan preventing disaster while powdering and applying lipstick and mascara to this sick hog of an economy pushing and shoving this shattered drama straight into temporary respectability. However, what they cannot control is a nasty global event or the price of oil which is going where it wants to, which today happens to be straight up. Tom Donlan, Editorial Page Editor for Barrons summarized it perfectly in a discussion about judges. Mr. Donlan said, “The New Deal made the Depression Great. Price-Fixing, cartelization, supply constraints, protectionist tariffs, make-work projects, dollar devaluation, tax increases, pump priming and all the other expansions of government power limited the power of business to adjust naturally. The New Deal substituted hope for knowledge, activity for liberty and control for markets. (Emphasis Trader Tracks). We see nothing in this excellent summary that is any different from 1929-1939 compared to 1999-2009. However this time numbers are off the charts creating more radical extremes.

What I’m leading up to is a possible financial accident. Unlike the media which provides daily road maps for our enemies on how to destroy our country, let’s just say for instance we see a cascade of derivatives becoming Niagara Falls. The internet is a fabulous invention but it could also be our Achilles heel. Our tormenters in the Middle East have also gone to school many of them in America and Western Europe. With this intellectual ammunition my guess is they forget physical attacks on the United States in favor of economic attacks. With little trouble they can sign up (cheap) hundreds of computer hackers to make a gigantic mess. We are now receiving hack attacks from China, Russia and Eastern Europe. Seems to me this would be much easier than the military version. I think nasty old UBL has this same idea. Remember he hit the World Trade Center which was the biblical home of USA finance. We can guess and surmise all day so let’s see where our readers, traders and investors will be should this become reality.

Practicalities of a poor situation

“Too many people are thinking of security instead of opportunity.
They seem more afraid of life than death.” –James F. Bynes

I was never an ace history student but I enjoyed the subject in school and am a great believer in reruns. Every chance I get, I am constantly comparing 1929-1939 to 1999-2009. Analysts including me have seen several remarkable similarities from comparative charts, attitudes and social moods. The same dumb stupid mistakes are being made over again just like Smoot-Hawley and our current trade wars. We see the erosion of freedom in the name of national security and many global tribes and cultures determined to impose their will upon their neighbors including those in the United States. For the life of me I cannot see how five or ten Arab nations are supposed to get along and operate in a democracy when they cannot even keep peace within their own households without using the whip. Bush had a noble idea to impose democracy on the Middle East, but history and culture says not a chance.

In the United States, Dr. Gary North said, “Woodrow Wilson enacted the first executive order in 1916 with the U.S. Shipping Board Act. Since then 13,000 of these acts and laws have been entered on the books. They exist to provide supplemental powers to the Federal Government in times of emergencies to ensure the “continuity of government.” Dr. North goes further and says they represent a blueprint for tyranny. The most dangerous of these acts exist in Banking Regulation #1, which was signed into effect in January of 1961. It gives government sweeping powers to limit cash withdrawals, stop transfers of credit, and seize bank accounts, control rents, prices, salaries, wages, and rationing. Other regulations would allow government to enact total censorship, seize commodities, institute martial law, restrict travel and seize and control all transportation and communication. And finally, the government can use these measures to convert its debt from short term to long term, thereby devaluing the debt and putting the screws to anyone holding it.” Kind of makes book burning and Ten Commandments removal pale by comparison doesn’t it. Now that I’ve got your attention what do we do?

Gold annihilates government’s powers and eradicates their propensity
to print money, debase it and steal using inflation.—Trader Rog

Anybody with half a brain knows precious metals, stock and bond markets are manipulated. It’s common knowledge that after the 1987 scare, “controls” were made available to prevent financial meltdown. If you think those markets are free and open I’ve got a big bridge for sale. Roosevelt seized gold coins by calling them in and paid pennies on the dollar for this confiscation. I’ve seen numerous arguments as to why this could never happen again. If you believe that you’ll believe anything. Gold is feared as it represents true and honest value that cannot be tampered with. The way things got the way they are is with tampering. Gold as a currency and as a strongbox of enduring value is a major threat to global government as it takes away their ability to tamper, print money and notes, issue bonds and a load of other valueless crap. Gold annihilates government’s powers and eradicates their propensity to print money, debase it and steal using inflation. I not only think they will confiscate gold, but silver as well. You do not have to physically remove it, just fiddle with the prices, the buying and selling, and its ability to be bought, sold and moved around. A prominent Mexican who loves his country wants to install the pure silver coin for the population. That one was stopped in its tracks. Can you imagine 50mm poor Mexicans with their own real money? What would happen to the government’s peso paper? What would happen to the Mexican government?

We can do several things to prevent confiscation and ensure we remain free to conduct business and move about the world promoting free enterprise. Almost anything entrusted to the Swiss is safe; even yourself. You can buy Goldgrams from Jim Turk’s bank on the internet with cash backed by gold in Europe. You can load up on personal needs for two or three years on today’s cheaper prices instead of tomorrow’s inflated ones. You can buy a hidey hole; a (second home) for a place to flee if things get very uncomfortable. The Jews that fled Germany early on in Hitler’s game escaped with life, some cash and a new start. The ones who stayed were like the frog in the boiling water saying it’s not too hot yet. I see things getting real warm all of sudden. This is not good at all.

In our opinion, the inflationary conclusion has been all thought out and entirely planned. Years ago we were notified of a new red money currency which has been printed and stored for the day the green money is without value. Any kind of government notes, bonds, bills or paper can be transferred, realigned, debased or repudiated on a moment’s notice. Example: There are millions of dollars temporarily parked in Treasury bills which are supposed to be the safest and most liquid paper. Recently, there has been open talk of bringing back the 30 year Treasury bond. Why is this? I think the answer is to have all those new bonds ready and on the table when the day comes very soon requiring transfer of all Treasury Bills to 30-year Treasury Bonds changing the time frame when they become due and payable. Instead of 90 days due they become 30 years due. How cute. The T-Bill holders get erased and there is nothing they can do about it. Maybe the longer term bonds and notes will be stretched out even further as tens become 30’s and existing 30’s become 50’s or even 100’s. They have 100 year mortgages in Japan as homeowners could never pay those mortgages in 20 or 30 years. Families pass on their homes and mortgages to the children who take on the dual obligation of taking care of the parents, the home and paying the mortgage. In some cases it might take three generations to pay off a house.

Critics scoff and say this could never happen. Guess what, it has happened before. When our country was founded every little Podunk region had local money known as script. When the Revolutionary War was in progress, congress paid for it by issuing Continentals which were un-backed by gold or silver. Those accepting the Continentals were duped as they were inflated into worthlessness just like today’s dollar. When the south fought the north in the Civil War the southern Confederacy had to issue its own money. They issued the paper money, put it in circulation and after the war this currency died. In Wallace, Idaho, the home of the USA silver mining business, locals have cast their own silver coins and spend and trade with them for goods and services daily. They wisely do not call them “currency” as they could get arrested for counterfeiting. They are called medallions, gifts, or souvenir coins. Folks living in the area know in fact this is “really real money” as they are almost pure silver. I got one from a local Wallace coin shop when I visited the area which is a .999 fine silver, one ounce coin imprinted with date 1983 and the words “Sunshine Mining” produced from silver in that mine.

When you consider history and look at the huge mess on today’s table, can you honestly believe your gold and silver coins may not be called in by the government and paid for with the new red paper money? I believe it is not only possible by very likely for the gold coins and maybe even the silver ones. When “reconfiguration day” comes, any new currency, if it is to be trusted must be fully or partially gold backed or the Sheeple will not trust it nor use it. Consider that brain dead central bankers have sold most of their gold by the many tons to disparage it, and diminish its value for the junk paper floating in currency land. They do not have any gold left in large amounts to back the new red money. There hasn’t been a USA gold audit in years and you can be sure there will not be one either as the results would cause a revolution. Here’s the easy answer to that problem. They are going to come and take your precious metal coins and give you red money in return. If you don’t turn it in and comply with the new rules, you go to jail. This means the savers the people who worked, scrimped and put away real money will lose it all to profligate wasters who destroyed the monetary system. Do not give them the chance. Put heavy deposits overseas, most particularly Switzerland where they have over 300 years of obeying laws of responsible banking. It would not surprise me if new rules are mandated soon prohibiting large transfers of cash out of the country. When John Dorrance who retired as the major stockholder and owner of Campbell Soup he was faced with a massive tax on his 700mm worth of Campbell stock retirement money. He renounced his American citizenship, became an Irish citizen and saved his money from the tax thieves. Immediately he was roundly criticized in our congress for “not paying his fair share.” The leeches in Washington tried to figure how they could get the money and began to write new legislation prohibiting this kind of activity. I do not pretend to know all these rules, but as I understand it an American can possibly be obligated for a ten year tax liability after leaving the country. Taxpayers are only good for two things for politicians; they want your vote and they want your money so they can spread it around to more undeserving leeches to buy more votes. That’s the story in a nutshell and you can believe it or not. The biggest lie in the world is “I’m from the government and I’m here to help you.” Our next topic relates to vote buying as well.

USA Borders are Wide Open

Billions are spent for Homeland Security yet our Mexican border next to the southern USA is wide open with 600-800 illegals entering each day. Reports of non-Mexican illegals and some of Middle Eastern origin along with folks from Central and South America filter in daily. Homeland Security is a joke and is more of a nuisance for legal, law abiding citizens at their expense. We expect southern California, Arizona and New Mexico along with parts of Texas to become the new United States of Mexico. Conditions in California are now bad enough that when three newcomers enter, one leaves the state for good. This ratio is growing larger in favor of those leaving. Taxes, crime, housing costs, air pollution, earthquakes, make life in La La Land untenable. The smart ones are cashing in their chips by selling their million dollar upholstered garages and departing for greener pastures where you can buy a nicer home in a safe location for one tenth the price. When Pat Buchanan was a candidate for President he said, “I give you my word. I will halt the invasion cold. Six months after I become President, a security fence will be erected on the Mexican Border and I will use troops if necessary to defend it.” Too bad Pat never got elected. Trader Tracks Prediction: Our enemies will not inflict a major violent attack on the scale of 9-11 but will help wreck the economy by repudiation of USA notes, bonds and paper creating derivative failures. This coupled with internet attacks on a variety of institutions will complete the job. You saw the latter already when 40mm credit cardholders were exposed to the hackers. While we are busy pushing junk paper around the Asians and Arabs are buying gold with both hands in exchange for American dollars they are only too happy to kiss goodbye. It’s a new world for sure.

Gold will only be delayed not defeated

The gold boom of 2005 through 2007 and beyond will be unprecedented in history. Some of the best minds in the gold business expect $1200-1500 gold as a minimum. Jim Sinclair and Dr. Gary North are two highly successful analysts, market watchers and investors. They both expect the third alternative which is to impose the iron market controls Dr. North expects. This seems far fetched to some, but if things get wild enough it is entirely or partially likely. I wonder if the civilian population would openly revolt? Bob Prechter says he expects “clashes with the authorities.” A common first response for citizens will be to cower and watch. Then the bolder hotheads will turn to violence. Unless immediately crushed, this violence turns to open revolution and many old grudges will be settled once and for all. This stuff doesn’t just happen over night. Problems evolve and one thing leads to another until matters are radically out of hand. I do not expect another American Revolution, but another big world war over religion (the Middle East) over oil (East against West) and potentially over food and water. The older adult population has not done a good job for our children’s future which at this point in my life is of paramount concern. Today however, open minded adults with some money to invest can purchase gold positions for potentially a major investment result. Richard Russell who is highly respected for his views expects the Dow and Gold to cross at 3,000. Independent of his view, I compiled some long range charts and oddly came up with 2960 without knowing of Mr. Russell’s numbers. This could be a coincidence, but I doubt it.

Trader Tracks has provided lists of ideas before for the personal safety and protection of your financial future. This is not rocket science but the simple reapplication of plain old logic to previous historical results. We know the framework for all the wars, recessions and depressions. We know how various social and cultural groups will react and respond under these conditions. All that’s left is to take some serious simple steps preparing for the inevitable.