A Look at the Fundamentals


First I would like to update you on the latest readings for my IDW. As you can see, it is definitely rolling over now. But more importantly, it is the items within the IDW that are causing me the greatest concern. The items that are rolling over are not the BS markets that are goosed to create Keynesian “animal spirits,” but rather markets like those for copper and oil, silver and the whole complex of commodities that are used in the real economy that are causing me the greatest concern. While items like Building stocks and Auto stocks should be reflecting the real economy, realize that those markets are largely false as well, because by government and central bank dictates, not by free markets, money is thrown at buyers of houses and autos by the central bank tooth fairies in a phony attempt to make believe things are better than they really are. That is totally consistent with the hocus-pocus notion of Lord Keynes that all we need to do is keep people optimistic to keep the economy growing. Never mind if they are broke and can’t pay their rents and put food on their tables. We will just make them happy with more debt money. Trouble is, after so many debtdecades of this big Keynesian lie, Pinocchio’s nose is beginning to become so obvious that not even the deranged creature like Paul Krugman can ignore. Look how greatly Pinocchio’s nose (red line –debt) is rising, relative to the blue line income. This chart is certainly out of date as it extends only through 2010. Since then, massively more debt has been created because it is the raw material from which money is manufactured with our current fraudulent monetary system.

You need not be either a rocket scientist or brain surgeon to understand that this changekind of relationship cannot endure forever without severe consequences.

Now, I firmly believe those consequences are beginning to be revealed in my IDW shown above on the prior page. On your right is a tally of the performance of each item in my IDW since the 4/28/11 QE stimulated peak. Note that all of the sectors in my IDW that gained (green Pct. increases) are equity values. The biggest gainers of all are those that are most directly manipulated by politically-motivated central bank money creation policies. By contrast, the commodities that reflect demand in the real economy have been hit hard. The only exception to that is the Chinese stock market, which has been in a substantial correction and may indeed be signaling an enormous credit market implosion in the second largest economy in the world. This is signifying to me that John Williams is absolutely right in suggesting that we have never evolved out of a depression since 2008-09.

52-weekPerhaps the biggest canary in the coal mine is the 97.22% decline in Global U.S. Dollar Liquidity (GUSDL). This statistic was made known to me by Charlie Clough of Merrill Lynch during the Asian Crisis in 1998. This measure is simply a composite of the St. Louis Fed Monetary Base plus Foreign Bank Holdings of U.S. dollars. Note the astounding year over year annual growth of Global U.S. Dollar Liquidity. It peaked at an astounding annual rate of growth of 48% in January 2009! Note the erratic gyrations dating back to 2005 when I started charting this data. When low levels like the current one exist, credit market stresses and strains inevitably follow, which are then followed up with still more of the same Keynesian rat poison that is killing the entire global economy. Bad as it is, that can and I believe will be good for gold and silver bulls.

Now let’s take a look at the composition of Global U.S. Dollar Liquidity. It is the massive decline in the foreign bank U.S. dollar holdings as a percentage of the entire GUSDL that I think is most noteworthy. As the world foreignwas being conned by Alan Greenspan into buying into “American exceptionalism” central banks around the world were taking on an ever increasing number of U.S. dollars. The peak occurred on September 22, 2008, right before the Lehman Brothers failure that set off the first leg of what I firmly believe is the beginning of the end of Western culture as we know it. On September 22, 73.4% of GUSDL was held by foreign central banks. Of course the precipitous drop occurred with QE1 and it seems as though confidence was building that the economic aircraft, which seemed to be spinning out of control to an imminent crash, had righted itself and was building a base at or around 60%. But by 2010 with additional QE, foreign central banks were not at all interested in taking more U.S. dollars onto their balance sheets.

At the present time, foreign holdings of GUSDL are around 45%, based on official accounts. But my sense is that this number will likely plunge still further, given recent reports of massive sales of U.S. Treasuries by China. We now know that a massive buildup of U.S. Treasuries on the central bank of Belgium was really being held on behalf of the Peoples Bank of China (PBOC), which has been used as a clandestine means of selling off U.S. Treasuries owned by China even as it has been importing enormous amounts of gold and certainly far more than the officially reported 600 tons reported by the PBOC.

Just over the last 90 days, some $224 billion worth of U.S. Treasuries have been offloaded through Belgium, and JP Morgan Chase reported that the Chinese have dumped $520 billion over the past five quarters. It may be possible then that an implosion of debt in China is pushing that country to liquidate U.S. Treasuries for real money and real assets while the dumping is good! And this is taking place as massive amounts of capital are flowing out of China.

I do not think it is an accident that at the same time the BRICS are moving aggressively to set up an alternative reserve currency to the U.S. dollar. Keep in mind that China is importing huge amounts of gold and it is the biggest gold producer in the world. At the same time, Russia is also building its gold reserves. And we know that India is also an enormous importer of gold.

Indoctrinated economists with PhD’s from prestigious schools may think gold is a barbaric relic, but in fact I think they will soon learn that the big fat lying central bankers are the barbaric relics of our days because their lies, like Pinocchio’s nose, are about to become so obvious that the truth can no longer be hidden.

U.S. economic numbers are not nearly as strong as our policymakers pretend they are. So we in the U.S. are fooling ourselves. But plunging prices for commodities like copper and oil in my IDW as well as plunging sales at Caterpillar (the CEO of that company says we are already in a global depression) and plunging revenues for the trucking industry in the U.S. and a non conformation of the industrials by the transport averages all suggest that the day of reckoning when the emperor is seen as he really is—naked—is at hand. You can issue debt and pretend it is money for a while. But when the debt grows exponentially and income at best grows in a linear manner, a day of reckoning is at hand. Justice may be served. But don’t let anyone kid you. When this global house of cards comes down and the sins of our central bankers are to be paid, we will likely no longer enjoy the splendid material comforts and safety we in the U.S. have been so privileged to enjoy in the Post WWII era. Though as I stated above, it would be arrogance on my part to proclaim the end is near, because that is in the hands of our Creator. By the same token, it would be foolish to continue buying the lies propagated by CNBC, Bloomberg, and other instruments of Bernaysian propaganda that want all of us to drink the Kool-Aid without question.

So, I believe it’s way past time to begin preparing for the impending day of reckoning. This is more than anything a spiritual warfare. Indeed the big Keynesian lie, that you can magically create money and that money is wealth, is a massive satanic lie. It is a direct confrontation to the notion of private property. It is direct theft and, as you know, honoring private property ownership is one of the 10 commandments we must keep if we are to have an orderly society. But if you see the handwriting on the wall, you understand that fiat money is not only fraudulent but is also self destructive. So now more than any time, when prices are still very low, it’s time to build your savings in asset-based money rather than fraudulent, debt-based U.S. dollars and other fiat.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.