Is it really Friday again? Where'd the week go? We had another debate this week, with Paul Ryan and Joe Biden dueling over who gets to be the most useless figurehead in American government. Ryan lied, and Biden smiled, and the sheeple played along in the twitterverse. Who won? Not you.
Some really great feedback this week, so let's get to it…
A VIEW ON TSA AND THE USSA FROM AN EXPAT PILOT
Hi Jeff and TDV,
I'm sure you get loads of emails, but PLEASE look at this link.
No doubt you have already seen it. But if not, or I've missed your coverage of it, please show the TDV community. This shit needs to get out. I'm hopeful there will be millions of hits in a few months.
On a side note, as you know I'm an airline captain. I just left JFK last night. Going through the security metal detector, the TSA agent stopped me and said "Show your ID to me"! I had my ID around my neck in clear visibility. I questioned what he was on about as it was displayed. His entire body language went to aggressive, he put his hands up to stop anyone else coming through. Then he turned and asked me if "I had a problem". Now normally I'd say piss off and I don't care if I don't get on the flight. But I realized these guys just don't play a fair or legal (International standards) game. I quickly said "Oh, was my ID on the wrong way around" this seemed to alleviate the matter a little, and he said "No, you must lift your ID up to my face to show me"! Even though I had shown my ID twice already, apparently he likes to see it to. I went on without any further incident. He did this to my entire crew, and he was talking to them like they were guilty Jail inmates.
I travel the world all the time, so the USSA's decline is so transparent to me it's not funny. However, there are still so many in the USSA that really feel it's the land of the free!
Rant over!
Best Regards,
Greg H.
Istanbul, Turkey (Expat)
Jeff’s Response:
Well remember, "obediance to the law is freedom"! Or at least that's what slaves living in a fasco-communist mess will believe in order to make it through another day. And as the police state grows, all the low IQ thugs who've been itching to have some power are going to fill these positions in which they can bark orders and harrass other human beings. Who'd want to stick around for that? (We certainly wouldn't…which is why we do our part in helping people get out…permanently if need be.)
SILVER AND GOLD
Hi guys,
This question is probably more directed at Ed Bugos. My question is regarding stocks and particularly the gold and silver mining stocks, from small producers to explorers. I get the impression that more people are expecting some kind of correction or a decent correction sometime this year, there seems to be a lot of uncertainty out there. My questions are: 1) with all this uncertainty and fear in the air, coupled with tax loss season now approaching, does it make sense to take any profits or completely get out of even these types of stocks now and get back in by mid to late December…? 2) If and when we have another correction, will that correction affect the mining shares just as much as the equity stocks, blue chip stocks and all the supposed safety stocks…?
Thanks guys,
Mike G.
Ed Bugos’ Response:
Dear Mike,
The gold equities have been in a terrible bear market phase for nearly 18 months now. So it does not surprise me that everyone is expecting a correction. I too am expecting a pullback in the short term.
However, given this widely spread sentiment and their relative value (to gold especially, but also, within the whole equity class) it is not likely to be as big of a correction as most expect.
Thus I would not recommend a trading strategy here at all. I do not think you will get a very big window, and a lot of these stocks are illiquid to start with.
The risk in my strategy is that you can end up holding your positions while they continue drifting lower because I recommend investing for a 2-3 year time horizon, as they have been. However, I want to emphasize that although this is true and my performance in the gold equities over the past 12 months has not been very good, I do not ignore the short term. I do try to stay vigilante about my 1-2 year performance goals –for the sake of managing my risk and opportunity cost to the best of my ability.
Although I had expected a correction in 2011, I had not anticipated that it would be so deep.
Clearly I was too bullish in the short term (but this will be hardly perceptible in hindsight!).
The fact is that corrections are always deeper than the bulls think.
And this is truer coming out of a bull run than out of a trough. In the former situation the bullish expectations eventually tend to get typically out of whack with reality; in the latter situation the bullish psychology has already been demoralized, and it has been conditioned by the worse than expected correction (hindsight) to expect future corrections to be even deeper than they actually are.
So, if this is a trough, and we’re coming out of it now (as opposed to going to lower lows in the context of an ongoing bear market), you can expect most people to end up chasing these issues higher simply because they expect the corrections to be at least as deep as they have been.
My view is that we are in the middle or late middle stages of an ongoing secular bull market in the precious metals. It has not ended. We are ready to break out of the year long consolidation in the gold price and head off to the next plateau, which, following my reasoning, may well go a lot further than any of the bulls think today.
Now we're coming out of a bear trend and in my experience the corrections from now on, until the next leg has run its course, will likely be smaller than most people tend to believe today.
My suggestion is to average in, and start now. If we get another correction, hallelujah…just buy some more. If it runs away from you at least you started to act at lower prices.
No need to plunge, and please keep to our overall allocation recommendation: maximum 20% of your financial wealth in the juniors (and only after checking with a personal advisor who knows your actual goals and circumstances), and no more than 15% in the large cap producers (we suggest 30-40% in bullion –physical if possible– with the rest spread in other equity classes including select real estate).
Regarding question #2,
"If and when we have another correction, will that correction affect the mining shares just as much as the equity stocks, blue chip stocks and all the supposed safety stocks?"
I have studied the question of WHEN gold stocks move with the general equity asset class and when they tend to move countercyclically to it. The WGC produced a study over a decade ago (as part of its move to working on various gold products, including the GLD trust) that proved gold tended to be a counter-cyclical asset. One of the few things they did right in fact. But what about gold stocks?
Note that they fall in 2007-08 with the general market while in 2001-02 they bucked the general bear market. I tried to view this question more within the context of the two previous bull markets in the gold shares (1921-37 and 1962-80) during the last century, what I found was three tendencies.
They hardly qualify as solid facts, but there are tendencies I've noticed in the historical record.
First, the gold shares tend to fall with the general equity class when they are relatively expensive, and they tend to act countercyclically when they are cheap. For example, they were cheap in 2000-01, but they were not cheap in 2007-08 –or so I argued in real time in both of those cases.
What about historically? In the early part of the last (1962-80) bull market they were cheap.
The graph below is the ratio between the Barron’s gold stock index and gold prices in that time.
Perhaps it isn’t evident in this graph, but the gold stock index actually began its bull market sequence in 1962 -9yrs before BW collapsed, and Nixon defaulted. But gold prices were officially fixed during the sixties so that’s why you get the graph as below – increasingly by the end of the bull market gold started to outperform. This will probably hold true this time around too. I do not expect the HUI/Gold ratio to constantly trend higher, for example, as I would the HUI/USD ratio (i.e. in dollars they will likely go higher). At any rate, the upshot is that if you consider anything below say 3x to be cheap then you can see that might explain why they were not so vulnerable to the stock market pull backs of the early sixties, while in 1968 since they weren't cheap they fell with the Dow. In terms of the ratio (below) they were cheap again by the mid seventies, which again probably explains why they were a good place to hide during the general market rout in the 1973-74 period.
However, by the late seventies, they were cheap by most metrics AND nevertheless that was the end of the bull market, and they fell with the Dow. That's where my second observation comes in. They are more likely to tend toward countercyclicality in the early part of a bull market and to correlate with the rest of the market in the latter stages. Valuation may explain part of this, but also, it is because by the end of a bull market they have become the market -the main leadership in other words.
We can rule that out today, yet. They certainly cannot yet be regarded as market leaders in any coherent sense of the phrase. But I believe they will gain respect in coming years as a relatively hard asset class, their recent performance notwithstanding, and mostly because of the increase in dividend streams that I foresee coming out of the group.
But today they are as undervalued as they were at the beginning of any bull market, and they are far from being market leaders yet. That is, they are neither expensive nor the market leadership.
Two of my conditions therefore already favor the idea that if the Dow crumbles, gold stocks will rally.
The third historical observation is their tendency to follow gold (they don't typically lead the metal like you would expect but this is a separate point). So if gold falls with the Dow, they may follow gold – unless for whatever reason the market doesn’t believe the gold price decline will be significant.
So if we are still early enough in the bull market, if the gold shares can be regarded as cheap, and if gold prices go up when stock prices are generally falling, we are good to go.
If we are right to remain bullish on the general bull market in the precious metals then it is likely that at this point, given the extent of last year's decline and their relative values, should we have another 2008 crisis in the general equity space (which I don't foresee for a number of years anyway), it is most probable in the historical record and my experience that the gold stocks would buck the down trend in stocks. The only caveat would be if gold prices fell with stocks as they did in 2008, which is possible.
However, only one of the three preconditions for a 2008 repeat currently exist, as far as the Dow is concerned: valuation in the stock market has reached its 2007 peak level again.
The other two preconditions involve the Fed’s current policy and investor sentiment. But both of those latter two, unlike in 2007-08, are decidedly against a repeat from occurring in the imminent future.
I wouldn’t rule out a good correction, but not back to the 2008 lows –unless sentiment turned bullish all of a sudden and the Fed stopped inflating…or valuations got even more stupid.
Moreover, gold prices are likely poised to move countercyclically now too, with the risk that if stock prices continue going higher gold prices may continue to consolidate or fall somewhat, but should stock prices sink now in my opinion gold prices would fly. So the stars are aligned not just for the precious metal bull to continue, but also, for the gold stocks to outperform on its next upward leg.
Guys, just a quick question.
What occurred in the USSA during approximately 1980 for the incarceration rate to begin its spike? The all-out "war on drugs"?
Thanks,
Matthew K.
Gary's Response:
In a word, Matt: Nixon.
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That's right. The man who single-handedly hammered the final few nails on America's economic coffin by completely eliminating the gold standard also sowed the seeds of the police state we have today. Nixon declared drug abuse to be "public enemy number one" in 1971 and declared "war on drug abuse" in 1972.
Drug abuse really was rampant in 1971. But Nixon didn't see drug abuse as the way for alienated, hopeless people to cope with government-caused decline in real income or war. Nope. Nixon just saw drug abuse as an attack on the fascist moral fiber of the nation. So he reacted to drug abuse the way you'd expect a fascist to. He pointed a gun at it.
First of all, drug use of any kind isn't an attack on "society"; it is an individual choice just like having too much to drink or getting married or any other individual choice that may not be in the best interest of the maker of that choice. It's also not anyone else's business. The state has no business pointing guns at people and kidnapping them for willingly buying drugs (or anything else) and using them. Nixon tried to tie drug abuse to violent crime, but that connection was tenuous. Drug use has as much to do with crime as alcohol does.
In fact, the state's persecution of the war on drugs has led directly in an increase in the state's legal right to stop you in your travels and search you and your vehicle. The state also uses the premise of the drug war to barge into your home with guns drawn. These days they can do it anytime they feel like it. If you, your family or your pet get shot in the course of these searches, it's considered acceptable collateral damage. If you should actually try to defend yourself from these intruders, you will pay dearly.
The great irony is, like I mentioned above, it was the state's destruction of liberty, peace and wealth that was creating the drug abuse epidemic in the first place. Johnson's Great Society was slowly leaching wealth from the public as was the waging of war in Indochina. As usual welfare and warfare, the state's twin specialties, was driving the nation to shoot up, smoke and snort. And then Nixon went ahead and cut the dollar's last ties to gold, guaranteeing that general prices would ever after rise faster than wages, leaving each successive generation of Americans poorer than the last.
Inflation, poverty and a police state with cages bursting with innocent kidnapping victims. Well played, Nixon you fascist, used condom of a man. Well played.
THE ROADS TO FREEDOM, BOTH LITERAL AND FIGURATIVE
Dear Jeff & Gary,
Whenever I start discussing freedom from the state, one of the questions I usually get, as I'm sure you do, is …what about the roads?
I find it easiest to explain free enterprise roads by using the following example.
Think of a hotel. Say the Mandalay Bay in Las Vegas. All the corridors leading to the rooms are roads. They don't need to be big enough for a car, (although some will accommodate golf carts) they just need to enable you to get to your room.
All the roads (corridors) are free enterprise roads., they are paid for in the cost of your room. Everyone isn't forced to pay for them. Just the people who use the rooms.
Outside the lobby is a monorail that goes to several other casinos and it doesn't cost you any money to ride it. It's paid for by the casinos that would like you to visit them. Therefore, it's free of any money charges to you.
You might compare it to an interstate highway. An interstate highway system might be paid for by business owners in the cities that would like you to visit. Or a toll might be paid by you if you would like to use it.
If it's run like free enterprise and continues to make a profit, over time it will get better and less expensive …like the computer business. If it's run by the state, over time it will get worse or more expensive or both …like public housing or public schools.
There are many other ways to explain what you might call 'objections to freedom'. You guys do it on your website every day.
Sometimes you just have to laugh. "What about the guy who has no arms and no legs and is tied to a styrofoam float in the middle of the Pacific a thousand miles from anywhere and a big shark is just about to swallow him"? What about him? Huh! Mr. smarty pants?
Well, you got me. I think he's probably had it. I don't know, maybe the state can save him.
Anyway, what prompted me to write is that Gary mentioned in one of your TDV posts that he was thinking of writing a book about the transition to a free society or what it would be like living in freedom without the state.
I have some ideas about how to build freedom and, with your permission, would like to run them by you.
Gary, maybe they would spark your imagination as you write your new book.
Some examples would be;
How to eliminate the state non-coercively.
How to transition away from the state cops, the jails, the courts and into something that works much better without coercion.
How much better your property would be protected in freedom.
How to deal with crime and criminals non-coercively without jails and without force.
How to get criminals to restitute their victims without using any force on the criminals whatsoever.
How to take the "profit" out of crime. (today crime is very "profitable" …especially if you get elected).
(Let me define profit. –Profit is any moral increase in happiness–. There are many ways to profit. You can profit by reading a good book. You can profit by watching a sunset on the beach. If you buy a car, both you and the dealer profit. The dealer profits because he traded the car for the money and you profit because you traded your money for the car. You created a win win situation. At the time of the deal you both increased your happiness.
An example of an immoral increase in happiness would be if you robbed a bank. If you got away with it, you would increase your happiness, but since you did it using force or fraud, it should not be called profit. It should be called plunder).
Anyway, I hope I sparked some curiosity. I would like to have someone who understands freedom to bounce ideas off of.
Any interest? Let me know.
Sincerely,
Charles T.
Jeff’s Response:
What can we say, Charles, except "thanks"? And please send us your ideas. I know Gary will be eager to discuss them with you.
And the rest of you keep that feedback coming. Feedback Fridays doesn't happen without you.
