Why is the Stock Market Going Up?

A basic law of physics, says that for every action, there will be a re-action, and it is all too true with the stock market. As I write this, the Dow has passed 10,000, Enron is a heap of rubble, P/E Ratios are way off base, with a strong indication that stocks are a terrible investment. Auto manufacturers are selling with no finance charges, Christmas sales promise to be dismal, airlines are going bankrupt, foreclosures and bankruptcies are at record rates, and the tourism industry is in really sad shape. These are but a few of the ailments that pervade America's economic picture. Internationally, Argentina promises to go belly up, with restrictions being placed on withdrawals of the peso, and Japan is almost gasping its last, with nothing seeming to help. 80,000 South African gold miners are considering a strike, and the gold mines in Zimbabwe have been "nationalized," which means they will also be non-productive very shortly, as soon as the unintelligensia finish ruining them.

In a former piece, I explained my feelings about South African gold mine stocks, or gold and silver stocks of any nation other than America. To that end, I sold my Durban Deep, and bought 7,000 shares of Nevada Pacific Gold for 18 cents a share. I always do as I suggest. I have no faith in South African anything, and as a result of that article, I received a few e-mails from South Africa bearing out what I said about the land's dim future, and especially the mines. Nevada Pacific may or may not ever amount to anything, but at least I am out of South Africa. I dabble in mine stocks, but it is for fun, not my future welfare, which is in physical gold and silver.

As the stock market inches upward, logical persons wonder why, since there are no profits. When sales are up, because of selling at virtually no profit, to use up the inventory, or keep from laying off the help, this is not healthy. Reminds me of the street corner hot dog vendor, who was selling below cost. Sales were terrific. When asked why he was doing this, he said, "I'll make up for it in volume." The stock market is "making up for it in volume," it seems to this scribe. Maybe we are heading for another huge plunge. It seems as if that is almost certain to happen, when enough people suddenly get the urge to "take profits."

My theory of why the market is moving upward, is simplicity itself. Greenspan has cut the interest rates so low, that saving is an absurdity.Logical people re-act to tiny interest savings, upon which taxes must be paid, even if it is below the inflation rate. Saving dollars in a bank is pointless now, because after paying taxes on the pitiful interest earned, you are de-capitalizing yourself. Save dollars in a savings account or CD, and you are losing value at a pretty rapid clip. Most people, of course, believe that the dollar is sound, and many remember the old, hackneyed phrase, "Sound as a dollar," when explaining why they insist on placing hard earned paychecks and surplus assets into a bank. The dollar is not sound, and no other currency is either. They are all falling, as far as purchasing power is concerned, and what else is there to measure them by? If the dollar is sliding, along with the rest, at virtually the same speed, the dollar looks sound. It isn't! No currency is sound.

A nice old codger knocked on my door yesterday, and presented a real confederate thousand dollar bill, asking me what it was worth. I took a photo of it and offered him a hundred dollars for it. He said he'd ask his wife. I have no idea of what it is worth, do any of you? Did the Blues or the Grays think their currencies were good when they were on the way down…together? What would a $1,000 Confederate bill buy in 1864? Probably about the same as a $1 bill would have bought in 1861, is my estimate.

A US $100 bill today, buys about what a dollar bill bought a hundred years ago. The difference is that the Confederates and Greenbacks went down suddenly, as both sides were fighting the war with printing press 'money.' America fought WW II with printing press 'money' also, and within 4 years, the dollar had lost 50% of its purchasing power. A $600 car in 1941, cost twice that much in 1946. That is what wars do to currencies. All wars, including the present one, debase the currencies, as that is how they are paid for, and fought. Currently, about $6 billion a day is being injected into the 'money' supply. (I must use 'money' in quotes, as it is not real money, but fiat money, and fiat money always becomes worthless…eventually.)

A smart person, realizing that their 'money' is sliding down the greasy slope towards eventual worthlessness, would get out of that denomination all together, and get into another denomination. Why keep surplus assets in dollars, when the dollar is constantly losing purchasing power? The reason the stock market is climbing, is because when logical people remove their dollars from banks, they have no vision of what on earth to do with it; so they buy stocks. The more dollars that people remove from banks, and place them with stock brokers, the higher goes the stock market. When it gets to the point when there are more sellers than buyers, due to unease, the sellers flock onto the sell ferry boat, and it sinks. When the market goes up, there are more buyers than sellers. When the market goes down, there are more sellers than buyers. The market 'going down,' is a particularly contagious disease, causing huge numbers to become infected, and the market plunging. Those that hold their position get ruined, and those that wait till the wave has really gotten underway, lose also. Those that win, sell at a profit before the inevitable crash, even if it is not at the top.

It all seems to utterly foolish to this precious metals dealer. Why don't they buy gold and silver? Because they say, "Oh gold and silver haven't gone anywhere in a couple of years, so why buy that?" That's exactly right! Gold has gone up a bit less than 10% in the last few months, and silver has gone no where. It will, and big time I believe. Gold and silver are historic wealth, and true money, which require capital, skill, effort, and physical plant to produce, whereas stocks merely require a printing press…just like dollars. Gold and silver are precious metals which one can hold, own and admire, whereas a stock certificate merely places the holder of that stock at the mercy of the government regulators, and management of that corporation. Currently, GE has been ordered to dredge the Hudson River at a cost of $500 million, and it is all utter foolishness. PCBs are not harmful, and even if they were, they have been sitting on the bottom of the river for decades, and are well covered by silt. Stirring them up and dredging them up is folly…ordered by government. GE deposited them legally, and did no harm. Government now costs GE half a billion dollars for no good reason. Guess whose dividends will suffer? The stock holders will pay, not GE, as the cost will be felt in reduced dividends.

Gold and silver are free from government orders to dredge, and will not be "confiscated" as they have no serial numbers. No one gave social security numbers when buying, any more than one has to give an identification number when buying any physical thing, such as antiques, furniture, groceries, or a tank of gas. The myth that "government confiscated gold in 1933," continues, even though it is false. Government ordered everyone to exchange their gold for paper dollars, but how many did? Who knows? Government didn't know who had gold, so no "confiscation" was carried out. Californians who registered their guns, are having them confiscated, but those who never registered them, cannot have theirs confiscated, because no one knows who has them. Logical?

Banks are impressive looking, with big vaults, and all sorts of security systems. All who deposit 'money' in them must furnish an identification number, which will be digested by government. All who buy stocks must also furnish an identification number also, which will be digested by government. All who sell at garage sales, or buy on E-bay have no penalties to pay, nor identification numbers to furnish. Same with gold and silver.

Why are stocks going up? I think it is because the populace is smart enough to realize that saving dollars in a bank is silly, but not knowing of anything else to do with the dollars, they turn them over to a stock broker, who will always insist that the "bottom" has been reached. I have just about decided that stock brokers are on a level with used car salesmen. It's always the "right time" to buy stocks, regardless of the logic of it. When the NASDAQ was at 5000, not a single stock broker was saying, "Hey, this is high enough. This is going to crash, and I suggest you don't buy. You should sell what you have, because you have made a great profit." Gold and silver are physical, universally admired, fungible wealth. Gold and silver are true money that is eternal. Paper dollars, yen, pesos, rubbles, pounds, etc are merely pieces of paper with ink on them, with no backing, and no value other than because of "legal tender" laws. Stock certificates confer microscopic ownership of a corporation that may endure or crash, like Enron. Stocks are going up, because people have no knowledge of gold or silver, and cannot think of anything else to do. Will we see a repeat of a market crash? If history repeats itself, we will, because the market is acting EXACTLY like it did in the period 1929-World War II. Gold and silver, in my opinion, are at the "bottom." If I didn't believe it, I wouldn't say it, because I am a precious metals broker with character, not a stock broker who always thinks the time is right. I'm buying silver as fast as I can with my limited pocketbook, and no, I am not giving my social security number!

Don Stott

December 7, 2001

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com