It could be said that wise counsel never grows out-dated, and many of the topics discussed in WCM's Bullion Market Insights are really timeless in scope.  Observations have been made on the Macro-environment in many instances, a perspective that can only change significantly over long periods of time.

July 19, 2006 mini-SNIPPET:  Bernanke Better Be Wearing A Fireproof Suit.


Because when you play with Fire, you are going to get hurt.  Sounds trite, but it is almost maddening to listen to the Newbie FedHead talk about how the manipulated official inflation rate appears to be poised to moderate with a moderating economy.  Don't hold your breath, Bennie, because the Billions of Chinese and Indians who are finally in a position to enjoy the fruits of the Middle Class are not about to slacken their demands for virtually every raw material and finished good that can make this dream possible.  If only U.S. demand controlled global commodity prices, his wishful thinking would have a chance of coming true.  With recent Chinese growth clocking in north of 11% and India growing smartly at 8% plus, the debt-induced slackening in U.S. demand will be more than taken up across the Pacific by these emerging economic powers.  Even if the U.S. falls off a cliff GDP-wish in the next quarter, it would take over a year to a year and one-half for the effects to be widely felt in both China and India due to a surplus of spendable U.S. Dollars and Rupies previously provided by international and domestic commerce.  And you can rest assured that as a matter of economic survival, more and more exporting countries have come to the conclusion that the U.S.A. status as THE consumer of first resort will necessarily wane in the months ahead due to an inability of Debt Laden Americans (DLA's) to obtain incremental spending funds.  When you is broke, you is broke.  The shift in world trading patterns toward the epicenter of New Economic Growth is well underway, and that center is around China and Southeast Asia, not North America.

Ben Bernanke is making the same mistake that Alan Greenspan made beginning in 1987, playing to the financial markets as the most important segment of the economic ladder.  Does it make any sense that the stock market would rally some 2% today after the new Fed Chairman identifies a slowing U.S. economy, WITH STILL TOO HIGH INFLATION, that will cause most corporate profits to backslide starting just about now?  Was the U.S. Treasury Department involved in today's counter-intuitive stock rally with Sir Paulson of Goldman-Sachs knowing that to keep the masses at the gambling table a couple of weeks longer will at least postpone the day that the House goes officially bankrupt?  Reality is that the economy is definitely slowing led by slumping housing sales and construction, energy-starved retail sales, and eventually more slumping hard good sales in autos, appliances, furniture, and other high-ticket items.  Discretionary spending, i.e., non-essential spending, is destined to literally fall off its own cliff as we go into Fall as most households will need every last nickel just to meet the carrying costs of existence, much less to venture to the theater, a restaurant, or Disney World.

 It is most irresponsible of the world's most visible central banker to suggest, "Don't worry, higher prices for just about everything you need to buy will allow the Fed to stop raising interest rates sooner rather than later.  Higher prices will slow the economy, so we at the Fed don't have to be the Bad Guys."

Ma Ma Mea!

If I were the Central Bank of China, I would be rushing to the currency exchange window to dump as many Greenbacks as fast as I could.  With Dollars literally coming out of their ears, the Chinese have a real incentive not to get caught with too many Dollars when the music stops.  It is the Sage of Wexford's theory that China currently has floor traders bought and paid for on the floor of the Comex, London, and Hong Kong metals exchanges that were instrumental in piling in on the short-side when gold got back to $670 last week.  Old Chinese Proverb say, "If you want more rice in your bowl for a better price, you must short-sale the heck out of the paddy!"  Something must have gotten lost in the translation there, but you get the gist.  If you need to buy more tonnes of gold to replace your inevitably devaluing U.S. Dollar reserves, you enter the paper-backed gold market, and short the heck out of it to temporarily drive the price down to facilitate your additional accumulations.  And the Sage thinks some of these traders, knowingly or unknowingly, are in the employ of the Saudi's, the Russians, the Indonesians, the Taiwanese, the Rest of the Middle East, you get the picture, any sovereign state that knows that the U.S. is technically bankrupt and its currency will not be worth the paper and ink it is made of at some point in the not-too-distant future.

For a whopping 5% nominal interest rate on U.S. paper today, you get not only a negative real rate of return after REAL U.S. INFLATION AT A CONSERVATIVE 7%, but the privilege of watching your purported "asset" devalue in terms of your domestic currency as the DOLLAR ENTERS PHASE II OF THE SECULAR BEAR MARKET TO 70% TOTAL DEVALUATION (minimum).  That means you have close to 40% devaluation left to go, what a deal!

Now I know that you doubters out there think the Sage was dropped on his head on more than one occasion as a baby, but here are some tidbits to ponder from a U.S. Federal Reserve employee:

AND .... Helicopter Ben has just told the currency markets that he is going to try to go easy on the U.S. economy and U.S consumers by delaying necessary increases in interest rates ....... he will take a wait and see attitude!  Paul Volcker is cringing!  It may sound like prudent central banking, but it is not.  Excessive credit growth over the last 4 years by none other than his predecessor, Sir Alan Greenspan, augmented by negative real interest rates that Bernanke's go-slow-approach is guaranteeing will continue ........... tells all holders and future holders of the Dollar that they are destined to lose money in real terms, guaranteed.

A DOLLAR CRISIS IS GUARANTEED UNDER BEN BERNANKE.  He has just shown that he is more concerned about an economic recession and its possible degradation toward a deflation than he is concerned about protecting THE CURRENCY OF THE REALM.

The Fed is not through increasing interest rates.  Bernanke will play to the financial markets at upcoming Federal Reserve meetings going into Fall, giving them a pause and false hope, but in the end he will have no choice but to defend the Dollar with a Fed Funds well north of 5.5%.  The Sage thinks only an 8% Fed Funds rate, belatedly implemented, will be necessary to eventually stave off a Dollar Sell-Off.  The biggest Ponzi scheme that the U.S. has going outside of Wall Street is the sale of endless debt issues to foreigners in a debasing currency.  A fire-sale of U.S. assets in order to get out of Dollar denominated holdings would do more to collapse the U.S. economic and financial system, eliminating Reserve status for the Dollar at the same time, than any severe recession or even depression in the U.S. could do in the years ahead.  The interest rate medicine is tastier than the Dollar Collapse medicine.

The Chairman's Brook's Brothers suit had better be fire-proof.  He has just started a brushfire that he will not have enough water (interest rate increases) available to squelch.  In the end, he will not avert a severe recession in the U.S. NOR Dollar Devaluation to include loss of Reserve Currency Status.  He is trying to be all-things-to-all-people, and a Central Banker has to have only economic goals in front of him, not an approving audience.

RAISE AS MUCH CASH AS YOU CAN IN THE MONTHS AHEAD.  WHILE THE FUTURES TRADERS CAN STILL PLAY THEIR GAMES AT SLAMMING BOTH GOLD AND SILVER USING MINDLESS, COMPUTERIZED BLACK-BOX TRADING SYSTEMS, YOU ARE BEING OFFERED OPPORTUNITIES OF A LIFETIME TO BUY THE PRECIOUS METALS AT PRICES THAT WILL PROVE TO BE VERY CHEAP IN THE END.  LOOK AT VOLATILITY AS A BLESSING AND NOT A CURSE, BECAUSE IT ALLOWS YOU ENTRY POINTS THAT YOU OTHERWISE WOULD NOT HAVE HAD.  CONFUCIUS SAY, "HE THAT TAKES ADVANTAGE OF CONFUSION, WILL END UP NOT BEING CONFUSED".


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August 14, 2006:  The Storm Clouds Directly Overhead.


In conjuring up this ezine's title, I couldn't help but remember the forlorn character in the famous cartoon, Li'l Abner, in that classic Dogpatch community (that might have been taken right from my local jurisdiction here in Virginnie) that walked around with a dark cloud over his head.  There was rain and lightning bolts coming out of this cloud on occasions, and the character never could seem to break free of his tormented station in life.  Turns out this character, created by Al Capp, was named Joe BTFSPLK, which is pronounced just like a Bronx cheer or the common raspberry sound made by politicians when asked to do the right thing.

Now Americans in general have had it pretty "darn nabbing" good up to this point in history, from a standard of living standpoint, so getting into character is going to take some major adjustment as we enter the Dogpatch Era of American history.  

Now Al Capp began writing the very funny comic strip in 1934 to an American audience that found the lives of the whimsical characters so close to reality for a Depression Era America that they took the strip to heart and good-humoredly embraced it.  Remember that hundreds of years prior, a more famous writer named William Shakespeare coined the phrase, "More Truth Is Said In Jest".  Now, believe it or not, I am not one to take pleasure in another person's suffering (unless it is a politician who has already sold America down the Amazon or Siberian River!), but we need to be very self-effacing in the years ahead.  Because if we cannot laugh at the predicament we have gotten ourselves into (some more than others!), then there is going to be a whole lot of crying in this country in the years ahead.

I am going to be very organized and put forth in bullet point fashion the Storm Clouds that are either currently raining or about to rain on the American parade.  So many Americans are living in either denial or stark ignorance of the rather scary times we are in, so I want to be perfectly clear what the major weather patterns that are out there.  Drum roll please:

1.  THE U.S. IS ALREADY IN RECESSION.

You heard it here first, Fellow Dogpatchians!  When the Government perpetually lies about the inflation rate to us mere Taxpayers as being only at  4.0% in the Second Quarter, 2006, then they can eke out a positive 2.5% annual growth rate in a quarter that really saw NEGATIVE REAL GDP!  The Sage has insider information since he actually runs around retail stores with a shopping cart, a novel approach to goods and price gathering, and I can tell you from the dents in my checkbook that 7% to 8% inflation was more the norm in the Second Quarter of this year.  Just gasoline and energy costs alone would have pushed a non-fudged GDP Deflator north of 6.5%, enough to give us ZERO INFLATION-ADJUSTED GROWTH (Feds Nominal GDP at 6.5% before pricing adjustment).

Lies, lies, lies, where will it end!  In the poorhouse, that's where because how do you plan for the inevitable economic and financial retracement when you don't even have good statistics to base your planning upon.  Many Americans will continue to spend as evidenced by recent pops in retail sales, but remember that much, much higher per refill costs per gasoline station visit are included in those temporarily elevated retail sales figures.  And if they continue to show growth in retail spending in the next few months, who is really ahead with more and more of the monthly family budget going to gasoline purchases?!  If you are an energy company employee, you will see a Christmas bonus this year, but many Americans will not even see a paycheck by December 25, 2006.

THE REAL ESTATE BUBBLE HAS POPPED AND THE AIR IS COMING OUT.  Now, I ain't making this stuff up, just look at the record number of months of new (6.5 months) and existing homes sitting on the market just hoping some Johnny-Come-Lately will place a bid.  Now that bid is going to be 5% to 10% below Ask if the Seller is lucky, and more and more contracts are falling through due to the realization that if you wait 6 months, you will likely get a lower price.  Not to mention Buyers having an equally difficult time finding another sucker to pay their Asking Price for their current residence.  Not to mention some lenders finally wising up and tightening their lending standards so that many credit card and installment debt citizens just no longer qualify for the majority of mortgages anymore.  National builders with deep pockets like Centex and Ryland Homes have yet to get religion and scale back their building schedules, so incentives of free finished basements, marble this and marble that, free sunrooms, a gas fireplace in the bathroom, etc., are becoming commonplace to attempt to keep recent buyers in a subdivision from burning down the model homes when they realize that they bought at the top.  That is also known as "over-paying"!

So it is not only the American automobile industry that is going to see huge layoff numbers in the months immediately ahead, but the construction industry, building materials suppliers to include Lowe's and Home Depot, realtors, mortgage brokers, and anyone who is employed in any industry even remotely reliant on the U.S. housing bubble, I mean "market".  The sad employment statistics that we just saw of only 100k plus jobs created in the last month with an uptick in the Unemployment Rate is only the beginning.  With November elections, the Bureau of Larcenous Statistics (BLS) will pull out all the stops to make it look like the U.S. is still adding jobs, but you and I know better as home improvement companies start offering us deals on that home addition or deck that were unthinkable even 3 months ago.


2.  U.S. INTEREST RATES ARE HEADED HIGHER, NO CONTEST.

Now I know that the Bond King of PIMCO Advisors, Sir William Gross, is forecasting a new Bond Bull Market, but I just can't agree even though it is like spitting in the wind to argue with one of the bond market's icons.  I just don't think any future easing by a then-panicked Fed to adjust to the realities of an eventual, "published" recession is going to make that much of a difference to the majority of the Yield Curve that the Fed does not and can not control.  We are talking about the 10-Year Treasury Note maturity and higher.  Okay, maybe this Panicked Fed of 2007 can go out and buy Billions of Dollars of 10-Years to attempt to bring down yields next year when the poop has clearly hit the fan, but it has never been tried before and I don't think it is going to work this time or any other time! 

INTERVENTION IS AN ARTIFICIAL MEANS OF ATTEMPTING TO MANIPULATE MARKET PRICES (AND YIELDS) AND IT CAN ONLY WORK IN THE SHORT-TERM, NOT THE LONG-TERM.

The global market players have staying power, not a debt-ridden U.S. Treasury and Federal Reserve, so I can't imagine any market-intervention to bring down the middle of the yield curve to save the housing market from utter collapse can be effective for any duration.  The U.S. housing market is in big, big trouble due to thousands of properties being in weak, over-leveraged hands, not to mention speculators' hands, and prices will eventually find a level where the sea of unsold homes will "clear", but how at about 40% lower prices sometime by the Year 2020.  What are builders going to do in the interim?  Go fishing?  They are going to continue to put supply on the market, even if at a much reduced annual rate and progressively lower prices.  IF YOU ARE A BUILDER, YOU GOTTA BUILD OR YOU IS UNEMPLOYED!  

Most foreign investors are fully aware that the U.S. Government has put the U.S. Dollar on the Currency Chomping Block, and the only way to even attempt to make good on the Trillions of Dollars of Unfunded U.S. Liabilities in the next 20 years is to debase the currency.  So if the Bernanke Printing Press is going to be running so fast and furious that Capitol Hill cocktails will be poured on them to keep them from melting down, the only way anyone, even a Joe Raspberries American, will buy Dollar "assets" or Dollar Debt such as Treasuries is if the interest rate will ease the pain to some degree.  The Dollar cannot be allowed to precipitously or severely collapse, so what do we American Dogpatchers have to offer our new overseers?  The moneychangers in the temple?  Higher interest rates up to 7% to 8% by this time next year.  It eventually has to happen unless history never repeats itself, and if I am wrong, it will only be on timing, not level.

Inflation is not going to melt away either just because the U.S. economy is grinding into a much lower gear.  Bennie Bernanke is counting on slower growth to do his dirty work so he doesn't have to be the Fed Chairman who put the Greenspan Goldilocks Economy (GGE) on its head, BUT the Global Economy says, "Lots of Ruck, Round Eyes!"  We are no longer at the center of the economic universe, and it is high time we realize this emerging fact.  See if you can find an outfit like the character shown above, because if you continue to Hope For The Best a la Helicopter Ben you will be wearing it down Main Street!

At 5% per annum, is there a 5% or 6% or 7% or 8% inflation rate or PREMIUM built into bond-buyers' expectations in the 10-Year Treasury Note.  I WOULD SAY THIS MEAGER RATE OF INTEREST SHOWS NO INFLATION PREMIUM WHATSOEVER, SINCE FED FUNDS ARE OVER 5% TODAY.  NO INFLATION PREMIUM TO HOLD U.S. PAPER FOR 10 LONG, LONG YEARS IN THE HOPE YOU GET EVERYTHING YOU ARE PROMISED, WHEN YOU ARE PROMISED IT. 

Our foreign creditors are not idiots, and they have well begun the diversification away from Dollars and into other currencies such as the Euro and the Swiss Franc and YES, Little Abner, even the Yellow Dog, GOLD.  And the Sage thinks that the Shiny Dog, SILVER, is being accumulated also, as history has proven it monetary value time and again and it is not a newly minted concept (play on words, get it?!).  Not to mention the value of Silver as a strategic metal that any nation working to build its offensive/defensive posture in the world could scarcely be without.  So I just don't see how we are going to call the shots going forward pertaining to U.S. Interest Rates.  LENDERS CAN SET RATES, BUT BORROWERS ARE AT THE MERCY OF THE LENDERS.  Did Ben Franklin say that also?!


3.  THE PRECIOUS METALS CORRECTION IS OVER FOR 2006 AND WE ARE HEADED NICELY HIGHER FROM HERE.

Now I have to have an early dinner tonight so that I can attend our local Homeowners' Association meeting and learn what new, devious method the developer has used to screw us out of more of our hard-earned money, so I will save the best until the 'morrow.  Kind of like the old serials where you saw if the damsel was plucked off the cliff's edge in the next week's installment.  STAY TUNED.

Heeeeeesssss Back!

The fundamentals for the precious metals almost couldn't be better.  One thing, and it is a major thing, that many investors forget is that all of the short-seller piling-on occurring in the Comex futures pits really is just distracting noise for SHORT-TERM PRICE SUPPRESSION if the fundamentals for owning an asset is improving by the day or hour.  As I have said so many times on these illustrious pages, WHEN YOU GOT THE DOUGH, GO!  I will no longer even provide you with a response when you ask me where the precious metals are going in the next nanosecond, just a hearty, HA, HA, HA, HA, HA, as I take another pull on my wimped-out decaffeinated coffee and make snide faces into the phone that hopefully you can't see.  I buy the metals personally all the time (cause I want to retire in splendor in Iceland!), and recently made a silver purchase at $12.66 ........  so I is not the person to ask about market timing.  IN FACT, THERE IS NO PERSON TO ASK ABOUT TIMING THE PRECIOUS METALS MARKET, CAUSE IF ANYONE REALLY KNEW, THEY WOULD NEVER TELL YOU IN ORDER TO MAXIMIZE THEIR EVENTUAL PROFITS!!!  No altruism in investing land, sports fans! 

So get out a piece of paper or put this computer screen in your wallet or purse for easy reference:

a.) The currency alternative to gold, the U.S. Dollar, has renewed its Bear Market trend, with the interest rate differential to competing currencies, esp. the Euro and Swiss Franc, deteriorating as overseas central bankers take a more aggressive stance on putting a lid on inflationary pressures.  Ben Bernanke will resume interest rate increases within the next several months because concerted attacks on the Dollar by currency speculators with tremendous means and resources will force his hand to defend the Greenback at the expense of the U.S. housing market and, in turn, the U.S. economy.  Am certain the Fed plans an interest-rate cutting cycle to commence sometime in 2007, but the dye will already be cast for a severe recession due to unmanageable debt levels in the U.S. which only Government bailouts can cure!

b.)  Inflation is here to stay, at least for the intermediate term of one to two years, as the U.S. Federal Reserve continues to be way behind the curve on providing real interest rates that are positive to both domestic and foreign investors.  Inflation is likely to be 7% to 8% per annum in the months ahead, official CPI, PPI, and GDP Deflator statistics be damned.  Due to the likelihood of a U.S./Allied aerial attack on Iranian and Syria strategic targets after the November Elections, the threat of $100 oil is greater than ever, and may prove to be conservative.  Spreading Mid-East fighting alone is reason to forecast a severe disruption in oil supplies in the months ahead.  THINK $4.00 TO $4.50 PER GALLON GASOLINE PRICES BEFORE CHRISTMAS.  Better change your driving habits to be easier on the accelerator pedal.

c.)  The financial markets are headed to much lower levels, with the U.S. stock market struggling to provide a positive result in 2006 and the bond market a very tenuous place to park money due to the inadequate Inflation Premium in intermediate yields and beyond.  The height of U.S. corporate profits has been passed, and cost pressures to produce virtually every product will continue to erode profit margins simultaneously as sales volumes succumb to the reduction in final demand from consumers with record debt levels.  Money goes where it is treated best, and year-to-date gains for both gold and silver in the 20% to 40% range are hard to argue with.  More avenues than ever before are available for bullion investors, including a soon-to-be-announced WCM program to store gold bullion in Precious Metals IRA's in Switzerland.

d.)  Major buyers of bullion are stepping up to the plate while many retail investors go on vacation this August.  Orders exceeding $100,000 have and are coming into U.S. bullion dealers even during the historically quiet time of late summer.  Liquidation of financial assets and real estate holdings is well underway for the more savvy of well-heeled investors.  There is no better sign of conviction as to the durability of a precious metals bull market than substantial buying on the dips, and the Comex market is showing daily sell-offs during the morning hours, only to be followed by strong rallies in the afternoon.  Very typical, Super Bull Market Behavior.  The fuse is lit for a very nice Fall Rally in the Precious Metals.

e.)  The just-thwarted terrorist plot to explode multitudes of passenger planes departing London for the U.S. is a vivid reminder that the world is an increasingly dangerous place with pockets of domestic immigrants gravitating to Islamic Extremism due to their failure to be assimilated and to assimilate themselves into Western societies.  THE SAFE HAVEN STATUS OF GOLD AND SILVER MAY NEVER HAVE BEEN HIGHER.  Domestic economies and financial systems are direct targets of these homicidal fruitcakes, and a major financial center terrorist attack is just a question of timing.  Resources devoted to the War on Terrorism cannot be used for other economic or social purposes, and the U.S. Fiscal Deficits and Total Debt are destined to deteriorate to unsustainable levels for a Reserve Currency nation.


!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


I could go on and on but these are the major fundamental reasons why the metals are in a superb position to provide outsized gains in late 2006 and well beyond.  Get your financial house in order, pay down debt regardless of rate, liquidate losing positions, and Dollar Cost Average into as much Gold and Silver as you can physically handle or store elsewhere under first-class depository, fully-insured oversight. 

The storm clouds are now overhead.  It is no longer a long-range forecast by the Sage for the foul economic and financial weather that I have repeatedly made since 1998.  The Maelstrom is here.  Okay, Joe and Josephine, what cover do you have from today's weather?!!  Do you have a golden and shiny umbrella over your heads?


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September 15, 2006:  ATTENTION SHOPPERS, Precious Metals SALE in Aisle 06.


Hey, if you want to price one of the few physical assets that will hold its own in the years ahead, a TRUE STORE OF WEALTH, at a K-Mart Special price of $575 for Gold and $10.55 for Silver, I'LL TAKE IT!  Now we will satisfy the angry mob outside my office chanting, "Lynch The Sage" for prognosticating that it was only higher prices ahead as we went into September AND go through a litany of reasons why the metals are correcting again, NOT THE SAGES FAULT (and you paid not one Shekel for those now worthless dewdrops of wisdom!):

1.  Black Box Futures Traders are at it again, and when the metals start to come back this time around, mark my words, these techies are going to get burned BIG TIME.  Piling on is not frowned upon in FuturesLand, so once the computerized trading programs begin flashing Sell Signals to their drone traders, it becomes a self-fulfilling prophecy that prices are headed lower.  And these automated trading programs almost always overshoot on both the downside and the upside due to this very "piling on" effect, so just chalk this recent fainting spell up to equipment failure and maniacal tendencies.  Manipulated markets make technical analysis a severely flawed tool since virtually every trader is looking at the same support and resistance levels as well as trend lines and they will subsequently gun the sell or buy side to see if they can violate each and run the market in semi-panic like the last 2 weeks.  Buy and Hold, and I know from personal and professional experience you will sleep much better at night.

NOTHIN' FUNDAMENTAL HAS CHANGED IN THE NECESSITY OF OWNING GOLD & SILVER IN 2006 AND BEYOND.


2.  Do Those In Power (TIP's) wish to discredit the position of the precious metals as both Safe Havens and Inflation Hedges by reducing their values and, hence, the implied "adverse", anti-consensus signals they would be sending to the public at higher prices JUST BEFORE THE OCTOBER ELECTIONS?  I hate to be a conspiracy theorist, but frankly, after so many decades of seeing the absolute Bull that the Government feeds its constituency on so many levels and with such a diverse range of published data ........ I DON'T PUT ANYTHING PAST OFFICIALDOM THAT THIS POINT IN TIME.  It may seem a little far-fetched, but Painting The Tape is an age-old practice on Wall Street.  And I think with a former Goldman-Sachs Treasury Secretary, AGAIN, who has access to hundreds of millions of Dollars and to major market makers at the drop of a hat in cahoots with the Federal Reserve, THAT THE EXCHANGE STABILIZATION FUND COULD BE SUPPORTING A DOLLAR THAT SHOULD BE HEADED SOUTH RIGHT NOW IN A MAJOR WAY.  Did not we just experience a Record Monthly Trade Deficit number to the tune of $65 Billion Plus that suggests a $780 Billion Annual Trade Deficit?!!!  A RECORD IMBALANCE IN TRADE THAT THE WORLD HAS NEVER SEEN, EVER!  The currency markets, the only real competition to Gold and Silver as "money", are totally upside down right now in reacting to fundamental data.  It will not last long, possibly the last-breath cycling of record American import Dollars that will ebb rapidly with the in-process decline of the economy.  A surefire way to help rebalance our Trade Deficit ...... have a major recession!  And Brother, we are entering a dosey right now.  Most Central Bankers are not as myopic as our Fed, so U.S. Treasury debt along with the Dollar are destined to remain on a slippery slope in the months and years ahead.  Meaning, DOWN IN VALUE, UP IN YIELDS.

NOTHIN' FUNDAMENTAL HAS CHANGED IN THE NECESSITY OF OWNING GOLD & SILVER IN 2006 AND BEYOND.


3.  Could some of the shrewder Central Bankers with excess U.S. Dollars coming out of their ears be funneling short or sell orders to the floors of the commodity exchanges to temporarily depress the cash price of the two assets in the world that have outlived virtually all currency issues since recorded time began ...............  GOLD AND SILVER?  Another conspiracy flavored tidbit, but in this case, it is just a matter of taking advantage of the financial liquidity you enjoy as a central bank, especially a Chinese Central Bank, and using highly leveraged futures contracts to control a lot of precious metals with minimal dough.  The cost to place these bets can be offset with potential trading profits if done through the right floor traders and a lot of entry and exit luck, but more importantly, the savings to the People's Republic of China of quietly amassing tonnes of the yellow and shiny metals at these temporarily very depressed prices way offset these manipulative trading costs.  What better way for a sovereign state to progressively liquidate more and more Devaluing Dollars in a market where the identity of any actual buyer or seller can be masked through a chain of company ownerships in different countries.  Add Russia, Singapore, Korea, Brazil, and Venezuela to the equation and you have a lot of firepower to affect the precious metals markets.  Not conspiracy theory, just shrewd central banking in an Excess Dollar World (EDW) that solidifies the premise that when the supply of an asset is excessive, its value in the market is destined to decline.  

NOTHIN' FUNDAMENTAL HAS CHANGED IN THE NECESSITY OF OWNING GOLD & SILVER IN 2006 AND BEYOND.  (IN FACT, IF IT IS GOOD ENOUGH FOR THE EMERGING ECONOMIC POWER IN THE WORLD, THE CHINESE, IT SHOULD BE GOOD ENOUGH FOR US LIGHTWEIGHTS.)


4.  Could some of the legions of Wexford bullion clients be taking some profits that they have so deservedly earned from buying Gold in the $300 range and Silver in the $5 range.  YOU BET YOUR BIPPY.  Not a rush of seismic proportions, though, because it would have taken millions of dollars in the last 2 weeks to move the precious metals the degrees to which they have slid, but word must have hit the trading floors that some of the Sage's clients were on the sell side of the market and the snowball effect took hold.  Geeze, I hope I don't get into trouble with any regulatory bodies, if they are awake at all, that I took in this material and panicked the Comex into a firestorm of selling!!  Just trying to have two nickels to rub together when I run like the wind upon retirement to my geothermally-heated sod hut in Iceland.  Plus the Sage couldn't even corner the Corner Grocery Store with the kind of dough he has at his disposal!  I AM INNOCENT, I AM INNOCENT, I AM INNOCENT.

NOTHIN' FUNDAMENTAL HAS CHANGED IN THE NECESSITY OF OWNING GOLD & SILVER IN 2006 AND BEYOND.


BuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuy


You may think I am not feeling well, that I have not made any politically-charged snide remarks in the last 60 seconds.  Since you know where I stand on buying the dips in the precious metals, AND YOU ARE BEING PRESENTED WITH A SUPER OPPORTUNITY AS I TYPE, and this is One Hellova Dip the last two weeks, let me leave you with these prescient observations about how we are going to win the War on Terrorism:


LET'S GIVE THE FRICKING ISLAMIC TERRORIST CAPTIVES U.S CONSTITUTIONAL RIGHTS TO INCLUDE FULL PROTECTION UNDER THE GENEVA CONVENTION!  AND A VOTING CARD, AND A FREE CELL PHONE CARD FOR A ZILLION FREE CALLING MINUTES TO DIAL OSAMA (OR PUTIN)!

WHEN THE WORD GETS OUT WHAT LIES IN WAIT WITHIN THE U.S. JUSTICE SYSTEM BASED UPON FREEDOMS AND CONDITIONS FAR SUPERIOR TO THE DESTITUTE LANDS OF OPPRESSION IN WHICH THEY ARE SPAWNED, THEY WILL THROW UP THEIR HANDS IN FEVERED SURRENDER BY THE TENS OF THOUSANDS.  WE WILL JUST HAVE TO HIRE GREYHOUND BUSES TO GO PICK THEM UP!  THE WAR IS WON AS WE TAKE THEM OFF THE STREETS CHANTING, "PRAISE AMERICA, PRAISE AMERICA"!

TO THINK THAT ELEVATING THEIR TREATMENT UPON CAPTURE TO THE LEVEL OF INCARCERATED AMERICAN CITIZENS OR TRADITIONAL UNIFORMED COMBATANTS WILL KEEP THEM FROM BEHEADING A CIVILIAN NON-COMBATANT, OR BLOWING UP A SCHOOL FULL OF 6TH GRADERS, OR VAPORIZING UP A MOSQUE FULL OF MUSLIMS AT THE NEXT OPPORTUNITY, OR DRIVING A DETONATING TANKER TRUCK INTO A SHOPPING MALL, THINK AGAIN! (and get your medications adjusted!). 


I have never seen a nation of free individuals act like such imbeciles during a time of war when thousands of our citizens could be slaughtered in the next minute, the next hour, or the next week. Not to mention those on distant shores that do not have the security or forces necessary to provide a secure living environment against these madmen.  If you thought the Third Reich was horrendous, just continue to minimize the magnitude of the threat we currently face, and you will have not seen nuthin' yet!  Many remind me of Great Britain's Chamberlain who disembarked from his plane returning from an atonement peace treaty signing with Nazi Germany in the 1930's and uttered the phrase, "We finally have peace in our lifetimes".  We know how that story ended.  There is no appeasement of a maniacal enemy set on our personal destruction, the destruction of our institutions, and the destruction of our FREE way of life.

Stay safe, stay sane, stay vigilant.  Us bullion buyers are actually the Paul Reveres of the 21th Century, but the world has not understood the meaning of the warnings we are harking out.  When they finally do, it will be too late to turn the tide, but we will weather the storm in much better stead.

Sage of Wexford.  GO BLUE, BEAT NOTRE DAME!!!!

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October 18, 2006:  Get AirShocks, Rocky Road Ahead in 2007.


It is rapidly turning to the time of year when the Sage of Wexford puts on his Clairvoyant Hat, and takes a stab at what he thinks the economic and financial landscapes will look like in the year ahead.  But before I provide my loyal readers with more insight than a mass media "analyst" can produce in a lifetime, I just want to vent a little.  I think we are being fed a bunch of garbage (pronounced with a French twang) on a daily basis by our Government.  I know I have repeatedly complained about this in the past, but I can't emphasis it enough for the mere fact that if you base your investment decisions on the pure swill that passes as verified data spewing from the fonts of officialdom, you will be sorely mislead and make monumental investment mistakes.  Oh, I know you think you made a mistake by visiting this page again, but you cannot hit a target with a laser-guided bomb if the coordinates you are given are incorrect.  Great analogy, copyright applied for instantaneously.  Now I am certain, as certain as a Conspiracy-Paranoid American (CPA) can be today, that there has been a bunch of funny stuff going on in the stock market, the bond market, the oil market, the currency market, the commodities market, and the super market just prior to a mid-term election of tantamount important to the Ruling Party.  Regarding that last market, the SuperMarket, the spinach and lettuce salmonella scares were engineered to take our eyes off the television during the nightly news when something green appeared in our lower peripheral vision and the Foley Scandal was getting airtime.  Coincidental?!  Me thinks not.  That would be from The Theater of the Absurd, but we are living in The Theater of the Absurd, 21st Century America!

A society is not free if it is continually lied to by its elected and appointed Government, because that society is not free to make its own, independent decisions based upon factual data on The Ship of State and how they could plan their lives according to this "knowledge".  I am sure these shenanigans has been going on for centuries whether it be within a kingdom, a communist state, or a democracy, but the rapidity and volume of data that is spewed forth today causes the damage to be done to the unsuspecting to be exponentially greater than in the past.  The poor slob considering himself or herself well-informed has more tainted megabytes of data to shift through in a compressed timeframe that literally makes it impossible to know what the real state of The Ship of State is.  Depending on your definition of "is", you have to rely more and more on your own experiences, instincts, and independent research (like reading and memorizing Insights) to develop a cohesive picture of what the world you live in is really doing at any given moment.  But for this moment, sit back and I will give you my best guesses as to not only what "is", but what I believe is likely "to be" in the immediate months and year ahead:


1.  Stock Market Bear To Resume With A Vengeance.

But oh, you say, the Dow is setting new highs!  Hogwash or Big Deal:  It is only 30 stocks, the Dow index can easily be manipulated by Goldman-Sachs (for one) via the options and futures markets, and its progress is hardly confirmed by the S&P 500 which is still 13% below its 2000 high with the Nasdaq still some 54% below its all-time high.  The Generals are marching without any troops behind them!  Actually, a very dangerous time in the stock market due to excessive bullish sentiment, a peaking in corporate profits in the "real world" as economic activity subsides, the increasing threat of foreign dis-investment out of U.S. Dollar based assets, the real threat of investment competition from rising interest rates, and the reality of another corporate accounting or derivatives scandal just around the corner.  The recent options exercise investigation by the SEC is just another example of how Corporate America has not gotten religion when it comes to business ethics or adherence to accounting standards.  Stocks are once again paper assets that are living on borrowed time.  Expect S&P 500 to be down at least 20% by this time next year, give or take a percentage point.


2.  U.S. Economy Officially Declared in Recession by July, 2007.

Now every effort will be made by Officialdom to keep the obvious from the populace, THAT WE ARE SOLIDLY IN AN ECONOMIC DOWNTURN THAT STARTED IN SECOND QUARTER, 2006.  With U.S. housing decidedly in a steep decline along with U.S. auto sales and manufacture, these two "engines" of the U.S. economy retracing simultaneously does not require a Rhodes Scholar education to define "recession".  The gamesmanship with all manners of inflation gauges literally guarantees that the slow economic growth we have seen in the last two quarters of around 3.5% "official REAL", adjusted for "inflation", is not sufficient to overcome annual inflation running in the 6% to 7% range.  U.S. Employment statistics are another farce, with phantom numbers of newly employed ghosts being conjured up just before Halloween (and the Election).  The persistent fact that "discouraged job seekers" who have failed to find another job, whether it be from the thousands upon thousands of permanently displaced auto industry workers or those in residential construction industries and suppliers, are dropped from the work force stats to make the unemployment number statistically understated by some 3% to 5%.  Try U.S. Unemployment closer to 8% to 9% of the potentially employed populace.  Housing will only get worse in 2007, but you may have a brief window to unload during the Spring when prices will have declined any where from 15% to 20% from the Fall, 2005 highs.  Market clearing mechanism for housing is lower prices, period.


3.  The Federal Reserve Has Another 100 to 150 Basis Points to Raise Rates.

No, I am not smoking any of Bill Clinton's left-over Cambridge party favors, but foreign creditors are going to demand higher U.S. rates to fund the $800 Billion Trade Deficit and soon to re-balloon Federal Budget Deficit.  The Federal Reserve will have to put its Inflation Fighter Face back on by early next year as U.S. inflation stays stubbornly high even as the economy continues to weaken due to the explosion of demand still healthy in developing countries such as China, India, Russia, and Brazil.  I am sure these academian's can spell, STAGFLATION, and know that slower economic growth coupled with higher prices is a recipe for Nixonian or Carterian economic malaise.  Add these conditions to a record level of debt in every nook and cranny of our system, and you have a recipe for an economic and financial system condition worse than just recession.  The U.S. Dollar is living on borrowed time, an intended pun, and the waterfall that is going to resume after the November Elections will prompt the Fed to come to the Dollar's defense regardless of the political hailstorm emanating from the housing sector/save-the-economy-first constituencies.  Cheaper mortgages will do little to restart the housing engine, since lending standard tightening will fully counter any attempt by the Fed to lower rates at a much-later-than-anticipated-by-the-markets time.  The Fed knows that lower rates will do little to revive spending in an over-leveraged consumer sector faced with still unaffordable properties, and will try to save at least one asset market, the Dollar asset market, at the expense of an already staggering housing market that has about 30 percentage points to go to attempt to clear record existing inventories of unsold homes.  That is ...... assuming builders don't put any more supply upon the stagnant market in the next 12 months, GOOD LUCK with that one!


4.  The Bond Market Will Not Rally, But Decline Along With Higher 10-Year & Longer Rates.

Bill Gross, I hope you have a paid subscription for this newsletter (which is free to everyone else, but when a guy makes over $10 Million a year, he should send some of that lucre my way cause the Sage deserves it!).  SageFlash:  WE HAVE SEEN THE LOW IN 10-YEAR TREASURY NOTE YIELDS.  I am now convinced that the 2006 dip to the 4.4% level on the 10-Year was due mainly to Petro-Dollars having to be recycled into U.S. IOU's throughout the summer's record energy prices and to America's insatiable appetite for imported goods swelling the Trade Deficit off the charts.  HOWEVER, the U.S. import-machine slowdown that will hit by Christmas 2006 AND the modestly lower energy prices we will enjoy this winter will do much to reduce the foreign necessity, a.k.a. "demand", for U.S. Treasuries.  But sub-$60 oil is not here to stay due to the blossoming threat of supply interruptions due to either outright Anti-Americanism (Venezuelan and even Russian oil), oil-producers' internal domestic strife's or strikes, blatant oilfield nationalizations, and persistent Asian demand well into 2008.  This will keep a tailwind behind bond yields which for once again in the historic scheme of things will abhor inflation in an era of still-high credit SUPPLY.  THERE WILL STILL BE NO SHORTAGE OF GLOBAL CREDIT SUPPLY EVEN WITH SLOWING GROWTH IN 2007 BECAUSE THE AVAILABILITY OF MONEY, EVEN AT HIGHER COST, WILL CONTINUE TO BE EXCESSIVE TO KEEP THE PONZI SCHEME GOING AT ALL COSTS.  So if you think you can sell all of your stocks and rush into bonds for higher yields ...... think again.  THINK TREASURY-ONLY MONEY MARKET FUNDS and only the shortest of maturity paper for your interest-generating investments.


5.  American Banks Will Once Again Be Plagued With Massive Financial Problems.

I am more certain than ever that we are headed for BANK BAIL-OUT NUMBER III, requiring over $1.57894 Trillion exactly of taxpayer money (funny money with nobody laughing!) to keep the financial system afloat.  Watching what has passed for "sound banking practices" over the past 5 years convinces me that next to Sir Alan Greenspan in the Financial Hall of Shame, will be a statue of the New Millennium American Banker.  When I see a basically sound bank, one after the other (and some not-so-sound), taking over one hot money lending institution laden with rotting portfolios or bubbling derivative caldrons after the other, especially in the sub-prime mortgage lending business, I rush to take my money out.  There will be "withdrawal runs" on certain banks before Christmas of 2008.  See how the Sage builds himself a Forecasting Cushion by pushing the time frame out in time for a prediction to come to fruition!  Learned that one from the more highly-paid "talking heads" on the financial "mews" (My Every Word Sticks!) networks.  Fannie Mae and Freddie Mac will also cough up giant default hairballs in the years ahead, just not sure what year that will be, but SOON.  But you, OH LUCKY AMERICAN TAXPAYER, will have the distinct honor and privilege of paying higher interest rates, paying higher taxes, and of enjoying a lower standard of living partially due to the absolute stupidity of American bankers and lending institutions giving fistfuls of money to anyone that entered their offices with a pulse over the last 5 years.  Residential and commercial mortgages represent more of U.S. bank assets than at any time in our history.  And these rocket-scientists are now falling over one another to increase commercial real estate lending just at the top of that market also.  If a monkey can eventually type a word on a typewriter, how come an American Banker can't learn to type the words, "sound lending"????  Same mistakes cycle after cycle, but this time the sums involved are in the Billions and Billions and the Dollar will lose Reserve Status as a partial result. 
 


6.  Gold and Silver Will Be At Least 15% Higher in 2007.

I am going to go have a glass of wine from Galilee (Dalton Winery) that my Israeli diamond brokers sent me, and get back to you when I sober up.  My brain and fingers are tired anyway.

Back in the saddle.  Always a good idea to look at from where we have come in precious metals' prices to get a feel for where we might be going in the short-term, and a one-year-out forecast is deemed short-term in a multi-decade-long Bull Market.  I expect we will close 2006 with Gold in the $685 region, still completing its consolidation from the May high of $735, then it will resume its relentless march upward to a high of $850 sometime in 2007 before going into another consolidation period.  Taking out a 26-year high always brings in sellers who mistakenly think the game is over, but consolidation periods are the rule, not the exception, to precious metals bull markets.  Any exogenous event of significant disruptive power to the world's political, financial, or economic stability will push all of these targets upward, but the fundamentals of Dollar Devaluation, Persistent Inflation, Excessive Global Debt, not just in the U.S., Escalating GeoPolitical Tensions, Financial Market BEARS, U.S. Banking System Problems, Foreign Central Bank Reserve Diversification, and Increasing PM Supply Constraints will support higher and higher prices well into the future.  I can't emphasis more than I have in the past that The Age of Tangible Assets is upon us, possibly the next credit-induced asset bubble, but we will gladly ride this "bubble" to unthinkable heights as the alternatives around us shrink in viability.  Investors will increasingly be forced to buy both Gold and Silver, grimacing and kicking as if violating some Cardinal Rule set forth by Wall Street or FNN, as virtually every other asset class around them will decline in value or be untenable in the years ahead.

The shortage developing in physical silver supply is even more pronounced than gold, and I expect silver to end 2006 around this year's high of $14.00 per ounce and see a high around $16.65 to $17.50 in 2007.  More explosive metal than gold, which is no slouch in its own right, but refiners and distributors are already running short of silver as evidenced by production backlogs in refined silver products.  A 65% Silver Allocation with a 35% Gold Allocation is still my preferred acquisition split between these two Monetary Metals, but do think about storing your silver in a trusted depository to save your backs and marriages.

We have tested the 2006 consolidation lows THREE TIMES since May, and it has been my experience that that count is usually the magic number before a commodity resumes its long-term trend.  The Dollar will lose most of the air pumped into it prior to the November Elections, partially a result of trade imbalance recycling by Asian exporters, and provide a catalyst for us reaching the 2006 highs easily during the First Quarter of 2007.  Expect more volatility in all asset markets in 2007, even the purportedly "can't lose" real estate market, as the grossly excessive speculation and leverage allowed to be employed in the credit markets comes home to roost and speculators/investors find themselves in frequent cash crunches of immense magnitudes.  Indirectly, the precious metals will be affected with moves similar to what we have experienced since May, 2006, but these are merely buying opportunities to the "well-informed", "sift-through-the-garbage" investor whose convictions are not painted on his or her sleeve.

But we will be entering an unprecedented period of unsettling events in 2007 that will create enhanced volatility due partially to the Keepers of the Public Trust having been asleep at the switch or complicit in the abrogation of sound economic and financial principles for the last 5-plus years.  As a nation, we will reap what we have sown, and those seeds are not apple, but the Seeds of a Credit Collapse.  ONWARD AND UPWARD GO THE PRECIOUS METALS.


7.  The Sage Buys Option on Retirement Hut in Iceland.

Might as well employ leverage along with the Big Boys, but get out of as much debt as you can by the end of 2007 even if the nominal interest rate is below the real inflation rate of say 6%.  HE WHO HAS THE CASH AND THE GOLD WILL BE KING.  AND NEVER, EVER, EVER, LEVERAGE YOUR PRECIOUS METALS' POSITIONS.  Own the metals 100% and you will sleep like a baby once you plug your ears from the calamity going on outside your bedroom window.

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November 10, 2006:  THE VOTE IS IN, Gold and Silver Soar.


Now if I see one more media analysis of the November 7th elections, I am going to get physically ill.  First we viewers suffer for 9 months prior to the election, as in giving birth, as to who is going to win how many seats in what elected position across the country, and now when so many political prognosticators are shown to not deserve the money they make, we are going to analyze ad nauseum why this or that happened.  Unless all of these overpaid suits can reach into the cranial region of each and every legal and illegal resident of this country that voted, IT IS ALL SUPPOSITION.  And in the end, whether it is an Elephant or a Donkey that gets elected, it is still a fricking politician that you are going to pay very handsomely to disperse at-will the hard-earned money that you have so eagerly sent to this Capital or that.  Two for him or her, and One for you.  As long as we fail to institute true election campaign reform in this country, we are going to have bought-and-paid-for politicians that will serve their special interest contributors first, and you, almighty voters, pulling the voting machine lever and little else of power, is going to get the leftovers.

But since this is Political Silly Season (PSS), I will give you my best Sage Insights into what I think the Democrat Control of Congress (DCC) will mean for your net worth in 2007 and beyond.  Forget about peace of mind cause you ain't going to have any with all of the nasty stuff that is going to go on between Donkey Congress and Elephant White House just as soon as the newly elected butts get seated in their new digs on Capitol Hill.  This is why television manufacturers put a "mute" button on all modern TV sets.  All of the niceties being tossed over the airwaves between the victors and the vanquished are going to turn into subpoenas, investigations, nomination pigeon-holing, special committees, and nightly news acrimony before you can say, "Lameduck Administration with a Gridlocked Congress".  Now some will cheer that maybe little will get done over the next 2 years in Washington, but folks, ROME IS A BURNING, SO WE NEED WATER CANNONS, NOT ARM WRESTLERS TO PUT OUT THE INFERNO!


1.  Expect Higher Inflation

Both Elephants and Donkeys will fall all over themselves to garner the minority vote for Big Election 2008, and the Minimum Wage gets increased from $5.50 per hour to around $6.25 (for a 13.6% increase!).  Now the businesses that depend on low wage workers to survive will likely cut their workforces to counter this almost guaranteed reality, but they will only do so in step with the decline in retail sales that will build ever more steam after Christmas of 2006.  Since that is the name of my holiday, that is what I am going to use.  If you have another holiday during that period, just make the mental substitution.  Good enough for WalMart, good enough for me.  Americans have not run into the backyard and burned all of their credit cards this month, so we will have a pretty decent Christmas selling season for retailers in 2006, but it will be the last hurrah before entering a 2007 that will see perpetually declining retail sales.

Also, expect a revival of the infamous Windfall Profits Tax of yester-year to be reinstated such that oil company chairmen will only take home $50 million per year instead of $100 million.  Now if you think a Donkey-Led Congress is really going to hurt the oil industry in this country and produce a disincentive for exploration of new oil resources or very expensive development of alternative energy products, think again.  You, almighty voter (or non-voter, whichever the case may be since 60% of you slackers out there couldn't take a half-hour out of your oh-so-busy schedules slurping down $4 Starbucks latte's to actually pull the lever!), are going to make sure that that oil executive takes home at least $75 million by paying higher refined oil prices at the pump, the garage, the parts store, and at the friendly utility company!  There is little factual evidence that the oil companies actually have been gouging us since Katrina; I know we have to curse at someone at the gas pump when it says please pay $30 for a fill-up.  BUT look to our trading partners in China and Southeast Asia before you try to make an oil executive sell his 5th home in the Hamptons or in Greenwich.  GLOBAL OIL DEMAND IS CAUSING YOU PAIN, and the Donkeys are going to try to reduce oil company profits by redistributing wealth to God knows what social program or boondoggle or Pork-Belly-Project to get your vote in 2008.  PROBLEM IS, YOU WILL SEE NARY A BREAK AT THE PUMP or elsewhere cause emerging economies are going to keep oil demand high well into 2009 even as the U.S. goes economically into the dumpster.  Ah, venting is so therapeutic. 
 

2.  Expect Higher Taxes on Financial Asset Sales

Now my wrinkled little mouth (I heard that "big" comment!) is just letting go a giant HEE-HAW with this one, since I am a tangible asset investor and only have any financial assets, less than a new Lexus, in one of my traditional IRA's.  So since I have been discriminated against by the Financial Elite buying our Federal Officials with having a 28% Collectibles Long-Term Capital Gains Rate, I hee-haw, hee-haw, hee-haw with the thought that stocks, bonds, and dividends could be looking at something much higher than 15% for long-term holdings.  Count on 20% prior to 2008, and when Hillary gets elected in '08 with Howard Dean as her VP, you can count on 25% L-T K-Gains rates for these ever-so-easy-to-buy-and-lose-money-on assets.  When you look at it from the Donkey View, it is only the rich that are benefiting from this largess of excess money invested in financial assets (I can see Teresa Heinz whacking Stupid-Troops-Comment Jon Cary over his larger-than-life head when this one gets passed, and it will).  THERE ARE NO COMMON MEN AND WOMEN OF MODEST MEANS INVESTING IN FINANCIAL ASSETS, so let's tax the wealthy bunch of you investors out there and re-distribute some of those ill-gotten gains to more deserving folk like the Sage.  It is only fair, me thinks.

Now, since the Bush Administration has been spending money like an equity-withdrawing homeowner since 2001, I am sure this additional revenue stream of higher capital gain and dividend taxes will go to reducing the Federal Debt.  This tax increase could be presented as a Deficit Reduction measure, and frankly, may get easily through Congress even with the threat of a Presidential Veto.  AND even conservative Republicans are disgusted with the current Administration's permissive behavior regarding Federal Spending under its reign, so the Elephants may form a herd and stampede to look fiscally responsible in preparation for 2008.  Stranger things have happened in the tainted Halls of Congress.

Regardless of which party is in control of Congress going forward, the tendency toward higher taxes is almost assured due to the size of Total Federal Liabilities to the tune of $55 to $75 Trillion.  To attempt to avoid a Collapse of the Dollar, politicians will appear to attempt to get the U.S. fiscal house in order and with a sinking economy and its resultantly sinking tax revenues, higher tax rates going forward are virtually guaranteed.  Since we have a progressive tax system, not my words, it is the old Lenin phrase of "from each according to his means to each according to his needs".

Wall Street has yet to get a full whiff of this reality, especially the reversal of Bush tax legislation giving very preferential capital gains treatment to long-term financial asset sales and dividends.  But stay tuned.  As I forecast last month, the U.S. stock market will begin its Phase II of the Great Bear Market of 2000 right about now.  All of the taxable dollars cannot be moved over into the tax-free realm of retirement accounts.  The selling of stocks will get very nasty at times, this Election 2006 result only one of many reasons why, so you have been forewarned.  Plus, based on that girth I see lurking under the keyboard, you could use the exercise of lugging some gold and silver around!


3.  U.S. Political Instability Will Kill The DOLLAR

I am not going to name names, for fear of breaching my Independent Voter Status (IVS), but given the size of the egos, the size of the mouthpieces, the hardly subdued rancor that has festered over the last 6 years, the desire for a Donkey or Elephant President in '08, and the polar opposite views on international diplomacy and strategic/anti-terror military intervention, these next two years are going to go down in the history books for basic political instability in the United States.  I am not blaming the Donkeys or the Elephants for this budding state of affairs, BUT BOTH PARTIES AND THE POLITICAL SYSTEM THAT AMERICANS HAVE ALLOWED TO DEVELOP!  The old thorn of "not-invented-here" is going to stick in the feet of all of these political critters to the extent that our government will limp along getting little accomplished at a time WHEN ROME IS BURNING.

Our enemies will rejoice as they will deem this rancor as a loss of unified American will to seek out terrorist cells or nuke-arming sovereign states before they put a laser beam on our homeland's shores.  WE HAVE MET THE ENEMY WITHIN AND IT IS US!  The odds of a Stateside terrorist attack prior to the first Tuesday in November of 2008 have greatly increased due to the conflict likely to occur across the Aisle as to military funding by theater, withdrawal time frames, and strategic allocation of forces.

Our creditors and lenders will pull back their foreign funding to seek borrowers of greater economic prospects, more stable political environments, more balanced income and balance sheet accounts, and with domestic currencies that don't guarantee instant financial loss.  The more our foreign owners pull back on financing America's wanton, credit-fed lifestyle, the more the Dollar will sink.  The Federal Reserve will be too slow in increasing interest rates, which it will do starting at its next meeting in December, 2006 and continue well into 2007.  THE DOLLAR WILL TAKE PRECEDENT OVER THE ECONOMY IN 2007.  The Federal Reserve and the Treasury will print Dollars like there is no tomorrow attempting to assure liquidity to a contracting economy, and the additional supply of Dollars will push the currency lower still.  SELL DOLLARS, BUY TANGIBLES.

4.  GOLD AND SILVER WILL SOAR

I am not giving either the Donkeys or the Elephants full credit for this one, but the recent election, being over as a factor even more so than its terminal political results, has lit the fire under the metals that was purposely being subdued to keep those-in-power, in power.  We have just broken the technically significant level of $630 in Gold (if you believe in that hocus-pocus technical stuff!) and $13 in Silver.  November 7th, 2006 was indeed a watershed event, not for the commonly assumed reasons, but as to the chain of events that now will be allowed to occur AND THAT WILL BE MORE LIKELY TO OCCUR.  The interventionists are too busy licking their Pachyderm wounds, and now the Elephants have the Donkeys who can share the blame for the calamity just ahead.  A whole lot of finger pointing, hoof or whatever, is going to occur pre-11/05/08.  Belatedly, we will end up throwing all the bums out before 2020.

Granted, all of my election results listed above WILL CONTRIBUTE TO HIGHER AND HIGHER GOLD AND SILVER PRICES (or I would not have mentioned them, you non-voters out there), but the super bull market in precious metals was already baked in the cake on November 6th.  The election results are just the icing.

Since there will be a quiz on this material, and since all of you watching the news beating the election results to death are barely awake by now, please re-read last month's most sage advice on where I think Gold and Silver prices are going over the short-term.  Go to SageCallsItRightAgain and behold, you will never have to pay for expert investing advice again (ever wonder what kind of mansions some of these "experts" live in?!  Maybe there should be a Windfall Financial Newsletter Writer's Profits Tax!).  And make sure you get out of the burning theater, THE STOCK MARKET, before your drawers are ablaze.  Especially your cash drawers.


NOW TO GO AND THROW MY TELEVISION OUT THE WINDOW.



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December 18, 2006:  American State of Denial Persists.


It must be the added years on my person that makes me grow more cynical by the moment, but I am not at all in a holiday spirit this year even as my company has had a trebling-plus in revenue in 2006.  I guess with the multitudes of bounty comes some introspection, but I would rather concentrate my thoughts on the world around me as we get ready to enter 2007.  Bah Humbug rolls off my lips so much easier than Merry Christmas right now, as I feel like the little, drenched Dutch Boy with his finger in the dike while the citizenry just keeps on ignoring his calls for help and forewarning.  And this little Dutch Boy is really calling for the citizens to help themselves and get out of the way of the pending Tsunami as the walls of economic and financial stability in the U.S.A. fracture to the point of no repair; or at least repaired to a state where the standard of living is significantly lower for Americans.  That the little Dutch Boy has already built his own Golden and Silvery Ark with his free hand and is ready to stand aside from the torrent that awaits to surge into the artificially dry lands beyond is of little consolation to this lad for he hates to see people unnecessarily suffer even though he can be mean-spirited on occasion and stomp a harmless ant on his way to the mailbox.  And it is of little consolation to this metaphorical figure that he did not create the Waves of Excessive Borrowing swollen by a crashing Sea of Liquidity, but will be an affected victim just like the rest, although to a much lesser extent and unlikely to drown financially.

The dike has already failed along certain segments of the economic and financial barriers (domestic auto industry and residential construction), and it is just a question of time before the majority of the ramparts are swept asunder.  But with all this doom and gloom at the coastline of America, you would think the inhabitants of this shoreline would be lugging mountains of sandbags to the fault areas and building Arks of their own, but hardly is that the case.  Wall Street and government officials have been extremely adroit at presenting a quite opposite picture that the American Dike is in as good a condition as ever AND even in a Goldilocks Nirvana for some.  AMERICAN STATE OF DENIAL PERSISTS.  Bah Humbug.

There is undoubtedly water seeping within.  Certainly the likes of major U.S. manufacturers such as Ford, GM, and Chrysler cannot be ignored when it comes to testing the stability of the U.S. economy (and the financial system when you factor in the combined, unfunded liabilities of these behemoths to the tune of $500 Billion plus).  Since Ford Motor Company has just leveraged every asset that it previously owned to obtain a multi-Billion-dollar cash plug for its own segment of the failing dike, to include hocking its own Trademark and Logo, I would bet that Toyota will be making parts for the extinct FMC car and truck line by 2011.  Ford is living, literally, on borrowed time, and effectively selling itself to lenders to survive a few more years so the Golden Parachutes of the Boardroom and Executive Suite have a chance to open before the entity crashes into the dust pile of industrial history.  Just make sure that you can read Japanese before you buy that Ford product over the next several years.  I think this poorly managed company is soon to be swept under, having cost tens of thousands of employees their jobs just this year, with hundreds of thousands of affiliated jobs yet to be extinguished in the years ahead.  The rest of the U.S. auto industry is not in much better shape with market share slipping to the Japanese virtually on a monthly basis.  General Motors comes to mind, but they have not as yet had to borrow massive sums just to fund current operations, much less to fund product design and development.  Take a trip to Michigan if you don't believe me and record the number of For Sale signs you see when driving through established neighborhoods of 10-year to 20-year old homes.  Michigan, home of my alma mater, is in the early stage of a multi-year depression, and I do not mean "severe recession".

Since the little Dutch Boy is perking up as he spreads his Yuletide Cheer across these pixels, let's not leave out that Recession-2000-saving industry of Home Builders and Developers.  We will leave out Mortgage Lenders and the Fannies of Home Lending in this discussion for now, because they are hemorrhaging so badly from subprime loans that are becoming horizontal geysers by the minute that it would be unkind to drown them in any more Dark Waters (such as red ink!).  But having doors that don't close properly in crooked jambs throughout my 4-year-old mansion of 2,400 sq. ft., this little Dutch Boy takes some holiday cheer in knowing that the local lumber company has a lien on my builder's multi-million-dollar home that he started ever so presciently in Fall of 2005; and the fact that he is sitting for over a year now on at least $2.5 Million of unsold homes that aren't getting any younger.  What goes around comes around chortles the little Dutch Boy as he pulls his finger further out of the dike, one foot placed firmly into his Precious Ark.  Since the ATM of the New Millennium Consumer, the bloated American home, has dried up as a source of new consumer spending and has turned into an Underwater Mortgage where market value is sunk below Balance Due, the pain is being evenly distributed between Builder and Buyer as we move forward.  Many builders and developers will start going belly up in 2007 since the cost to carry inventory unsold in neither 2005 and 2006 is going to be terminal for many local builders in particular.  Price reductions have not been even close to adequate in most new developments to clear almost 12 months of inventory in relation to sales, and the days of padding the invoice with options to avoid a riot from new home price cutting are about over.  I fully expect both new and existing home prices to decline anywhere from 10% to 20% in 2007 in virtually all markets across the land, while the National Association of Realtors continues to massage the date for only a 7% price decline.

Let's illustrate the 2006 price decline in residential housing with this little Dutch Boy's own home as an example in Real Money, not phony baloney government or industry statistics.  At the height of the mania, in August of  2005, when my modest 4-bedroom, 2.5 bath, 2,400 sq. ft. lean-to on 1/3 acre of non-permeating land went for $415,000 in a few days, I WOULD HAVE TO PRICE MY LEAN-TO AT $345,000 TODAY TO MOVE IT IN LESS THAN SIX MONTHS!  Whoooaaaa.  Bah Humbug ....... big time!  Christmas is cancelled!  That is a 17% price decline in just over 12 months in one of the strongest employment markets in the country with the Biggest Spender in the World, the U.S. Government, just 80 nerve-wracking miles east of here.  Now if you do a search for homes available for sale in this zip code with similar features, you bring up a whopping 122 in a market where 5 years ago there would only have been 5 or less.  Since this little Dutch Boy is a born-again Scotsman also, dual citizenship or tri-citizenship since I am an American citizen also, I paid cash for this lean-to on Halloween, 2002, a very fitting date.  I have some $265,000 of deflating U.S. Dollars in this joint, and when the price gets to that level sometime in 2008, you will be able to hear my yelps of angst probably all the way to Beijing.  But you know what?!!!  I have always expected to actually lose money on this place because I sold a property at least twice as valuable to avoid even greater pain in the Housing Depression of 2009.

The best way that I have been able to counter this actual loss of wealth, UNrealized as it may be at this moment, has been to invest heavily in the very assets that I sell at Wexford Capital Management.  Granted, some have done quite well in the stock market since March of 2003, but being an aged little Dutch Boy who is no longer a good body surfer, I don't like tempting fate.  Especially in trying to catch a 30-foot wave that will spike my noggin into the sand at any moment, without a moment's notice.  American investors get addicted to one market or the other over time (the easier the money, the more attached they become), and despite the losses most of them are still sporting overall since the 2000 top in stock prices, they come back to the Wall at Broad & Wall, call it WALL STREET, as if the broken dike never washed them into the next county ever before.  They have rushed to the Wall again in the Fall of 2006, and are playing gleefully in the daily gains that will soon turn into soggy daily losses.  Little Dutch Boy don't lie.  Are you willing to bet your retirement and financial future on being wrong about stocks?!  If corporate profit growth has peaked by any measure of same, with mirrors or without mirrors, how can a pre-recession/early recession economy of December, 18th, 2006 provide the revenue growth necessary to keep the S&P 500 at some 18 times 2007 forward earnings???  Instead of playing on the railroad tracks, American investors are playing in front of a badly-fissured Wall that will soon wash their 3-year gains away and erode their financial net worths to an even greater degree than the Tsunami of 2000 & 2001 did.  Bah Humbug to the Goldilocks Economy and All of Its Proponents!

Oh Tidings of Comfort and Joy, don't you find it a little odd that the current Secretary of Treasury is the former head of Goldman-Sachs again, a la Rubin.  I am somewhat encouraged that this zillionaire Government official is actually speaking plainly to all who will listen about the horrendous dangers in today's financial markets, that the Financial Instrument Dike could self-destruct sooner rather than later.  And he has actually put together a monitoring War Room at the Fed that will keep track of all of the flooding the day that the Interest Rate Swap Derivatives markets implode and drown many an American financial institution, hedge fund, and State of Denial Investor (SDI).  Secretary Paulson, a title that must be a little demeaning to this man since he does not take dictation, has stated that A MAJOR FINANCIAL CRISIS IS LONG OVERDUE.  I know he does not drink the same city water that this little Dutch Boy does, probably brought in daily from the shrinking Polar IceCap, but this more than capable financier (forget his politics) knows more about improperly reported, difficult-to-comprehend, overly-leveraged DERIVATIVES than 99% of the people around him, certainly including us commoners.  He knows they are an accident waiting to happen, AND HE PROBABLY ALSO KNOWS THAT INTEREST RATES ARE HEADED HIGHER, NOT LOWER, WHICH IS THE SLAM-DUNK BET OF THE VAST MAJORITY OF DERIVATIVE CONTRACTS OUT THERE!!!  Don't get caught in the trap of using historical parameters to judge the financial markets, because we have never been at these depths of leverage and excessive liquidity.

If a very experienced Wall Streeter comes clean and points out the fissures in the Wall, why do the vast majority of American investors not listen?!  Inertia, stock momentum, laziness, pigheadedness, myopia, too-busy-spending ....... all come to mind.  And some stockbroker twit told them that gold and silver were too expensive to buy, transport, and store.  18% and 40% gains in 2006 for Gold and Silver, respectively, as of this afternoon, are how much better than the S&P 500's performance of 14% which was accomplished with far greater fundamental risk as of today?????  And done with Real Money, not the Funny Money paper variety.

When you stop laughing that derisive, Hyena-like laugh that your partner finds so irritating, you will eventually come to the realization that there were several financial crises in America in 2006 which received little or no press.  Most of us who know how to read are aware of the ballooning delinquency, default, and foreclosure rates in residential real estate in 2006, but these are personal financial crises that are still not large enough to show up repeatedly on the Nightly News; they are still less than 5% of all outstanding mortgages. When they become over 10% by Spring of 2008, people will take notice.  Since we are operating under an environment cloaked in national security opaqueness, you can rest assured (albeit not reassuredly!) that the condition of Fannie Mae as just one example is deteriorating daily and headed for a humongous government bailout.  I have to pull one finger out of the dike for a moment to cover my sparsely-toothed mouth while I laugh uncontrollably, flooding Lower Manhattan in the process, but when the earnings re-write for Fannie was only $6 Billion recently when pundits expected $8 Billion plus, the Street leaped for joy!!!  AND THAT IS BEFORE THE LOSS EXPERIENCE OF RECENT MORTGAGES HAVE TRANSLATED INTO ADDITIONAL WRITE-DOWNS OF FUTURE EARNINGS AND, HENCE, THE ASSETS OF THE LARGEST MORTGAGE LENDER IN THE WORLD??!!!

Graphs are courtesy of Paul Kasriel

This is hardly the Age of Financial Results Transparency.  If you think the Enron Meltdown came unexpectedly, stay tuned.  For the above reasons and many more that I will share in the months ahead, you lucky highlanders, I expect the Precious Metals to have another Dike Breaking Year in 2007.

Expect Gold to have reached $850 per ounce and Silver to have reached $17.251535 in 2007 before Nancy Pelosi hangs the mistletoe in her Congressional doorway this time next year.  And since I imbibe less and less libations as the years progress, being that my brain is water-logged enough with little Dutch Boy Dike analogies, just send me a 7-pound box of Belgian dark chocolates cause they are supposed to have lots of antioxidants.  

MERRY CHRISTMAS, HAPPY NEW YEAR, AND HAPPY HOLIDAYS, TO COVER IT ALL, TO ALL OF YOU AND YOURS.   Bah Humbug.


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