Guest Post: Not Even Harry Browne Thought It Was Going To Be This Bad, by "Green Lantern"

Tue, Jul 2, 2013 - 1:41am

Our string of Guest Posts continues today with this excellent offering from Green Lantern.

"Not Even Harry Browne Thought It Was Going To Be This Bad"
by "Green Lantern"

Not Even Harry Browne Thought It was Going To Be this Bad!

With the sharp minds of Turdville giving daily coverage to just about every angle of economic and geopolitical news, I went searching the haystack for another indication to add to the list that all is not well. And that brings us to Harry Browne.

Who is Harry Browne? No, we are not talking about this wannabe Dirty Harry:

But this Harry Browne:

Harry Browne might be considered the father of what has blossomed into the thriving metals and alternative investment blogosphere. Long before King World News, ZeroHedge and yes even TFMetalsReport, there was a guy named Harry Browne. A bastion of wisdom and good sense, Browne was a libertarian, advocate of free-markets, financial advisor, and presidential candidate. Harry dedicated his life to writing on various personal, business and economic topics, teaching individuals how to thrive socially and in business under the rule of tyrannical government. He saw the dangers of a system which no longer was based on a gold standard before we even exited the gold standard. He was a good friend of Ron Paul and in 2006 when Harry Brown died, Ron Paul gave a tribute on Brown before the US House of Representatives

Harry Browne was one of the first free market writers I was introduced to and you can still find his writings and talks on the Harry Browne website. Some of his most famous writings including "You Can Profit from a Monetary Crisis" and "Fail Safe investing", which was written in 1998. It offered investors a very simple asset allocation plan to protect their wealth under any market conditions. It even has it's own entry on Wikipedia and for many years many of the metal-friendly newsletter writers advocated it's use. Browne described four different economic conditions that prevail and the investments that would do well under those conditions.

Inflation- Solution: invest in Gold and Precious metals
Deflation-Solution : Bonds will out perform
Prosperity-Solution: Stocks work wonders
Recession-Solution: Dash into cash.

The idea was that, at any given time, the economy would reflect one of the above conditions. By investing 25% of your wealth in these asset classes, you would preserve your wealth, keep ahead of real inflation while the strong part of your portfolio would offset any losses to the weak part of your portfolio. It was geared for conservative investors who wanted to preserve their wealth for retirement. Investors could invest in the prescribed asset allocations directly or invest through a fund that he set up known as The Permanent Portfolio (PFPFX) founded in 1982. The Permanent Portfolio lived up to expectations and outperformed over four decades. It's 10-year performance as of 1/1/2013 was +10.20% annualized.

However, for the first time since it's inception, the managers of the fund have realized that we are dealing with a new market condition that Browne didn't account for in his writings: Government Psychopathy and the sci-fi thriller which is the global economy. In January, the fund made an historic announcement that they would deviate from Brown's full-proof formula specifically changing their strategy in their bond portfolio. For the first time in the portfolio's history it was not living up to it's original mission as a conservative, fool-proof, fail safe fund to guard against all economic conditions. Investors began voicing their concern related to the bond market being a dangerous gambit and evolving into a bubble of epic proportions although I believe the fund might be downplaying it by calling bonds "overvalued" in light of rising interest rates.

Recently Rick Rule made an observation on the behavior of the markets. "What we are seeing now is chaos in global markets." He continues, "These are very very strange times. It would appear that up days are synchronous. Everything goes up together. Down days are similarly synchronous. And as you have all have doubtlessly noticed, there are many more down synchronous days, than up synchronous days". In other words, Harry's keen observations, at least for the moment, ceased to be true. One of the factors Rule attributes this to is "Liquidity is not a substitute for solvency." We need to come to terms with the fact that "WE ARE IN UNCHARTERED TERRITORY". Hear it and feel it!

Let's take a quick look at the past performance of the PRPFX. First we see that it did amazingly well and performed consistently for forty plus years. PRPFX until 2011.

The fund was able to deliver positive results even in very bad markets. So even when stocks and bonds were under-performing, mom and dad still were able to pocket real inflation-adjusted returns.

Something began to change in 2012 as the fund began experiencing volatility well beyond the tolerance of the conservative investor.

It's unlikely that Browne or for that matter anybody in the alternative investment world back in the early 2000's, could have realized what we do know about the extent of the manipulation in the metals. Nor is it likely that Browne imagined the federal debt could exceed the size of the total economy nor the capability of Central Banks to counterfeit on such a large scale.

Could anybody have envisioned the scale of fraud in the market before LIBOR, rehypothecation and MF Global, the 2008 bailouts, the derivatives bubble or the number of interventions in currency markets including the Swiss pegging the Swiss Franc to the Euro? The Permanent Portfolio Fund has always regarded the Swiss Franc as the currency with a high safe haven status but the Swiss taught us that all fiat currencies are subject to manipulation.

Browne saw a world where long term bonds performed well in a deflationary period and gold outperformed in an inflationary period. Well, here we are well into QE3 as The Fed continues to fortify the monetary base, gold and silver has been volatile with excessive short term risk. No longer can they be confident that gold and bonds will behave in a predictable fashion. Good ole Harry must be turning over in his grave.

We also have a situation where the the liquidity in the system is not marinating the entire kabob equally and currencies enjoy unprecedented volatility. So all of a sudden we have artificially low returns in three asset classes and more volatility in stocks than the average person cares to endure. The Permanent Portfolio fund has been forced to acknowledge the dynamics of financial repression. Are the changes enough to preserve the wealth of the middle class conservative investor? I imagine the average investor in the PFPRX are hard working folks who scrimped and saved every penny and all of a sudden they find themselves on a rollercoaster ride of volatility that they never expected.

What can we take away from this recent portfolio re-evaluation. Chaos in the market is upon us. Bernanke simply hinting at removing QE was enough to begin to pop the bubbles that are in the stock and bond markets. He was able to do that on perception alone and it's likely in the next few weeks we will see continued capitulation across markets as he continues to pump liquid insanity into the system. See this as an opportunity. If you have the courage and the resources, take advantage of the opportunities that present themselves. Otherwise, sit tight.

Conservative, fail safe investment strategies, while having served their purpose, no longer guarantee security in highly manipulated, volatile markets. The more governments counterfeit and operate under a Keynesian paradigm, the more volatility we will see in the markets. As Kyle Bass recently pointed out, our government does not have the will to fix what is wrong. While the average person, doesn't likely ever buy bonds directly, millions of American's have them parked in their 401k and retirement plans and have no clue the great charade that the bond rating agencies have pulled to create one of the most extraordinary bubbles in history.

Stack on!

About the Author


Dyna mo hum
Jul 2, 2013 - 1:45am


Great stuff!

Jul 2, 2013 - 1:49am
Jul 2, 2013 - 1:53am


WOW A 4TH... a good omen for the 4th of july me thinks... fireworks PM style

Jul 2, 2013 - 2:00am

I think this one should be

I think this one should be given far more attention (than none at all here currently !). This goes down today (Tuesday)

(Reuters) - The U.S. Federal Reserve will vote on Tuesday on long-awaited international rules for banks to use more equity capital to fund their business, a critical part of a global drive to make banking safer after the 2007-09 financial crisis.

Small U.S. banks will be scrutinizing the rules - known as Basel III - to see if they are getting the exemptions they lobbied for, and all will be keen to know the deadline for complying with the complex framework.

The Fed may not give banks much leeway, with rising pressure from politicians concerned that not enough is being done to prevent a repeat of the crisis."

"The regulators seem to be emboldened to require more rather than less, and (I think) the changes are going to be much more modest than we might have expected six months ago," said Bill Sweet, a partner with the law firm Skadden, Arps, Slate, Meagher & Flom.

The Basel III accord, named after the Swiss city that is home to its overseer, the Bank for International Settlements, requires banks to borrow less to fund their business, to reduce their risk and protect taxpayers from bailouts.

But there is rising criticism of the system, under which banks can still measure risk using their own mathematical models, and one Fed official, Governor Daniel Tarullo, said in May that the biggest banks might need tougher rules.

Jul 2, 2013 - 2:13am

GSR > 64

Hmmm...time to consider moving gold into silver, especially if one has unallocated and pool allocated PMs holdings.

Jul 2, 2013 - 2:14am


I guess dreams really do come true. ;-) Let's hear it for the west coast night crew! w00t

Here's tonight's silver chart. Hopefully we'll get a nice bump in price when we hit that lower support later this evening.

Nice post GL! You can bet that Harry has connected with the invisible hand by now and the two are probably hatching a plan of their own. I can't wait to see what they come up with.

El Gordo
Jul 2, 2013 - 2:27am

Early birds

score a victory.

Spartacus Rex
Jul 2, 2013 - 2:28am

Turd, You Are Being Rather Sadistic For Being On "VACATION"!

Please, Just Come Back Home & Back To Your Regular Hours?

Spartacus Rex
Jul 2, 2013 - 2:31am

@ GSR > 64

What, and Fly in the Face of the Oracle of FX, "Coach" Crash & Burn?

Jul 2, 2013 - 2:33am

Did I make it?

Top ten? Quarter to two in the morning?

Spartacus Rex
Jul 2, 2013 - 2:35am

@ sengfarmer

You just made it! No Flies On You This Morning!

Roger Rocker
Jul 2, 2013 - 2:45am

Aye Turd


I've got strong hands.

Thanks, in part, to you!

Even while vacationing.

Thanks Turd.

Spartacus Rex
Jul 2, 2013 - 2:57am

Bottom Fishers "Looking To Buy Gold" (LOL. Snoozers!)

I’m Looking To Buy Physical Gold, Here’s Why…

Jul 1st, 2013 | Matt Insley |


Is gold’s recent drop surprising?

Are the fundamentals still the same as they were 10-12 years ago?

Is the price a bargain?

A few weeks ago, prior to gold’s latest leg down, we sat down to talk metals with a man who has expert timing in the commodities market, Jim Rogers.

Today I want to share some of Jim’s perspective on the pullback, including some outtakes that lead to the latest trend in gold…

It’s been a tough few weeks (months? years?) for gold holders.

As I type the metal is down 12% on the month, 27% on the year and down over 35% since its all-time high in 2011.

Looking at the situation from an opportunity aspect, we’ve certainly entered bargain territory.

But is now the time to buy? Is the bottom in?

Below you’ll find a few answers from investment expert and commodity guru Jim Rogers. Plus a new trend to follow in gold.

Question: After a 12-year boom market in gold, does the recent drop in prices surprise you?

Jim’s Response:

No, not in the least. I mean, no matter how many times I’ve shouted from the rooftops, nothing goes up 12 years in a row without a down year. Now in those 12 years, gold only had one correction of 30 percent. Most markets correct 30 or 40 percent every year or two. So the anomaly was how strong gold was for 12 years. It’s long overdue for a major correction, and let’s hope it is going to finally have one. And then we can set a new bottom and things can start over.

Question: Do you think the current price per ounce is a bargain, or do you see it going lower? Where would you be a buyer?

Jim’s Response:

Well, at the moment everybody in the world is extremely bearish. You look at the commitments on traders, you look at all of the indicators, and you see that everybody bearish on gold. So normally when people are this bearish after this kind of collapse, you have a rally. I own gold and I haven’t sold any gold. I mean, I might go buy a little bit in the next day or two if I stumble on to some gold. But I don’t think the final bottom has

[Editor's note: remember, this response was recorded before gold's most recent $150 drop. So maybe we're closer to that "bottom" that Jim speaks of.]

Question: Do you think the same fundamental argument for buying gold a decade ago still holds true today?

Jim’s Response:

A decade ago most people weren’t aware of how much money was being printed and how many currencies were being debased.

This is the first time in recorded history that every major central bank in the world is debasing their currency — consciously, publically doing their best to drive down the value of their currency, by printing staggering amounts.

This has never happened in world history, not in recorded history anyway. This is a major change as to what was happening 10, 12, 15 years ago, because it’s never happened. This is going to lead to serious dislocations for all of us, I don’t know what, who or how but I do know that I’m not selling my gold.

Question: So the fundamental argument today is stronger than 10 years ago?

Jim’s Response:

For protection against currency debasement it still is stronger than it was.

Money printing? Currency debasement? Fundamental support for metals?

Here in the U.S. the answers can be found in one simple chart. Take a look at the red line in the chart below:

Gold Prices Federal Reserve M2 Money Supply

Over the past 12 years the U.S. money stock (M2, noted in the red line in the chart) has more than doubled. Yeah, you read that correct, the money supply has doubled in 12 years. It’s stunning proof of what Rogers says about a conscious, public attempt to drive down the value of currency.

Even without an official “recession” the Fed has been egregiously adding to the monetary supply (M2.) Heck, since 2011 we’ve seen a larger rise in M2 than we did back in the palpable recession of 2008.

And as you can see, at the right side of the chart, there’s a strange trend occurring too.

For most of the 12-year period shown, gold has moved almost in lock-step with the increase in money supply — after all, with increased inflation and dismal expectations for the U.S. dollar, the demand for gold was shooting through the roof.

Recently though, the blue line (gold) has started to diverge from the ever-increasing supply of money.

To be clear, (if you were to extend the timeframe in the chart and look at the 30 year history) there hasn’t always been a clear relationship between the money supply and the price of gold.

Strange, but true. It’s important to note that the relationship (between the money supply and gold) has to do with the trust of the U.S. dollar. Indeed, it’s all about perception here — and right now the market’s perception is that the economy and the U.S. dollar are all set to head higher. Meanwhile the bottom dropped out of the gold market and interest rates are starting to jump — on a weekly basis rates jumped higher than they have in 26 years!

But, here’s the thing…

I’m not sold on this strong-dollar/no-inflation argument. Fact is, there’s A LOT of reason to be concerned about the stability of U.S. dollar and other global currencies. Just look at the numbers.

Since 2001 the M2 money supply has doubled. By another metric, the Bureau of Labor Statistics calculator, the dollar has lost approximately 25% of its value (in just 12 years!)

Pick your poison, those are both scary stats. They’re also fundamental reasoning for buying gold.

Buy Gold Like A Legendary Investor

Rogers plans to be a buyer when gold hits a “bottom.” So where’s the bottom, you may ask?

Well if you’re looking for physical metal, the bottom is getting a lot closer by the day!

Just look at what we’re seeing in Asia.

“Slump Spurs Physical Demand” Bloomberg announced this week. Buyers from India to China are using this pullback to stock up on the metal. Those that wanted to buy gold at, say, $1,900, $1,700 or even $1,500 have a great opportunity to “buy low” in today’s market.

Same goes for coin buyers here in the U.S. “The demand remains at an unprecedented level” U.S. Mint director Richard Peterson said earlier this month. Looking further into the data, after April’s pullback in prices, the mint sold its highest amount of gold coins since 2009. Indeed, silver sales for the first half of the year have already reached a record high.

Physical demand is catching fire. It’s the same type of mentality that gets people to line up at retailers on black Friday. Only this time around instead of wanting to catch a deal on a flat-screen TV, these buyers are looking to load up on the inflation protection that only gold can offer.

Gold shops in Asia, the U.S. Mint or even places like eBay are starting to buzz with physical metal demand.

I’m not going to call the bottom in this market just yet. But, rest assured that I’m looking to pick up some physical metal on the cheap — and today’s prospects are very tempting.

With gold’s fundamental argument still stronger than ever, we’ll see if the Midas metal can catch a bid soon. When it does, I hope you and I can say we picked up a few ounces at a tremendous discount.

Keep your boots muddy,

Matt Insley

Spartacus Rex
Jul 2, 2013 - 3:07am

The Idea of America

By Bill Bonner July 1, 2013 " “Proud to be an American” says one bumper sticker. “One nation — indivisible,” says another. America was, of course, founded on the opposite principle…the idea that people were free to separate themselves from a parent government whenever they felt they had come of age. But no fraud, no matter how stupendous, is so obvious as to be detected by the average American. That is America’s great strength…or its most serious weakness." Read the Article @

Spartacus Rex
Jul 2, 2013 - 3:18am

Bernanke's conundrum What it might mean for gold

by Michael J. Kosares

“Central banks sold a record amount of US Treasury debt last week and bond funds suffered the biggest investor withdrawals on record as global markets shuddered at the prospect of the US Federal Reserve ending its quantitiative easing program.”

“People are throwing in the towel. It’ll drag the market down lower over the course of the summer.” Markus Rosgen, chief Asia equity strategist at Citigroup


If “people are throwing in the towel” as Mr. Rosgen suggests, Bernanke will find himself in an all-new conundrum quite the opposite of the one in which Alan Greenspan found himself in 2005.

For the Fed, the Treasury debt selling creates a twofold problem:

First, the supply of bonds in the open market will continue to drive up rates. When the goal is to keep rates down, it presents a new kind of conundrum - a Bernanke version the exact opposite of Greenspan’s. Greenspan wanted higher rates. The market gave him lower rates by accelerating its purchases of Treasuries, thus the conundrum. Bernanke wants the exact opposite, that is, lower rates. The market is giving him higher rates by accelerating the sale of U.S. government debt - a conundrum opposite to the one Greenspan encountered. Then and now, the market pundits fret that the Fed is losing (has lost) control of interest rates.

Second, if the world is selling Treasuries, some entity will have to pony up with the purchases of newly-issued U.S. government debt. That entity is the Federal Reserve - the government’s lender of last resort. The new Bernanke conundrum will force the Fed to continue its QE program until such time that other private and public sector buyers of U.S. debt materializes. Ironically, the stock market, like the bond market, might already be reacting to the new rate reality, while gold’s sudden demise, if indeed caused by the so-called “paring down of quantitative easing,” might have been false. If that is the case, a make-up rally could be in the fact it might already have been launched.

In an earlier article, I advised that we should take heed of what the Fed does, not what it says. In a certain sense, as you see in the two graphs below, the Federal Reserve may have already launched QE4 while simultaneously talking about ratcheting monetization down. The two graphs together show cause and effect and tell the real story of what is happening at the Fed. For a while, it wasn’t clear why bank reserve credit (QE) was rising. When you marry that chart to 10-year Treasury maturity rates, the reason becomes quite clear. The Fed is battling the market to keep rates low and the government financed at favorable rates.



Greenspan’s conundrum

Jul 2, 2013 - 3:28am

Harry Browne

I am reminded that predictions are a notoriously difficult thing to get right, "especially when about the future!"

That is my take on your piece Green Lantern; 'Keep on stacking' is true only to a point....

Nobody could write an article called 'Not even the Turdites thought it was going to be this bad,' because we have Mr Fix and others. But I'd love to peek into the future at the article called 'What the Turdites overlooked.'

Hmmm. What would it say?

Jul 2, 2013 - 3:38am

After watching

the full video I'm almost as pissed at the dog owner Leon Rosby. Watch how he yanks him around and puts him in a bad situation. PD involved still need to be fired...

Hawthorne Police Shoot Dog (Full Video With Analysis)
Spartacus Rex
Jul 2, 2013 - 3:41am

State Of The Gold & Silver Market by Rick Rule

In this excellent interview with FutureMoneyTrends Rick Rule looks at the current trend in gold and silver bullion and miners. In particular he answers three important questions (1) is there any relevance in the fact that gold andsilver prices are falling through their cost of production (2) is the current bear market (un)usual (3) which fallacies to avoid in order to get significant returns out of mining companies in the years ahead.

Before looking into those questions Rick Rule gave his view on rising interest rates and the latest announcement of the Fed. His suspicion is that the Fed has voluntarily let the interest rates go up in order to calm down the creation of bubbles in bonds and equities. Simultaneously, the Fed needs to continue to “counterfeit away” the current account deficit of the US government (which they do through the bond purchasing program).

Is gold and silver production cost relevant for pricing?

Rick Rule says the cost of production is not of any relevance in pricing the metals. In other words, the prices ofgold and silver are now more or less at their cost of production but that is not a reason to “necessitate” a price increase. Near term, price is insensitive in the market to production cost. The underlying reason is that capital cost is so high that people ignore total cost of production in a down cycle. Besides, related to gold and silver, there is a substantial above the ground inventory of bullion.
Specifically related to silver, the production cost of primary silver production in silver mines is not of any great importance. Some 80% of silver is produced as a byproduct of other metals (copper, zinc, lead, gold).The newly mined supply of silver is more dependant to the price and production schedules of those metals, rather than the production cost of primary silver production.

Is the current bear market in metals and shares (un)usual?

Rick Rule believes the current bear market is normal and natural. Especially the situation in the mining sector is comparable to the bear market of 1998 – 2002. He believes we are in the capitulation phase and that we begin to see a rebound (in bullion and miners) although we could see another leg down. However, investors should not expect an immediate rebound in precious metals juniors. The reason is that the excesses in the market between 2002 and 2010 were so extraordinary that the market did not flush the excesses out yet.

There are currently almost 4000 juniors globally. If one would merge all those juniors in one company it would make for a yearly loss of between 2 and 10 billion dollars. Rick Rule expects to see 1000 juniors disappear in the next 2 years. Rick Rule’s best guess is that 5 or 10% of the juniors will bottom later this year while most will continue to trade lower in the coming 2 years.

Two fallacies of resource investing

Money will be made in the next ten years in the classic Ben Graham sense. The pricing in the market that is the result of an anticipation by investors who do not understand the industry with the underlying valuations in the market. Ben Graham once said: “In the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine.” It means that the true value will in the long run be reflected in its stock price. You make money in the market by arbitraging between the way people vote (which is seldom rational) and what assets weigh (which is always rational).

Rick Rule discusses a second mistake that most people make in terms of valuation in resource markets. Most investors pay more attention to simple market metrics while they should look at relevant market metrics. One market metric that belongs to this category is dollar of enterprise value per in situ ounce. In other words, the value (in dollars) of ounces in the ground. The really relevant metric is the cost to get the ounce out of the ground. The costs that are related to it are the capital costs, operating costs and the time when the ounces will be ready to be sold.

“The idea that all ounces are the same while every ounce generates a different return is probably the biggest fallacy that has confrontend in the resource market. It is a fallacy that because of its simplicity the market will continue to use in the next ten years. If investors learn to arbitrage between the economic value and the perceived market value will be able to make money.” [ Note: If Video doesn't load, watch it at the website]
Spartacus Rex
Jul 2, 2013 - 3:54am

The Golden Cycle by Peter Schiff July 1 2013

The New York Times had the definitive take on the vicious sell off in gold. To summarize one of their articles:

Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight. The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.

The rout says a lot about consumer confidence in the worldwide recovery. The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold's allure.

Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course. The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators' dreams into a nightmare.

This analysis provides a good representation of the current conventional wisdom. The only twist here is that the article from which this summary is derived appeared in the August 29, 1976 edition of The New York Times. At that time gold was preparing to embark on an historic rally that would push it up more than 700% a little over three years later. Is it possible that the history is about to repeat itself?

At the time The Times article was written gold had fallen to $103 per ounce, a decline of nearly 50% from the roughly $200 it had sold for in the closing days of 1974. The $200 price had capped a furious three-year rally that began in August of 1971 when President Nixon "temporarily" closed the gold window and allowed gold to float freely. Prior to that decision gold had been fixed at $35 per ounce for nearly two generations. That initial three year 450% rally had validated the forecasts of the "gold bugs" who had predicted a rapid rise in gold prices should the dollar's link to gold be severed. The accuracy of these formerly marginalized analysts proved to be a bitter pill for the mainstream voices in Washington and Wall Street who, for reasons of power, politics and profit, were anxious to confine the "barbarous relic" to the dustbin of history. Incredulous as it may seem now, with gold still priced at $35 per ounce, official forecasts of both the Secretary of the Treasury and the Chairman of the Federal Reserve were that demonetizing gold would undermine its value, and that its price would actually fall as a result.

Of course government experts could not have been more wrong. Once uncoupled from the dollar, gold's initial ascent in the early 1970's was fueled by the highest inflation in generations and the deteriorating health of the U.S. economy that had been ravaged by the "guns and butter" policies of the 1960's. But the American economy stabilized during the mid-years of the 1970's and both inflation and unemployment fell. When gold reversed course in 1975 the voices of traditional power elite could not contain their glee. When the gold price approached $100 per ounce, a nearly 50% decline, the obituaries came fast and furious. Everyone assumed that the gold mania would never return.

Although the writer of The Times piece did not yet know it, the bottom for gold had been established four days before his article was published. Few realized at the time that the real economic pain of the 1970's had (to paraphrase The Carpenters 1970's hit) "Only Just Begun". When inflation and recession came back with a vengeance in the late 1970's, gold took off (to quote another 1970's gem), like a skyrocket in flight. By January 1980, gold topped out at $850 an ounce. The second leg of the rally proved to be bigger than the first.

The parallel between the 1970s and the current period are even more striking when you look closely at the numbers. For example, from 1971 to 1974 gold prices rose by 458% from $35 to $195.25, which was then followed by a two-year correction of nearly 50%. This reduced total gains to just under 200%. The current bull market that began back in 2000 took a bit longer to evolve, but the percentage gains are very similar. (We should allow for a more compressed time frame in the 1970s because of the sudden untethering of gold after decades of restraint.) From its 1999 low to its 2011 peak, gold rose by about 650% from $253 to $1895 per ounce, followed by a two year correction of approximately 37%, down to around $1190 per ounce. The pullback has reduced the total rally to about 370%. The mainstream is saying now, as they did then, that the pullback has invalidated fears that rising U. S. budget deficits, overly accommodative monetary policy, and a weakening economy will combine to bring down the dollar and ignite inflation. But 1976 was not the end of the game. In all likelihood, 2013 will not be either.

The biggest difference between then and now is that until 1975 ordinary Americans were barred by law from buying and owning gold. About the only route available to participate in the earlier stage of the precious metal rally was by hording silver dimes, quarters and half dollars minted prior to 1965. My father indulged in this process himself by sifting through his change, the cash registers of any merchant who would allow him (exchanging new non-silver coins and bills for silver), and by sifting out silver coins from rolls he bought from banks. It was a time-consuming process, and most of his friends and family members thought he was crazy.After all, he had $10,000 worth of pocket change earning no interest. But the $10,000 face value worth of those coins he collected had a melt value of over $350,000 when silver hit its peak.

By the mid 1970's none of the problems that initially led to the recession in the early years of the decade had been solved. Contrary to the claims of the "experts" things got much worse in the years ahead. It took the much deeper recession of the late 1970's and early 1980's, which at the time was the worst economic down-turn since the great Depression, to finally purge the economy of all the excesses. The lower marginal tax rates and cuts in regulation implemented by President Reagan and tight money under Volcker helped get the economy back on track and create investment opportunities that drew money away from gold. As a result gold fell hard during the early 1980's. But even after the declines, gold maintained levels for the next 20 years that were three to four times as high as the 1976 lows.

Although the economy improved in the 1980's, the cure was not complete. Government spending, budget and trade deficits continued to take a heavy toll. The U.S. was transformed from the world's largest creditor to its largest debtor. When the time came to face the music in 2001, the Fed kept the party going by opening the monetary spigots. Then when decades of monetary excess finally came to a head in 2008, the Fed open up its monetary spigots even wider, flooding the economy with even more cheap money.

Unfortunately just like 1976, a true economic recovery is not just around the corner. More likely we are in the eye of an economic storm that will blow much harder than the stagflation winds of the Jimmy Carter years. And once again the establishment is using the decline it the price of gold to validate its misguided policies and discredit its critics. But none of the problems that led me and other modern day gold bugs to buy gold ten years ago have been solved. In fact, monetary and fiscal policies have actually made them much worse. The sad truth is that as bad as things were back in 1976, they are much worse now. Whether as a nation we will be able to rise to the occasion, and actually finish the job that Ronald Reagan and Paul Volcker started remains to be seen. But I am confident that the price of gold will rise much higher, and that its final ascent will be that much more spectacular the longer we continue on our current policy path. Don't believe the mainstream. Just as before, they will likely be wrong again.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Spartacus Rex
Jul 2, 2013 - 5:56am

When The Defecation Hits The Oscillation…

& All Paper Markets & Obligations Go Up In Flames, Which Backup Plan looks more like yours? A) Physically held Precious Metal Coins, Or

B) Magic Genie Bottle (Toss Into Nearest Wishing Well)
Jul 2, 2013 - 6:49am

The PM landscape this morning

Hmmm. My impression rests on two key observations;

  1. a lack of panic short covering, that was hinted at by Friday's price action.
  2. a cap on silver at $20.

Though these markets are treacherous, and can move suddenly and violently in either direction, I've cashed a little in this morning. I feel that there is risk in not having any dry powder at this time. If I had had some dry powder though, I'd not have sold.

Disclaimer: follow my own moves at your own peril.

Jul 2, 2013 - 7:16am

Enjoying these guest posts

Great job Green Lantern smiley

The new strategy for investing when central controlling psychopaths are in charge is ignore the mope and stack gold and silver until the system breaks. Not sure how i'll spend any wealth i have left then I'll probably be detained in a concentration camp by then.

hello NSA hows it going? angel These aren't the citizens you're looking for. Move along.

Jul 2, 2013 - 7:19am

Excellent as always

GL, it's more than what your posts say, it's how they fit into the flow of discussion on these boards.

the liquidity in the system is not marinating the entire kabob equally

Now that line should be set aside for future

Jul 2, 2013 - 7:20am

I've personally started doing nothing

I've halted all and every purchases of any assets to build cash. Will not stack or buy a dip until there's a crash of all assetts. My thesis is that, for myself, I have plenty of stack and gold/silver related assets if/when gold and silver resume their uptrend which I belive they will at some point. But because we don't know where the next move is going, cash is still a good place to be. AFter almost 10 years in the gold and silver market i've accumlated enough.

My goal now is to keep putting as much cash away. I've heard all the points either wAY. and actually thank-full for AMs set up to the big trade. Sure i may buy a few oz of silver here and there, but the net net is that im going half cash now.

It's good to just sit back and watch for now. All very interesting times. We could all be wrong...all right or maybe a little wrong and a little right.

Jul 2, 2013 - 7:22am

Harry and German gold repatriation

My first comment here but I have been following along for a few weeks now. This is a great educational site. Thanks for being there.

I'm becoming a fan of Harry Browne and have just started reading his book "How I Found Freedom In An Unfree World". Very good so far.

I occasionally comment on internet financial articles, especially those where gold is getting beat up. I am a novice in the world of economics and finance but am trying to learn. I would appreciate any informed comment on the following exchange with a (so he says) seasoned financial expert:

@John, If there is never any gold at the Comex, where does its obligation to settle in physical gold come from? Why does the Comex have to hold gold in its warehouse. I invite you to listen to the latest Sprott Money interview with Jim Sinclair. Is he an idiot too?

his replies:

Comex is an exchange. It maintains a list of gold depositories that are acceptable delivery points for bullion. They are all around NYC (and they have to be within, I think, 100 miles of NYC).

"Why does the Comex have to hold gold in its warehouse." It doesn't.

"I invite you to listen to the latest Sprott Money interview with Jim Sinclair. Is he an idiot too?" Complete moron..

Having traded billions upon billions upon billions of dollars in gold futures (and many other commodity futures), I think I know how that works. Comex and all other futures exchange arrange for delivery by laying out the conditions and places at which you can make delivery. If you had a gold depository around NYC, you would apply to Comex to allow your facility to be on the approved list. Frankly, I have no idea how that process goes but in the end Comex is vouching for the depository (you can actually get delivery in somewhat broader ways than that as there is also some process for approved assayers and approved manufacturers, but I have never heard of anyone taking delivery that way). If you hold through expiration, sometime in the next month (delivery can be done for a 30 day period) you will get a receipt from a gold depository and an invoice for the gold at the settlement price of the contract. The gold delivered will be 100 oz x # contracts +- 5% (though in practice not much variation). Comex has never had possession or ownership of that gold..

@John, OK. Whew! We can take delivery. They will deliver it.... until they won't. I'm reminded of the German request for delivery of their (their!) gold. Sure, no problem. We'll get it to you soon..

his reply:

They will - for one thing one gold bar can be delivered under 60 different futures contracts, unlike the German bars in which they want their exact bars back. If the Germans just wanted their $60B in bullion back, I could get it to them by the weekend. Bundesbank doesn't really want it back..

@John, Sorry, no delivery on that reasoning. They don't really want it back? That was just a little PR show for the unwashed masses? They were just kidding? I imagined that seven year delivery time I read about? And it takes seven years because they have to find the exact bars? Come on man, if the exact bars were not there, they never will be. And if they need a seven year delay for a complete delivery, maybe they just don't have it and will have to "dig it up".

his replies:

"That was just a little PR show for the unwashed masses? " Unwashed masses made Bundesbank take it back.

" I imagined that seven year delivery time I read about?" Bundesbank's schedule.

"And it takes seven years because they have to find the exact bars? " No - we could load it all onto those dump trucks in Die Hard and put it on a few C5's and take it over there tomorrow. They don't want it. Did you see the public announcement "This will make it easier for us to do currency exchanges" and everyone scratched their head. Easier to do gold swaps in Germany than NYC?'s sarcasm.... It's chump change. $60B or something...

Thanks in advance for any feedback I can get here on the topic of German gold repatriation..

Jul 2, 2013 - 7:26am

Excellent GL

I had never heard of Harry Browne. It is indeed impossible to predict this chaos. The criminals have made fools out of a lot of well intentioned people.

Gold Dog
Jul 2, 2013 - 8:01am

Off Topic

Lantern- Great article, I agree that the line, "the liquidity in the system is not marinating the kabob equally" is one for the ages!

Farms- A week ago I spent some time looking at farms in Southern/Central Wisconsin. I don't know doodly about farming!

It occurs to me that I might be better off getting involved with a MLP or LLC that is aggregating farmland as a long term investment and just getting a small place in Wisco for bug out purposes.

Are there any Turdites that have looked into this?

I would very much appreciate your thoughts.

Your friend,


Jul 2, 2013 - 8:17am

I'm totally opposite of gold mania

I understand your position, but since I have only been into PMs for 3 years I am stacking every dime of fiat my wife will let me into silver. It's so incredibly cheap compared to other things right now. More than doubled my stack last year and looking to double again this next year. GM I think I will sit in cash like you after the next blow off top, just so I don't have to watch my PM values slide by 60% into te abyss again. It sure has been fun stacking all the way down though! :)

Jul 2, 2013 - 8:17am


Satria Sambijantoro, The Jakarta Post, Jakarta | Headlines | Tue, July 02 2013, 9:23 AM

Paper Edition | Page: 3

The Indonesian central bank, Bank Indonesia (BI), hailed its Singaporean counterpart for punishing traders found guilty of manipulating rupiah quotes.

The Monetary Authority of Singapore (MAS), has ordered banks proven guilty of collusion to fire the employees involved, a form of punishment, according to one senior BI official that was considered “quite ruthless”.

“Those people [the punished employees] were treated as if they were criminals [...] they will find it difficult to get another job in Singapore,” BI executive director for reserves and exchange management, Treesna Wilda Suparyono, said on Monday, adding that the punishment proved MAS’ awareness of BI’s concerns.

Internal reviews by banks in Singapore have found evidence that traders from several banks colluded to deliberately weaken the rupiah by manipulating their quotes for non-deliverable forwards (NDF).

Jul 2, 2013 - 8:17am

GL said: "However, for the

GL said: "However, for the first time since it's inception, the managers of the fund have realized that we are dealing with a new market condition that Browne didn't account for in his writings: Government Psychopathy ........

... We also have a situation where the the liquidity in the system is not marinating the entire kabob equally and currencies enjoy unprecedented volatility. So all of a sudden we have artificially low returns in three asset classes and more volatility in stocks than the average person cares to endure. The Permanent Portfolio fund has been forced to acknowledge the dynamics of financial repression. .... "

A neat summary of the time we must live through GL.

Inflation here, deflation there, stagflation everywhere ....

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