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Friday, Jan. 2, 2009, my newsletter, the One-handed Economist, published a special bulletin which was a blockbuster. My blog for this week, (www.thegoldbug.net), states:
“What happened over New Year’s was an important breakout in several technical indicators indicating that that reversal was at hand. The details of these signals will be in the next issue (1-9-09) of the One-handed Economist and are beyond the scope of this blog.”
It is surprisingly frequent in the financial markets that important reversals occur right around New Year’s. If you pour over the old charts, you will see, again and again, that a major top or bottom in an important market occurred either on Dec. 31 or Jan. 2. Assuming 250 trading days in a year, the odds of this happening by chance are 1 in 125. But the charts show that the actual number is closer to 1 in 10 or 1 in 20.
Now the chartists have to add New Year’s day 2009 to their list. We did not have reversals, but we did get two powerful breakouts which, at this writing, lack only volume confirmation. These breakouts provide supporting evidence that the most important news item that you have been hearing for the past 3 months -- that the economy has been hit by a giant bearish or “deflationary” force – is false.
The media is wrong. Almost all of the media in the country say the same thing, and they are disastrously wrong (in a way which is going to make you much poorer if you believe them). And then they are wrong over and over. They were wildly bearish on stocks in 1982. They were wildly bullish on stocks in 2000 and in the late 1960s. (“Buy and hold good, sound stocks for the long pull.”) They were bearish on gold in 1970. (But then they are always bearish on gold.) Two establishment gurus (Merton and Scholes) who won the Nobel Prize in economics in 1997 saw their hedge fund lose $4 billion and go belly up in 1998. (See below concerning the Nobel Prize.)
But despite this almost perfect record of being wrong and costing people money the vast majority continue to believe the establishment. How many times does a person have to suffer severe financial losses before he acquires some wisdom? This has brought me to the conclusion that pain does not make one smart.
If pain does not work, then let us try intellectual honesty. If a scientific theory is true, then predictions made on that theory will work out. For example, Magellan’s voyage around the world proved that it was round. After that point, no responsible and honest person could maintain that the earth was flat. In the 1960s, I studied Ludwig von Mises’ regression theorem, which says that the value of money at a given time depends on its value in the previous time. It therefore follows that all money must begin by having an inherent value. This is why all of the original monies (gold, silver, copper, cattle) start out by having an economic value due to their use as goods and to people’s desire to have them.
For a paper currency to have value, it must begin with some connection to a real value. For example, on March 9, 1933 the U.S. Government passed a law declaring that paper promises made by the Federal Reserve had the same value as the amount of gold which they had previously promised. Then, as the Federal Reserve printed up more of these false promises, their value declined. Since the U.S. government did not want to admit this decline and fixed the price of gold at $35/oz. between 1935 and 1970, gold got out of whack with its true price. Since most other goods had tripled in price between 1935 and 1970, it followed that gold had to, at least, triple in price as well. So I became a gold bug.
Von Mises was proven right by the rise in gold from $35/oz. in 1970 to $875/oz. in 1980. (Actually, von Mises predicted the “depression” of 1930-33 and was proven right repeatedly throughout his career.) This was clear proof that the Austrian theory of economics was true, and the Keynesian theory was false.
But when this was proven (and the proof was in by the late 1970s), the establishment simply refused to acknowledge it. The reason is a bit more subtle.
You see, Keynesian economics is not really trying to be a statement of economic truths. Keynes was a liar and knew that his “theories” were false. They were designed to provide a rationale for the continued issue of paper money. In this way, they would put money in the pockets of the bankers. Keynes figured that, if he could make the bankers rich, then they would throw him the crumbs from their table.
As a confidence game, Keynesian economics was brilliant. As economics it is trash. This is why the Keynesians don’t want to give it up simply because it proves wrong. They work the con. They make money for the bankers (and other members of the paper aristocracy). They receive the crumbs from the table (consulting fees, etc.) Who loses in this con? Everyone who believes the Keynesians.
In this week’s blog (www.thegoldbug.net), I discuss the terrible dangers of authoritarianism. This consists of believing someone to be an expert because he has a fancy title. Winning people’s belief by means of titles is a full scale profession in our society, and anyone who falls for this is headed for disaster. For example, you have heard a great deal about the Nobel Prize in Economics. Once a year, the media make a big thing about this. Do you know that there is no Nobel Prize in Economics? It is a prize given by the Bank of Sweden, starting in 1969, in honor of Alfred Nobel. The Nobel Prizes were awarded by the will of Alfred Nobel, who died in 1896, and Nobel’s will does not mention the subject of economics. Quite frankly, you or I could award a prize in honor of Alfred Nobel. The point is that the world respects the decisions of the original Nobel Committee and believes their prizes have been awarded intelligently. The Bank of Sweden’s prize is awarded politically with a view to capturing media attention and is routinely given to people so incompetent as not to be worthy of any respect.
Right now the full force and weight of the opinion molders in our society is trying to get you to believe that a wave of “deflation” has emerged out of nowhere and will cause all prices in our society to go down. The initial statement of this falsehood convinced many people and caused them to sell stocks and commodities. In other words, the thesis had a self-fulfilling aspect. Because people believed it, they sold, and this made most markets go down. What the breakouts circa Jan. 1 2009 tell us is that this self-fulfilling aspect is now ended. Gold bottomed on October 24, 2008. The stock market bottomed on Nov. 20, 2008. The CRB index (conventionally mislabeled the CCI these days) bottomed on Dec. 5, 2008. This is it, people. The great “deflation” of 2008 is now over. Now prices are going up (meaning that for most weeks, most stocks and most commodities will be higher).
Why are prices going up? Because Ben Bernanke is going crazy printing money. In the last 3½ months, he has increased Federal Reserve Credit (which ultimately translates into the money supply) by a factor of 2½ times. (And Dallas Fed chief Fisher is predicting it will settle at 3 times.) And the printing of money has a perfect record in causing prices to go up. (That is, there is no liquidity trap or other Keynesian nonsense to make you believe that 2 + 2 = 5 and that it is possible to get something for nothing.) If you believe the establishment, you are going to lose big time. You sold your holdings and are sitting in cash. You have flown to “safety.” Well, cash is trash, and what the establishment calls “safety” is just what they need you to do to take your wealth.
There have never been any periods of “deflation” in American history that were not caused by a significant decline in the money supply, which in turn was always caused by the Government. The “deflation” known as the Great Depression was caused by a 30% contraction in the money supply from 1930-32. Furthermore, this was a deliberate policy adopted by the Republicans in 1920 and named “a good 5¢ cigar.” The idea of a large scale decline in prices (whether you call it a recession, a deflation or a depression) to come out of nowhere with no cause is impossible. And this makes all of the media and the people with economic titles idiots.
But if this be idiocy, yet there is method in it. You see the bankers reward these people with economic titles by giving them juicy consulting fees. Then the bankers create money and make big profits. The bankers and their associated vested interests (the paper aristocracy) do well, and the banker economists call this “economic growth.” The problem is that during every period of “economic growth” the great majority of Americans get poorer. In the present case, if the final result is a 2-3 times multiple in the U.S. money supply from its levels of Sept. 1, 2008, there will be a major decline in the real wages of the average American worker. There is already a major decline in the income of the average American retired couple, and retired folks are now being forced to take the kinds of risks with their capital that they have never previously taken.
Wall Street will be singing Bernanke’s praises. After all, (in their own minds) they are the “economy” he is saving. But Toyota will overtake GM in auto sales, the euro will replace the dollar as the world’s reserve currency and America will find that it can no longer afford its overseas military commitments. All you have to do is study the collapse of the British pound in 1948.
What can you do? Well, I saw this coming (in its broadest outlines) back on Aug. 15, 1971, and I dedicated myself to spreading economic truth. Economic truth is a very rare commodity these days, even rarer than gold. And the demand for it is much greater than the supply. Since that time, I have been writing books, articles and newsletters to wake people up to the dangers of the paper money system.
Ye shall know the truth. And the truth shall make ye rich.
The One-handed Economist is my newsletter, dedicated to predicting the financial markets and telling you how you can best profit from this paper money economy and from the Bernanke money explosion. I analyze the different areas of the economy, formulate a strategy for maximum profit with minimum risk and recommend specific stocks/commodities.
Visit my blog, www.thegoldbug.net, (no charge), and if you are interested in specific predictions on the specific markets, then try a subscription to the One-handed Economist ($300/year).
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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