“When I read dozens of advisories, I sometimes dream that economics could be simple. How about this: the US Treasury issues bonds, the Federal Reserve buys these bonds with money it creates with the computer, money brought about from thin air. It’s money that nobody worked for an nobody took risks for. The newly created money amounts to over one trillion a year. It’s taking more and more newly created money to produce less and less in the Gross Domestic Product. That’s a trend that could easily end in hyperinflation.
Friday’s market provided a hint of a melt-up. (Ed Note: Friday he refers to is Dec 6th)
Subscribers with strong stomachs may be indulging in this melt-up. Others with weaker stomachs are probably on the sidelines. My original thinking is that this melt-up would be so powerful and so insistent that few would be able to sit on the sidelines and watch. In investing, the ticket to success is to take big profits and small losses.
Philosophically, what do you gain when you make a killing in the market? Probably a more luxurious life, and a feeling of well being. But nobody can take his profits with him. Which is why Warren Buffett and Bill Gates are giving their money away while they are alive.
I never ask subscribers to do what I wouldn’t do. And what am I doing? If I buy anything here, unless I hold it for a year, I’ll be subject to short-term capital gains tax. Since I can’t be sure that this advance will last for over a year, and thus give me tax break, I’m not going to enter this market.
Gold is another story. I continue to think that gold is building a base and that somewhere ahead gold is going to surge. For now I’ll sit with my bullion and cash and patiently await developments.
Is this the beginning of the melt-up I’ve been talking about? It’s too early to tell. But if there was a time to speculate, this may be the time. Personally, I haven’t got the nerve to join in on the festivities. Boils down to a matter of – to each his own. I like the gold action. And this is where I put the bulk of my money.
By the way Sotheby’s just sold a pink 59-karat diamond for $83.1 million, a world’s record for any jewel. It’s a mad, mad world. Who can forget the Graff Pink that sold for $46 million by Sotheby’s in Geneva. Big money is putting millions into one-of-a-kind tangibles. Like Chinese gold-buying, it’s all an escape from the dollar. And it may well lead to hyperinflation, assuming the Fed continues on its course. I continue to believe that gold is constructing a huge base.
Everybody knows that it’s dangerous to arrive late at the party, but it seems that’s where we are. Is the stock market really on thin ice? And is the gold market really on the edge of an upside explosion? Nobody knows. Meanwhile the Fed controls the sword of Damocles, which is hanging over the market.
I can’t prove it but I suspect an inflection point for gold is close at hand. The Chinese, who own a massive amount of US securities, have become openly worried about the US dollar. The gold that has been shaken out of weak and worried US hands, has been shipped to the East, and particularly China. China has imported a net 986 tons of gold through Hong Kong during the first 10 months of the year.
China may not be so much intent on backing its currencies with gold, but in protecting itself from a potential collapse in the US dollar. From the US standpoint, it’s now a case of “inflate or die,” and much of the world knows this. Thus if the US decides not to default on its massive debts, it will have to resort to hyperinflation. If this happens, the US will single-handedly tear the world monetary system apart.
What worries me is that governments will do whatever they have to in order to remain in power. This can result in confiscation of the assets of US citizens. In the end, we only borrow the wealth during our lifetimes. We don’t take it with us. But the government can take it from us. Should this happen, I’m afraid we’ll see blood in the streets. America’s massive debts will ultimately upset the world’s monetary system. There will be no escape, but there will be a diversion into spirituality. This is not the time to give up on your gold. I suspect gold’s inflection point is near.
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About Richard Russell
Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.
Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.
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