4-20-09

Dow Up, Gold Down

      So my latest theme of ‘Dow up, Gold down’ is playing out as expected. Though a little correction is due in the stock market, the imminent path seems to point upwards, slowly but surely. Be warned though, at ANY TIME this thing could explode up or down. It’s a professionals market, not a ‘buy and hold’ market, as Warren Buffet recently found out the hard way. 

      Keep those gain-locks tight! 

      “Mark, why aren’t we seeing a big surge up in the stock market yet?” 

      Because as yet, the public aren’t (back) in this market. I suspect they’re waiting for more confirmation before they turn to ‘gambler’s ruin’ and try to get their money back. 

      And that raises a good point. This is perhaps THE most important lesson in money and investing… 

      All asset classes- real estate, stocks, gold, bonds, everything- go through cycles of boom and bust. BUT, who loses and who wins at this game?  

      Most people are plain scared of losing money. So, before they take the plunge into anything, they await confirmation that everyone is doing it. They need to get reassurance from a collective mind- the herd- before doing anything. Thus, they are part of the herd. The time when the whole world jumps in is the precise time to GET OUT. 

      Regular readers will know that the mainstream attention gold was getting unnerved me, which is why I’ve become short-term neutral/bearish on gold.  Sure enough, gold has fallen a bit since I felt this way. Anyway, gold isn’t something to trade around with; it’s insurance to sit on and forget about. I’m just saying this for the benefit of anyone still hesitating about getting some gold (hmmm, maybe you’re waiting until EVERYONE is buying…). 

      As I mentioned last week, we’re in neutral territory for now, though the picture is weighing more and more in favor of ‘Dow up, Gold down’ for the short term. 

      If history is a guide, this bear market rally will continue through 10,000 eventually… before the final ‘death drop’ to somewhere below 5,000. Again, this will not happen in a linear fashion. There will be ups and downs to fool you in both directions. 

      “Mark, you’ve spoken a lot about gold. Why is this and why are you changing your tone a bit?” 

      Make no mistake, gold is in a long term bull market and no bull market goes straight up- there will be ups and downs along the way. And remember, the objective of the bull is to go up with the least amount of people. That means giving people the jitters along the way. This is such a time. It wants to shake off amateurs, basically. 

      Why do I speak of gold? Well, aside from it being the ONLY asset to be up every year since 2002, it’s highly topical now because I believe the mighty dollar must ultimately fall and that means something must replace it as the reserve currency. Since the Gold Standard was abandoned in 1971, we’ve been conducting an experiment; we wanted to see what happened in a world of loose paper (fiat) money printed at will by government. Well guess what? The conclusion of that experiment is playing out before our eyes. Smile, you’re watching history be written. This is the BIG PICTURE and the picture being missed my most. 

      “So you’re saying inflation is in our future then? What of those who say DE-flation?” 

      Good question! What’s confounding so many people right now is why we aren’t seeing high inflation (and gold rising) in the face of the Fed printing money like never before in history (I mean, we’re so far off the charts here, it’s scary). 

      All recessions are deflationary by nature. Notice how much cheaper things have suddenly become with all the deals out there? Gasoline?? Prices down = deflation. 

      The dreaded fear of the Fed is what happens is nobody buys anything because they forever believe it will be cheaper next week and it becomes a viscious cycle downwards. This is called a deflationary spiral. Because of the continual downwards spiral in prices, cash becomes worth more because it buys more, right? BUT, this also means DEBT becomes greater because the cash required to pay off debt is worth more, get it? 

      Now, with a country as in-debt as I.O.U.S.A., do you honestly think the Fed will sit by and tolerate deflation? 

      No way. They will, in their own words, drop dollars from helicopters before they let that happen. 

      The head of the Federal Reserve- Ben Bernanke- is no fool. He knows what needs to be done and what the consequences could be. You can’t control deflation but you can control inflation (eventually). Deflation therefore, makes the Fed redundant. Think they’re going to let that happen?  

      But they’re being sneaky about it. They’re printing money a little bit at a time so not to frighten people. The first $300 billion was just the start and they know it. Obviously to me anyway, their plan is to print money a piece at a time, meanwhile doing all they can to keep the lid on the gold price so not to draw attention to what they’re doing. 

      How could they control the gold price? They can’t directly but they can do things like ask the IMF to sell gold to depress prices (as they have done). 

      So we will see deflation first and it may well set it. The Fed will fight and fight it with apparently no effect. Then, all of a sudden, we will see an inflationary fire like never before. The Fed thinks they’ll be able to stop it instantly. They will be proven wrong. 

      That’s my forecast anyway. 

      On this subject of gold price manipulation, this is an interesting story… 

      As you know, there is a commodities exchange (COMEX) where futures traders bet about the price of everything from gold to orange juice, right? People ‘buy’ and ‘sell’ like crazy but of course, nobody is actually taking delivery of any of these items. Nothing physical is changing hands. 

      But in theory, if you bought a futures contract, you CAN demand delivery of that item and the COMEX would have to oblige. Nobody expects that to happen, but recently, it DID on the gold market. A large party actually wanted to take delivery of the gold on April contracts expiration and they did. 

      For some reason, China is asking the IMF to sell its gold and use the money to help poorer countries (if you think that’s the real reason they’re asking you’re naïve!). China wants gold- they want to swap their imminently useless dollars to buy it. BUT, a large purchase like that would send the price of gold skywards and this would not suit. My bet is the Chinese want to install a gold standard as part of their ever-growing race to become the next superpower. 

      The whole world can smell America’s economic blood and they’re attacking her at her weakest point: the reserve status of the dollar. You can have all the aircraft carriers in the world (and America nearly does!), but if your currency is mush, who cares? Unless you want to wipe out China that is. Why do you think China is building up its military now…? 

      USA has HUGE gold reserves and this is it’s only card left to play. It could sell it to raise cash (doubtful and the Chinese would snap it up), OR it could appreciate gold to market levels. The Fed only values gold at $42 an ounce compared to market value of $870!  

      “Mark, all this talk of investing here or there is okay for you if you have money! I don’t have anything apart from a rapidly depreciating home and 401k!” 

      Please understand that EVERYTHING I speak of concerns you, if not as a direct investor, then as an individual.  

      BUT more to the point, STOP CRYING ABOUT HAVING NO CASH AND DO SOMETHING ABOUT IT!!!! 

      What? 

      Time and time again I’ve pleaded with you to build a safety net with a second income from some sort of home business. What the League of Power has done is filtered out what we see as the best ones for you and they all come with a no-risk guarantee. 

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