.

The Original Goldbug

(Originally published in The Dines Letter - 19 June 2009)

TDL'S LATEST ON GOLD: SUSPICION CASTS ITS LIGHT ON THE US DOLLAR

We fight for lost causes because we know that our defeat and dismay may be the preface to our successor's victory, though that victory itself will be temporary; we fight rather to keep some- thing alive than in the expectation that anything will triumph.

T S Eliot, For Lancelot Andrews

The era of people accepting US dollars unquestioningly is ending, as more dollar holders understandably begin to be concerned about a possible calamity due to the Fed's printing trillions of new ones to pay for the so-called "stimulus package."

While we are long-term negative on the US dollar, as well as all unbacked paper currencies, there will be near- term bull and bear markets within their Super Major Downtrends. It is important to maintain a clear idea of time horizons when wondering whether to be bullish or bearish on any particular paper currency. The world however is still thrashing about, trying to figure out which paper currency is safest, but they have not yet gotten to the realization that none of them are!

We will have a great deal more on paper currencies in our upcoming third edition of The Invisible Crash, but already some nations are beginning to switch to paper currencies other than the US dollar. Some Latin American countries are bartering goods with China, which could work, except that barter is inconvenient and can degenerate into haggling absent the efficiency of a reliable currency.

We have never abandoned our longstanding prediction of "The Coming Death of the Dollar," but we are hoping to perceive its advent in enough time to make emergency preparations as soon as we spy it out.

Leading economists who were almost uniformly pessimistic at the last market Bottom Formation are now getting optimistic, albeit for "next year." Perhaps an economist could be defined as a person who gets paid to speak at banquets, at which he tells everybody there's no such thing as a free lunch!

  1. Mints around the world almost doubled their silver coin production in the first quarter in response to a surge of investor interest in the metal. This suggests that silver has benefited as much as gold from the trend by risk-averse investors to seek out havens. Sales of silver coins and medals jumped 63% to a record 2,019 tonnes in 2008 while demand for gold coins and bars reached 837 tonnes, up 93.3% in 2007. Demand for silver has continued to rise in 2009 with the US Mint seeing a near-70% increase in coin sales in the first quarter. Last year, investor inflows into the three main silver exchange-traded funds rose 54%. Gold exchange-traded funds saw inflows up 36%. Silver hit $14.08, up 24.6% this year. Chris Flood, Financial Times (London), 14 May 09
  2. Jack Kemp, more than anyone else, convinced Ronald Reagan in the late 1970s that massive income tax rate cuts were the way to revive America's inflation-contracted economy. Those reductions, which Reagan enacted when he became President...

For complete articles, please subscribe to The Dines Letter.

(Originally published in The Dines Letter - 24 April 2009)

TDL'S LATEST ON GOLD: "THE ORIGINAL GOLDBUG"

What the world really needs is a windshield wiper that won't hold parking tickets!

The word barbarian comes from the Latin noun "barba" meaning beard, and they changed European history, perhaps comparable with al Qaida bringing a long-wave cyclical bearded onslaught.

After the Goths agreed to fight for Rome in 376 AD, barbarian metallurgists cut small disks out of a sheet of 98% silver which they used as templates for coins. Then dies, made of tiny primitive shapes, were pounded into the casts held in their fists, the origin of "making money hand over fist." The Goths were starving and Rome did not allow a competing currency, so Rome got sacked and the Goths were given southern Gaul as appeasement.

But the Franks, another barbarian tribe, fought against the Goth/Roman alliance and beat them both back with the innovation of a throwing ax called the "francisca." By the sixth century AD Gaul came to be known as Francia, the forerunner of France today.

The throwing ax was like the tomahawk design used by both Native Americans and colonists in French Territory. Pagan Anglos took one to England and it evolved into a seax (pronounced see-axe), meaning a knife. Carrying a seax was a sign of being a free man, as slaves were banned from carrying one. In the seventh century the Anglo Saxons yielded to Christianity, but left the English language as a legacy.

Mining gold is one of the few professions that actually makes money, so they should be making it "hand over fist." Because of the Obama Administration's plans to print breathtaking quantities of paper money detatched from our gold hoard, we have been bullish on companies with "wealth in the ground," not only uranium, but also the precious metals. Indeed, the price of gold has held up at very high levels, along with uranium, although gold shares were likewise dragged down by the general Crash of 2008. Nonetheless, both uranium and gold shares have been leading the way higher since late 2008, with some gold- mining stocks already challenging their all-time highs.

Additionally, with so many new cars about to come on stream worldwide, the need for platinum and palladium in their anti-smog devices should buoy those two.

In other words, while the Fundamentals are in place for a resumption of precious metals' Major bull market, there has already been a steep advance and we perceive some early signs of a Consolidation. Long-term and conservative investors should ride it out, and professionals or those who vow to get back in, in case any pullback is shallow and brief, should trade.

Indeed, our bullishness toward the base metals is certainly bearing fruit, led first by our recommendation of copper in our 13 Jan 09 TDL (page 28) that is still in its Uptrend as of today. We are still bullish on virtually all other base metals, so one TDLr asked why we don't recommend base metal stocks. Good question. The base metals are cyclical, and not all TDLrs buy and sell at the exact moment we recommend it, so they might get trapped in a downturn, the same reason we avoided the solar stocks. We have stayed with the uraniums and precious metals because they are in Super Major bull markets and should have much smaller or shorter downside risks. Even TDLrs who don't follow our "Sell" signals would eventually be bailed out by the Major Uptrend.

One by one America's allies have edged away, leaving it virtually alone in battle, as what we've long called "the unpaid policeman of the world" quietly glides toward bankruptcy. How could what is purportedly the richest nation on the planet go broke? The same way a wealthy individual, or even family, could go bankrupt, by spending and borrowing too much. And that is what America has been doing.

What is the secret of how this happened? America has been the "richest" because for many years any amounts of money could be printed for whatever was needed or desired, and the world accepted that paper because the dollar still owned the pre-World War II aura of having been backed by gold.

But nobody can print gold, so some polititians began to sell America's gold, a process that TDL whistleblew and bitterly resisted every step of the way, but we never had sufficient allies and the best we could do was to spread the seeds for securing America's next currency someday. Politicians quietly cut the links from paper to gold and silver until now our paper dollars are not guaranteed by the gold hoard at Fort Knox, Kentucky. Save yourselves, sauve qui peut, by always maintaining some gold and silver metals and stocks in a variety of countries with different currencies, as much as possible.

America owes so much money that it is difficult for us to discuss it, particularly an innocent-looking item on balance sheets called "unfunded liabilities," that includes accepting debt obligations without actually setting aside funds for them. For example, America's Social Security system, which has repeatedly drawn warnings from the honest accounting profession that it was due for a crash.

For many years America's politicians bought anything they felt like just by printing the money for it, including wars or enough toys from China sold to us through Wal-Mart such that that country now has foreign reserves of around $2 trillion. Why is America paying for wars while other nations collect profits and contribute nothing, not even troops? Is America nuts, or should it just pack up, retreat all of our military to America and build a great anti-missile system, allowing nations of the world to kill each other? Russia is now selling anti-aircraft weapons to Iran, and what if the latter sold nuclear knowhow to its allies? What if America sold nuclear weapons to Iran's neighboring states, or abandoned the Middle East and its oil so that Iranian nukes could be aimed at Russia? None of these...

For complete articles, please subscribe to The Dines Letter.

(Originally published in The Dines Letter - 13 March 2009)

TDL'S LATEST ON GOLD

  1. In this recession-racked world one thing is selling: gold. "We're selling 10 times the amount we were selling a year ago," says a Manhattan coin dealer. The sizzle in this steak is fear that the economic system will collapse. Worries that the government will run the printing presses to pay for the massive bailout program, fueling inflation and weakening the currency. Gold has become so popular that, for the first time, a gold dealer ran an ad during the Super Bowl. Selling your old gold certainly makes more sense now than it did in April 2001, when gold hit a low of $256 per ounce. Wall Streeters often look down their noses at gold, which pays no interest and has no earnings potential. James Dines, editor of The Dines Letter, thinks that hard times ahead will drive the yellow metal higher. When government senses an economic downturn, the first instinct is to cure potential deflation - falling prices - with inflation. "It's seductive logic, but it's like adding sugar to cyanide," Mr Dines says. Mr Dines foresees a slight economic recovery as the money from the economic stimulus kicks in. "It will look as if prosperity is returning," he says. But by 2010 or 2011, all those trillions of stimulus dollars will bite back in the form of hyperinflation. "It's a trap from which there is no escape," he says. At the moment, Wall Street doesn't betray a hint of concern about inflation. Bond yields, which tend to rise when inflation is a worry, are exceptionally low. The Consumer Price Index, the government's main gauge of inflation, has declined every month since August. And wages, which contribute to a wage-price spiral, certainly aren't soaring - nor will they, as unemployment rises. Mr Dines is not entirely outside the mainstream of economic thought for once. If the gold gurus are correct, you should be buying gold and putting it somewhere where others can't get it. Mr Dines, for example, recommends gold in offshore safe-deposit boxes. After all, the US government restricted ownership of gold during the Depression. "I don't know of a better way to store it," he says. Right now, Mr Dines thinks it's gold's moment to shine. "The monetary system is fundamentally flawed. You can't just keep running the printing press. There's a punishment for that," he says. John Waggoner, USA Today, 18 Feb 09
  2. The performance of the silver market has been somewhat overlooked. But silver has comfortably outperformed gold. This is in spite of the fact that the fundamentals of the silver market point to lower prices, rather than higher ones. As with gold, investor buying interest has been the key to the rally. Inflows into silver exchange-traded funds this year have reached 1,676 tonnes (taking the total to 9,929 tonnes), considerably more than the 322 tonnes that flowed into all the gold ETFs over the same period. In 2008, holdings in silver ETFs increased 2,339 tonnes to 8,253 tonnes, so the pace of inflows this year has stepped up considerably. Sales of silver American Eagle coins have soared and have reached just over 4m ounces so far in 2009, almost double the rate of last year. Investors in ETFs now have more influence in the market and the balance of power is changing between long-term position holders and hedge funds. Barclays is forecasting that silver prices will average $11.80 an ounce this year. It is not the only investment house to predict that prices will fall from current levels. Hedge funds have also been extending their bets on silver prices rising. Chris Flood, Financial Times, 25 Feb 09
  3. Apocalyptic visions of crude shortages and economic and political chaos helped prices of both oil and gold surge in recent years. Since early November, however, crude is down more than...

For complete articles, please subscribe to The Dines Letter.

(Originally published in The Dines Letter - 30 October 2009)

TDL'S LATEST ON GOLD: LET YOUR PROFITS RUN

A person who can't pay, gets another person who can't pay, to guarantee that he can pay.

Charles Dickens, Little Dorrit

Scientists tell us that our planet is 4.6-billion years old, but we can only imagine how big is the battery on their stop watches, if only for the last epoch. An epoch could be defined as 2-million years. With our government's projected deficits in the trillions of dollars, veritable epochs of greenbacks, time is a very important function of investing. Indeed, there was once a time when a fool and his money were soon parted, but now it happens to everybody!

John Maynard Keynes, while influencing President Roosevelt to run massive deficits after 1933, when asked what would happen to debts in the "long term," famously answered "In the long run we're all dead." TDL has long scorned holding stocks for the "long term" as a form of what we call "zombie investing," severely punished by the once-in-a-generation 2008 Crash that saw decades of growth quickly wiped out. For us, recommending a stock for even as long as 10 years has been a rarity.

But there is the exception of precious metals. Why? Because we know from experience that those who take profits simply will not repurchase at the subsequent bottom. The upper chart is of London Gold. We first recommended gold in what we call a Super Major bull market at $35, and again at $288 in Sep 2001 as marked on the chart. Gold was widely hated in 2001, and we couldn't even get the press remotely interested in our opinions on it. But we knew that the bull market would be multi-generational, which we have marked with Lines (U) and (C). Even on 24 Oct 08 people were not interested in gold because they were so terrified by Wall Street's crash. Yet gold has risen 51% in just the last year. We hear from loyal TDLrs who followed us into gold at $35 and are still holding it at a profit of 2,941%, thirty times your money, tax free because they have not yet passed a tax on what you haven't sold. How did we know to buy at $35? That question will be answered in depth in our upcoming book on gold, but when politicians severed the link between paper money and gold we predicted "The Coming Great Inflation." Then in 1980 we forecasted "The Coming Great Deflation," only recently getting recognized by The Hive. Accordingly, the price of gold has been in the headlines lately, scoring repeated new all-time highs. When we are asked whether or not it is too late to buy gold at these heights, our reply for decades has been identical: "It is never too late to buy gold." We don't know how long gold will be held before our inevitable "Sell" signal, but we do not see it as of today.

We are not big fans of mutual funds because we would rather select our own entries, but even mutual funds that invest in gold and gold-mining stocks are up 43% this year. It is obvious in the accompanying chart...

For complete articles, please subscribe to The Dines Letter.