Gold bubble? What bubble?

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    Dollar Woes

    The dollar is plunging. Will foreigners sell the $1.69 trillion in US stocks that they own? We believe a good many will, which can only mean lower prices. In the last quarter import prices were off 2.3% down for the 5th quarter in a row. This is deflationary. This is what we explained four years ago. Free trade brought cheap goods to America suppressing inflation. That plus has become a burden as imported goods' prices continue to cause deeper deflation, which is offsetting the inflation caused by monetary inflation created by the FED's increase in monetary aggregates. This is why we are headed into a deflationary depression. This is why George Bush began to erect trade barriers for steel and plywood. We were told free trade, at least for now, must end, because it feeds deflationary forces. But it's too late; free trade cannot be reversed quickly enough. Irrespective the elitists have to attempt to alter free trade otherwise they lose control and the goals of world government will have to be abandoned at least for now.

    The once mighty dollar plunges and Japan struggles to keep the yen from appreciating by massively buying dollars in the market. They have so far sold nearly $20 billion in yen to stem the collapsing dollar. The Japanese just don't get it. The elitists want the dollar to decline in an orderly fashion because they can no longer control it. What else would you expect fiat currencies to do?

    Lo and behold JP Morgan Chase says the dollar may drop 15% in the next two years. They say foreigners may hesitate to invest in the US on concern that there may be more terrorist attacks. They are only 10 months to late. However, it is important they have conceded 15%. Although many currencies have already gained 8-10% on the dollar. We say 20% by year-end and lots more next year. They also expect a sluggish economic recovery but again they are a year late. JPM is looking for the dollar at $1 to $1.05 per euro and 105-110 on the yen. These are achievable goals.

    No one wants to talk about it, but foreigners repatriating capital will not only put downward pressure on stocks but also on bonds, which means higher interest rates. The dollar will decline 20 to 50% over the next three to five years. Stocks have been hit and will get hit much harder but investment-grade and US agency securities thus far have faired well. In the first three months foreigners only bought $48.64 billion in corporate bonds, which if annualized would be $194 billion this year. A continued declining dollar could easily take that figure to $80-100 billion. Foreigners bought $30.079 billion in agencies in the first three months, annualized that¹s $120 billion. That could end up at $30-40 billion. If the dollar drops 12% more to go along with the current 8% drop, interest rates would have to drop to add bond gains to the yield just to hope to come out even. This will never happen. Yields will soon rise 1/2% and then more as presently invested funds leave. Stocks and corporate bonds will get hit the worst followed by the agencies. Later agencies will drop due to a collapse in the residential real estate market that could easily make 20% of their outstanding mortgages go into default.

    Foreigners are not going to fund $400 billion in current account debt of 5% of GDP. We see present bondholders and stockholders selling and little fresh money coming in. We've been writing about this scenario for a year and it's now happening. Another reason for foreigners to remove their assets from the US is the Patriot Act, which governs everybody who touches money. There'll be demands for personal data, social insurance numbers, addresses, telephone numbers and e-mail addresses. What this means is foreigners believe that it is none of the US government's business and rather than submit to fascist regulations they'll simply remove their funds and perhaps bring them home and invest in gold.

    We believe investors should be looking at the end of the game, the sum of all its parts. Gold has been suppressed and the stock market is being allowed to fall in order to implement world government. If you want to help expedite that end sell your gold related assets. There is more to this than just profit. The higher the gold price goes the harder it is for the elitists to accomplish their ends. Go ahead and take the money and run, unfortunately it may cost you your freedom. The same people who sell believe the propaganda that gold is in a bubble. How can that be its only gone up $50 an ounce after languishing for 16 years? To entertain such thoughts is ludicrous. This is the same crowd that didn't get you out of the market at the top, which we did. The same cabal that rigged markets and screwed the public. How could any sane person listen to the losers and they are losers? Producer reserves are plummeting and many of them are short tons of gold. There has been no exploration for five years. We don't even know if some major central banks or countries have any gold at all. Unless gold prices go over $400 an ounce many more mines will be shuttered. That's a product also of high grading, which many companies have been doing for years. If the only guideline for the price of gold were supply and demand everything would be easy. The problem is the world financial system is in systemic decline and few understand the problem. You put this all together and you do not want to be out of gold. By the way we haven't even factored in terrorism and perpetual war for perpetual peace.

    Investor pessimism is running very deep as the stock market prepares to fall to new depths. Once 8200 is broken the market will be compared to 1973. At 4500 will come the 1929 comparisons. Then new lower territory. The retreat has been relentless for five weeks as the bear market rally loses its underpinnings. Investors and the general public have lost faith in Wall Street and government and now corporate scandal has decimated the business community. Only the professionals don¹t realize stocks are vastly overpriced. Corporate malfeasance and fraudulent accounting reigns throughout industry. Nasdaq is off 70% from its high of 5132. Where are those geniuses who got no one out? We see 500 in our crystal ball. Venerable John Templeton says that stocks are overpriced the world over, and suggests investors wait for the current psychology to turn positive. World equity markets have been infected by the "great insanity of America," with stocks trading at double their historical yield, earnings and other measures of a company's value. Stocks are definitely in distribution as NYSE volume has mushroomed to 1.2 billion shares, up 52% from January as stocks fell 15%. Corporate insiders are major sellers.

    Abby Joseph Cohen, of Goldman Sachs, says the S&P is more than 20% undervalued. We'll have to find out what she has ingested so we won¹t make the same irrational choices. She is one of the reasons investors lost over seven trillion in the US stock market. She is typical of the tragedy of our time.

    Gold Scene

    The FED has completed its monetization of 9/11 as it has done in every crisis since 1987, when they not only force fed aggregates, rigged the stock market, but also destroyed the gold market knocking it down $100 an ounce in one day. We expect once the FED is again forced to raise rates then the monetary spigot will again be opened with greater force than ever. That will not make the economy recover; it will send the stock market lower and gold higher. The ongoing complicating factor is perpetual war for perpetual peace, which is economically unproductive and will create massive unsustainable debt. Even risk and political uncertainty is tailor made for higher gold prices, so you cannot be out of gold and silver related assets. If for no other reason than what George W. Bush will do next in the elitist plan for world government. And all of you out there who know and see a conspiracy and cannot recognize its ultimate goal of world government are either afraid to be politically incorrect or you are dumb.

    This time the FED and other central banks have no intention of printing their way out of depression. They want it and they have planned it. The rest is disinformation and psywar. We will end up like Argentina and you can take that to the bank, unless the mobs have burned it to the ground. Another undiscussed factor is the dollar crisis has made the euro, that political unit, viable because it has 15% gold backing. We don't know what gold dollar backing is, our government refuses to tell us. Since the planned event of 9/11 the reason to hold gold and silver is more important than ever. The elitists have made the world a very unstable place. The program of war in the Middle East has shifted dependency of the US and Europe for oil from Saudi Arabia to Russia. This is a major mistake. The name of the enemy may no longer be Soviet but Russia is still the enemy. They have been arming themselves to the teeth for the past ten years, massive underground facilities and all. All currencies are suspect, now even the dollar. If you remember bad money drives out good and so it will happen again as it has for centuries. Americans are going to pay a terrible price by not having a currency guaranteed by gold. That means Americans have to use their own initiative and use their fiat dollars and buy gold related assets.

    Last week the gold manipulators pulled another stealth attack overnight in Australia with a follow-up in London. They then pounded the US market but could not put the gold price under $318 an ounce. JP Morgan in an attempt to look unbiased predicted a price in 2002 of $305 and in 2003 of $310 to $325 an ounce. This of course is disinformation, but it does show the gold cartel has given up trying to keep prices under $325 an ounce. The anti-gold propaganda as we predicted is all over the media, 99% one-sided. If anything, they have to fight the growing notion that gold has resumed its safe haven role. This, while the dollar declines and gold production falls. In 1999 the gold producers hedged over 500 tons, but this year they will probably buy in 400 tons. That effectively takes 900 tons out of the market a swing of 23% in a total market of 3,850 tons. The best part is that the hedgers have just begun to cover. Between them and the shorts we are looking at 15,000 tons. The ball has started rolling and it is only going to pick up momentum. The momentum has shifted and those hedges and shorts have finally given gold an underpinning it hasn't had since 1985. Producers know no matter how much they make hedging it won't stop the investing public from not buying or selling their shares and that is what this is all about. Share price appreciation. The hedgers are in a zero sum game they cannot now win.

    Small and medium sized central banks have no gold left to sell or hedge. The only leasors or derivative participants left are the major central banks and leasing due to low interest rates is no longer viable. Now that gold is firmly in the low $300's many new participants have entered the long side of the market. Thus we see much higher gold prices. You do not want to be out of this market. Those who trade out could get left behind. An absolute worst-case scenario for gold over the next year is $512 an ounce. We are headed toward a lower stock market and lower bond prices due to lack of earnings and higher interest rates and when historically these things have happened, gold has moved higher. As the dollar devalues and deflation expresses itself the price of gold has to rise. Remember gold is a currency and it becomes the only refuge in the flight to quality from the dollar. In holding gold shares, bullion and coins don't attempt to trade the market unless you are a professional. Go long and stay long. You only trade in the futures and options arena and again if not a professional get first class assistance. Foreign capital is fleeing the dollar and there are few real viable alternatives and gold is one of them. The trend in gold is up and the trend is your friend.

    Anglo-Gold continued to reduce its hedge book by 52 tons in the first quarter and 53 tons in the previous quarter. That puts a floor under current prices.

    Word is the Treasury sold $52 billion worth of gold in the first week of June. We love our country, but we despise our government.

    The average monthly increase in gold prices over the last 13 months was 1.7% versus a 3% monthly gain in the late 1970¹s. This surely is no bubble, as Wall Street would have us believe.

    June 15, 2002

    An international financial, economic, political and social commentary.
    Published and Edited by: Bob Chapman
    Robert Chapman [email protected]

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