Making
money in the financial markets can be done.
It has been done. But there is
one thing one needs to know. Most
individuals who play the markets are mostly wrong most of the time. Take, for example, the most respected and
influential newspaper of our day, the New York Times. At the turn of the new century, an editor
from the Times published a book predicting that the Dow Jones Industrial
Average would go to 36,000 (from 11,000) in 3-5 years. The Times owners were so carried away by this
concept that they decided to buy their own stock, which was then $40 per share,
and they invested $2.7 billion in this project.
Since
that time, the price of almost every object in the economic universe has gone
up except for New York Times stock. In
February 2009, it dropped below $4 per share, a loss of over $2.4. Billion. So much for journalists assuming the role of financial
advisors. More importantly, hard data show that the investing public comes rushing
into the market right at the top and then rushes to sell at the bottom. Look at how many people rushed to buy the dot-com
bubble in early 2000 when the S&P 500 and the NASDAQ QQQQ were at their
highs. Similarly, people rushed to sell
at the last important bottom (780 DJI in 1982).
When I first began to trade securities way back in the 70’s, my sainted grandmother
would tell me “ Sonny, there is only one rule on Wall Street- buy low and sell
high.” Even many mutual funds, managed
by professionals, fall victim to this.
At important market bottoms, you will find most of them loaded up with
cash. At tops, most are fully invested.
What causes this irrational behavior? Is it
avoidable?
The principal
cause of the mass wrongheadedness of the investing public can be traced back to
1948, the year Harvard University appointed John Kenneth Galbraith to a chair
of the economics department. This was
part of a campaign by a group of New York bankers, led by the Manhattan Bank. In 1933, the bankers acquired the special
privilege to create money when the Emergency Banking Bill was signed in to law. Galbraith and his banking pals promoted Keynesian
economic theory which holds the creation of money out of nothing is the road to
prosperity.
Well,
if printing money creates wealth, then counterfeiting ought to be
legalized. Printing excess money has
been tried many times in history, but it always decreases wealth. When John Law, the Scottish economist (and
also gambler, womanizer and criminal), Controller
General of Finances of France under King Louis XV created the world’s first central bank in 1716, he printed
enough money to nearly bankrupt the French government, and the thousands of
investors who bought his bonds and paper. That is, excess money in the system
debases the currency, and causes prices to rise for all. Any government that employs deficit spending,
and prints money to monetize the debt steals from its citizens by creating price
inflation for almost every economic good.
The Federal Reserve Bank creates
money out of nothing, and prices have increased since. From 1793 to 1933,
prices in America were stable. An
average item cost the same in 1933 has it had cost 140 years before. Since that time, average prices have risen by
a factor of 17 times. Wage rates for
most people have not kept up with price hikes, so most people see their wealth
wither away, year after year.
The
action of the Manhattan Bank in 1948 was part of a larger campaign by a few New
York banks to take over the teaching of economics in America. They infiltrated their “economists” into the
most prestigious universities, and the smaller schools rushed to imitate the
leaders. Soon there was hardly a
college/university in America which did not teach from the gospel of Lord Keynes.
The result of this is that there has been
a half century of students who have been “educated” in Keynesian economic
theory. Many graduates took jobs in
various sectors of our economy as economic reporters, columnists, politicians
and economic advisors. Many still exhort
the munificence of central banking, the benefits of federal spending and paper
money.
For
example, you have heard of the taxpayer bailout of Wall Street of 2008. This was a lie. The money which went to Wall Street was not
raised by taxes, and there was no tax increase in the bailout bill. The extra money was created out of nothing (a
flat one trillion dollars). The average
American will pay for this, but he will not pay via the IRS. He will pay as prices rise for virtually all
goods and services due to the extra money in circulation.
And
now we come to the reason the average person cannot make money in the financial
markets. To justify the Wall Street
bailout, the Washington central planners, lead by Federal Reserve chairman
began to warn the second Great Depression was imminent. The propaganda narrative for this was well choreographed
in the media and the Administration- massive deflation is the disease and the vaccine
is massive government stimulus spending.
But you can’t just
create trillions of dollars out of nothing.
The Fed increased the money supply by $1.6 Trillion. And it was just the beginning. But there is an
awesome consequence- massive inflation. Prices will be going up, aggressively and
massively, going up as never before in American history, back to 1780.
If
you want to protect yourself from this massive rise in prices at the present
time in history, you need to be in commodities.
Specifically, you need to be in the most user-friendly commodities,
namely gold and silver. The propaganda
of declining prices has led some into dollar denominated securities in a “flight to safety.”People have flocked to buy US Treasurys at
1/8% interest. When prices in America
double or triple, they will be sitting in fixed income instruments worth half or
one-third their face value in purchasing power.
The simple truth is the system is set up
for the Washington central planners and their associated vested interests such
as Wall Street, to gain. For this to happen,
the government needs to steal from its citizens by imposing higher income and
capital gains and estate taxes, stealthy inflation taxes, and costly and
pervasive (and unconstitutional) regulation.
So,
to make money in the markets it is necessary to understand that the Washington central
planners and their paper money minions are lying. They will publish misleading
reports and spin every event to burnish their own reputation for political survival.
Newspeak will fill every newspaper, magazine, TV news show, official blog and
podcast. Your friends will pick up this misinformation and pass it along to you
at parties. It will be everywhere.
To
combat deliberate misinformation, we publish The Gold Speculator, the investment newsletter for thinking people.
Our mission is to help individual investors and speculators make better
decisions about their money. We embrace
the Austrian School of Economics, and the principles of free markets, private
property and sound money. We employ
technical analysis to identify opportunities to gain in gold, silver and gold
and silver stocks. Research into the
truth is difficult and time consuming; it is the stone we must push up the
hill.
Best of luck!
Scott Silva Editor, The Gold Speculator
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