You can love him, hate him or watch his forcasts and the actual prices. Does he go to the extreme, yes in many cases, but his forcasts and the trend haven't been bad. Oil ,NO. But who is right 100% of the time? He has been right with Japan , the Canadain $, Russia, Australia and calling July 20 (from a couple of years ago)as the breakdown date. Gold a couple of years ago,no, but overall not bad. As Dines says "don't buck the trend".
Just Getting Started?
By Martin A. Armstrong
August 25, 1998
Copyright Princeton Economic Institute
The long-term perspective for both gold and silver is
becoming very ugly to say the least. While the metals
group has been the target on intense manipulation
involving everything from copper, palladium, platinum
and silver, there has also been attempts at trying to
create the impression that even gold is getting tight. One
trade house in particular has specialized in going after
the funds day-in-and-day-out. Just recently, this house has
been taking delivery of gold trying desperately to force it
higher based solely upon the commitment of traders
report that claims there are 60,000 short speculative
positions. Despite selling in the cash and buying on the
floor of the COMEX in a vain attempt to keep up the
image that they rule this market, the overwhelming
bearish fundamentals have prevented their latest play.
We have maintained that silver has been the primary
focus of a group of serious market manipulators that
have included one major member of the London bullion
dealers. While stories of shortages have still filled the air,
the truth is that these stories originate from London
where the dealers still REFUSE to publish the inventories
on hand. Given the fact that this type of behavior in the
United States would be considered "insider trading"
bordering on the line or criminal activity, the only way to
approach this market is based upon price action since the
fundamentals CANNOT be proven nor trusted.
According to our sources, the vaults in London remain
full with the greatest shortage still being storage space
itself. Combining this information with the fact that
nearly 70% of all silver exports from the US during the
second-half of 1997 were made to London and not Asia,
we tend to believe the US government statistics over those
in the bullion industry, which a vested interest in hiding
the truth. We do know that demand for silver in India has
fallen by 80% during the first quarter of 1998. We believe
that India's silver consumption will be down on an annual
basis at least 40% and perhaps as much as 60% for 1998
thus wiping out any shortage between current production
and demand. The sanctions imposed on India for its
nuclear testing have had a major impact upon its
economy as well. This situation is only further
complicated by the collapse in Asian currencies. The rise
in the dollar due to the continued meltdown in the world
economy is also having a negative impact upon silver.
The popular belief that gold and silver will rally with a
stock market crash has anything but materialized. This is
largely due to the fact that gold is now a commodity and
not the official form of money as was the case under the
gold standard. Therefore, as economic turmoil swirls
around us, the first priority is liquidity. Where during the
Great Depression gold represented liquidity, keep in mind
that gold was cash, which was acceptable to pay one's
bills. Today, cash is the dollar. Gold is not acceptable as
payment on your VISA card, mortgage or just about
anything else within the modern monetary system. Hence,
gold this time will act like a commodity. ALL
commodities collapsed during the Great Depression
bottoming in 1932 along with stocks. Commodities,
including silver, failed to provide any hedge whatsoever
against the Great Depression despite the fact that the US
remained on a gold standard throughout the entire
period.
As illustrated here, silver collapsed from $1.344 in 1920
down to 25 cents going into the bottom of the Great
Depression in 1932. Those who have been preaching that
as soon as the stock markets crash the metals will rally
do not have any historical correlation to support such a
scenario. Consequently, 1998 appears to have been the
culmination of a 7-year bull market instead of the
beginning of a breakout. We had hoped that a low in
1998 would have developed. However, given the
manipulation of the metals group in general, we now see
that the low will most likely develop in 2000 perhaps
during the 2nd quarter. The portrayal of Buffett as the
savior of silver, who will NEVER sell under any
circumstances, again has distorted the facts. When it
comes to bonds and crude oil investments, Buffett has
NEVER been a long-term investor. He has always taken
very short-term views. Buffett's long-term investments
have been restricted to purely stocks that pay a
reasonable dividend and good capital appreciation. At
this time, Buffett's silver investment is already in a 10%
loss position and it could become much worse.
There is one popular rumor that has been floating around
the marketplace, which we have no solid opinion on. It
has been alleged that PhiBro had a pre-existing silver
position in excess of 100 million ounces dating back to
1995. In order for Buffett to sell Solomon Brothers to
Smith Barney, he was had to take this unprofitable
position on his own books. This cannot be proven either
way without getting into the books of PhiBro.
Nonetheless, we do not believe that some of the players
who were front-runners would have jumped into the silver
market with both feet if this rumor were correct.
All things considered, the metals are simply headed
significantly lower. A monthly closing for silver below $5
will then warn that a decline to the $4.50 level is in order.
At the end of the day, our computer models are still
adamant that silver will drop below $3. If our sources are
correct that the London bullion dealers are indeed hiding
500 million ounces of silver from the world statistics, then
this target is very realistic. While we no doubt will receive
the usual hate mail due to this forecast, the point is that
this issue can be settled very easily. London should open
its vaults for a full INDEPENDENT audit. The mere fact
that the London dealers refuse to publish these statistics
perhaps suggests that there is indeed a pile of silver they
do not want the marketplace to know about. If there is
indeed a vast quantity of silver beyond Buffett's 120
million ounces sitting in London, what better way to keep
up the propaganda about shortages than refusing to
publish the inventory statistics? If our sources are correct
on this issue, then considering the collapse in Asian
demand combined with 500 million ounces in London,
there is NO shortage at all and in fact we are back to a
2-year surplus or much more. Those who simply point to
the COMEX stockpiles and claimed that "we assume that
European stockpiles have declined by a like proportion"
are making a very dangerous and irresponsible
statement. They should take great care in their reports
when the bona fide statistics are NOT available. They are
either being paid as a consultant to those who want to
propagate the myth of a shortage on an undisclosed basis,
or they are not exercising their due-diligence that is
expected of all independent research. We are NOT
prepared to join the crowd on this issue of a shortage
until London becomes a market where who own what can
remain confidential, but total supply is fully disclosed to
the public. After all NO leading financial market in the
world operates under such rules
In the end, the continued collapse in Russia is likely to
spillover into the former eastern block as well as into
Latin America in particular Mexico. We are looking at
another Asian contagion but this time in Europe.
Unfortunately, this reality may keep commodities in a
deflationary trend going into early 2000 before any
reversal develops. Indeed, the similarities of our current
global crisis are a much better fit fundamentally with the
Great Depression than any other period in time. While
the stock market peaked in 1929 and collapsed into 1932,
the dollar soared into 1931 where it established its major
high against every currency known to man. Every
European nation defaulted on its debt, with the exception
of Switzerland while Britain suspended payments for 6
months. Russia defaulted, China, most of Asia and Latin
America. With each default, capital fled to the dollar
creating domestic deflation within the US marketplace.
Due to the fact that 40% of the civil work force in the US
was employed within the agricultural sector, as the dollar
rose commodities fell forcing farmers and miners into
bankruptcy. To a large extent, we see the similarities with
this period of the 1930s as striking to say the least.
However, we do NOT see a 90% decline for stocks or
commodities from current levels. While gold might
collapse to the $190 area and silver down to $2.75, the
US share market at worst might reach 3800 on the Dow
or about a 66% correction. To be much more modest, we
would expect perhaps a more realistic decline in the 40%
area assuming that the next low in September/October
unfolds with about a 23% correction. A correction of
66% would ONLY become likely if by mid October the
Dow were down by 40%.
In summary, during the 1930s gold was money. It could
be used to pay your landlord and debts. Today, a
deflationary contraction drives the same forces into a
search for liquidity. In the 1990s, liquidity is still cash; it's
just that cash is the dollar - not bars of precious metals.
Gold and silver might rally if the dollar were at risk.
However, the economic crisis is NOT taking place in the
US - it is taking place everywhere else but! Reagan at
least reversed the trend in the US economy away from
socialism and toward a more fiscal conservative system.
This shift has yet to take place in either Japan or
continental Europe. The unfunded liabilities throughout
Europe are more than twice those in the US on a
percentage to GDP basis. This too is similar to the 1930s
when European debt simply collapsed due to fiscal
irresponsibility.
To add salt to the wound, the IMF has led the hedge
funds and the Banks to the slaughter over Russia. By
standing out as the guarantor of the world, many ran into
Russia to buy GKOs yielding 100% or more. These guys
looked at the high yield and assumed that the IMF would
never let Russia collapse. The problem now is that Russia
has collapsed and the losses are spreading around the
globe. Again, Europeans hold about 90% of this
exposure. Those who still think the dollar is a fiat
currency are merely living in a fantasy world. The dollar
remains as the most secure and fiscal responsible
currency today. That might change in a few years, but for
now - the dollar is looking very, very strong. The final
death-blow to the metals may in fact be the IMF, which in
the end will be forced to see its gold reserves for cash.
The IMF is broke and with the collapse of Russia, in part
propelled by the IMF itself, funding in the future is going
to be lean indeed. With 70% of its liquid assets in gold,
the IMF will become the next seller of last resort. With
the rise in the dollar, we can also expect a continued
increase in mine production for silver as well. Selling
should be expected from both Russia and Mexico. A few
years back, Russia was selling gold and buying silver
switching their own reserves in part due to the shortage
myth. Again reliable sources claim that Russia is also
sitting on at least as much as Buffett bought.
During the final days of any bear market one is
confronted by fundamentals that suddenly turn very ugly.
When governments began to default during the 1930s, the
final low came about 1.5 years later. Here too, we may be
looking at about a 50% decline over the next 1.5-year
period moving into a final low by the 1st or 2nd quarter of
2000.
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