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November 17, 2005

The reason why gold is moving, Thurs., Nov. 17, 2005, 2:39 PM

I have to chuckle how the sell-side does not want to point their clients to the real reason why gold is moving, which can be summed up in a single glance at the two charts below " CPI and PPI in the United States. I don't want to bore you with additional details, but you can take it as gospel that inflation facing half the population of the world today is averaging close to ten per cent, and growing much faster than the obvious trend in America's CPI/PPI. As the U.S. is importing goods priced in the aggregate at roughly $600 billion (annually) more than its exports, and since about half its imports are coming from high inflation nations, the U.S. is importing inflation, as well as sowing the seeds for it via over-priced housing and now from increased wage demands. So the inflation picture in the U.S. is not getting better.

Here is the Consumer Price Inflation (CPI) chart followed by the Producer Price Inflation (PPI) chart.

I also had to chuckle over the reports I received today from staff and clients of Humungous Bank & Broker (the Citigroup's and Goldman Sach's and so forth) where the in-house expert is pointing to Russian central bank buying, or the copper trade mess-up in China, or the surge in buying by the India market, yada yada.

The financial services industry in the U.S. refuses to acknowledge facts. They do that every time those facts stack up against their vested interests. And if those facts are looking like too much tough competition, well they simply either change the data, spin the data, or now with their intention re M3, hide the data.

There isn't a person alive on the buy-side who woke up this morning and thought to him or herself that prices went up this year by 2 pct. All they need to do is look at their family budget or their company budget, or the market price of their home to know better than to believe the government data. Even if you happen to be a computer like me which doesn't need food or gasoline, you know that your electricity, your telephone, your insurance, your health costs, your loan costs, and on and on, have increased multiple times 2 pct.

So why the nonsense? Does the sell-side just take the buy-side for fools?

I mean we have our share of PhD economists, and Wharton School MBA's, and so forth, and some of us switch in and out of the sell-side, so we shouldn't be taken for fools. Why then does the sell-side continue to play this game?

I think the answer is just as simple as the one for why gold is moving higher in price, which is obviously inflation. The sell-side simply has financial interests that oppose those of their buy-side clients. This is not a goose and gander type situation. The fact is that we are on opposite sides of the fence.

The fact is that we are at war. Them against us. Us against them.

They throw all the mis-truths they can, throw up the smokescreens, and then, under the cover of darkness, hit us with flanking action in an effort to plunder wealth for their side.

In return some us go in front of so-called adjudicators, such as government, which their side has sponsored by paying the bills to get elected, and we are rebuffed -- as I was at the Senate of Canada Banking Committee and the forum of Canada's securities commissions, in 1998, where I told them what the problem is, only to be ignored.

The sell-side not only wants to trade against us, i.e., wage war against us, they also want to be the only party under law who can be our financial advisors, and the only party who can handle our financial transactions. And after the 1933-34 Securities Act and the subsequent formation of the Government's Securities & Exchange Commission, they took that right from us.

Oh periodically a good guy like Eliot Spitzer comes along and slaps the sell-side with fines of a billion here, a billion there. But what good is that? The billion just happens to be the USD billions, and guess who prints the USD. They just print more.

It's the same old game, played since the Great Depression. You take $2.4 billion from me, and I take $24 billion from you. That btw is just what they took this year, net net into their corporations. How much they took for their employees, and by their employees is multiple times that figure.

And we on the buy-side sit there and say, what pocket do you want me to put it into, and have a nice day golfing or vacationing; while in our case it's always the end of the month and a USD short.

So no matter how bad inflation really is, the sell-side can tell us it's only 2 pct. Why? Because they can. They have the government on their side; they have the 1933-34 Securities Act on their side, and they have the SEC on their side. Why? Because they print the money.

And the more they print, the more they have to convince us it's worth something.

And that gold isn't.

Before I print the chart of the TSX Gold Share Index Fund, which started in 2001, at the bottom of the inflation cycle, let me remind you that the Sell-side and Big Media through Talking Heads like Larry Kudlow are in your face nightly to tell you that gold shares are pure speculation" and stupid investments" that have gone nowhere in the market. I beg to differ.

Let's look at the chart. And let's think again how Humungous Bank & Broker could be saying that this phenomenon started a couple days ago somewhere in Russia, or China or India. Finally, let's think about the growth of the M3 U.S. money aggregates, and the CPI/PPI data above, and think for a moment how bad this data would really look if we were told the truth.

The point of this exercise is that I understand and appreciate the job of the sell-side. It is a necessary one. For many years I was proud to do it. I even named my boat Dream Merchant". But then I was taken advantage of by the sell-side, and decided to help the buy-side even up the field. I did that because I also know what working for a living means, and how employees create wealth for employers, and hope to share in that wealth to provide a better living for themselves and their family.

But what is happening here is that the buy-side has an uphill struggle, against massive odds. At times, the nonsense gets so bad the buy-side simply has to turn to gold in order to protect their wealth. And that is what is happening today, and has been since 2001, when the owners of wealth finally got the message they could no longer, after being misled by the sell-side, no longer trust them, which is when the buy-side started turning to gold.

And what we are starting to see in the marketplace is that the sell-side have figured it out " that they can no longer tell stories that lack credibility " and they are jumping onto the gold wagon, and turning it into a gravy train. This could go on for some time.

The final point here is that a couple days ago, I pointed you to a ROBTV interview of Bill Gross by Amanda Lang (Squeeze Play) where the PIMCO capital manager looked the camera in the eye, and said, the pendulum has swung; it's now time for the workers to get their piece.

And for that honesty, albeit just a glimpse, I have to respect the person.

It is, after all, time for the worker, the family, the consumer, and the buy-side. For 25 years, Humungous Bank & Broker (and those who control the money) has transferred more wealth to their side than at any time in the history of mankind. It is now time for a little social equity. It is now time for society to reverse that process, which they can do through holdings of gold.

Posted by Posted by Bill Cara on November 17, 2005 02:39:45 PM | Category: Gold

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