Can Capitalism Be Revived Before Depression Sets in?

"The things that will destroy us: Politics without principle, pleasure without conscience, wealth without work, knowledge without work, knowledge without character, business without morality, science without humanity, and worship without sacrifice." -- Mahatma Gandhi

CAN CAPITALISM BE REVIVED BEFORE DEPRESSION SETS IN?

In each and every country throughout the world, we are faced with a Socialist condition and they all have one thing in common: They have convinced themselves that they live in a Capitalist Society. Why even China is considered a Capitalist Country, which is a blatant falsehood. The main problem centers around a universal entitlement mentality and a banking system where interest rates have been manipulated down to zero. Therefore the single most important factor, interest rates, gives false or no signals at all resulting in capital being predominately wasted on mal-investment, as it was in the Soviet Union and in Cuba and every other Socialist Society beginning with our own Pilgrims. (It only took 3 years for our Pilgrims to wake up to the truth.) To compound the problem, taxes and regulations have caused millions of businesses to be in the wrong places doing the wrong things.

To make matters worse, France will institute a 75% tax on the rich and America will attempt to soak the rich, completely ignoring the most basic of all capitalist principles. The very wealthy in both countries are now planning to flee their homeland, but their money has already fled to more friendly confines. That has happened in every country that has tried Class Warfare including the US which now has about $4 trillion sitting offshore just waiting. Would anyone in their right mind bring their capital back to the US because of an Obama offer of a onetime tax break?

In both the USSR and here in America, the government has tried multiple RESCUE Missions both very large and small to keep the mal-investments alive, rather than let them go through normal bankruptcy. They just keep on bailing and wasting precious capital on more mal investment; like keeping alive the too big to fail banks, GM and Solyndra.

Today, unemployment is officially 8.2% (but it is really 23%) with no end in sight because government does what we have been watching them do since 2007. They step in to prevent their friends from going broke and this paralyzes the correction (cleansing) process for decades instead of for a year or two.

The government refused to listen to Bill Siedman (while he was still alive) who cleared up the 1990's SAVINGS & LOAN, REAL ESTATE CRISIS in less than 3 years at a cost of less than 25% ($500 billion) of what the initially projected loss was to be.

HOW DO WE TRADE IN TODAY'S MANIPULATED MARKETS?

I have finally come to the realization that the current market conditions are almost impossible to trade using past successful technical analysis. Today, the emphasis must be on government policy and their proclamations, knowing full well that everything they say is a lie or wrong. I feel as though we have been tip-toeing through a mine field for the past 24+ months waiting for extremely negative news or extremely positive news to trigger a wave of buying or selling that has yet to happen. If you are going to trade, remember to use protective stops and don't get over committed to headline driven markets - they don't last. You must decide if the expected government actions will take place and more importantly, judge whether or not the expected actions would be positive or not. Unfortunately, their actions end up not being positive because they are usually stopgap measures.

Stocks are at risk from HOW FAR Germany can be pushed and more importantly; what good or harm will they do and how long can the bailouts last for?

The recent strong move to the upside caught a lot of traders on the wrong side of the market. Yet the strong rally could not last out the day. That seems to be the markets mantra of the last few months. Regardless of whether financial pundits refer to it as a short-squeeze or simply panic level buying is largely irrelevant. Time and price are always the final arbiters of financial markets. The big move last Friday was seemingly telling us that too many market participants were shorting equities and the Euro (FXE). There are no such things as Sure Things. The same is true for China. They are a Fascist and not a Capitalist country and they must succumb to the same problems that all Centrally Planned countries must face. Just as I have been warning you they would for over 2 years now.

The news coming out of the European Summit is what drove prices higher according to most media outlets. However, few traders have actually taken the time to research the fact that Germany has not yet agreed to the European Stability Mechanism legislation. Not that it would solve anything anyway. The German people, if not their politicians, realize full well that Germany is not big enough or rich enough to bail out most of Europe, especially since a bail out would only be the first step. Next year, they would have to do it all over again because nothing would have been solved.

UNCOMMON COMMON SENSE: Europe and America must be allowed to fail and start over again. There is no hope in either Heaven or Hell to solve a massive Debt Problem by doubling or tripling down on the debt. The US still has a chance to save itself, but to do so means reverting back to Capitalism immediately. All they talk about is how to raise more revenue (taxes). Cutting entitlements by any meaningful degree is not even on the table, certainly not before an election. Next year will be too late.

You can receive a 10 page report that outlines exactly what must be done "To Rebuild the American Empire" and revive the American DREAM, for the princely sum of $10, call 561-840-9767.

QE3 and A NEW ALL TIME HIGH IN STOCKS

To make a long story short: There is a 90% correlation between a sharply rising stock market during the last two months leading into an election and the Current Administration winning re-election. So rest assured there will be an all out effort by the administration, the Bernanke FED, the Geithner TREASURY and the MEDIA. And let's not forget, the government will massage statistics and anything else they can think of to get the stock market rolling into September/October. They will be pulling out all stops in an attempt to assure Obama's re-election. That has been my main reason for calling for a BREAKOUT Rally to new all time highs; which will then set the stage for the biggest BULL TRAP in history.

Should the German Constitutional Court determine the ESM legislation is unconstitutional; a referendum will go before the German people. The last thing the Autocratic Blue Bloods and their banking cartel minions want is for regular people to actually have an actual say in the outcome of the Euro zone project.

Ultimately, the German people are smart enough NOT to be in favor of propping up the rest of Europe in exchange for more empty promises of austerity. Furthermore, the German people recognize that they would be taking on a massive risk by loaning money to insolvent banks and insolvent Euro Zone sovereigns who have not proven to be prudent with managing their fiscal conditions.

The decision made by the German high court will have a far more reaching impact on the price action in European financial markets as well as in U.S. domestic financial markets. The outcome of the forthcoming decision will carry far more weight than Friday's June unemployment report. Ben Bernanke is already at work to convert Operation Twist into full blown QE III at the next FOMC meeting if not sooner.

The addiction to cheap money by large institutional banks will not end until the Fed is no longer able or willing to continue to print money. Should economic data continue to weaken going into earnings season, I am sure the banter regarding QE III will turn into a crescendo at a lightning pace as bad news on earnings and lower projections will be good news for stocks. Poor economic data will increase the likelihood for a new wave of liquidity being provided through a 3rd Quantitative Easing initiative. Don't forget most people, but especially WALL STREETERS, can't see further than the tip of their noses. Leaving the macroeconomic data aside and focusing on market technical's, we find several unsettling situations in a variety of underlying assets and indicators. The warnings are largely falling on deaf ears as the equity bull parade continues. Before we talk about the S&P 500 Index (SPX) (SPY) directly, perhaps we should examine some of the indicators and underlying assets that are sending out bearish smoke signals.

THE JOBS REPORT

The BLS reported that non-farm payrolls increased by 80,000 new jobs in June. Isn't that good? Well first of all, it is a false figure. The true figure is there was a net loss of 44,000 jobs in June. The BLS decided in their infinite wisdom that they should pretend that there were new businesses that started up in June that created 126,000 new jobs. They have no idea what new businesses were started, nor could they actually count any new jobs in these phantom new businesses. This 126,000 phony figure was added to the loss of 44,000 jobs to fudge a positive number for the release of the June jobs report. This phony figure is called the CESBD adjustment, or the Birth/Death adjustment. Birth/Death referring to businesses, not people. The truth is the economy lost 44,000 jobs in June. This is abysmal. This is Recession. This is an indictment of government fiscal policy, of Fed monetary policy, of tax policy and Government regulation of businesses. We need a true increase of 150,000+ new jobs each and every month just to break even with population growth, and we need millions more to put displaced workers back in a job.

I also want to mention that it is very hard to stand alone in your thinking. It is a very lonely place. Fortunately for both of us, I like it that way. The more alone I am in my thinking, the better chance I have of being right.

Our government spent $10 million to prosecute Roger Clemens for lying; about what? Taking what at the time was a legal drug. What was that all about? Just another Democrat Scooter Libby "Witch Hunt" special to get people to take their eyes off the ball? But what about Jon Corzine? So far, he is still scot free. Why? Because he took the 5th? Meanwhile, $1.6 billion is still missing from investor's segregated accounts. That problem is extremely important as it portends that nothing is safe anymore as long as the government is involved and is why I have been pushing you to get your gold and money out of the banking system. There seems to be 2 sets of Rules of Law; one for the government and their friends and one for the rest of us poor suckers.

GOLD

I continue to advocate accumulating physical Gold and Silver bullion on WEAKNESS and holding for the long term. Central banks are now so heavily influencing asset prices that investors are unable to ascertain real market values, especially of currencies. The US Dollar is only as strong as it is because Europe is so weak. That does not make the Dollar a real safe haven asset.

Let's review the core reasons why gold stocks are the place to invest right now, and why I'm convinced much higher prices will be had before this year is over.

Reason #1: Gold stocks have leverage to gold bullion prices. In spite of what's occurred recently, history is on our side here, as the track record of precious metals equities demonstrates; they can and will reward patient investors tremendously, especially during deflationary times. They rose:

• 950% from January 2001 to January 2008.
• 700+% from 1970 to January 1980, including 289.5% in the last thirteen months of that period.
• 211% in less than 24 months in the mid 1990s.
• Even during the Great Depression, the two largest GOLD producers at the time - Homestake Mining and Dome Mines - rose 474% and 558% respectively.

It's normal for gold stocks to demonstrate this kind of leverage to gold. It would completely contradict the historical pattern - and common sense - for gold stocks to remain where they are until this bull market ends. (And sometimes, even when the price of gold bullion falls, gold stocks can still offer big upside. Case in point: In the 24 months from January 1, 1981 to January 1, 1983, while the price of gold bullion fell by 25% - from $597 to $446 - gold stocks rose 72%. A series of giant gold discoveries in Canada set off a mini-mania in the equities.) Check out the historical record, which includes some mind-boggling performances by Juniors (including 1 giant fraud BRIX).

Reason #2: Gold stocks are grossly undervalued. Gold stocks aren't just inexpensive, they're ridiculously cheap. Their current undervaluation is more than just compelling… they are fire-sale attractive. It should have your full attention.

• Relative to gold, the equities have not been this cheap since the panic contrived waterfall selloff in 2008. The HUI/gold ratio is roughly 0.27, close to its historic rock bottom low of 0.24 in October 2008. It hovered between 0.50 and 0.60 for most of a five-year period from 2003 to 2007, and yet still managed to exceed 0.60 several times.
• On average, and in spite of weak gold prices at present, industry wide margins are roughly $1,000 per ounce. The price of gold wasn't even $1,000 30 months ago.
• As a group, gold stocks are selling for less than their net asset value by about 20%. They traded 60% above their NAV in 2007, a common level for precious metals equities.
• Average P/E ratios of the 10 largest gold producers are less than half of what they were trading at just two years ago.
• For a $1,000 investment right now, you can get about 0.6 ounces of gold. For the same $1,000, however, you'd get a full four ounces of gold by buying shares of Goldcorp or more than five ounces by buying Eldorado Gold.
• Let's not forget the Largest Royalty Trusts Gold Corp, as well as Franco Nevada. They have virtually no expenses; they just get a fixed percentage of the gold, silver and other metals recovered from the mines that they advanced money to pre them going into production.

This undervaluation cannot and will not last. Even the Professional Money Managers who know nothing about Mag Silver, Newmont or Barrick or … will sooner or later want to jump on these companies just on their earnings and valuations per share alone.

NOTE: All Big Time money managers are known for playing follow the leader.

Reason #3: Gold stocks are universally under-owned. There are plenty of reports about how little gold and silver the average mainstream investor owns - which likely means they own even less of gold equities.

Their disconnect is even LARGER than anyone realizes: When it comes to the Institutional world, pension funds sit at the head of the table. However, the typical fund devotes only 3% to commodities and of that 3%, only 5% of that is committed to gold and gold stocks. In other words, only 0.15% of all pension fund assets are in gold and another 0.15% in gold mining stocks, a pathetic total of less than one-third of one percent. The same is true for other institutional investors. Does that sound like we are in a bubble?

Given the gamut of ever increasing sovereign risks in virtually the entire world, especially Southern Europe, the lack of gold and gold stock ownership is appalling. That will change as the growing fiat currency risks around the world begin to impact investors more deeply as one by one, currencies start to DEFAULT. Greece, Spain and Italy will most probably lead the parade down.

Reason #4: All that cash has got to go somewhere. It's one thing to say gold stocks are under-owned, but is the money available to buy them? One could make an argument that any rush into gold equities would be muted if no one has any savings or if demographics dictate that a fifth of the developed world's money will soon be retired. But most of the trillions of dollars are now sitting in ZERO COUPON debt (both European and American) in what for some reason are still called safe haven assets (Treasuries). Are they all crazy, especially given that TRUE INFLATION is now north of 8%?

NOTE: They are about to reclassify GOLD as a Tier One asset so it could be used instead of worthless sovereign debt, US Treasuries or other countries depreciating currency as Bank Reserves. Hang on to your britches should that finally come to pass.

At the end of Q1, S&P 500 corporations had $1.7 trillion in cash and another $4 trillion in short-term investments. The M1 money supply is currently $2.2 trillion. Pension assets exceed $31 trillion, more than twice the size of last year's GDP in the US alone. How much longer can the idiocy of calling the US Dollar a SAFE HAVEN asset continue?

Contrast those figures with the market cap of all primary gold producers trading in North America at about $800 billion. Or the market cap of all primary silver producers at a measly $32 billion.

• If corporations moved 5% of their "short-term investments" into gold stocks, the market cap of the industry would increase by more than 25%. And that is assuming that private investors do not jump on board once they see what is happening.
• If they chose silver stocks, they would grow by a factor of seven or eight.
• 5% of M1 would increase the market cap of gold producers by 14%; it would be 4 times larger than the entire current value of all primary silver producers.
• If pension funds doubled their allocation to gold stocks (making it a puny 0.6% of total assets), it would amount to $100 billion in new purchases. If they went to 5%, $1.5 trillion would flood the industry.

And by the way, don't forget other corporations in the US and around the world, especially insurance companies, hedge funds, sovereign wealth funds, mutual funds, private equity funds, private wealth funds, ETFs, and millions of global retail investors. There is, quite literally, tons of cash available for investment in whatever sector the mainstream targets.

Rest assured these people always play follow the leader; it is a matter of self preservation.

Reason #5: Physical gold may become hard to get. The gap between supply and demand isn't letting up. Since 2001, worldwide production has been flat, despite a six fold increase in the gold price - and demand has grown from $3 billion to $80 billion.

I'm in touch with bullion dealers on a regular basis, and they're all saying the same things: That the bullion market "will ultimately be defined by a complete lack of available supply." "If an overwhelming loss of confidence in both Europe and the US currency unfolds, the demand for physical gold and silver will far outweigh all known inventories." And Mike Maloney of GoldSilver.com warned that if shortages develop, "Physical bullion coins and bars might become unobtainable regardless of price."

As increasing numbers of people view gold as a must-own asset, and as supply is not keeping up with demand, where is the next logical place for investors to turn to get exposure to Precious Metals? Gold Stocks.

Imagine the plight of the mainstream investor who calls a bullion dealer and is told they have no inventory and don't know when they'll get any. Picture those with wealth finally becoming convinced they must own precious metals and being informed they'll have to put their name on a waiting list. Imagine a pension fund or other institutional investor scrambling to get more metal for its fund and being advised the amount it wants is "currently unavailable."

Mining equities would be the fastest and maybe the only way to meet that demand. It'll be the next logical step to take - maybe the only sensible step available if the supply of physical metal remains constrained. It will feel like the most natural thing in the world for them to do. It is indeed the one overlooked reason gold stocks will soar.

Reason #6: Gold has a lot further to climb. This is why I'm convinced gold stocks will soar again on a rising gold price. Many investors have focused on gold's lackluster movement for the past eight months, forgetting that it rose a total of 2,333% in the 1970s - with much less currency dilution (both absolute and percentage wise) than we have today with never a thought given to the value of the US Dollar: For gold to match the same percentage rise from its 2001 low, the price would hit $6,227 per ounce. Nothing says it has to match that price - but neither does it have to stop there either. Given the ongoing caustic actions of politicians, we see the risk is much more on the upside in not owning gold than on the downside. And here's the key for gold stocks: Once the gold price resumes its uptrend and it most surly will and begins making new records highs again, all sorts of investors - from large market-moving institutions to small retail buyers - will return to gold equities. I highly recommend getting in ahead of the rush.

ONLY FOOLS AND LIERS CAN BUY AT THE LOW AND SELL AT THE HIGH

Reason #7: "The boat" has sprung a leak. The dilution of our currency will soon be on another nonstop and scary trajectory. Since January 1, 2000, US Dollars have lost a whopping 26% in purchasing power (and that is using the Government's own inflation figures). The Canadian Dollar has lost 23%. This is a serious and gross devaluation of what we use for money. Meanwhile, gold has gained 325% in purchasing power (after accounting for inflation again as measured by the CPI, which understates the amount of inflation by a considerable amount). And this is while the gold price has gone nowhere since last September.

The problem is the leak in our economy is only going to get bigger as our deficits get larger, much larger, especially now with the passage of Obamacare. The monetary base now exceeds $2.6 trillion, up 215% since January 2008; the national debt is over $15.7 trillion and will conservatively reach $20 trillion in less than three years; the $1.3-trillion US budget deficit, which is more than the entire US budget was just 20 years ago; the approximate $4 trillion in US Treasuries held in foreign central banks, many of which continue making arrangements to bypass the dollar in their international trade; the vulnerable and propped-up economies around the globe; the still-unresolved European debt crisis; the many negatives including real interest rates that show no sign of reversing course anytime soon. These are massive megatrends that won't be reconciled without further, serious dilution of the currency - They all the brain dead politicians, think that it's the only politically acceptable way to decrease the debt burden. This is why I'm convinced more money-printing in the US and around the world is a Virtual Certainty- whether they call it "quantitative easing" or try to hide it under some other acronym - especially if we get another deflationary scare. With their only (illogical) choice being to print more money, gold will be forced higher by an order of magnitude.

I am and have been telling you all about gold because I think that is the key to gold stocks. If gold and silver are destined for higher levels, gold stocks will follow. I know they haven't demonstrated that for a while now, but irrational and/or contrived, manipulated slumps don't and more importantly CAN'T last for much longer. The bottom line is this: Gold stocks do respond when gold goes higher - and gold is going higher because of completely unsustainable fiscal and monetary actions of governments all around the world. So, will gold stocks really soar again someday? The historical record of gold stock manias… the extreme undervaluation of gold equities… the lack of mainstream participation in both the Gold Bullion and Gold stock markets… the abundance of available cash… dwindling supply and rising demand… the massive disconnect between gold and gold stocks… the almost certain trajectory of future gold prices… and last but not least, the political compulsion to dilute their own currency … all these factors point to an incredible opportunity to buy gold stocks at extremely low levels, that will one day in the very near future realize potentially life-changing rewards.

Over the years I have warned you time and time again that the Golden Bull will do whatever it has to do to shake-off all the easy and free riders: DON'T YOU DARE become one of THEM. Hang in there, my friends. Our time is near. In fact, I predict that one day we'll all wake up and wonder why anyone ever doubted it in the first place. It is a "fact of life" that most people always are caught "looking a gift horse in the mouth" and end up sitting on their hands (and wallets) during the most opportune times.

GOOD LUCK AND GOD BLESS

SUBSCRIPTION RATES:

Regular Rates: $299 for 13 months or $529 for 2 years new subscribers can get a 5 month Trial Subscription for only $99

To subscribe, call 561-840-9767 as we accept most major credit cards or mail a check for the required amount to (do not forget to include your EMAIL address):

Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL 33418
[email protected]
561-840-9767