The world is being squeezed by financial reality. No country wants its undervalued currency to appreciate. The dollar is headed down and foreign profits are being squeezed as their economies slow down. The Chinese yuan and the Japanese yen are pegged by their governments, so, as the dollar falls so does their currencies. The euro is not pegged so it receives the most punishment. The Chinese, Japanese and others have been creating more of their currencies in order to buy dollars and dollar related assets to keep this subterfuge alive. The result has been climbing inflation in their countries. Thus, we are now deeply enmeshed in an era of competitive currency devaluations. The result in gold has appreciated some 17%, just over the past six months taking it to a new recent high.
All indications are that the Dow is in its final run as are bonds. Creeping interest rates, will tell the story. The squeeze is on as the Fed is finally forced to raise interest rates in order to continue to attract foreign investors, largely central banks to fund our current account deficit. We believe real interest rates are again about to head higher. As that takes place, stocks, bonds and real estate will head lower. Interest rates must also go higher to allow the dollar to decline at a measured pace. The Fed does not want plunges and panic. Watch the ten-year US Treasury rate. The recent low yield was 4.06%; as we begin the new week, it stands at 4.18%. Six months ago, it was 4.85%. We see .65% move back to 4.85%, which would send the 30-year fixed mortgage to 6.4%. This increase in rates will get the ball rolling.
Our government has ordered that airlines turn over personal information about passengers who flew within the US in June, in order to test a new system for identifying potential terrorists. The system, which we reported on some time ago, dubbed, “Secure Flight,” will compare passenger data with names on two government watch lists, a “no fly list” made up of people who are known or suspected to be terrorists, and a list of people who require more scrutiny before boarding planes. The public says it is an invasion of privacy. Airlines support the plan. Our fascist government marches on.
We may have a Fed-PPT inspired rally in the stock market, but foreign interests are not very pleased. The dollar continues to slip lower and the ten-year Treasury note has not been rising. We just have seen the Fed raise rates again one quarter percent to 2.00%, and we are told to expect another 25% rise, to 2.25% in December. The real proof of foreign attitudes will be revealed over the next few months and at the next Treasury auction. Will foreign central banks continue to purchase Treasury paper at a rate of $2 billion a day along with other US assets? We do not believe so, even with higher rates. Foreign participation has been falling since last June. Not only does government refuse to stop adding to its deficits, but also consumers continue to bury themselves deeper into debt. On the other hand, American corporations are hoarding cash and paying down debt in a manner not seen for 35 years and at the same time corporate insiders cannot sell their company stock fast enough.
The American debt structure, essentially the economy, is being held up by foreign political considerations and to protect markets. Foreign central banks cannot print their currency indefinitely and buy dollars, because ultimately it is very inflationary. As an example, you just saw China raise rates. There are already substantially higher returns available, so it is not a matter of economics in supporting the dollar, but a matter of politics. As we said last week, interest rates are now the key. Whether the Fed likes it or not, rates have to rise in order for foreign central banks to justify continued purchase of dollar denominated assets. As that goes forward, those higher rates have a negative effect on the US economy, particularly the housing and construction markets, which have under-priced the US created recovery. You cannot continue to raise rates and raise monetary aggregates at an annual 20% rate without having substantially higher inflation. We believe on the short term, real rates will rise .65% and that should assist a real slowdown in mortgage refinancing as well as purchases, besides the market is reaching saturation anyway.
Corporate America is voting with their feet and are getting as solvent as possible, as fast as possible. Corporate insiders two weeks ago sold about $30.00 worth of their own company shares for every $1.00 of purchases. This is hardly a vote of confidence and, believe us; this does not go unnoticed by foreign central banks and investors. They have access to the same research that we do. What would you think if you saw insiders dumping their shares week after week? Over the last month, the ratio is 35 to one.
How can anyone in their right mind want to buy a deeply indebted fiat currency? Our currency lost its gold backing on 8/15/71, a gift from Richard Nixon, who told us we are all Keynesians at heart. We wrote at that time that the act would bring about destruction of the dollar and the US economy, and we also predicted free trade and globalization, as it is called, to bring about world government. We wish we had not been right. Once our fiat currency became reality, the elitists and politicians knew they had a license to steal. Daily theft of your assets by subtle dailydevaluation via perpetual inflation. Sure, it is irresponsible and immoral, but our elitists and politicians could care less. Unfortunately, payback time is just around the corner. The ingestion of foreign liquidity will soon end and once that occurs, we will be on the certain road to bankruptcy. This is why it is so very important that you get out of debt and acquire gold and silver related assets.
Not only do we have a fiat currency, but we have massive fiscal and monetary deficits along with the currant account deficit. There is no end in sight to this deterioration. That is why gold and silver have to go higher. Why do you think foreigners are dumping dollars and buying gold? Russia just announced they are selling dollars, securities, and assets denominated in the US currency. They are not the only ones. The governments of India and China are doing the same. They do not want to get caught holding a currency that is about to fall another 30% and does not have gold backing.
Larry Lindsey predicted that invading Iraq would cost over $200 billion. The White House said $60 billion tops, etc. We are presently talking $261 billion with no end in sight, plus the Pentagon wants emergency war funding of $70 billion. Iraq and Afghanistan are costing us $200 million a day.$21 billion was allocated for reconstruction yet, only $1 billion has been spent in that effort. Incidentally, $10 billion was given to Israel and Turkey to get them as allies in the wars. We have 1,250 dead along with 800 plus mercenaries and over 26,000 combat wounded and 7,000 amputees, whose medical costs will go on for years. Our President has misjudged just about everything.
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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS
If you look at the charts, both gold and silver are in glaring overwhelming bull markets. Yet, professionals are still long bonds and the market, which is probably the result of prolonged low interest rates and the knowledge that the Fed will slowly raise interest rates. They are also well aware that the Fed and the PPT are manipulating the markets. Hedge funds are in gold and silver, in a small way. The public does not have a clue to what is really going on.Those of you who do not have positions in gold and silver coins and shares should take those initial positions now. Those who already have a position should add to those positions on any corrections. Even though we are approaching $512 gold and $12.00 silver, we are only approaching the end of phase one of four phases of this bull market. Gold and silver are still very cheap. They will not be expensive until gold passes $1,700 and silver $100 an ounce. At the rate that government is creating defects and the Fed is manufacturing money and credit, gold and silver are an absolute lock to go higher. If you wonder why professionals and the public do not see it, they just do not want to see it, or they are simply oblivious. They are under a continual barrage of propaganda buried in misdirection and lies. We are facing the biggest bull market in gold and silver history and perhaps the biggest bull market ever. What will be especially notable is that these may be the only ways to make money and preserve your wealth. Thus far, the only people-investors in the gold and silver markets are you people and the mega-rich elitists. We are the only ones that understand what is going on. Our second phase of the bull market will be between $500 and $850. Phase three will be $850 to $1,700, and phase four to $3,400. Phase three is the rush to riches and phase four is the blow-off. We are seeing the blow-off in the bear market rally in the stock market, the topping out of the real estate and bond markets. Investors will be looking for gains and the only place they will be available will be in gold and silver related assets. You will see gold and silver shares pop, $5 and $10 in a day. US $20 St. Gaudens pop $1,000 in a day, as well as 90% silver bags up $1,000 in a day. We have seen it before and we will see it and more again. Investors will be desperate to make money. That is why you go long and stay long. Gold and silver are the cheapest investments available and they are the safest investment available. We are at war. We are having wars for a number of reasons and one of them is to cover up economic failure. Spending for war will continue to increase as will US domestic spending to keep the economy afloat. We see mega-inflation ahead. Government, personal and corporate debt is in the stratosphere. You have the chance of a lifetime and if you truly want to be rich, you will buy gold and silver related assets.
We have contended since gold was in the $250 area, that the elitists who control governments and are instrumental in those governments selling gold, in fact, are the buyers. We believe eventually they will return to a gold backed currency and they will control a good portion of the world’s gold. They knew just as we know, that once gold passes $850 an ounce, the public will be buying all they can get their hands on and the higher the price goes the more valuable the elitist gold hoard will grow.
Gold shares and numismatic coins have lagged bullion prices recently, but that is of no consequence. That is because you have never seen gold shares move 10 to 20% a day. You are in the trend. You go long and stay long. The same is true with gold and silver coins. These exploration stocks are still off 50 to 80%. Shortly they will begin to move upward again. Once the stock, bond and real estate markets head down, investors will be seeking new profit centers. Sooner or later, CNBC and the media will be forced to recognize that gold and silver are in bull markets. After gold’s technical breakout, professionals cannot help but start buying gold bullion,shares and the new exchange traded funds. Those of you, who are long gold and silver coins and shares, buy more. Those of you, who are not in the game, buy ASAP. You are missing the opportunity of a lifetime, especially in suppressed exploration stocks.
New Hampshire Representative, Henry H. McElroy, filed a new revised “Gold Money” bill for the upcoming legislative session. This latest version focuses on the digital currency feature in the use of gold and silver by the State of New Hampshire, its citizens, and their transactions with each other. There is also a mandatory provision regarding the taxing area to make certain a steady supply of tax revenues will move into the gold account to maintain it at a suitable level.
For those of you who believe that high interest rates are bad for gold, in 1980 interest rates were 22%, and gold was $850 an ounce.
Gains from the investment in the Exchange-Traded Fund, GLD-NYSE will be taxed at a maximum of 28% by the IRS, rather than the 15% on other capital gains on investments held over all year. We do not find that particularly attractive.
The elitists in the French government, after being given instructions to sell some gold several months ago by Brian Mulrooney, announced they will sell 500-600 tons of 3,000 tons of gold they have over the next five years. On that news, gold moved up $4.10 an ounce. Our guess is that it may well have already been sold or leased.
Kofi Annan’s consultant, former Fed Chairman Paul Volker’s memoirs said, “Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken.” That was a mistake.
This is another indication the Fed has been in the gold market for a long time doing their manipulating. Irrespective, as we’ve said for the past several months, the central banks have to be close to being out of gold. That means we have a good shot at $460 this week and because everyone is expecting a correction, we may not get one.
Japanese gold coin and bars sales were up 30% in October from a year earlier. They were up 60% from September.
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International Forecaster November, 2004 (#4) - Gold, Silver, Economy + More
