Why is it that we never seem to learn? Ben Franklin said, “Experience conducts a dear school, but a fool will learn in no other.” Will the writers for Gold Eagle, such as myself, have to go through this all over again, warning readers NOT to buy stocks? One of my best friends is buying and he thinks, “they’ll go up.” They might indeed, until that magic point is reached, when they are even more over-priced than they are now, and then poof!
What is that magic point? I have thought of consulting astrologers, to see if they can shed some light on when and why masses of people decide to do something, be it smart or foolish all at once. They do, and it cannot be denied. When the NASDAQ crashed, the P/E ratios weren’t any different that they had been the week before, or month before, but for some reason, everyone decided to sell almost at one time. Why? I do not know. It’s the same in the precious metals business. At some point, the phones ring off the hooks, and it is not a sudden price increase or decrease, or a stock market fluctuation. There must be some mysterious force which governs men’s behavior.
The number of people selling their expensive real estate, especially in California, because of fears that over-priced market will bust, is also amazing. No trouble selling either, because so far, while prices don’t seem to be going up, and they take longer to sell. They do sell eventually at current high prices. No one has a clue, it seems. When properties stay on the market for a longer and longer time period, and prices don’t go up, it means, to me anyway, that they will soon go down. There seems to be buyers for over-priced real estate, just as there were buyers of stocks, when the NASDAQ crashed. When the crash came, there were simply lots more sellers than buyers. In 1929, there were no buyers it seemed, although then, as now, there were those who said, “The bottom has been reached,” even though it hadn’t come even close to being so.
For three years now, the stock, bank, and other trades which would benefit, have been saying; and this could be a quote, I have heard it to often, ’the economy is poised for a recovery,’ or ’we’ve turned the corner, and are on the way back up,’ or ’while we’ve only had a 1.7% increase in the growth, we look for 3 to 4 % in the immediate future.’ Oh sure, and oil based paint is making a comeback. The so called “1.7% growth rate in the economy,” surely is coming from ever more expanding government, armed forces, and political hacks, which seem to be multiplying like mosquitoes in the Everglades. There are so many fat witted “consultants,” and other useless homo sapiens grounding themselves in that den of iniquity, Washington D.C., that no wonder there is a “1.7% growth.” That 1.7% is not a productive increase, because the GDP INCLUDES GOVERNMENT SPENDING. Even Wal Mart, that champion of importing Chinese stuff, has had a slow down. Every day, more and more companies move to Mexico, and every day, more and more employees get the pink slip. Still, as the Greenspan groupies utter, “we’re on the road to recovery.”
Richard Russell, who of late has begun writing for this august web site, has said, in his latest news letter, that in his opinion, gold and the Dow will cross at 3,000. He is rarely wrong, and has been analyzing the stock market since before many of us were born, and doing it with alarming alacrity. Russell believes gold will cross the Dow at 3,000, on its way up, and the Dow will be going the opposite direction. I chose to believe Russell, far more than the Greenspanites. Greenspan knows better, but he so enjoys his sybaritic life style, he hopes he can keep it going just a bit longer. As a former champion of gold and objectivism, he still believes I am sure; but the rewards are far greater in his present circumstance.
The dollar is falling out of bed, foreign investors are gradually pulling out of America, unemployment is “officially” at 6%, and in all probability a lot more, and everyone I speak to, says their business is way off. I talk to a lot of people, believe me, in all states, plus Canada, and overseas. Their situations, in 90% of my queries are, that their business or place of employment is, “down,” “way down,” or worse. I live in a wonderful little town, and this, as well as all nearby towns, have seen their sales tax collections go down of late. Signs look sinister, but America is buying stocks with an average P/E ratio of 32, when to make them really attractive, it should be from 8 to 10. Why? One reason, is that the interest rates are so low, that people remove their dollars from banks, and all they can think of are stocks. They are afraid, rightly, of real estate, have enough new cars, and with their limited exposure to the real world and history, they follow the CNBC lead, and buy stocks, making them go upwards, even though they are a terrible investment.
They’ll buy, till that invisible wave hits them, telling them to sell. Then, all at once, millions will do it, and a couple of trillion more will be lost. Headlines at the Bloomberg web site Thursday morning are, “Europe on brink of recession as economies of Germany and Italy contract.” (Europe has been in recession for several years), and, ” Industrial output in US falls. Plant use at two decade low.” On the boob tube also Thursday morning, a moron from the Chicago Board of Trade, when asked why stocks go up when there is so much bad news, said, ” The market has discounted bad news.” Now there’s an intelligent answer.
Throughout history, the majority have rarely been correct, be it in Noah’s day, Jesus’ day, 1929, 1985, or currently. Take any situation when much money is lost, or calamities have befallen the majority, only a few have survived. Survival depends on clear thought, and decisions being made, which are based not on what everyone else is doing, which is usually wrong, but what you think is correct, based on your thought processes, history, and sheer logic. All three of these have to make your decision obvious at least to me. New car with zero interest? Of course not, because the minute you drive it off the lot, it is worth thousands less than you owe for it. Why ever buy another new car, when for thousands less, you can buy a practically new one, which will last just as long? Expensive, over-priced, real estate, in swank communities? Not at the present time, because these will be sure losers. Stocks? Not with P/E/ ratios of 32 to one, thank you. Bonds denominated in dollars, which they all are? No, because the dollar is a shrinking measurement. Antiques of all sorts, including autos, furniture, paintings, etc? Yes, if you already have enough easy to re-convert into legal tender things, such as gold and silver. Pay off the mortgage? Not if you have low interest, and are certain of being able to service it, because you will be paying it off with progressively “cheaper” money. Have lots of “cash?” No more than is needed for immediate needs, because it loses value as it sits in your account or wallet. Buy a business? Sure, if you can find one for two times a year’s net, and you believe it will continue to prosper. Lots of decisions to be made in life, and those with brains, and an ability to be logical, always survive in hard times. Protect yourself.