Jim Cramer's Gold Gene

According to Kitco, Jim Cramer has predicted a 15% increase in the price of gold.  I last bought a physical ounce of gold in the fall of 2018, when the price dipped to $1,165.  It is currently above $1300.  I don't know where the price will go. Jim Rogers believes that it will fall back to $900, where it was in 2008.  I'm still a buyer at $1300, but not much above. I had bought some gold investments in the 1300s a year or two ago, and some are still in the red, but the inflection point seems to be approaching.

I once ran into Jim Cramer on the New York City subway.  There was this dapper guy standing in front of me while I was half napping, and I kept thinking that he looked familiar. I finally roused myself out of my torpor and asked him, "Do you work at Brooklyn College?"  He replied in a whisper, "Television Show." 

I like his show, but I don't watch TV often.  I see Cramer as a voice of Wall Street. Hence, when Kitco quotes Cramer as follows, there is reason to think that a bull market in gold is near:

Don’t listen to the Fed watchers who claim that Powell caved to the stock market or the president...The only thing Powell caved to is reality … This is about the economy — who doesn’t want a healthy economy? If Powell had stuck to his plan for a series of lockstep rate hikes, it would’ve been a lot more devastation to Main Street than to Wall Street. 

It pays to read between the lines when listening to Wall Streeters talk about the Fed. If they ever told the truth, there would be a revolution.  What Cramer is saying is that short-term economic contingencies are making long-term dollar declines necessary.  That means that gold will rise.  The $1500 price target is a short-term prediction based on Cramer's intuition or inside information.  The ultimate price of gold in our lifetimes is likely to be much higher.  That's because of massive indebtedness.

My late friend Howard S. Katz used to talk about a commodity pendulum, whereby monetary expansion causes low-interest-rate borrowing by miners, who overexpand.  That crushes commodity prices in the short run. In the long run the miners go bankrupt because of the competition from the overexpansion, and the declining supply leads to sharp price increases. 

My guess is that there will be a short-term bubble, perhaps to $1500 as Cramer says, then a downturn, perhaps as far back as the 1100s, but not necessarily.  This will punish short-term buyers, making it easier for insiders to buy at a cheaper price.  Eventually, we will be seeing much higher prices in gold.  It is debatable whether an ultimate dollar collapse will lead to a new gold standard. If it does, we could see $10,000 gold, so my 2010 prediction of $3,500 may have been too low.

Howard S. Katz on Floyd Norris

Howard S. Katz is back on Kitco and he has written an interesting piece in response to New York Times columnist Floyd Norris entitled "Response to Floyd Norris":

Dear Mr. Norris:

I approach the subject of economics from a slightly different point of view than the writers for the Times, and I wanted to take issue with your comments in Saturday’s paper about the “recession.”

First, there was an event that happened at the very beginning of the New Deal which sets the tone for the economic controversies of the past 80 years. F.D.R’s Brain Trust., freshly in office, came up with a plan to get the country out of the depression by means of killing pigs and plowing under crops. The plan, however, ran into one difficulty. (I owe this story to my good friend Warren Roberts.) The jackasses who pulled the plows had been carefully taught to walk between the rows. Now that they were being ordered to walk on the rows they rebelled. The reason for this is that the jackasses had more brains than the Brain Trust.

Supporters of the New Deal had an effective way to deal with this. They all carry a mental eraser in their heads, and when something embarrassing occurs, they simply erase it from their minds. To claim that you are going to save the country from depression by destroying wealth is akin to the math student who enters the class with the theory that 2 + 2 = 27. There is really no point in debating him. One is dealing with a nut case, and to attempt an intellectual discussion to show him the error of his ways is itself a mistake.

Further evidence of the Times’ incompetence in economics can be seen from their failed predictions over the past 30 years.

In 1982, with the DJI at 800, the Times kept telling the country that Henry Kaufman was the nation’s top economist. Dr. Kaufman was then known by the nickname “Dr. Doom” because he was predicting higher interest rates and lower stock prices. Millions of people took your advice and sold their stocks, just months before the greatest stock bull market in American history.

In 1985, with the DJI at 1350, the Times’ Op Ed page developed the theory that the chart pattern of the DJI bore an uncanny resemblance to late 1928 and early 1929. This implication was that stocks were on the verge of a massive decline which would cause them to lose 90% of their value. All over the country people were thrown into a panic and sold their stocks, knocking the DJI down below 1300. From there it turned and, over the next 2 years, rose to 2700. It never got below 1300 again.

In 1987, a gentleman named Ravi Batra wrote a book entitled The Great Depression of 1990. The Times, and the remainder of the nation’s media, became very excited over this prediction. Lester Thurow went ga-ga over the book. Leonard Silk, Christopher Lehmann Haupt and Thomas Hayes gave him high praise. The pessimism generated by the book may have contributed to the crash of October 1987. But when 1990 rolled around, the worst that happened was a 1.3% (2 quarter) decline in GDP. J. Scott Armstrong called this the seer-sucker theory: for every seer there is a sucker.

In 1999, the Times turned bullish and published Dow 36,000 by Glassman and Hassett, predicting that the DJI would rise to that number between 2002-04. By 2002, the DJI had declined to a low of 7,200, and its 2004 high was still below 11,000. Carried away by its own irrational exuberance the Times invested $2.7 billion in its own stock (then trading around 40). At present, one share of Times stock sells for about the same price as a Sunday paper, and the loss on those turn-of the century investments is about $2.3 billion. This has forced the Times to mortgage its new headquarters and to take a loan from Mexican billionaire Carlos Slim.
In short, this record of prediction is pretty much what one would expect if the student who believed the 2 + 2 = 27 theory were to take over the math class and start investing the school’s money.

Read the whole thing here.

GOD BLESS KITCO: KITCO RECANTS HETEROSEXUAL BAN

Howard S. Katz showed me a confidential e-mail from Bart Kitner, president of Kitco, who has invited Katz back to the site as a contributor. Kitco's Daniela Carbone, likely a product of politically correct educational systems, banned Katz from writing for Kitco's gold commentaries for saying on his personal blog that he opposes gay marriage. Katz is a longtime gold investor (dating back to the '60s--I first met him in 1978) and he has a lot to offer in the way of advice about gold and commodity investing. He has beaten the S&P indexes since '99 when he started keeping track. Kitco is a fine gold site and has corrected its inadvertent misstep.

The public outcry in response to my blog and Katz's articles on some of the other gold sites was gratifying. Several of my friends, associates and readers called Kitco, as did several of Katz's readers.

This illustrates the growing power of the Net to confront the gay-dominated easy money community. Homosexual investment bankers will no longer silence gold investors.

As well, this illustrates the potential public power that can be awakened by the "tea parties" that have recently sprung up. I believe that true Americans have lain dormant for too long, seeing their country stolen by rapacious government, special interest looters, big business crooks and homosexual investment bankers who have manipulated the state so that hard working Americans have to pay 50% of their incomes to incompetent government tyrannies.

Kitco Bans Gay Marriage Opponents

What does gold investment advisor Howard S. Katz have to do with Miss California? Recently, Perez Hilton, a gay judge in the Miss USA contest, asked Miss California, Carrie Prejean, whether she believes in gay marriage. Prejean suggested that marriage ought to be between a man and a woman. There has been speculation that Prejean lost Miss USA as a result. Suppressive intolerance against all who disagree with extremist dogma is reminiscent of the the Fascist trial of Antonio Gramsci. The left has whined about McCarthyism for more than fifty years, yet it does not hestitate to apply McCarthyite tactics, ruining careers with ideological litmus tests, when an individual's views do not conform to left wing or homosexual dogma.

Howard S. Katz has been working on gold investing since the 1960s. He has successfully navigated gold, lumber and other commodities markets for 40 years, and frequently publishes on Gold Eagle, Goldseek, and other gold websites. Recently, on his personal blog that he had linked to a Kitco article, Katz mentioned that he opposes gay marriage. He did not write this in the Kitco article. He simply voiced the view that he opposed gay marriage in his blog, which was linked to the article.

Because Katz failed the Code of Gay Fascism, Ms. Cambone wrote Katz the e-mail below. It saddens me that the gay community and Kitco have taken to witch-hunting and McCarthyite tactics, such as attacking people's livelihoods because they merely store and do not lubricate their gold bars.

Does this mean that all current writers on Kitco support gay marriage? I will inquire. Please stay tuned.

--------------------------------------------------------------------------------
Subject: commentary
Date: Thu, 16 Apr 2009 12:35:50 -0400
From: dcambone@kitco.com
To: howardkatz@hotmail.com

Dear Mr. Katz,

We have run into quite a few complaints with your latest article. It seems that when our readers clicked the link to your website, they found a blog against homosexual marriages. This has insulted many people. We at Kitco realize that your commentary did not make reference to this fact but we cannot be associated with individuals who share these viewpoints.

You are a longtime contributor to Kitco and we appreciate your commentaries. Unfortunately, we cannot publish commentator’s who have points-of-views that are offensive to readers.

If you would like to discuss this matter in further detail, please feel free to call me.

Sincerely,

Daniela Cambone
Content Specialist
Marketing Department

Kitco Metals Inc.
Direct Line: (514) 670-1317
Cell: (514) 928-5820
Fax: (514) 875-2579
dcambone@Kitco.com
www.kitco.com

Kitco Bounces Katz Over Gay Marriage

I just sent the following e-mail to Kitco. One of the several alternative gold sites where Howard publishes his articles is Goldseek.


Dear Friends: I am a blogger with an interest in gold and I occasionally submit op ed pieces to newspapers. Howard S. Katz told me that you have told him that he cannot publish in your website because he said that he opposes gay marriage in his blog. I find this interesting and would be interested in learning about your position on this topic and why you felt it was appropriate to ban him (assuming that is the case). I would be interested in setting up a telephone interview in the near future.

Best wishes,

Mitchell Langbert, Ph.D.

Howard S. Katz's Poem for March 8

Howard S. Katz has preceded his current newsletter with this poem:

A sadder man you’ll never see
Than Don Quixote Bernanke.
The only thing that he does know
Is how to print a lot of dough.

He’s striding all about the town
Not knowing whether up is down.
He fights “Depression” it is said.
“Depression” is all in his head.

Dear Bernanke, may I be bold?
Suggest you view the price of gold.
The thing to know, before you sup,
The price of gold is going up.

And that’s a signal, if you’re wise,
That all the prices – gonna rise.
And then the country will be poor,
No goods to buy at local store.

You’re bailing out the ultra-rich
And leaving country in the ditch.
I’ve said to you, you are a cad.
Cause printing money’s very bad.

No, this is point you do not know.
One can’t get rich by printing dough.
So turn your policy around
And give us money that is sound.

New York Times Aims to Destroy Your Pension

In a December 22 editorial the New York Times openly advocates inflation as a "cure" for unspecified "ailments" in the economy. Goldbug Howard S. Katz, who runs an investment newsletter, brought the article to my attention earlier today. Katz has been tracking the rapid expansion of Federal Reserve Bank Credit, monetary reserves and the money supply and argues that the safest way to secure your retirement is to take a pro-gold, anti-dollar position despite recent run-ups in the dollar. The stimulus the Fed is providing will lead to a bull market in stocks but a super-bull in commodities. Katz also argues that the current "crisis" has been a media phenomenon fabricated in response to bankers' demands for extra liquidity in order to extract additional wealth from America's declining economy (by declining I mean suffering from long-term, century-long misallocation of resources due to Federal Reserve and "Progressive" policies).

Allow me to quote the from the December 22 article entitled "The Printing Press Cure":

"The Federal Reserve as much as admitted last week that lowering the benchmark interest rate — even to zero — would not be powerful enough medicine to revive today’s ailing economy. And so it has opted for the printing-press cure, pledging for the foreseeable future to pump vast sums into banks, other financial firms, businesses and households.

"Economic history — of the Great Depression of the 1930s and Japan’s lost decade in the 1990s — suggests that the Fed is doing the right thing. Confronted then, as now, with the twin scourges of deepening recession and incipient deflation, governments did more damage with too little intervention than they would have done with too much.

"But that doesn’t make such intervention 'good.' It’s a big and unfortunate risk in itself."

One of the outcomes of inflationary Fed policy will be the destruction of retirement benefits based on wages earned prior to the inflation (that is, pensions of people who retired prior to the inflation during the coming 5-10 years). Many boomers will likely fall into this category. As boomers retire on annuities, traditional pensions or hold assets in Guaranteed Investment Contracts, savings accounts, safe bonds or other dollar-denominated assets, their well-being will be destroyed as the Times and Wall Street cheer on.

As well, wages do not typically keep pace with inflation. Thus, the already stretched worker will be stretched ever tighter in a Wall Street drawn noose. Employment relations, already weakened by past rounds of inflation, regulation, and globalization, will become weaker. Employers will find it in their interest to terminate post-retirement medical insurance and other benefits that keep pace with inflation. During the 1970s and 1980s employers resented indexing and escalator clauses that caused wages to keep pace with inflation. It is likely that they will be encouraged to reduce or terminate benefits just at the time that health care costs go under exponentially increasing pressure because of the retirement of the baby boomers. The problem cannot be solved by nationally sponsored health insurance because the cost pressures are demographic. All nationally sponsored insurance can do is ration care so that none of the fingers will be sewn back on, just as they wouldn't be in Cuba or France.

The Times does not say exactly why it thinks the economy is in so much trouble that inflation is necessary. Is there a law of economics that states that a few years of excessive mortgage lending necessitates inflation? Why was late nineteenth century America able to produce rising (instead of falling, as the Times advocates) wages, rising productivity, rising employment levels, absorption of massive amounts of immigration and the very deflation that the Times so dreads? Why was it possible to thrive before the Fed was founded, and why are we now in so much trouble after a century of the Fed's existence?

Two of the funnier sentences in the editorial are these:

"To jump-start the economy requires getting money to those who will spend it fast and in full. That includes unemployed workers, low- and middle-income families, and state and local governments."

Back in the 1940s and 1950s the Times supported urban renewal on the pretext that it would lead to better housing for the poor and middle class. Instead, the funding, which was huge in New York City, was given to developers, some of whom were friends of the Times's owners, the Ochs Sulzbergers. The developers used it to exercise extensive private-use eminent domain, banishing factory jobs from New York, destroying low-income neighborhoods and building expensive office buildings and co-ops for millionaires. The middle class was set up in dreary suburbs on Long Island like Levittown under the same programs (of Title I and Title II) and high-crime urban ghettos for minorities were established featuring dreadful public housing projects built with the Times's glowing support. Yes, the Times always has the interests of the poor and middle class in mind.

Now, the Times tells its readers that there is a "crisis" (what it is is never specified) and that Barack Obama's leadership in the interest of inflation is essential.

I do not normally pay attention to what the Times has to say, and this article sums up why. There are two categories of people who read the Times. The first is the people who take them seriously as an information and opinion source. Such people are lost souls at the fringes of society, and I feel sorry for them. The second is the people who read the Times in order to find out what the lost souls are thinking. But the lost souls are headed for the poor house, and the times when the Times's opinions mattered are passed. Let us bury the last copy of the Times in Adolph Ochs's grave.

As far as your own retirement goes, I would seriously consider gold, gold stocks, silver, agricultural commodities, the "DBC" and Swiss Francs. Keeping your money in US dollars is akin to flushing it down the drain.

The Progressives and the Fed Are Out to Starve You

Howard S. Katz, author of the Paper Aristocracy and soon-to-be-published Wolf in Sheep's Clothing has just written an excellent blog on what the Fed is doing to you. If you aim to retire, you'd better consider putting most of your money into hard assets. With a tripling of the money supply tin foil will be worth a heck of a lot more than $100 bills.

To be fair, this is not a Democratic-Republican thing. The Democrats will starve you but the Republicans have beaten them to it. The Democrats have no intention of undoing the tripling of the money supply, of course.

The left continues to puzzle me. Sam Walton spent his life figuring out ways to cut prices. Lower prices help the poor and working class. In contrast, Wall Street has spent generations figuring out how to get the government to "print" money so that it can have low interest loans for which the rest of the country pays through high prices. But no one on the left seems to criticize Wall Street.

The policy of starving retirees to further the aims of Wall Street began with the Progressives and the establishment of the Fed. Franklin Roosevelt and the New Deal, in the cloak of establishing social programs, re enforced the Fed's power to steal from retirees and workers in order to further the aims of bankers and Wall Street via monetary expansion and inflation.

In the past, idiot leftists like William Greider were taken in by the fatuous claim that inflation helps the poor. Greider's book "Secrets of the Temple" is an encyclopedia of ignorance and self contradiction. It is unfortunate that a writer as talented as Greider lacks common sense. He contradicts himself so often that it seems hard to believe he wasn't aware of it, but never overestimate the common sense of a "progressive". On the one hand he says that inflation helps the poor. On the other, he repeatedly notes that the fresh money loans stimulate Wall Street speculation. I suppose he thinks that the poor speculate on Wall Street.

In any case, Greideresque stupidity has become much more difficult to defend with the bailout. Inflation helps Wall Street and bankers, not the poor. The bailout is being monetized. Inflation that ensues will be due to the monetization of the bailout. Eight decades of lying about the Fed and inflation are drawing to an end.

But our ruling elite, Barack Obama, George Bush, Henry Paulson and the people they represent have decided to inflate to the heavens. As one of my students said they other day, they have decided to suck the life blood out of this country.

But the left continues to puzzle me. They are so wedded to inflation-helps-the-poor that one must wonder: (a) are they stupid? (b) are they tools of the power structure? or (c) are they hoping for a collapse so a latter-day Lenin can step in and turn America into a Soviet Union?

In any case, if you want to retire you are going to need to think about commodities investing. Either that or Swiss Francs.

$3,500 Gold

I already live in these hills, so please do not head for them.

Currently gold is selling in the low $900s per oz., up from $250 or so earlier in the decade. A recent tidbit of news suggest that the price of the precious metal will skyrocket. As part of the Bush administration's tragic, socialist tap dance, which the New York Times reports may include partial nationalization of banking, the Federal Reserve Bank announces yet another sharp increase in the monetary base. Howard S. Katz just e-mailed me that there has been a 68% increase in the monetary base over the past few weeks.

The inflation of this cycle may turn out to be much worse than that of the late 1970s. The inefficiencies in the economy are greater and there has been a much longer period of withdrawal of commodity production in response to low prices in the 1980s and 1990s. Howard calls this the "commodity pendulum".

Gold has already demonstrated an ability to anticipate inflation. The problem is exacerbated by the Fed's decision to encourage foreign central banks to monetize American debt. The global liquidity excesses of a few years ago are transforming into an inflation stoked by the banking system's addiction to easy money. The shortages will get worse as the old, new and future liquidity slosh through the system over the next few years, bidding up prices.

I'd say head for the hills, but I already live there and I want to keep the traffic down.

Evolution of a Bail-Out Opponent: Correspondence with Jim Crum

Prior to 1980 I became interested in the problem of economic decline, especially in New York City, and inflation. I met Howard S. Katz, who interested me in the gold standard around 1979. I lost interest in inflation issues after Reagan's election in 1980. I didn't pay attention because I assumed that the Fed had changed to a monetarist position and so was controlling inflation. Then I learned that "supply side" economics was really just Keynesian economics coupled with tax cutting and the pretense of free market rhetoric (while expanding government you tell everyone you're for small government and it's inevitable and that you can't stop government's growth because of the Democrats, even when the Democrats are a minority). Then I learned that Greenspan was increasing the money supply at better than 8 percent a year over many years. Then I learned that foreigners were monetizing US debt for us, facilitating an extra six or seven years of monetary expansion from 2001-8 but creating the risk of hyper-inflation if the foreigners panic. Then I learned that George W. Bush believes in government. Then I learned that President Bush appointed a Fed chairman who believed that dollars should be spread from a helicopter. Then I learned about the bail out. Then I learned that the Fed increased the money supply by 35% in August and September. I don't have to head for the hills. I already live in the hills, and I have re-habbed my house in the hills!

Jim Crum writes:

This is going to get interesting- fast.

I know our business is feeling it. I have many friends in the trades and that work is coming to a grinding halt in many areas. I am not a fearful man. Yet the signs are very ominous, and it might be too late to bring things under control. To that end, I am of the opinion that things may really deteriorate quickly. Such a surge in cash and a slowing in economic output could lead to really aggressive inflation while wages drop- 1970’s stagflation all over again.

I cannot say, using polite language, how upsetting this is. The rank in competency of those in charge (Congress & Fed) is just short of criminal. With nothing to hold them in check, the last thirty years have been setting us up for a tremendous fall.

September Explosion in Federal Reserve Bank Credit

Are you eager to pay 30% higher prices in order to subsidize Wall Street? During the past two months there has been much media hoopla about a supposed depression. Yet, the chief problems that the media describes are failures of poorly managed investment banks and insurance companies, not unemployment. Moreover, if there were high unemployment, which there isn't, the problem would be best handled by unemployment insurance and similar transfers to tide over the unemployed, not a trillion dollar subsidy to banks and Wall Street firms. This recent boondoggle is an example of the complete and utter failure of regulation in action. The public is unable to evalute fake claims by millionaire bankers, and the result is unveiled on Howard S. Katz's blog .

Howard observes the Federal Reserve Bank statistics. Ordinarily, Federal Reserve Bank Credits increase in the magnitude of .75% per month. In September, they increased 56%. That means that the money supply just increased better than 30%. Are you eager to pay 30% higher prices in order to subsidize Wall Street? And that's BEFORE the bailout has been approved.

Yes, we have been well advised by the mass media, haven't we?

Howard's chart follows:

Howard S. Katz on the Bailout

Howard S. Katz has written a noteworthy blog on the banking bailout. I excerpt from it below. Howard's point is that the claim of a "crisis" is nonsense. Firms fail all the time. Fractional reserve banking causes instability. There is no need for fractional reserve banking. Inflation, which is due to monetary expansion, has caused real wages to decline 18% over the past 36 years. That is a crisis. Monetary expansion has unrealistically caused the stock market to go up, addicting Americans to easy gains through speculation at their fellow Americans' expense. That is a crisis. The failure of AIG, Bear Stearns, Washington Mutual and other financial firms is not a crisis.

>"Our current financial system is quite unstable, and all of this instability results from the commercial banks...

>"The so-called business cycle of the 19th century in America resulted from the fact that all of the commercial banks were expanding their money and making more loans. If a bank started out with a 1:1 ratio against gold and expanded to a 4:1 ratio, it would find itself in a position in which a bank run was a possibility. Therefore it would reduce its lending. When the banks as a whole got too over-expanded, the most exposed bank would be hit with a run. The other banks would see this and reduce their loans. Then there would be a cycle of loan contraction. These cycles of loan expansion and contraction were incorrectly attributed to the nature of a free economic system. This is not true. In a free economy, each person must keep his promises, and the privileges accorded to commercial banks of making promises and then not having to keep them are a violation of a free market.

>"Note that these were cycles of money and credit expansion, but since they were good for the bankers, those economists sympathetic to the bankers called them economic growth. Correspondingly, the cycle of money and credit contraction was called a recession or a depression by the banker-economists. The implication here is that what is good for the banker is good for the whole country, and what is bad for the banker is bad for the country. But this is an outrageous lie. When the banker expands money and credit, there is a rise in prices, and everyone else in society has to pay higher prices for the necessities of life. When the banker is contracting, things are reversed, and the average person benefits.

>"The people of the early 19th century were a lot smarter than the people of today, and there was a political movement to eliminate the privilege of commercial bankers to break their promises. The full expression of this principle was found in a group called the LocoFocos. A compromise version of the LocoFoco movement developed into the Democratic Party and in 1828 won the presidential election with Andrew Jackson as its candidate. In 1832, Jackson vetoed the charter renewal of the second central bank, and this set the stage for the greatest economic growth of any nation in the history of the world.

>"The central bank did not return until J.P. Morgan and Woodrow Wilson teamed up in 1913 to create the Federal Reserve. The original idea was that it would be a banker’s bank and lend to the commercial banks when they had gotten up to the dangerous 4:1 ratio. If the Fed could expand up to 4:1 to the commercial banks and they could expand by 4:1 to the public, then the bankers as a whole could get a credit expansion of 16:1 – more money for the bankers and their big loan customers. The creation of the Fed led to the money/credit expansion of WWI and the 1920s, and this was offset by the money/credit contraction of the 1930s.

>"But this was small potatoes compared with the very first action F.D.R. took after assuming office in March 1933. In one day, he rammed through Congress a bill which gave the Federal Reserve the power to create money out of nothing. Instead of multiplying money by 16 this made it possible to multiply it infinitely. The nation started out on one giant money/credit expansion which continues today.

>"At first, the expansion was slowed down by the conservatives with their old fashioned idea that the budget should be balanced. The Fed is the lender to the Government and requires a Government deficit to do its evil work. But Reagan converted the conservatives to Keynesian economics (using the names “supply side” and “Reaganomics”); and since that time the money/credit expansion has increased its speed.

>"In a free market economy, the stock market moves sideways. The companies whose products gain the public’s favor go up, and the companies which lose favor go down. The stock averages move sideways. Measuring from the first Dow stock index, in 1885 to 1932, one finds that the market moved sideways. The 18-fold stock market gain from 1982-2007 was due to 2 factors: 1) As the Reagan Fed lowered interest rates, the competitive stock yield was also lowered; but the only way to accomplish this is by stock P:E ratios going up. 2) As the interest rate declined, the debt burden of these companies went down; lower costs mean higher profits. The combination of higher earnings and higher P:E ratios made for much higher stock prices.

>"So over the past 26 years a class of very rich has been created. Unlike the traditional American rich these people do nothing to earn their enormous salaries and bonuses. They are pure and simple beneficiaries of the money and credit expansion engineered by the Federal Reserve Bank and the nation’s private banks.

>"Corresponding to the gains of this class of rich there are corresponding losses to the vast majority of Americans. For example, real wages fell by 18% from 1972-2002. That has never happened to any generation in American history, not since 1623.

>"Now the fall in real wages is an economic crisis. And the rise in housing prices of 1997-2007 (which made homes unaffordable to the average person) is another crisis. But both of these real crises are ignored by the nation’s media. Indeed, the media is now bending every effort to convince people that the fall in housing prices which began in 2007 is a crisis.

>"No, the crisis you read about in the newspapers is a crisis for the bankers and their associated vested interests (loan customers, debtors in general, etc.). You see, interest rates started out at 16% (nominal T-bill) and have declined to virtually 0 (T-bill nominal) and badly negative in real terms. Negative real interest rates are a concept so absurd that they perfectly illustrate the insanity of our age. A negative interest rate means that, if you take a loan, there is no interest charge; instead they pay you for the privilege of lending to you. A negative 5% rate of interest means that, if you borrow $1000, then at the end of a year when you repay the loan, they give you $50.

>"Why would anybody lend under such terms? And yet the people who created these conditions are designated as economic experts by the media.

>"But the handwriting is on the wall for the bankers and their friends. Things just went too far, and unthinking conservatism is bringing it to a halt. In 2004, with the T-bill rate at 1%, the New York Times suggested a tightening of credit. Greenspan, always anxious to please the Times, complied. The small tightening of 2004-06 cut the paper aristocracy to the quick. Over the quarter century, they had gotten soft. Profits had come too easy. Just a tiny bit of tightness, and several big Wall Street firms were driven to the wall.

">But these people have never had to work for their money. They expect to be made rich by big daddy government. And so they go running, hat-in-hand to big daddy. And that is the source of the current “crisis.” It is a pack of lies made up by Henry Paulson...to the effect that the whole economic system (whatever that means) will collapse unless the government robs from the American people and bails out Paulson’s Wall Street friends.

>"Here is the challenge for the American people of our day. Faced with a similar challenge in the early 19th century the American people rallied behind Andrew Jackson and fought the bankers. They were largely successful, and America became the greatest economy in the world. What will Americans do today? Will they accept the word of Henry Paulson on faith? Will they pay his demanded $17,000? (Actually no one knows the exact figure.) If they do, there will be another demand on them tomorrow, and Americans will sink into a form of economic slavery to their new masters.

Kathy Laments the Markets

I received the following e-mail from Kathy of the Lone Star State. My response follows:

> Hello Mitchell,

> I am consumed with news between the naked short selling and credit crisis as you are aware. I am effected by the economy in the construction industry, the real estate industry and my ARM.

> Now I am consumed with stocks since I play in the government's form of white-collar-gambling with small amounts of money I have in the stocks. Suddenly short-selling (more painful naked-shorting) is more and more put to the top of my attention. Here I go again, another portion of the dying economy that I hit!

> So, what I just listened to."the problems of Main Street are now affecting Wall Street". Oh, now it's an issue. Okay.

> I turn to your blog with my head spinning. I see (as if I didn't actually know) that news is not a good place to get my news. So, I am asking where (in your opinion) is the "safest" place to get as close to truthful information as possible? I seem to trust no one coming across the electrical waves.

> Additionally, I am lost. BO scares me for a variety of reasons then I am left with McCain, who supported deregulation but is now pushing regulation and blaming for lack of regulation without so much as an "oops, my thinking was incorrect then but now I see". What am I supposed to do now. I only have 5 weeks and 2 days to get my head right. That is not a lot of time with this. Much fuzz and cloud going on here.

My response:

Stocks may be good now. I wouldn't pull out or sell short at this point. We are heading toward the early stages of another inflation and that is usually good for stocks for at least a year.

One thing I can suggest is Howard S. Katz's newsletter and blog. The newsletter
costs $300 a year and I offered to help him market it because it is very good. I have gotten more than a few ideas from him.

He's at:

http://www.thegoldbugnet.blogspot.com
http://www.thegoldbug.net

I don't have much more than that to recommend. You might try the Wall Street Journal as a basic newspaper. I don't read it myself at this point but I'm thinking of starting. I have been subscribing to the NY Sun, but they are likely to close their doors at the end of this month. Howard and other friends read the Times and the Economist to see what the establishment is thinking, but I don't have the time to make a career of doing that, and they are not good news sources. Fox is a joke. I wish I had something more to suggest, but honestly I don't.

One approach is to assume the opposite of what your newspaper is saying. They say that there's a financial crisis, so assume that there is a bull market coming. If they start saying that the economy's going great, assume that there's high inflation and misallocation of resources, etc.

As far as the general election, I support McCain as the "lesser of two evils" but the time is nearing where I may decide to vote for the Libertarian Party as the "least of three evils".

Howard S. Katz on Unemployment

Howard S. Katz has written a superb blog on unemployment.

Barack Obama Is A Racist and, Worse, a Social Democrat and a Progressive

Howard S. Katz has just written blog that argues that Barack Obama is a racist:

"...Barack Obama is a racist. He sees white people through the prism of hate. He sees them in clichés...So now we know what the election of 2008 is really about. The Democrats may nominate a racial bigot who hates the large majority of the people in the country he is trying to lead. The campaign will be very simple. The Democrats probably won’t come right out and say it, but their position will be, “We hate America...

"I first met these people at Harvard in the late 1950s. The issue has nothing to do with black or white. They hate America because America is the country based on freedom. They are not liberals. Neither are they democrats (with either a lower or upper case “D”).

"The formal name of these people is Social Democrat. This was a movement founded in 1875 in Germany to prevent the ideas of freedom and democracy from advancing across the continent of Europe. In 1912, the Social Democrats took control of Germany and fomented W.W.I. Then another Social Democrat, named Adolph Hitler, fomented W.W. II.

"...This will be the Presidential campaign of 2008. The Democratic position will be, “We hate America.” The Republican position will be mealy-mouthed compromise. And the people of the world run around killing each other over the food which does not exist"

There is little doubt in my mind that Barack Obama represents a fringe element. There is also little doubt that the Democrats who back him, such as George Soros and Warren Buffett, are anti-American bigots.

Howard S. Katz and Market Psychology

I had the opportunity to observe market psychology first hand during the past couple of weeks. My friend, Howard S. Katz, had called a market top in gold this past Monday when gold was about $950. He also called a bottom in stocks and shifted from gold stocks into construction stocks. The first few days after Howard's call, gold continued to go up. It hit $1002 toward the end of the week. The stock market had become very volatile as bulls and bears battled in response to Fed easing. Subscribers to Howard's newsletter contacted Howard to argue that he had called the top too early. I mentioned Howard's call to a few MBA students and they too argued that he had been too early.

It is very difficult to call a turn precisely, but to make it more so, social pressure opposes a correct call. The gold market indeed topped at about $1000 and the construction stocks are up about 50% since Howard's call. I'm not sure how he does it (he uses technical analysis which is Greek to me), and I don't believe that contra-opinion is necessarily right. Delusional markets can continue for several years or more. Look at politics.

One thing is certain. If you are right about a change in market patterns there is going to be alot of argument against your position and not too much social support. It takes confidence in addition to the rare insight. The insight alone is rare enough. The combination of courage wtih insight is difficult to sustain.

The same is likely true of ideas. It takes guts to tell the truth.

Howard S. Katz's Portfolio Returns 20% in Two Weeks

I have been subscribing to Howard S. Katz's newsletter The One Handed Economist for about 3 years. Howard tracks what a "conservative" portfolio. He bases his analysis on Austrian economics as well as technical analysis. The portfolio tracks from 1999. During this period the major stock indexes have gone up and down but now are not much higher than in 1999. In contrast, by the first week of March 2008 Howard's conservative portfolio was up about 115% over the nine-year period. Howard's latest edition came out a few minutes ago. In the past two weeks his portfolio went up better than 20%. It was about 215 in early March when he called a top in precious metals. He moved into several construction stocks which brought the portfolio up to 260. Wow! This was the kind of thing that until now I had read about but not directly experienced. Yay Howard!

Read this doc on Scribd: katz conservative

Howard Katz's Goldseek Article

Howard S. Katz has an interesting article in Goldseek. He writes:

>"Over the past few weeks, there have been dozens of forecasts in the newspapers about the possibility of a coming recession. In most of these, the forecasters have not been identified as anything more than “economic experts,” etc. What is going on is just a public relation campaign to convince the public that something bad will happen if we do not print money at a faster and faster rate. Usually no evidence is cited, just “experts say.” Sometimes there is an incredibly ignorant use of statistics whereby data which will be revised away in a few months is cited as authoritative. For example, the preliminary employment report for August ’07 showed a drop of 4,000. This was widely cited as evidence that the economy was heading for recession. Then the number was revised and is currently listed as an increase of 93,000 (very close to average for the year). No apology from the recession mongers. These people pretend to be scientists attempting to predict a recession, but in fact they are public relation shills, trying to convince the media to support a central bank policy of easy money and credit.

>"According to (Keynesian) economics, as it evolved over the 20th century, recession and inflation were opposite things. A recession was caused by not enough demand. Inflation was caused by too much demand. As noted, we currently have $900 gold and $100 crude oil. The CPI is advancing at the fastest rate in 17 years. The PPI is advancing at the fastest rate in 27 years. How, even in their own terms, can these people believe that there is both too much demand (“inflation”) and not enough demand (“recession”) at the same time?

>"Currently the stock market is being hammered down by propaganda about the coming recession. Of course, when the propaganda is successful and Bernanke completes his easing, this will make stocks go up. Those who listen to the recession propaganda and sell will sell near the bottom. It was precisely to deal with situations like this that the old timers made the rule, buy when there is blood in the streets. However, the rule should have been, buy when there is blood in the media because what is happening is not happening in reality, only in people’s minds. Again, in deciding on a massive easing at a time when the dollar was very weak anyway, Bernanke essentially threw the dollar out the window. The U.S. central bank has made the decision to trash its own currency. I don’t have to tell you that this means BUY GOLD. Unfortunately, most of our sources of information in this society are full of lies. Their purpose is to make the banks and their other vested interests rich, and to do this they have to make you poor. Believe the lies, and you are a loser.

>"In a very real sense, a recession is like an infestation of witches. It is an imaginary event. It can be listed with the belief of the Aztec Indians that, if they did not offer the Sun God a human sacrifice every single day, then the sun would not rise the following morning. The difference is that the Aztecs never knew what science was. A century ago our society did understand scientific method, and there is no excuse for letting that knowledge slip away.

>"So, dear reader, if you want to be a gold bug, then you must aspire to see reality as it is and not believe the lies reported in the media. This is my job at One-handed Economist (see my web site www.thegoldbug.net). Visit us, and see if I can make you a gold bug and put some extra money in your portfolio."

John "Zippy" Callister, Doug Ross and the MSM's Three Biggest Lies

Doug Ross has an interesting blog about John "Zippy" Callister's letter to the Wall Street Journal (courtesy of Larwyn). Mr. Callister had written to the Wall Street Journal complaining that while his portfolio went up during the eight Clinton years, the S&P 500 has done little during the Bush years (actually it has done alot if, as Howard Katz and I have done, you bought in 2002 and sold last year). Mr. Callister, publicly-spirited as he is, complains that he does not care about terrorism, overseas wars, social security or income tax:

"...But, a 100 point gain in the S&P 500 means about $50,000 in my pocket... It is odd that so many people forget the stock market boom of the late 1990s."

Doug is annoyed at Zippy, and rightly so, although Zippy's argument is more revealing about the Democrats and the mainstream media than Doug suggests.

According to my broker at Smith Barney, the S&P 500 is currently at 1409. If 100 points (7% x 1409) means $50,000 to Zippy, that means his portfolio is roughly $50,000/ .07 = $714,000.

Zippy suggests that his portfolio hasn't increased since 2000, so I assume it was $714,000 in 2000. In contrast, the Census Bureau says that the median household net worth in 2000 was $55,000. The median household net worth for households in the highest income quintile was $185,000. In 2000, only 27.1% of households owned stocks and mutual fund shares at all, and these had an average value of $19,268. 29.9% of households had 401k plans with average assets of $29,900. Thus, Zippy's household wealth of $714,000 put him well above the median for the highest quintile in 2000. That Zippy favors the Democrats is revealing of the the MSM's three biggest lies:

Lie Number One: The Democrats are for wage earners, not the wealthy.
Lie Number Two: Corporate interests reflect the public interest.
Lie Number Three: The stock market goes up because of general prosperity.

MSM Lie Number One: The Democrats Favor Wage Earners, Not The Wealthy

Conservatives and libertarians often wonder why the wealthy, such as George Soros, Warren Buffett, Nancy Pelosi and Zippy, tend to prefer progressive-liberals and Democrats. The "Red" states, it has been noticed, are concentrated where there are many trust fund babies and millionaires, while the "Blue" states tend to be poorer. This is chalked up to left-wing education. But progressive-liberal dogma is consistent with the economic interests of the wealthy. The reason is that the Democrats tend to be even more inflationary than the Republicans, who are also inflationary, just not so much.

Yet, the MSM repeats the claim that inflationary, high-tax, high-regulation policies favor the average American rather than the wealthy, "Red State" trust fund babies whom such policies do favor. Zippy is merely the bull in the china shop who reveals to us that selfish impulses do matter. The Republicans' policies help the average working man while the Democrats, who claim to be for the poor, help Zippy.

MSM Lie Number Two: The Stock Market Reflects The General Prosperity

Advocates of mainstream finance theories argue that markets are rational. This has a clinical sound to it. However, even if true, rational markets do not require rationally run corporations. In fact, most big businesses aren't run rationally. They require subsidies at public expense. Even if large businesses were run efficiently without the need for government welfare, their interests would not coincide with the general public's for several reasons. Laws that protect business from competition serve corporate interests but do not serve the public interest. Since the 1850s, business has lobbied, often effectively, for protectionism, regulation to rationalize markets, easy credit, lucrative government contracts and the like. Public waste is private profit. Stockholders of firms that benefit from wasteful government contracts, protectionism, regulation and subsidies become wealthier as the public becomes poorer. Joint gains are only possible in a market economy. Yet, the MSM repeatedly claims that stock market increases are good for the general public. This is not the case in a mixed economy where government subsidies are common. They are certainly good for Zippy, who is wealthier than average and who benefits from secular stock market increases. They are also good for government contractors. But they are not good for the average person.

MSM Lie Number Three: The Stock Market Goes Up Because of General Prosperity

This is perhaps the most pernicious lie because it encourages the public to harm itself. The chief driver of the stock market is interest rates. Interest rates are chiefly influenced by the Federal Reserve Bank. The Federal Reserve Bank can raise interest rates by contracting the money supply and can reduce interest rates by increasing the money supply, i.e., printing money. The advocates of printing money were known as Populists in the 19th century. In the twentieth century they realized that if they pretended to be scientists their self-serving claims would be more convincing. Thus, they packaged their argument for increasing the money supply in the garb of "science", calling themselves "macro-economists". The "macro-economics" that they advocate is in substance the same as the arguments of the 19th century Populists, who advocated greenbacks and free silver. The macro-economists claim that they can adjust the money supply at different stages of the economic cycle, but the Fed doesn't do this. Although the Fed has never done this, the "scientists" do not revise their opinions, and when they gain power they do the same thing that the Fed has always done, namely, they support the stock and real estate markets at the expense of the general public. The money supply has gone in one consistent direction since the Fed was founded--UP. The US money supply is 16 times greater today than when the Fed was founded in 1913.

Stock and real estate markets inflate along with the money supply because of low interest rates. But increasing the money supply has another effect, namely, because the number of dollars in circulation is increased at a faster rate than the value of output increases (a painfully difficult fact for progressive-liberal advocates of the large-corporations-are-rational philosophy) there are general price increases, i.e., inflation in food, energy, labor and other prices. Prices have indeed gone up by 3.5% on average since 1979. A dollar in 1979 is worth 38 cents today. The mother of three must pay more for milk and her children might be hungry, but Zippy and his fellow Democrats gets to pocket the increase, and he is happy.

In the past six years the price of gold has gone from $250/oz. to nearly $900/oz. Thus, although the Republicans may not have been as good at inflating the stock market as the Democrats, they have been much better at inflating commodity prices. Of course, neither party is different from the other because they are both following the same inflationary policy. They are the ReInflateoCrat Party (the In stands for Bloomberg Independent). Howard S. Katz argues that there is a commodity "pendulum" which causes first declines in commodity prices and increasing stock market prices then increases in commodity prices. Katz argues that we are only at the beginning of the pendulum swing favoring commodity prices and that we still have a decade or even two to go. This will be true whether Democrats or Republicans win.

In other words, the stock market increases of the Clinton years are desirable only to trust fund babies, the wealthy, Democrats and Zippy. They are not beneficial to the average American.

What is perhaps most telling about Zippy's letter is his simple-minded selfishness, a characteristic of today's wealthy that did not characterize the wealthy of the late 19th century. I attribute this to progressive-liberal education and the general triumph of progressive-liberalism, which is a philosophy of pretended altruism coupled with the devastation of the average American through taxation and other violent state policies that progressive-liberals gleefully depict as altruistic when they are mostly self-serving.

Howard S. Katz's "The Guy Who Pays Is You"

Howard S. Katz has an excellent blog this week at http://thegoldbugnet.blogspot.com. Katz argues that the banks' plan to bail out the sub-prime lenders, M-LEC, is merely a pretext for inflation by the Federal Reserve Bank. Katz argues that the only possible reason for M-LEC is to facilitate inflationary policy by the Federal Reserve Bank, and that the history of inflation is the history of economic decline.

The problem facing America today is inflation or depreciation of the dollar, but more fundamentally, the mentality that you can get something for nothing. Jim Cramer and many on Wall Street argue for low interest rates, i.e., currency depreciation, in order to stabilize the markets. But such terminology is just pretext for "subsidizing my stock portfolio". Where do the subsidies come from? They come from consumers who pay higher prices at the supermarket checkout because of the inflation that lower interest rates create.

Thus, we have a ninety year old policy of the average American's subsidizing wealthy investors through low interest rates and inflation. We also have a ninety-year history of opportunistic academics' providing bogus justifications for low interest rates, such as "full employment", even as Fed policies have stimulated robust stock markets that encourage top managers to think in terms of moving plants overseas to maximize their executive stock option holdings.

Katz is right that monetary depreciation causes misallocation of resources and economic decline. Why has it proceeded for so long? The answer is self-indulgence on the part of America's wealthy, a self-indulgence that parallels welfare in prior decades and the something-for-nothing mentality characteristic of liberalism.