** News and Nonsense
Nonsense: Russia and Putin are the Cause of … nearly every problem we can name. Or is the “Blame Russia Thing” a diversion?
The definitive statement on Russia and Putin:
Sanctions on Russia:
From Mish: “Make America Safe: Put Congress on Permanent Recess”
From Zero Hedge: “House Passes Veto-Proof Russia Sanctions Deal”
The real reasons for sanctions on Russia:
“The bill is aimed specifically at the Nord Stream 2 project, with BP and Shell as the largest European partners, and which the US considers as detrimental to its interests.”
“…the controversial Nord Stream 2 project, which pans to get Russian gas directly to Germany through the Baltic Sea…”
Nonsense: Housing Bubble
From Mish: 13-Year-Old Kid Buys $552,000 Home
“What can possibly go wrong?”
** The Senate:
** EARLY WARNINGS:
From Zero Hedge: “David Stockman Warns …”
“The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.”
“Never has there been a better opportunity to get out of harm’s way, nor a clearer warning that a thundering crash is waiting just around the bend.”
From John Mauldin: “Three Black Swans:”
“The attitude among central bankers, who are basically all Keynesians, is that messy reality should not impinge on elegant theory.”
The Three Black Swans are: “Yellen Overshoots,” “ECB Runs Out of Bullets,” and “Chinese Debt Meltdown.”
** CENTRAL BANKING:
Yellen Testimony on July 25:
Short summary: Yada “relatively soon” yada, dollar down, gold up
More Details: Read Dovish Fed Admits Inflation Weaker
“Pensions and China are the only two things that matter!”
“You seriously don’t even consider the crushing weight of the pension avalanche that is bearing down on us?”
“”You don’t even take into consideration what’s happening in China?”
Flawed models produce flawed results.
Revenue, Expenses, and Debt:
Congress, Presidents and The Fed have created this. Will they fix it?
From Zero Hedge: “Bolivia’s President Declares ‘Total Independence’ From World Bank and IMF”
** GOLD, SILVER, AND MINING STOCKS
In round numbers:
- Depending on the mine, it takes 5 – 15 TONS of ore to extract one ounce of gold.
- Mines produce about 2,500 metric tons or 80 million ounces of gold per year.
- At market prices annual mined gold is roughly $100 billion per year.
- Central banks have created “from thin air” about $1 trillion per year of “funny money” since the financial crisis.
- Amazing! Too much “funny money” produced, not enough gold mined.
Conclusion: Gold is undervalued and “funny money” is overvalued. That will change in time, perhaps quite soon.
Examine the graph of the S&P 500 Index since 1984 and compare to the graph of the XAU – an index of gold and silver mining stocks.
The S&P 500 Index has increased by a factor of 20 while the XAU has made minimal progress. There are many reasons including:
- The Fed’s easy-money policies support the S&P 500 Index and the bond market.
- The Fed, other central banks, and governments – so it has been reported – discourage gold ownership, gold mining, and gold price increases. Central banks devalue their currencies, encourage consumer price inflation, and promote higher prices for stocks and bonds.
- The currency devaluations increase gold prices while High Frequency Trading, gold leases, gold sales and “guidance” discourage gold prices.
The result is that the S&P rises rapidly, gold prices rise more slowly, and the XAU index of gold and silver stocks has gone “nowhere” for 30 years.
Consider the ratio of the XAU to the S&P 500 since 1984 – the beginning of the XAU data.
Conclusion: In 30 plus years the ratio has declined from 0.80 to about 0.03. The ratio is near all-time lows. Expect the ratio to increase when gold rallies, propelled by failing confidence in fiat currencies in general and the Petro-Dollar in particular. It will happen, perhaps soon.
Gold stocks are volatile. They will rally by a large factor in a short time, particularly when gold heads skyward.
Consider the ratio between the XAU and gold. Central banks devalue their currencies, and consequently gold prices rise, along with most other prices, but the stocks of companies that mine gold languish. Strange!
Seasonality for S&P 500 and Gold
Not only is gold near the most undervalued relative to the S&P 500 ever, but the seasonality charts suggest right now is an excellent time to sell stocks and buy gold. Looking back over the past 50+ years, we see that stocks tend to decline during August and September.
Conversely, these are two of the strongest months for gold and mining stocks. Therefore creating an excellent opportunity to sell short stocks and go long gold. You can choose one of these trades or set up a pair trade to take advantage of the current XAU to S&P 500 ratio and upcoming seasonality trend.
The “Powers-That-Be” approach:
- The economy is doing well, there will be no crash in Yellen’s lifetime, and buy stocks (but not gold mining stocks). What could go wrong?
- Distractions are necessary, wars are essential, we must promote profits for the banks, military contractors, lobbyists, and the medical/pharma/sick care complex. Collateral damage is expected.
- Paraphrasing Churchill, “Central banks will do what is right, after they have exhausted all other alternatives.”
- Gold prices will rise, but slowly, so people maintain confidence in failing fiat currencies, unnecessary central banks, and “the establishment.”
- Rats! China, India, Turkey, Iran, Vietnam, Russia and others want gold, lots of gold, not dollars. Fire up the distraction machines and issue threats. The dollar must be supported at all costs.
- Blame Russia and … others. If war is necessary …
The Alternate Approach:
- Unbacked fiat currencies inevitably fail. This is especially true when politicians and central banks are unreliable and irresponsible as stewards and managers.
- Gold has been real money and a store of value for many centuries. Individuals must protect their purchasing power from central bank devaluations. Buy gold! Pension plans, corporations, governments, and western central banks may eventually acknowledge the necessity of gold. It is better to be early than to “play catch up.”
- There will be resistance to any changes that potentially harm the “Powers-That-Be.”
Do your own due diligence, but gold and silver bullion and gold and silver stocks look like long-term buys. This assessment is based on the belief that central banking and creating ever-increasing debt are dangerous practices that will inevitably fail.
- Another week, another Dow high, central banks “printed” billions of fiat currency units each day, and global debt – already outrageously high at over $200 trillion – increased. How high will gold rally when the “funny money music” stops?
- Gold and silver are inexpensive and will rise substantially.
- Prices for gold and silver mining stocks have been crushed and will rally – perhaps soon.
We believe precious metals are bottoming and about to break out following the summer doldrums. August and September are typically two of the strongest months and we have 3 highly prospective junior gold stocks in our sights. Subscribe now to get our top stock picks, monthly newsletter, portfolio and trade alerts:
Article written for Gold Stock Bull by Gary Christenson of The Deviant Investor