richard russell

  1. 1,380 Posts.
    November 3, 2003

    "We pretend to pay them, and they pretend they're getting paid." That's the real story of what's going on in the financial world today. Think of it, the US taking in billions of dollars worth of merchandise and services -- and paying the sellers with paper that the Fed grinds out at will -- in any quantity needed.

    It's "monopoly money," and our foreign friends know it. But if they know it, then why in God's name do they accept our fantasy payments? They accept it simply because they're willing to keep playing the game. Our foreign friends take in our junk paper, and then they turn around and invest that paper in US Treasury bonds or in other US assets such as businesses, real estate, land, armaments, you name it.

    It's a giant scam -- with a difference. The difference is that the scam-ers and the scam-ees both accept it. It's the ultimate insanity of the central bank system, and the ultimate victims will be those who count their wealth (assuming they have any savings) in financial items.

    As the scam continues, an increasing number of sophisticated investors will see through the scam, and they will move to insure their wealth by buying tangibles with their monopoly money. The tangibles include homes, precious stones, art objects, jewelry, collectibles, and above all -- gold.

    Let me put it this way -- we're entering a period where the lust for financials will gradually evolve into a lust for tangibles. We're early in this "transfer," and it will intensify in the months ahead.

    The flagship for the tangibles is gold -- gold because it's priced in all currencies and is quoted every minute and every hour of the day. Gold because gold has a 5,000 year history of being accepted as real money. Gold because it's accepted without question anywhere at any time any where in the world.

    Rising gold constitutes a dreaded red flag to the central banks. If the price of gold is rising, the obvious question arises -- "Why are people trading our pretty fiat currencies that pay interest -- trading them for gold that pays no interest?"

    This is the question that frightens the central banks. If frightens them because they know that a rising price of gold is telling the world that acceptance of paper currencies is coming into question.

    So I'll repeat it -- we're in the early stages of a trend away from financials and into tangibles.

    In my experience, these primary trends always take much longer than anyone thinks possible -- and ultimately, the go much further than anyone thinks possible. This applies to the stock market, the gold market, the money market, the currency market.

    What does all this mean for stocks? Are stock certificates financials or tangibles or something in between? As I see it, when you buy a stock you're buying part ownership in a business. That business can do well, it can do badly, but above all that business can go bankrupt. This is why bear markets ultimately inspire such fear near their lows. The fear has to do with the belief that the stock you own (it can be any stock) can go belly-up.

    Not so with tangibles. The diamond you own or the gold you own or the Picasso you own can not go bankrupt, not if you own it free and clear. This is the essence of a tangible that is wholly owned -- it can't go bankrupt. It is intrinsic wealth. And that's what separates financials from tangibles.

    Richard Russell’s Dow Theory Letters

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