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Man is a social animal, and in any human society there is a great deal of pressure on any one human being to have the same opinions as his fellows. Before the Reformation, this took the form of torturing to death anyone who dared to express an opinion different from the prevailing orthodoxy.
Fortunately today we have freedom of speech. Still even the internal sanctions on different opinions are quite strong, and each of us is born with a strong desire to have the same views as his fellows. If you want to speculate on the markets, however, it is necessary to see reality as it is, and this often makes it necessary for us to go against the opinion of our fellows.
This problem was exacerbated with the invention of newspapers. The owner of the newspaper gets to put his opinion down in print. People do not know what each other’s opinion is. But they do know the opinion of the newspaper owner. It is right there in black and white. Since it is the most obvious opinion of which they are aware, they assume that it is everyone’s opinion, and they adopt their own opinion to it.
This desire to think alike is so strong that even the newspapers of the country have succumbed to it. They have chosen one of their number as their leader – the New York Times – and they follow it like a herd of sheep.
Right now the word has gone out from these opinion leaders that the country is in a “FINANCIAL CRISIS.” No sooner had the New York Times put out the word, then the vast majority of our society hastened to follow. Predictions were made of a severe “recession.” Then the more radical element jumped on board with predictions of “depression.”
So great is the power of this media that it has the ability to make things which are false appear true. For example, as part of the “FINANCIAL CRISIS,” the media have been telling us that the shoppers are not going to the stores. Dire predictions are made.
We have previous examples of this kind of media pressure, and we know what happens. There are always some people stupid enough to believe what the media are telling them and to obey its dictates. So for a few weeks retail shopping drops.
But people want stuff. That is what economics is all about. Telling them not to shop is like telling them to take their cod liver oil. Eventually they go back to their old habits. On Friday, Nov. 28, 2008, we received strong evidence that this was starting to happen. The New York Times reported:
“In a sign of consumer desperation…the annual rite of retailing known as Black Friday turned chaotic and even deadly, as predawn shoppers scrambled for holiday bargains.
“A Wal-Mart worker on Long Island died after being trampled by customers who broke through the doors early Friday. And fights and injuries occurred around the country….”
“Shopping Frenzy Takes Ugly Turn on Black Friday,”
by Stephanie Rosenbloom, NYT, 11-29-08, p. A-1.
Now does this sound as though consumers were refusing to shop? No, it sounds as though consumers had cut back on their shopping for several weeks and were by now so pent up with desire that they lost rational control. It sounds as though they were very anxious to shop.
Now the country’s newspaper editors know how the system works. Each of them thinks, “I want to know the truth for myself.” They follow the Times because it both presents the facts and at the same time tells the editor how to spin the facts for his readers. For example, the above quoted article went on to say,
“this year there were more shoppers than shopping bags”
Ibid.
implying that the people were not there to shop, just to stroll through the aisles.
But a companion article says that the police had to be called out at 3:30 AM for crowd control.
“the doors shattered, and the shrieking mob surged through in a blind rush for holiday bargains.”
“A Crowd Seeking Holiday Deals, and a Rush for the Door
That Turned Fatal,”
by Robert D. McFadden and Angela
Macropoulos, NYT, 11-29-08, p. A-16.
This does not sound to me like casual shoppers who had forgotten their shopping bags.
The art of reading a newspaper between the lines and sorting out the truth from the spin is a complex one. But it is necessary if you are going to be a successful speculator. You need the truth, but if you get the truth too early, then you may come in and buy before the bottom. To prevent this, technical analysis is very helpful because technical signals are particularly good at timing.
The media’s hype about the coming “recession” has caused many indicators to give a superficial appearance of such an event. Essentially people did what the media told them to do. But over a longer period of time, economic reality wins out, and the indicators reverse. The events of Friday, Nov. 28 indicate that we are now at that period, and markets will soon start to move the other way.
But what you will now see will be even more amazing. After their predictions prove wrong, and their world view is shown to be false, the media will exhibit the most amazing ability to rewrite history and pretend that the whole thing never happened. You know, for example, that crude oil has come down almost $100/bbl, and gas-at-the-pump is now under $2.00/gal. What were these people saying back in the spring? I would like to quote from my blog, www.thegoldbug.net of May 26, 2008:
“on May 21, 2008 the New York Times ran a (favorable) article on the front page of its business section about a Goldman Sachs analyst who was predicting $200 crude. This was like throwing a piece of raw meat in front of a hungry lion. By the end of the day, the July crude oil future was up $4.19…. The bad speculators were reading the Times on May 21 and were buying crude oil at $135/bbl. They have forced the price of gasoline and crude oil to astronomical levels. Don’t blame the oil companies. The oil companies have been selling oil. It is a group of left wing speculators who have put the price of gasoline up from $3.00/gallon to $3.88/gallon since February. But I suspect they will get their just deserts. They are buying high, and they will wind up selling low. This is how a free market works. The bad speculators lose money and can no longer influence the markets.”
Howard S. Katz, “FOUR DOLLAR GAS,, www.thegoldbug.net, May 26, 2008.
So you see, back in May you faced the same choice. Believe the New York Times, lose your money and have other people approve of you, or believe Howard S. Katz, make money and have others disapprove. Notice that today no one blames the Times for putting oil up too high in May. The blame is placed on the oil companies, the very people who were selling oil and thus pushing the price down.
It will be similar today. We are in the process of forming bottoms in each of the goods which met heavy selling from the media hype of Sept.-Oct. Gold now appears to have decisively bottomed on October 24. Stocks made their basic bottom on October 10 and made a secondary test to slightly lower ground on Nov. 20. As more and more evidence comes in proving that the “recession” theory is wrong, more and more markets will turn up.
Basic education in the social sciences was disrupted in the 1930s when a wave of German, refugee intellectuals came into this country, obtained jobs in (and started to take over) the teaching of the social sciences. Many of their theories were not merely errors of knowledge but deliberate lies. For example, the central theory of Karl Marx was that socialism is progressive (the wave of the future). He must have known that was false because his home town had been communist for over a thousand years and only converted to private property 3 years before he was born. It was these German professors who started grade inflation, giving easy As to attract students to their classes. They therefore attracted the laziest, stupidest students and then filled their heads with misinformation. When a university certifies that one of these students has knowledge in history, psychology or economics, they are defrauding the public, and when your local newspaper hires one of them, it is assisting in this fraud.
Right now the papers are telling the American people not to worry about the enormous amount of money being created (which looks to be a tripling of the money supply from its late summer levels). Their argument is that there will be a liquidity trap (money trap). This argument comes from John Maynard Keynes (one of the few of these intellectuals who wasn’t German), and it says that people hold onto their cash (stuff it in their mattress, bury it in the ground) rather than employ it usefully.
All one has to do is study the facts. A liquidity trap has never happened in economic history. Every time there has been a significant decline in prices it is because the Government has deliberately reduced the money supply. The “liquidity trap” of the early 1930s (mistakenly called the Great Depression) was a deliberate policy of the Republicans who were offended by the doubling of prices during WWI and adopted the policy of reducing the money supply and forcing prices back down to their 1914 level.
This policy did not cause a depression. A depression is a general decline in wealth which affects virtually the whole country. It caused a credit contraction. A credit contraction is a transfer of wealth from the paper aristocracy (5% of the country) to the general public (95% of the country). A credit contraction is only a depression (or recession) for you if you are in the paper aristocracy, and the general attitude of everyone trained in Keynesian economics is that the paper aristocracy is the country. Of course it is not, and this explains why people ate more meat, switched from margarine to butter and gave more to charity during the “depression” of the 1930s than during normal times. If you want an explanation for the high unemployment of that period, visit my blog for this week, www.thegoldbug.net, which is the first of a two part series on unemployment.
So what is your source of information? It is a group of lazy, stupid and misinformed reporters and newspeople who have been certified by the university and hired by your newspaper to pass on to you a pack of lies. They are subject to group-think from the pressure of their peers, and they have never, under any circumstances, admitted that they were wrong. (I am still waiting for them to admit that the gold bugs of the 1970s were right.)
And you think you can make money in the financial markets by taking the advice of such people? You are going to bet your hard earned cash on their stupidity? You are going to ignore all the times they have told you wrong in the past (e.g., “Dow 36,000” by 2004)? No chance. No chance.
I write the One-handed Economist to bring a bit of rationality to the field of economics, and I repeatedly outperform the market averages. I am a gold bug at this stage of history (as I was in the 1970s) because gold is still undervalued and in the early stages of its grand cycle move (whereas stocks and real estate) are over valued.
Right now Ben Bernanke, on the Keynesian theory of the liquidity trap, has imagined that a giant “deflation” is about to come over the country. He does not know economic history, and he has no facts. He was educated about the great “depression,” and he sees great “depressions” around every corner. He is currently tripling the U.S. money supply (to avert this non-existent “depression”). In doing this, he will destroy the American economy. A few years down the road, average prices in America will be approximately triple their current level.
You have to save yourself from this disaster. The one man who could have saved the country, Ron Paul, was not elected. Instead the country listened to the media and elected a Demopublican. (I don’t remember which one.) And he is going to steal your wealth and give it to the paper aristocracy. If you want to know how you can protect yourself, I invite you to subscribe to the One-handed Economist ($300/year, 26 regular issues plus special bulletins) and to visit my web site, www.thegoldbug.net (no charge).
We live in difficult times. The men we choose to lead us are destroying us. Disasters lurk at every turn. To safely navigate this period of history, one must see reality as it is. That is easier said than done, but that I believe I can offer you.
Thank you for your interest.
Howard S. Katz
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Howard S. Katz was one of the early gold bugs of the late ‘60s and ‘70s, turning bullish on gold in 1965. His favorite gold stock, Lake Shore Mines, went from $3/share to $39/share over the course of the seventies (sold at $31). Katz turned increasingly skeptical about gold as it mounted its final rise in 1979, and he called the top after the close on Jan. 21, 1980 (with gold at $825.50/oz.). Katz traded gold in and out during the ‘80s and ‘90s and once again turned long term bullish in Dec. 2002. His 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.) Mr. Katz’s blog is available weekly (no charge) at www.thegoldbug.net.
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