Gold & Debt.
GOLDSAINT
Posts: 2,148 ✭
This is an interesting piece. I have heard alot about the Government unfunded debt lately but did not realize there was so much current public debt.I guess we best run our credit cards up and buy GOLD !
By Richard Russell
For The Gold Report
November 2003
www.theaureport.com
I believe gold (and very probably silver) will make fortunes for those who now take major positions in the precious metals. . .
So this is my position — I believe gold below and even somewhat above 400 dollars an ounce is dirt cheap. In view of the amount of Fed-generated fiat paper that will have to be churned out in coming years (it will be in the multi-trillions of dollars), gold is the cheapest thing around. The U.S. government, states, cities, corporations and individuals are currently loaded with $32 trillion in debt. On top of that, the U.S. government has additional unfunded liabilities of around $44 trillion, all of which will have to be financed.
For these reasons, it’s my thesis that gold at $400 an ounce is ridiculously cheap. As a comparison, gold today is less than half the price it was at its 1980 high.
I believe three or four or five years from now we’ll look back at today’s price of $400 dollar gold and ask ourselves, “Where the devil were we? What were we thinking about? Gold at $400 was cheaper than dirt. What didn’t we recognize this back in the year 2003?”
As I see it, this is one of those rare times in an investor’s life when he can buy an undervalued asset at a bargain price. This is a time when you can buy real money with fiat paper. At this time you can buy real money, gold, with “junk” fiat paper which is created “out of thin air” by the Federal Reserve.
Big profits have already been made by those who bought gold and gold shares two or three years ago. But that is nothing compared with what I see ahead — as the bull market in gold moves on. We are now in the accumulation phase of the gold bull market, This is the phase where seasoned, knowledgeable investors build their positions — even while the public and most neophyte “investors” are either ignorant of what’s happening or at a time when the public actually dislikes the very product which could make them a future fortune.
But the secret to all this is the necessity to ACT. Knowledge is wonderful, but in this business, knowledge isn’t worth a damn unless you have the courage to “pull the trigger” — to ACT. . . (November 15, 2003)
Here's my "take" on the big picture. As I see it, the primary trend of the stock market turned from bear to bull in 1974 and the great bull market continued in force until 1999-2000. Why do I put the bull trend that long? I do so because every bull market ends with a frothy, wildly-speculative third phase, and I don't believe the bull market that started in 1974 really saw a true speculative third phase ending until 1996 to 2000. That wild, frothy period ended the bull market.
If I'm correct on the above, then we experienced a bull market that lasted a record 26 years. Most bear markets tend to last a third to half as long as the preceding bull market. That suggests to me that the bear market that began in 1999 (1999 according to Dow Theory) should last eight to 13 years, or as a guess maybe about a decade. That could take the current primary bear market to around the year 2010, give or take a few years.
How about the manipulations of the Fed, won't those manipulations extend the bear market? My answer is that I really don't know, but I suspect that they will. In re-inflating the bubble to the best of their ability, the Fed has introduced many new excesses into the economy. Ultimately, I believe those excesses will result in a worse bear market than would otherwise have been the case.
Let me put it in Dow Theory terms. We went through the most speculative bull market third phase in stock market history. The years 1996 to 2000 took stocks to overvaluation levels that have never been seen before. In fact even now, following the most flagrant Fed manipulation in U.S. history, stocks are still chronically overvalued with the S&P selling at 30 times trailing earnings while yielding a piddling 1.70 percent.
The end result of all this will, in my opinion, result in the worst bear market third phase since 1932. Values at the final bear market lows will be as outrageously low as values were outrageously high during 1996 to 2000.
At any rate, this is the voyage for the markets and the economy that I see coming up over the next decade or perhaps even longer. The pain on this trip will be very high and the cost will be huge. But we've been enjoying a fabulous party for decades, and over coming years we and our children will have to deal with the extended hangover.
How do we protect ourselves against the coming hard times brought on by the bear? My only thought, and I've thought about this a lot, is real money -- gold. Gold, the metal, is the rock-solid island of safety. Secondarily, we have the gold stocks, which have the leverage, but also more of the potential risks.
The question is asked, "What else can I do or buy in this long bear market that you are talking about?
I wish I had some brilliant answers to that question. I guess the first thing that occurs to me is that you might buy some investments in currencies other than the dollar. It seems to be that the euro is fated to be a major competitor (let's call it an alternative) to the dollar. I've suggested this before but I'll repeat it -- I bought short-term German government notes denominated in euros. . .
Next I want to talk about silver. The world is using more silver now than is being mined. The U.S. government stock of silver is gone, and whatever silver is needed has to be bought from above-ground sources.
Silver hit a low of 3.51 back in 1993. From there silver advanced to 6.16 in May of 1995. Down went silver to 4.15 in July 1997. Then came the big rally to 7.40 in February of 1998. From there silver sank to a low of 4.11 in November of 2001.
All of which brings us to the present. Silver, like gold, is now on the move. In July, 2003 the 30-month moving average of silver broke above the 40-month MA of silver. That confirmed, for me, that silver was in a primary bull market.
To take it even closer, back in June of this year silver broke above its 200-day MA. On July 2 silver broke above its 50-day MA. Dec. silver rose to a high of 5.39 on September 25, then corrected sharply lower. Last week Dec. silver surged to a new closing high of 5.41, then backed off. This morning Dec. silver is selling at 5.33.
In the "old days" an ounce of gold would buy 15 ounces of silver. Over the years that changed, and on average since WW II an ounce of gold would buy 35 ounces of silver. But by September 1992 silver was so out of favor that an ounce of gold would buy 92 ounces of silver. The ratio changed drastically and by March of 1998 an ounce of gold would buy 46 ounces of silver.
Taking it to the present, in May of 2003 an ounce of gold would buy a whopping 80 ounces of silver. By July an ounce of gold would buy 67 ounces of silver. This morning one ounce of gold will buy 74.45 ounces of silver. Russell opinion -- silver is too cheap compared with gold, and in turn gold is just plain too cheap -- period. (November 18, 2003)
By Richard Russell
For The Gold Report
November 2003
www.theaureport.com
I believe gold (and very probably silver) will make fortunes for those who now take major positions in the precious metals. . .
So this is my position — I believe gold below and even somewhat above 400 dollars an ounce is dirt cheap. In view of the amount of Fed-generated fiat paper that will have to be churned out in coming years (it will be in the multi-trillions of dollars), gold is the cheapest thing around. The U.S. government, states, cities, corporations and individuals are currently loaded with $32 trillion in debt. On top of that, the U.S. government has additional unfunded liabilities of around $44 trillion, all of which will have to be financed.
For these reasons, it’s my thesis that gold at $400 an ounce is ridiculously cheap. As a comparison, gold today is less than half the price it was at its 1980 high.
I believe three or four or five years from now we’ll look back at today’s price of $400 dollar gold and ask ourselves, “Where the devil were we? What were we thinking about? Gold at $400 was cheaper than dirt. What didn’t we recognize this back in the year 2003?”
As I see it, this is one of those rare times in an investor’s life when he can buy an undervalued asset at a bargain price. This is a time when you can buy real money with fiat paper. At this time you can buy real money, gold, with “junk” fiat paper which is created “out of thin air” by the Federal Reserve.
Big profits have already been made by those who bought gold and gold shares two or three years ago. But that is nothing compared with what I see ahead — as the bull market in gold moves on. We are now in the accumulation phase of the gold bull market, This is the phase where seasoned, knowledgeable investors build their positions — even while the public and most neophyte “investors” are either ignorant of what’s happening or at a time when the public actually dislikes the very product which could make them a future fortune.
But the secret to all this is the necessity to ACT. Knowledge is wonderful, but in this business, knowledge isn’t worth a damn unless you have the courage to “pull the trigger” — to ACT. . . (November 15, 2003)
Here's my "take" on the big picture. As I see it, the primary trend of the stock market turned from bear to bull in 1974 and the great bull market continued in force until 1999-2000. Why do I put the bull trend that long? I do so because every bull market ends with a frothy, wildly-speculative third phase, and I don't believe the bull market that started in 1974 really saw a true speculative third phase ending until 1996 to 2000. That wild, frothy period ended the bull market.
If I'm correct on the above, then we experienced a bull market that lasted a record 26 years. Most bear markets tend to last a third to half as long as the preceding bull market. That suggests to me that the bear market that began in 1999 (1999 according to Dow Theory) should last eight to 13 years, or as a guess maybe about a decade. That could take the current primary bear market to around the year 2010, give or take a few years.
How about the manipulations of the Fed, won't those manipulations extend the bear market? My answer is that I really don't know, but I suspect that they will. In re-inflating the bubble to the best of their ability, the Fed has introduced many new excesses into the economy. Ultimately, I believe those excesses will result in a worse bear market than would otherwise have been the case.
Let me put it in Dow Theory terms. We went through the most speculative bull market third phase in stock market history. The years 1996 to 2000 took stocks to overvaluation levels that have never been seen before. In fact even now, following the most flagrant Fed manipulation in U.S. history, stocks are still chronically overvalued with the S&P selling at 30 times trailing earnings while yielding a piddling 1.70 percent.
The end result of all this will, in my opinion, result in the worst bear market third phase since 1932. Values at the final bear market lows will be as outrageously low as values were outrageously high during 1996 to 2000.
At any rate, this is the voyage for the markets and the economy that I see coming up over the next decade or perhaps even longer. The pain on this trip will be very high and the cost will be huge. But we've been enjoying a fabulous party for decades, and over coming years we and our children will have to deal with the extended hangover.
How do we protect ourselves against the coming hard times brought on by the bear? My only thought, and I've thought about this a lot, is real money -- gold. Gold, the metal, is the rock-solid island of safety. Secondarily, we have the gold stocks, which have the leverage, but also more of the potential risks.
The question is asked, "What else can I do or buy in this long bear market that you are talking about?
I wish I had some brilliant answers to that question. I guess the first thing that occurs to me is that you might buy some investments in currencies other than the dollar. It seems to be that the euro is fated to be a major competitor (let's call it an alternative) to the dollar. I've suggested this before but I'll repeat it -- I bought short-term German government notes denominated in euros. . .
Next I want to talk about silver. The world is using more silver now than is being mined. The U.S. government stock of silver is gone, and whatever silver is needed has to be bought from above-ground sources.
Silver hit a low of 3.51 back in 1993. From there silver advanced to 6.16 in May of 1995. Down went silver to 4.15 in July 1997. Then came the big rally to 7.40 in February of 1998. From there silver sank to a low of 4.11 in November of 2001.
All of which brings us to the present. Silver, like gold, is now on the move. In July, 2003 the 30-month moving average of silver broke above the 40-month MA of silver. That confirmed, for me, that silver was in a primary bull market.
To take it even closer, back in June of this year silver broke above its 200-day MA. On July 2 silver broke above its 50-day MA. Dec. silver rose to a high of 5.39 on September 25, then corrected sharply lower. Last week Dec. silver surged to a new closing high of 5.41, then backed off. This morning Dec. silver is selling at 5.33.
In the "old days" an ounce of gold would buy 15 ounces of silver. Over the years that changed, and on average since WW II an ounce of gold would buy 35 ounces of silver. But by September 1992 silver was so out of favor that an ounce of gold would buy 92 ounces of silver. The ratio changed drastically and by March of 1998 an ounce of gold would buy 46 ounces of silver.
Taking it to the present, in May of 2003 an ounce of gold would buy a whopping 80 ounces of silver. By July an ounce of gold would buy 67 ounces of silver. This morning one ounce of gold will buy 74.45 ounces of silver. Russell opinion -- silver is too cheap compared with gold, and in turn gold is just plain too cheap -- period. (November 18, 2003)
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Comments
Basically the fall issue of the 2001 newsletter told us that a gold
wave was well on its way along with some serious challenges to the world's finances.
Topics in this area concerning gold have been tossed up on threads before but like 99% of the public, no one still cares. I'd bet 95% of the forum members are in that same group. That is, the economy is fine, we're recovering, things always improve, we'll come out of this ok because we "always have." There's a lot more analysis that needs to be done on every American's part before you simplify your reasoning to this level. I too did the same thing. Though it bothered me for years why I couldn't explain why gold never went anywhere anymore. Why coins took so long to recover after 1982 and 1990.
I've seen Richard Russell's articles over the past 2 years on several of the hard asset web sets. My favorites: www.jsmineset.com, www.safehaven.com or www.321gold.com or www.financialsense.com. These 4 sites have kept me well informed on currency, stock, commodities, trade, etc. issues. Mr. Russell is one of the most well-respected advisors in the group. I look forward to reading every one of his articles. It's good to see him post here. Most surprising too. And most welcomed. I'd read this same article on 2 different sites already. And Mr. Russell is only one of dozens of respected writers saying the same thing.
Welcome aboard Mr. Russell. If your message gets through to just one or two more people out of the 11,000 reg users on this site, it will have been worthwhile.
roadrunner
Timing is the crucial element. There is no certainty that any specific commodity has to go up when
currencies are under pressure. Gold certainly is more likely to go up than most commodities were
an attempt made to bring the debt under control at this time.
However, it is unlikely that now is the time. Sure gold is increasing but these increases appear to
be the result of an unwinding of a concerted effort to manipulate gold prices. While the staggering
debt and deficits are the trigger for the unraveling positions it is improbable that this is coming to a
head now. The economy is expanding and this will likely increase as productivity returns to a more
normal post recessionary enviroment. To get any tremendous increases in gold prices now will require
significant inflation which will return with a vengence at some point in the future, but not until the con-
sumer has recovered and business and manufacturing are expanding again.
There is no certainty that the collapse of the dollar will ever occur. The debt can be rolled over indef-
initely until inflation has mitigated it to the point that it is no longer dangerous. The dollar is far more
stable than it was ten years ago.
Several major countries have been selling out of our treasuries like mad realizing the return just isn't there. If China should stop picking up our tab (debt) I don't foresee good things.
I'm no currency expert but how is the dollar stable when it has been a fast slide over the past year or so? You could say it's been in a general free-fall. How is this trend stable? Seems to me the current situation is the most unstable it could be. And the health of our dollar is in the hands of China, India and Japan. And now we are placing tariffs on our goods to make investing in the US debt even more difficult. I just don't get it all as it seems like we steer our economic engine based on political cycles (elections) rather than
for the good of the economy.
roadrunner
As anything decreases in value it allows those who do see value to aquire more of
it for the same cost. The dollar's slide has many causes but it too, will halt, stabilize,
and reverse at some point.
The dollar too, was artificially being held up to prevent more chaos in the financial up-
heavals of several years ago. Note that the dollar is still well above its lows. This is
unlikely to continue but it seems very early to worry about this particular trend.