Taylor On Russell On Gold
Jay Taylor
December 10, 2005
There is little I disagree with Richard Russell on. About the only thing I can find that I disagree with him on is his "inflate or die" thesis. I say it is inflate and die because I believe that the more money that is created brings about an even more certain and more deadly deflation. In other words, in the end, it is not possible to avoid a deflationary depression simply by printing paper money and spreading that paper which is deemed by law to be money as Ben Bernake says he will do to avoid the next Great Depression. But aside from that and perhaps some theological and moral issues where I may differ from him, I find this man to the most remarkable market analyst I know. I read him every day he publishes.
But when I read his missive of December 7th, I knew when I read it I had to pass this on to you because he hit the nail squarely on the head with regard to the precarious economic and political status American now finds itself. You must read this piece from the December 7, 2005 issue of "Richard's Remarks!"
"December 7, 2005 -- I've seen a lot of bull markets that headed north month after month -- but I can't remember seeing a bull market that looks like this one. What I mean is that this rising channel (as seen on the chart below) is truly remarkable. Yes, this is a monthly chart of gold, running from April 2001 to the present. And what's so remarkable is that only the so-called "gold-bugs" seem to know what's going on.
"All right, I'll say it -- this is one of the most spectacular bull markets I've ever seen. And because so few people seem to have caught on to what's happening in gold, I call this "the great stealth bull market."
"Note how each time the monthly bar hit or slightly exceeded the upper trendline of the channel, gold dropped back to either the middle or the bottom of the band. Now again, gold is approaching the upper trendline, and I'm obviously wondering whether gold is just going to keep rising along the upper trendline or whether gold is going to correct. There's obviously no way of knowing, but if gold does correct it will be a buying opportunity for those who have not yet climbed aboard.
"I've said before that once a bull market starts rolling, it doesn't often give people a good opportunity to enter. This may be one of those times. However, as you can see, gold has been up on a monthly basis four out of the last five months -- thus, it shouldn't be a surprise to see a down-month coming along. Ah, but will it happen? And when?
"I've got five kids, and when you have five kids, you tend to think a lot about the future. What will the future be like? What will their lives be like? What will the United states look like in five, ten, twenty years?
"I'll tell you something, I don't care for the picture. I've been doing a lot of thinking about the big picture over the last few weeks, and this is what I see. The US is losing its manufacturing base to China. A huge migration of hundreds of millions of Chinese is moving into their coastal cities, and that means that Chinese competition for manufacturing will be increasingly intense as these people seek work, any kind of work, any kind of wages. The operative fact is this -- WE ARE LOSING OUR MANUFACTURING BASE -- PERIOD.
"Now we are starting to lose our service base. Company after US company is outsourcing its back-office work to India. Large corporations like Google and Microsoft are increasingly turning to India for research as are many medical companies.
"China and India are now graduating far more engineers than is the US. All of Asia is coming alive and ready to produce and create -- at 10 percent of what it costs here in the US.
"So China and India and Asia are producing manufactured goods and services at terrifically competitive prices. And what is the US producing? Basically -- Federal Reserve Notes. Really, then why is the standard of living in the US STILL SO HIGH? The reason is that the world still accepts Federal Reserve Notes (US dollars) as the reserve currency, created by the Fed at no cost and in any quantity that the Fed desires.
"Yes, China and India and Asia's Central Banks are also producing junk paper money. But the difference is that they are also producing something of value and relatively speaking, we are losing -- we're losing in manufacturing and we're losing in services.
"The investors of the world are not stupid. The markets of the world are not stupid. They see the inequities that I've described above. They see the writing on the wall. The writing on the wall says that paper money is doomed because there's nothing behind it. All balloons eventually deflate and the world's paper money system is a balloon -- full of propaganda, hog wash and hot air.
"And suddenly, the great unconscious of the investment world is saying, "All paper is sinking in purchasing power, it's time for me to accumulate true wealth. True wealth is gold. And that, in one sentence, is why gold is rising. Seasoned, experienced, history-wise investors know the great secret -- TRUE WEALTH IS NOT PAPER -- IT'S GOLD. The great secret -- gold is not rising solely because of inflation, gold is rising because faith in fiat money is declining..
"Once an item is in a bull market as gold is now, at some point people start asking, "What's going on? What's happening? Why is gold rising day after day?"
"At that point, and we are not there yet, the process speeds up. More and more people come up with answers. And the answer is -- "Fiat paper is a fraud. I'm working for something my government can manufacture with no sweat, with no work, with no creativity -- with just a click of some damn computer. Listen, I want real money for my work. I want gold."
"I read dozens of advisories every day. Most are bullish on the US economy, and most are bullish on the US economy for 2006. But literally none are talking about what I've talked about above. I've said before that the Achilles Heel for the US is the dollar. Currently, the dollar has been strong. It's been going up against its two major competitors, the euro and the yen. Of course, the reverse side of the strong dollar is that the new "expensive dollar" is going to kill our exports. As the dollar rises, US goods for export become more and more expensive.
"But somewhere ahead as the economies of the world take in the fact that the US is losing both its manufacturing base and its service base -- the world will realize that the US has become a "a tissue-thin, paper-tiger economy."
"When that realization takes place, there's going to be a panic to get out of dollars. This will trigger the third phase of the gold bull market. And that, dear subscribers, will be something to see.
"As an aside, the US is now spending itself into one enormous mess. We're spending a staggering over $400 billion a year on our military. Add to that another $5 billion a month for the wars in Iraq and Afghanistan. Then we have the unfunded liabilities of other programs such as Medicare and Social Security. The incredible debts of the US will have to be covered with either higher taxes, more bonds or monetization of the debt.
"All this has to put enormous future pressure on the dollar. As I've been saying, the Achilles Heel of the US is the dollar. The dollar must fall. People who understand that this -- people who are willing to act on this thesis -- buy gold.
December 10, 2005
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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