Also see new article at:
Best of Doug Noland
See article by Theodore Butler at the end of this essay.
WHO’S KIDDING WHOM?
By James R. Cook
The other day I was showing my grandson some old comic books I owned. “Grandpa,” he asked, “did comic books used to cost a dime?”
“Yes they did.”
“What are they now, Andrew?
“Two dollars and a half.”
No, that’s what they cost.”
Once in a while, when you haven’t checked the price on something for many years, you get hit between the eyes with sticker shock.
Last week, as an example, friends took my wife and me to the basketball game. It’s no secret that pro basketball tickets are expensive, and the dinner I paid for before the game was also rich. It was after the game, when our friends wanted to stop for a drink, that I got another case of sticker shock. I haven’t been in a downtown pub for two decades and I was only there now to be sociable. We ordered three mixed drinks and a beer. My wife slipped me two twenties and I was going to give the waitress one of them to cover the tab, but then I thought I might need some change and I gave her both twenties. A few minutes later she returned and handed me a dollar.
“Did you already take your tip out,” I asked.
I was dumbfounded! “How much were the drinks?”
“Thirty-nine bucks,” I exclaimed after the waitress left.
Nobody else seemed to think much of it, and I concluded it was an example of the kind of sticker shock you get when you don’t keep abreast.
These little episodes only strengthened my opinion that the government misconstrues and misrepresents the inflation rate. It’s currently much higher than they tell us and it has been for years. Furthermore, the pace of inflation is quickening. How else do you explain the dramatic escalation in costs of so many things? When I was a young man I sold insurance. An auto policy cost $100 a year. Now a family with a teenage son pays $500 a month. Health insurance for a family of four runs $600 a month. How can the government represent that we have low inflation?
That’s not the only bogus economic statistic. It’s hard to believe that the economy is growing when you hear daily stories of economic misery. We know a man and wife who both lost their jobs in the same week. The recruiter who specializes in their field told them there are no jobs and he will have to close his recruiting business soon. Our dentist, who specializes in root canals, put his $1.25 million home, in a posh, gated community, up for sale six months ago. He intends to move into a townhouse. Dentists who previously referred root canal patients to him are doing this work themselves because they need the business. We hear stories like this all the time, and when we interview new job candidates, we hear only about layoffs and contraction.
Talk to airline employees, travel agents, hotel and motel owners, ad agencies, cab and limo drivers, and you hear the same story. The government economists would dismiss this as apocryphal evidence, but to me these stories trump their statistics. Business spending is in the tank and it’s weighing down the economy. With no good news on profits and megabillions funneling overseas, the chance of an upturn appears slim.
Federal Reserve board member, Ben Bernanke (of printing press fame), was in town last week. He said business spending would soon recover because corporations were restructuring debt. In other words, they were borrowing more. The problems afflicting the growing list of troubled corporations stem mainly from too much debt. The Federal Reserve seems to encourage adding debt to stay afloat. Mr. Bernanke also stated that consumers had improved their financial condition because they had borrowed against their home equity. One hopes the newspaper that carried this story misquoted what he said. The idea that you’re better off through additional borrowing makes us wonder if the Federal Reserve has slipped its moorings.
The Fed, like everyone else on Wall Street and in Washington, continue to foster the illusion that all will soon be well. Yet the economic statistics tell a different tale. Unemployment continues to rise. Manufacturing weakens once again. Inflation at the wholesale level escalates alarmingly. The trade deficit hits a new record despite a weaker dollar. At a time when the world looks askance at our military role, and America’s popularity wanes overseas, we flood the world with dollars. Since they don’t like us, might they also begin to dislike the dollar?
The litany of our problems: low savings, falling profits, huge deficits, meager capital spending, overborrowing, falling markets, over-consumption and inflating, coexist with brand new geopolitical risk. If this helps provoke a faltering dollar, it could literally sink the American economy. We don’t know the future. But there’s a real chance of a financial crisis of such enormous magnitude that it dwarfs anything in history. The pieces are in place for a panic and crisis. The more you look at today’s economic scenario the worse it gets. Now is the time to have 10% of your net worth in precious metals. We are on a slippery slope and losing ground. Remember that the government, with its gargantuan deficits, also guarantees, subsidizes and insures everything in sight. As the pain increases, they must expand the level of money and credit, or die trying.
The Fed and the government know only one prescription – raw inflating. If somehow they manage to turn the economy around, it will be by debasing the dollar. Under any future economic circumstance, precious metals should be the greatest beneficiary. It looks ugly going forward – depression or inflation, or perhaps both. Get over the idea that stocks are going to come soaring back. It’s time to play defense, to hedge, to protect what you have and to offset the certain ravages to the dollar. Listen to our very modest advice to put 10% into gold and silver. It’s quite possible that you’re not going to get a second chance.
When I started this company over 30 years ago, the big name in silver was the Constitution Mint. Unfortunately, they guessed wrong in silver futures and went bankrupt. Many bullion dealers get caught up in futures trading and go broke. Frequently they take their customer’s money and their metal down with them.
When gold started to rise in the late 1970s, my main competition was Jonathan’s in Los Angeles. They would sell Krugerrands for a buck a coin markup and beat everyone’s price. Jonathan even had his own radio program. When he eventually failed and was charged with a crime, I was not surprised. It’s hard to run an honest business without charging enough to make a profit. That’s why 90% of all coin dealers fail every decade. Invariably they take many of their customers down with them. I can count at least fifty coin dealers who have failed in the city of Minneapolis (and suburbs) since I began our business.
Another company that flourished in the silver business was Bullion Reserve. Everyone used to tell me how smart their president was. One time, a PR guy I knew in California called me to tell me how smart the Bullion Reserve president was. It was like, “too bad you’re not as smart”. It got old hearing about the guy. One day he brought his motorcycle inside his house, into his rec room. He hooked a hose up to the exhaust and ran it into his sauna where he sat until it killed him. When they audited the books, investors were out sixty million.
Then there were the Alderdice brothers in Fort Lauderdale. They operated International Gold Bullion Exchange. What a splash they made. They had a bunch of railroad ties in their vault painted gold that everybody thought was bullion. They sold gold 4% under spot, but they held the gold for six months. I knew it was a fraud from the get-go. I wrote the SEC, the State securities department of Florida, the Federal Commodities Trading Commission, the Wall Street Journal and Barrons, where they advertised, and numerous others. Nobody responded. Unfortunately, most of their customers never got any gold. The loss to investors was supposedly 200 million.
I mention all this because the other day a man called to tell me he bought 15 one-thousand ounce bars locally and the dealer was storing them for him. The chance of this dealer lugging around eighty-pound bars and actually having them in stock are remote. Time and again, I’ve heard these stories. I know the pitfalls because I’ve been asked to help hundreds of investors get their silver back, all to no avail. When the bullion market heats up, as it appear to be doing, the marginal operators spring up like poison mushrooms in the spring. And the established shops never seem to learn. You cannot name any other company that has survived for thirty years and continues to flourish in the bullion markets. Not one. Half the battle for us, and for you, is not doing anything stupid. Follow our advice closely and you will be okay. You will never ride the bullion markets up and then find out you have nothing, as so many have done before you. We are looking out for your interests and that’s as straight forward as I can make it.
* * * * * * * * * * *
The Little Guy Hangs Tough
By Theodore Butler
During the past three months the US Mint has reported sales of over five million Silver Eagles, the most, in my memory, of any three-month period in the seventeen-year history of the program. What makes these sales different is that the Mint has been buying silver on the open market, having depleted U.S. Government holdings for the first time in the country’s history. It’s hard to imagine a more bullish situation.
Confirming the strong retail silver demand is the position of the small trader in COMEX silver futures. Even after a 10% decline in price, the little guy is holding the largest net and gross long position in almost seven years. In the latest Commitment of Traders Report (COT), the small trader has become the largest long category, with a bigger long position (around 33,000 contracts or 165 million ounces) than the large speculator and commercial category. That’s more than all the visible silver bullion inventory in the world, a situation that has never existed in any other commodity. It is incredible and unprecedented that the small trader is hanging so tough on the long side of silver. Unlike the mechanical, technical funds, who buy and sell purely on price signals, the small trader is looking at something else. My guess? He’s looking at the real situation in silver on a supply/demand basis. The little guy has done his homework and is very well informed. In this case, I think the little guy is the smart money.
In my opinion, this strong retail demand and large futures position of the little guy just might bust the silver manipulation wide open. It is so much better that it is the little guy, rather than the big guys, doing the big buying. That’s because the little guys are like an army of ants. They may swamp the big manipulative shorts. If a big long trader tried to muscle the market, he would be quickly put in his place by the authorities. But how do the authorities try to force the little guy out, especially after the CFTC wrote that anyone was free to buy and take delivery of COMEX silver if they thought the price was too cheap? These small traders are acting independently, after having done their homework. As a result of their study and conviction, the little guys are about to get a very good grade on that homework. Better than A+.