Ounces of Truth, Shares of Illusion

Don’t worry, disheartened Goldbugs- if you can pull yourself away from your shiny rocks for a few minutes, I have a killer stock play that will help ease your considerable pain.  A truly great growth company that has averaged 12% gains over the last six years AND pays a meaty 2.7% dividend.  It is highly rated by analysts, earning a Schwab A rating (top 5% in its sector) to go with a Strong Buy rating from analyst at Citi, Bank of America, RBC Capital Markets and UBS Warburg. Goldman Sachs analysts love this one, from fabled stock guru Abbey Joseph Cohen who has recommended this stock repeatedly, to Goldman’s David Fleischer who recently called it the “Michael Jordon” of its sector.  And if you are worried about its debt or capital structure, please note that Fitch, Moody’s, and Standard & Poor all give its bonds their highest rating, Investment Quality.  Despite the increase in the price of this company, earnings have been rising even faster, increasing from .20 cents a share to 1.01 over the last nine years!  As if that isn’t enough, the big boy managed money professionals like Janus, Alliance, and AIM all hold large (nine figures) positions in this one.

Best of all, while 1,000$ invested in gold over the last six years is worth a meager 1,027$, that same 1,000$ invested in this company six years ago would be worth 2,057$.  Now I hate to rub salt in your wounds, but surely even you hard money troglodytes can see that you could have nailed an easy double if you simply had the good sense to listen to the experts and had gone with the crowd on this one.  The stock, of course, is…


Enron, in November of 2000.  It would soon go from a high near 90$ to around .50 cents per share, at which point two of the 15 analysts who followed the stock still had it rated a “strong buy” when it vaporized entirely. 

.     .     .

I admit to having several motivations in using this example, not the least of which is to illustrate the degree to which mainstream analysts, mutual funds, and credit ratings agencies – the supposed big boy market professionals – can be profoundly and catastrophically wrong.  I also wanted to illustrate the dangers of beating yourself up by playing the “if only I had bought X” game, when we are in fact only at halftime of a contest that is still very much afoot.

But beyond these, I wanted to illustrate something that is for me (and I suspect many of you as well) a crucial reason we invest in gold and silver: they are real and tangible, with no counterparty risk.  They do not rely on continued financing, favorable interest rates, or daisy-chains of CDS paper. Precious metals are value that is real, tangible, and genuine, in an era of where Enron economics has come to encompass the very foundations of the economy.

Does that sound like an exaggeration?  A false equivalency?  Well, consider a few examples and judge for yourself what is real and what is illusion.  We are told that the economy has been recovering for five years now, and that stock prices have merely risen to reflect this reality.  But if this is so, why do we not see any evidence of this recovery in our towns, our cities, our counties?  Why are measures like ZIRP, treasury purchases by the Fed, and QE that were introduced as temporary and extraordinary measures all still in place after six years of “recovery”?  Why does even a hint of withdrawing these so-called temporary measures, so aggressive that they were literally unprecedented, cause spasms across markets?  If all is humming along, why is the Labor Force Participation rate at a 40 year low with 99 million working age Americans not in the workforce? Why do market commentators crowing about the performance of the stock market never mention that they have been driven primarily, for more than a year now, by all-time high stock buybacks financed on cheap credit with artificially low interest rates?  Isn’t this a classic Enron-style accounting trick? Can’t people see where it leads?

The previously rock-solid benchmark US treasury bond has to be artificially propped up by the Fed, pushing interest rates to the floor. Is 2.7% a reasonable rate of return in the real world? Remember, this rate of return is supposed to compensate the buyer for the opportunity cost of having his money tied up for 10 years, provide a reasonable rate of return above the real cost of inflation, and compensate for risk of default by the issuer or a degeneration of the unit of account, i.e.- the underlying currency. Honestly, I would consider investing in some US Treasuries… at 12.7%, not 2.7%.

But the reality is that today the bond "market" is artificially created from start to finish through a fictional process of financial alchemy. This is how it works: The Federal Reserve creates previously non-existent dollars out of thin air on a computer screen, and uses them to purchase US Treasury bonds. These bonds are a fictional promise from a completely bankrupt country to pay the holder of the bond in fake dollars (again created out of thin air) at some point in the future. These instruments are sold at pretend "auctions" where in reality, 50-80% of the "buyers" are actually the Federal Reserve itself.

Fantasy dollars created out of thin air and used to purchase fictional promises to pay from a bankrupt and spendthrift issuer and sold at pretend auctions. Did you get all that? Do you understand what a complete and utter sham every part of it is? Good. Now ponder this: The continuance of that ridiculous charade is what gives your paycheck its value- without it, your paycheck would be either worth less or possibly worthless. That elaborate sham is the only thing that gives value to the dollars shown in your checking account. It "values" the stock market.

So what are treasuries really worth?  What is a fair market value interest rate for US or corporate bonds? What are stocks actually worth?  You and I really have no idea, and that is the problem.  Each of these is openly and brazenly manipulated or falsified to the degree that the only thing we can know with certainty today is that they can quite reasonably be called illusionary valuations. I have no idea what the difference between the illusion “valuation” and what the actual, real world valuation would be, and anyone who says they do is fooling themselves.

Those who are cackling about gold and silver investor’s poor performance over the last three years apparently believe that these illusions and manipulations can continue forever and ever without interruption, or at least believe they are so smart they will be able to get out before the reckoning.  Well maybe they can and maybe they can’t, but with my ounces of stored value in my possession, I don’t have to worry about that. I own something real and valuable, and if the paper price doesn’t reflect that today, well I am more than capable of waiting.

In a world of fake interest rates, artificial stock values, and Enron economics, I am truly thrilled to own a genuine store of value even if I purchased it at a higher price than it fetches today. I may not have had perfect market timing, but that's OK because I own the perfect investment vehicles. And I am quite certain that ounces (of true value) will win out over shares (of illusion).


Underdawg's picture


Got it

CPE's picture

Thx Pining

From the old thread RE: the Nemesis line:

Turd drew that on May 15th, trying to find a chart tool that allows me to extend his line and actually post the chart.  All my chart tools look terrible on here.

Regardless, I show the nemesis line currently at 1121.  The action Sunday night was about the nemesis line and the nemesis line alone IMO.  We were above 1130 Friday and Sunday evenings which was well above the nemesis line and riding the line at that.  So 1121 and declining is our upside price target.

Would someone please direct me to a free resource that allows me to draw on a chart and post it here?  My tools don't post well.

Fred Hayek's picture

Pining, you forgot to mention part of Enron's allure

You forgot to mention the prestigious consultant who worked for Enron before its collapse.

I speak, of course, of . . . Paul Krugman!

Yes, it's true.  He consulted for Enron.

indiana rod's picture


The large headline in USA owned Indianapolis Star:



One more sign that we are near the bottom.

Could it be the friendly bankers are trying to sucker as many managed fund guys as possible into the short side, at the same time covering their shorts?

Then stand aside while the panicked managed money guys try to cover? It will be a short squeeze for the history books.

McFly's picture

5th place!

I shall now predict that Mr. Fix is going to be in 6th place.

Mr. Fix's picture

6 6 6

Why do I keep getting this spot? devil

Pining 4 the Fjords's picture

Ha! Thanks, Fred

Somewhere in a comments section a long time ago, I saw Krugman referred to as the shit-fingered Midas because everything he touches...  I thought that was perfect.

Funny how all the mainstream analysts, media, etc, never have to answer for touting something that went from 90 to zero, but all PM commenters have "lost all credibility" because metals are down for a few years.

McFly's picture

Better than Bo Polny?

Ok, now for a real prediction that doesn't involve the Edit button. Looks like a logical place for a bounce to me.

lakedweller2's picture

Enron ...What The Hell You Doing George?

Justice put some of the Enron thieves in jail which was an embarrassment to any good totally corrupt Administration.  They fixed that quick.  I guess we could say that Enron brought down the Justice Dept, SEC and CFTC.

Dr Jerome's picture



And I say that like commisioner Gordon learning that the Joker was the mastermind behind the latest caper.

Fred, you amaze me with your knowledge. Now let me recall ...  yes ... its all coming back to me now. People who took his advice went to prison. I pray it happens again. And how did Krugman escape prosecution?

canary's picture

We are dealing with a monster

And I thought that we were done with the Nemesis line.....Thanks CPE for opening my eyes this morning.

argentus maximus's picture

Here it is with the parallels

canary's picture

A bone

" Gold up $10 this morning...Hmmm...Would that be a bone that the price manipulators are throwing us to make us forget yesterday happened ? Sure appeares that way to me !"

Chuck Butler (Daily Pfennig).

lakedweller2's picture

Krugman....What he say?

I think the powers to be, after listening to Krugman, decided that shirley Enron officials were not giving him any credibility and concluded...

It was not a criminal conspiracy, but officials operating in secrecy without advice.

Pete's picture

OT--Solar Stirling Plant


The above link showed up in my inbox this AM.  For about $100 they say, you can build a single plant in a weekend, and it alone will save you some 40% of typical electric bill.  You can build and link multiple plants.  Generates even on a cloudy day (less than with full sun, of course), they say. 

Any experience with this out there?  Comments?

JY896's picture


You CAN upload pics to your TFMR account, but space is limited, and runs out quite fast - and there is no delete option.

You can/should upload the image to an image sharing site like Flickr or Google Pics (I forget what they're calling it at the moment, used to be Picasa), and insert the image link into your post.

@Pining - loved your post.

I never thought that in retrospect it would turn out to be quite the savvy investment decision to liquidate Ag @ 16.28 to put a down payment on an overpriced suburban home near a major W. Coast metro area. BUT, here we are sub-15, the growth projections for 'my' city off the charts, and residential RE prices have just continued up...

If you don't hold it, you don't own it.*

* - unless you are a member of TPTB, but technically speaking they control enough armaments & other means of enforcement that they actually DO hold all those pieces of property.

For more musings on along the same vein, my 'Yardsticks' post withstood the test of time remarkably well, though it's thoroughly depressing that its thesis still remains valid today...

Barfly's picture

Stands and applauds

Well done, pining! Hell of an article!

mausche's picture


Thank you for  pondering the illusion in the primordial illusion of relative reality outside there but created inside us.

The awake state is as illusionary as the dream.After death experience will clear that one unless one becomes aware NOW.


In the illusionary realm of fiatnance"gold is the closest to A CONSTANT=the speed of light in a VACUUM.(EMPTINESS means not interrelated as all composed born things)There is only 1 exit out of the house of mirors.NOT BEING BORN.

In FIBEROPTIC cables light gives in on speed.Only thoughts are faster.

canary's picture

The US Industrial Prodution and Capacity Utilization...

...Two of my favorite data (the later is one of the few indicators that points toward future growth) has been weak so far this year....And moments ago they were revised even lower!!!

SS121's picture



lakedweller2's picture


Is that the issue or what...

CPE's picture

Here we go

Here's the old:

and the new:Argentus, those lines you drew were from your 7 month ago throwback post.

I wanted to draw out Turd's nemesis line to today.  I show the nemesis line between 1123 and 1121 today and falling.  We were above the nemesis from March until Sunday evening.

BarnacleBill's picture

Shit-fingered Midas!!!

Hahahahaha!!!!!!!!!!  Excellent post P4!!

DeGraives's picture

Great Post

Krugman, Powers, Bush, Cheney,,,, Ken Lay knew how to lay it on thick! Thank you Pining, for a timely reminder!

silver66's picture

People are waking up in Canada

I have posted over the last two weeks that gold sentiment is not bad for people who have never owned it.

Client was in this morning. Good conversation on why gold should be in portfolio. Money  in registered account was repositioned and in non registered account client decided to buy a gold fund and get some cash deposited to bank account and would like an intro to the LCS owner.

I asked her why and she said it made sense. She has a math background and understood selling an asset that has done very well and buying a asset that has not, that whole regression to the mean idea...lol

I suggested 2-3 months living expenses in cash to put in safe or rafters in basement. She told me that was already looked after. Interesting fact her parents are Dutch and lived thru occupation. She told me she has always kept some cash on hand

Stack till it hurts

This is only my experience


Steve Silver's picture

backwardation news!!

I have been watching mostly the front active month in the futures to determine the amount of backwardation over the last few months. There was a lot of spreading going on to prevent backwardation farther out although you did see it starting to show up a little bit in October.

I was dissappointed that the backwardation didn't increase with the smash yesterday. But today I noticed that October is in serious backwardation and December is starting to get close to being in backwardation.  

This is a big deal!! It shows a serious lack of physical in the market. The cartel has to let the price rise or the spreading backwardation will destroy their ability to manipulate price through paper sales. 

I'm sure massive value buy orders (physical buyers) are stepping up to the plate. Backwardation will force gold much higher because the physical was already scarce. Get your gold before greshams law sends it into hiding!!

PS great post Pining

Angry Chef's picture

Hey silver66

Where in Canada are you ? I could use a partner to drink with after the last few days. Everybody else thinks I'm delusional.

imfd's picture

Fantastic stuff Pining !

Many thanks, I think I will share that with some of my doubting friends, whenever I bring up the economy it`s "nonsense man, what could possibly go wrong", Enron, haha, that`s what could go wrong !

Dr Jerome's picture

Great Post Pining.

Your post may have a positive effect on some family members.

argentus maximus's picture

You're right about that Dr

You're right about that Dr J.

It merits a wider audience than just PM oriented websites.

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