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Sobering Lesson for the World as Gold and Silver Set to Explode Higher

Commodities / Gold and Silver 2010 Sep 20, 2010 - 03:12 AM GMT

By: Howard_Katz


Best Financial Markets Analysis ArticleAs the old expression has it, there are: “None so blind as those who will not see.”

The world is about to get a sobering lesson over the next year or two as the precious metals markets move explosively to the up side.  As happens so often in the affairs of men, reality is there in front of us just sitting and being itself.  Yet so few of the species homo sapiens can see it.

I have presented an alternative explanation for the blind stupidity of the Keynesian “economists” and their almost perfect record of being wrong.  On March 9, 1933, Congress gave the commercial bankers the special privilege to create money out of nothing.  Immediately the money supply began to increase, and today the price level is 17 times what it was on that day.

Since the bankers could now make loans (receiving interest) without paying for capital (as the old fashion savings bank or S&L did), they naturally had a strong interest to do so.  They immediately began to fund a group of “economists” who emerged to defend the thesis that creating money out of nothing was the “road to plenty” for a society.

Creating money had been tried many times in many different countries, always with the same result.  Prices went to the moon, and the society got very poor.  The most recent example of this was Zimbabwe where life expectancy dropped from 60 years to 40 years over a decade, a figure which explains the photographs of human skeletons and the official unemployment rate of 95%.  By comparison, the two most successful countries in world economic history are Britain (including the Commonwealth) and the United States.  And these are countries which maintained a strict hard money standard for over a century.

The “economists” who apologized for paper money and served the commercial bankers were a collection of phonies and frauds.  Most prominent here were two American economists named William Trufant Foster and Waddill Catchings, who wrote a book in 1928 entitled, “The Road to Plenty.”  In the 1940s, the bankers realized that something had to be done, and they embarked upon a campaign to buy titles for these crackpot economists.

But first a British pedophile (John Maynard Keynes) “improved” the Foster and Catchings fraud by employing a technique I call the wolf in sheep’s clothing.  Here the wolf consists of a group of people in politics or economics who wish to go back to the way things were in the Middle Ages.  The proper term for such people is reactionaries.  The sheep’s clothing is a disguise these people adopted to pretend to be in favor of science, liberty and progress.  When you see words like “new” or “progressive,” then you are dealing with the wolf in sheep’s clothing.

Keynes plagiarized the Foster and Catching theory, called it “The New Economics,” and presented it as the latest word in the modern science of economics.  The bankers then entered and literally bought fancy titles for their favorite “economists” so that these could use the prestige so gained to influence the country in favor of paper money.  The classic case here was when the Manhattan Bank (later Chase Manhattan) bought a chair of economics for John Kenneth Galbraith at Harvard to provide a platform from which he could present his paper money theories and serve the interests of the bankers.

This is a fantastic picture.  The entire institution of higher learning in America was bought out by the bankers.  They took the bankers’ money and sold a pack of lies to the American people.

Actually, I have written a book on the wolf-in-sheep’s-clothing tactic (The Wolf in Sheep’s Clothing).  It is scheduled for publication soon by the Foundation for Economic Education and Harper Collins.  It is the story of a gigantic fraud which has deceived our entire society and come close to overthrowing freedom in America.  A group of reactionaries (people who want to go back to the past) are pretending to be advocates of progress and have pulled the wool over the eyes of all of the people.

Once the banker “economists” infiltrated into our higher education system, it ceased to be education, and the teaching of economics became a joke.  If you take an economics course in 99% of all American institutions today, you will be taught a pack of lies, not just any lies but precisely the lies designed to support the bankers’ privilege to create money.  You can hear a good many of these lies any time Bernanke opens his mouth to speak.

Now when economics was a science (prior to the 1930s), the basic thing that economists did was to make predictions.  Prediction is the basic tool of science.  If you have a true theory, then you use it to make a prediction, and when the prediction proves correct, then this is supporting evidence for the theory.

Naturally, when the banker “economists” came in during the 1940s, they established an unparalleled record of failed predictions.  The year I entered Harvard (1955) John Kenneth Galbraith went to Washington and testified before Congress that the stock market (DJI 420) was in danger of another 1929.  He caused a panic as speculators in the market rushed to sell their stocks, driving the DJI from 420 down to 400.  It then turned and rose for the next 11 years, hitting DJI 1,000 in 1966.  There was no repeat of 1929.

We had a more modern example of this foolishness in late July.  After a decline in the gold market through late July, Alan Abelson of Barron’s predicted (on July 26) that the price of gold was ready for a substantial decline.  Gold declined for exactly one day as Abelson’s readers rushed to sell.  You know what has happened since that time.  Gold turned on a dime.  The breakout created on the 27th proved false, and it is now at $1,275.  Abelson’s readers are sitting there with their mouths agape.  They sold their gold at the exact bottom.

Now certainly people can make mistakes.  The progress of science is full of them.  But when a scientist makes a mistake, he observes it and admits it.  When a banker “economist” makes a mistake, he hopes the public will not notice, puts a good front on it and uses his title to get away with it.  I have often referenced Henry Kaufman’s prediction of higher interest rates and a depression in 1982.  I happened to catch Kaufman on a talking head TV show around the turn of the century.  There was the host obsequiously kissing up to him and not one mention of the fiasco of 1982.

I was screaming at the TV set.  “What about the depression?  What about the high interest rates?”  Kaufman got millions of stock market traders to sell their stocks with the DJI under 800.  It was the bonehead play of the century.  But the host continued smoothly on.  “Oh yes, Mr. Kaufman, what is your opinion of the coming year?”  To heck with the coming year.  How does he explain his prediction of 1982?

I have detailed in these articles many other bonehead predictions such as the Great Depression of 1990 and Dow 36,000 (by 2003-05).  Why are all these establishment “economists” making one wrong prediction after another – throughout their entire lives?

The answer is very simple.  They don’t know anything about economics, and they don’t care.  They are hired agents of the bankers, and their impressive titles are intended to get the sucker public to believe any absurd thing they say.  Their most common error is; to predict “deflation” because they are trying to get the Fed to print money.  When the “deflation” does not happen, they shrug their shoulders, hope you will quickly forget and go about their business.  They are confidence men, not economists, and as long as you are stupid enough to believe them, they will continue to lie to you.

But consider the tremendous position that puts us gold speculators in.  The last employment of the “deflation” lie occurred in 2008, and virtually all of the media joined in.  The fools who believed the lie rushed to sell commodities in the last half of the year, and the CRB index fell in half.  But despite this artificial self-confirming effect we have still not had one year in which the Consumer Price Index declined.  “Deflation,” where is thy sting?

And even as all await the “deflation” with bated breath, commodities are gathering strength for a second move up.  Gold has broken out to new highs.  Silver has broken out from an ascending triangle.  Wheat and corn are on the move.  Coffee is at new highs for the century.  The CRB is gathering strength for an attack on the July 2008 high.  The charts are not predicting “deflation.”  The charts are predicting “inflation.”

So here are all the traders in the world taken in by a lie, the exact same lie which has been used to take their money over and over and over.  Here are all these stupid people rushing to give their money to us, and all we have to do is to reach out our hand.

And what it all comes down to is that, if you want to be a good speculator (or a good person), then you have to see reality as it is.  This is easier said than done.  These five little words contain a crucially important moral virtue.  To actually follow them requires a lot of work.  You must draw your own conclusions in defiance of what the people around you believe (and are trying to shove down your throat).  This is the virtue known as contrary opinion.  You must put your emotions aside and believe what is true, not what you want to believe.  Emotions are great things, but a strong emotion can cloud the mind.  If you try to suppress the emotion, it will just get stronger and come out in ways of which you are not aware.  What you must do is to tell your emotion to temporarily stand aside.

I often find it effective to simply talk to my emotions (as though they were a little person inside of me).  For example, I might say, “Avarice, stand aside for a while.  I need to think clearly if I am going to be able to give you what you want.  You are a beautiful woman and should be given fine jewelry and pretty clothes.  But if I am to accomplish this, then I have to see reality as it is.  When I have made my big score, I will invite you back, and we will have great fun together.”  Ditto, ditto for the emotion of fear (which in the markets is very powerful).

Incidentally, Keynes’ views on fear and greed, like everything else the man said, are garbage.  Markets are not made by cycles of fear and greed.  An easy way to see this is with the auto stocks (more so with the housing group).  They characteristically develop very low P:E ratios at stock market tops (and high P:Es at market bottoms).  Wait a minute.  If the market puts a low P:E on the auto group near a market top, is it committing greed?  No chance.  If market tops are caused by an irrational desire for money, then why are auto stocks (one of the big movers) showing lower P:Es at the top?  This is rational behavior, not irrational.

What, in fact, causes stock market tops is government intervention (via the Fed).  When the Fed eases (as in 1982 and 2008), stocks form a bottom.  When the Fed tightens (as in 1987 and 2006), stocks form a top.  I have known this for 41 years.  It has enabled me to predict 90% of all bull and bear moves in the stock market.  I have been writing about economics for all of this time.  Wouldn’t you think that somewhere, someone would have caught on?  How about when I predicted Black Monday on October 19, 1987?  On that day, the DJI fell 22%.  All these people lost a big bundle that day (as they will lose more bundles in the future), but no one woke up to see reality as it was.

None so blind as those who will not see.

I would like to appeal to the rational speculator who tries to see reality as it is.  For this purpose, I publish a fortnightly newsletter, the One-handed Economist.  This is dated every other Friday and sent out (via regular mail and also posted on the website, password protected) the next day.  The cost is $300.  If you would like to subscribe, go to my web site: and press the Pay Pal button.  Or you can subscribe via regular mail.  Send $290 ($10 cash discount) to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.

The One-handed Economist is designed for people who have made the decision to see reality as it is.  To support this decision, I have taken my 45 years of market experience and formulated principles of correct speculation (such as the application of Austrian theory economics to the markets, charting theory and the commodity pendulum).  With each issue, I make judgements on what are the best goods to speculate in at the current time and then make specific recommendations (right now including both stocks and commodities).  The most recent (Sept. 17) issue recommended a shift from gold to silver.  I have been keeping a running Model Conservative Portfolio since the beginning of the century.  It started with (a theoretical) $100,000, and this week it hit $210,000.  By contrast, the average U.S. equity fund is about unchanged over the same period.

Thank you for your interest.
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