I think of Warren Buffett as a savant because he has correctly deduced that the way to make long term investment gains is to buy good companies, in good industries, and hold.  Companies like Coke and Dairy Queen have done well over the long term for him (I’m a health nut, so I don’t use any of their products, but that’s not the point).

I think he’s an idiot for two of his recent philosophical positions.

First, a few months ago, and then again at the annual Berkshire shareholder’s meeting last week, he stated that high income earners like him should pay more tax.  Personally, I believe that higher taxes are always a bad idea, because more revenue allows government to spend more.  Mr. Buffett keeps telling the story of how he pays a lower rate of tax than his secretary, even though he earns millions of dollars a year.

He’s an idiot for making this comparison, and here’s a simple example to illustrate this point:

Let’s assume I own shares in a company.  The company earns $1 million in profit, and the corporation pays taxes of $250,000.  The company then distributes the remaining $750,000 in dividends to the shareholder (me).  I pay tax of 25% on the dividends I got, or 25% of $750,000 = $187,500.

Mr. Buffett would say “see, it’s not fair, I only paid 25% tax on my income (from dividends), but my secretary has to pay tax of 30% on their income; it’s not fair!”  Yes, but while I only paid 25%, the corporation also paid 25% before they distributed the money to me.  On $1 million in profit, the corporation paid $250,000, and I paid $187,500, for total taxes paid of $437,500, or 43.75%, which is more than what a secretary is paying.

And yes, I just made up the tax rates, but you get the point: you can’t just look at personal tax rates on dividends or capital gains in isolation.

If Uncle Warren really thinks he should pay more in taxes, great.  Send a cheque to your pal Obama; I’m sure he’ll cash it.  My issue is that Warren Buffett believes that the government knows better than me what I should do with my money.  That’s what taxes are: a forced redistribution of wealth.  The government takes from the taxpayer, and gives that money to someone else.

I believe we should help those less fortunate than ourselves.  I agree that the income disparity between the rich and the poor is a serious problem, and will lead to continued social unrest.  But higher taxes are not the answer.  50% of Americans are net tax recipients, so of course they want more taxation of the rich.  The new top guy in France wants to tax the rich more.  Everyone wants to milk the golden goose, but you can’t milk a goose.  But I digress.

The second silly think Mr. Buffett said this week is that gold is bad (I’m paraphrasing here).  You can watch the video, but basically Charlie Munger, vice chairman of Berkshire Hathaway said “I think gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939, but I think civilized people don’t buy gold. They invest in productive businesses.”  Mr. Buffett appears to agree, but again the idiot savant totally misses the point.

Yes, I agree, we should all invest in productive businesses, because that’s what increases real wealth.  But what do you do with your profits?  Where do you put your wealth in the interim between when you sell a business and buy a new one?

Even Mr. Buffet agrees that fiat money is doomed to failure, but his solution is to buy productive companies.  Fine, but that does not solve the fiat money problem.

An esteemed libertarian back in 1948 wrote an essay arguing that paper currency must be backed by gold, or something tangible, or else we have no freedom.  To quote him:

But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty.

Also, when you find that Lenin declared and demonstrated that a sure way to overturn the existing social order and bring about communism was by printing press paper money, then again you are impressed with the possibility of a relationship between a gold-backed money and human freedom.

… The subject of a Hitler or a Stalin is a serf by the mere fact that his money can be called in and depreciated at the whim of his rulers. That actually happened in Russia a few months ago, when the Russian people, holding cash, had to turn it in — 10 old rubles and receive back one new ruble.

… Under such conditions the individual citizen is deprived of freedom of movement. He is prevented from laying away purchasing power for the future. He becomes dependent upon the goodwill of the politicians for his daily bread. Unless he lives on land that will sustain him, freedom for him does not exist.

That’s the problem with fiat money.  The government, at any time, can print more, which makes everything in circulation worth that much less.  I work hard and earn and save $100, but with money printing, leading to inflation, the government can easily turn my $100 in purchasing power into $90, or $9, or nothing.  That’s the problem, and that’s why paper currency needs to be backed by something that can’t be printed, so that government’s cannot rob their citizens of their purchasing power.

It’s a great essay; it’s called Human Freedom Rests on Gold Redeemable Money, and it was written in 1948 by the U.S. Congressman from Nebraska, the Hon. Howard Buffett, Warren’s father.

If currency was backed by gold (or silver, or oil, or seashells, or anything that can’t be conjured out of thin air) it would be very difficult, if not impossible, for governments to finance bank bailouts, and wars.  We would not be in Afghanistan, or Iraq, or anywhere else, because we could not afford to be there.

It’s that simple.

Does that make Mr. Buffett Jr. and idiot?  No, I suspect he fully understands the importance of gold, but he wants to stay on the friendly side of the powers that be, so he floats these silly statements to soften up the public.  Judging by the recent chart of gold, it appears to be working:

Gold’s three year up trend is over, and the $1,584 close for gold on Friday puts us back where we were in the middle of December, 2011 (but not as low as the $1,525 level we hit briefly at the end of year).

If the $1,525 level holds (and I’m betting it will), this could be the low level for the year, and a great buying opportunity.

That’s why I did some buying this week.  Here’s what I bought:

I bought some blue chips, like:

AEM.TO – Agnico-Eagle Mines Ltd.

RGL.TO – Royal Gold, Inc.

SLW.TO – Silver Wheaton Corp.
G.TO – Goldcorp Inc.

I also took a flyer on some junior stocks that will either double in value or crash and burn, including:

• BBB.V – Brixton  Metals
• AXR.TO – Alexco Resources Corp.
• AMM.TO – Almaden Minerals Ltd.
• FVI.V – Fortuna Silver Mines Inc.
• SMD.V – Strategic Metals Ltd. and
• SCP.TO – Sprott Resource Corp, and a few others.

My plan is to watch these carefully, but to also gradually take profits.  In this market there are no long term, ten year holds.

So, if we have two or three decent up days, I will likely do covered writes on the blue chips like

• AEM.TO – Agnico-Eagle Mines Ltd.
• RGL.TO – Royal Gold, Inc.
• SLW.TO – Silver Wheaton Corp.
• G.TO – Goldcorp Inc.

I will sell some current or next month, slightly out of the money call options.  If the stock weakens, great, I can repurchase the call options at a lower price, and lower my cost base.  If the stock goes way up, my calls will get called, and I lose the stock, but I pocket the profit, and then deploy the cash on further weakness.

That’s the plan, subject to change.

And my apologies to Mr. Buffett Jr. for buying gold stocks……..

Thanks for reading, and see you next week.

It’s hard to argue with that sentiment this week, which included the first four days of May, as the TSX dropped almost 3%, the S&P 500 was down 2.44%, and the DOW dropped 1.44%.  Not a great start to the month. The Dow appears to have stalled, with significant resistance around the March top:

Oil was down 5.68% this week, and is now down 0.31% on the year, which would appear to indicate we are not in a booming recovery.

Gold declined just under 1% this week, but is still up just under 5% on the year.

The gold chart is the opposite of the Dow chart; there is obvious support, going back to the start of the year, around the $1,625 level, a level briefly touched on Friday before gold ended the day slightly higher.  Successive downtrends have been broken.  Since the $1,625 level has been tested five times in the last two months, and has not been significantly broken, I’m of the view that likely the bottom for the year is in.

In other words, buy in the May, not bye bye and go away in May.

Of course a further correction is always possible, particularly if the general market tanks and forces a flight to liquidity where everything gets sold and cashed in.  But for now, selective buying makes sense.

As mentioned last week, some of the big gold stocks, like AEM.TO – Agnico-Eagle Mines Ltd. are coming to life:

So the plan remains the same: pick the stocks you like, particularly explorers and producers that are well financed, and are potential take over targets, or like Agnico-Eagle that also pay a dividend.  Place your stink bids, and on down days, accumulate.  Unless gold drops significantly through $1,625, it’s a safe bet, I believe.

And props to MetalMeister over on the Buy High Sell Higher Forum for pointing out the article by Bix Weir pointing out that the smart players are likely accumulating physical silver at $30 and under.  I agree.  Comex and the paper markets are a rigged game, and the only way to beat it is to accumulate the real stuff.

So why are stocks a good idea?  I like physical, but the stocks are so beaten down, even with prices higher than a year ago, that they are now so undervalued that some players may begin switching from physical to stocks for more leverage.

I’m not selling anything, but I intend to continue deploying cash over the coming weeks.

Thanks for reading, enjoy the good weather, and see you next week.

The Seattle Mariners tied the game in the top of the ninth, and with the game tied in the top of the tenth, Seattle loaded the bases, and up came Michael Saunders (the only Canadian on Seattle’s team), and he hit a Grand Slam, Seattle’s up 9 to 5, Blue Jays don’t score in the bottom of the tenth, and that’s the ballgame.

Brett Lawrie’s error, the Big Mistake, cost his team the game.

If I was the manager, what would I be telling Brett Lawrie today?  I’d tell him to keep playing the game hard; don’t pull back, don’t be tentative.  We all make mistakes, but if you focus too much on the errors, you’ll forget about all of the great plays.

The “experts” are espousing the view that gold has already peaked, and according to some guy named Yoni Jacobs it could be heading to $700 an ounce.  Apparently gold is in a bubble, and with economic slow down people will buy less gold, and that will be that.

Personally, I think expecting a crash would be a big mistake.  Yes, gold is volatile, and will likely have many down days, but the bullish case for gold has not changed.  Massive money printing eventually causes inflation.  In a depressed economy with high unemployment it’s unlikely we will be seeing inflation in the very short term.  That doesn’t mean it won’t happen.  It will.  It has to; that’s just the way it is.

Buying gold at $1,900 and then seeing it drop to $1,600 is an error.  You bought high, and lost the game, but that does not mean the season is over and we should all go home.  We keep playing.  We average down.  We continue.

Last week I suggested that AEM.TO – Agnico-Eagle Mines Ltd. would be a good buy at these levels.  Apparently I was correct.

Nice run up this week, eh?  Will it last?  I don’t know, but it’s worth riding it, and continuing to average down on further weakness.  This stock pays a dividend of around 2% at current levels, so as a long term hold it’s a good deal.

And so, to avoid the Big Mistake of believing the world is fixed and the bull market in gold is over, I will continue to hold and average down, and I assume I will look back on this five years from now and realize it was a great buying opportunity.

Thanks for reading, and see you next week.

You could certainly make the argument that AAPL – Apple Inc. is NOT over-valued.  It’s forward PE ratio is around 11, which is not exactly in the stratosphere.  At the peak of the dot com bubble there were many companies with no earnings, so they had infinite Price Earnings Ratios.

Apple actually makes a product.  In our family we have numerous iPods and iPads, and I’ll be purchasing another iPod next week (since I dropped mine this week and cracked the screen).  I listen to my iPod every day.  I don’t listen to music; I download podcasts, for free, and listen to those, from my iPod, through my car speakers, while I’m driving to and from work.

The counter argument, of course, is that three years ago the stock was trading at $124, and yesterday it closed at a shade under $573.  That’s a 362% gain; not bad for three year’s work.

A big chunk of that gain has happened in 2012; Apple started the year around $405, so it’s up over 40% so far this year, and it’s only April!

We all know that no stock can increase forever, although if you watch CNBC you would think Apple may be the exception.

Over the last month or so I’ve had CNBC on in the background while doing my workouts, sometimes at 6:00 am, sometimes during the trading day.  They’ve had lots of commentators on who have gone on record that saying $1,000 is quite realistic, with some even projecting $1,200.

However, since trading above $640 on April 10, Apple traded as low at $570.42 on Friday, a more than 10% drop in less than two weeks.  What goes up, must come down.

The bulls will argue that after a run of that magnitude a profit taking pull back is normal, and healthy.  That makes sense, and you can’t argue with that logic.  The long term chart is still in an uptrend.

So back to our original question?  Is Apple a harbinger of things to come?

Apple represents about 12% of the Nasdaq, so obviously a crash in Apple will depress Nasdaq.  Mathematically Apple is not part of the Dow, so it won’t change, but is it a leading indicator?

My gut tells me that yes, it is.  The average guy on the street knows that Apple traded at over $600, and the average guy, hearing stories of big new highs, probably assumes that that’s good news, and is indicative of market strength.  If Apple keeps going up, market psychology will probably stay positive.

However, Apple has not “stayed up” over the last two weeks, so we have not read stories about new highs.  A lack of “new highs” stories may negatively impact the market.

I agree that Apple will be one to watch.  If it fails to take out it’s highs, just as the general market has failed to exceed it’s all time highs, the “Mother of All Bear Market Rallies” will be just that; a bear market rally, with more downside to come.

Gold and Gold Stocks

The direction of the general market is important.  As we learned in 2008, if the market crashes, even the “safe havens” like gold will also crash.  However, gold rebounded quickly, so even if we do see a correction, I am of the view that it’s time to start deploying some additional cash.

As the chart of gold shows, gold’s medium term down-trend since the peak last summer is still in progress, but the long term up-trend remains intact.  Most encouragingly, gold continues to make a series of higher lows (that’s the green lines), and the wedge formation can’t go on forever; we either go up, or down.

I’m guessing up, so this week I dipped my toes in the water, and began deploying cash.  I bought some blue chips, including:

AEM.TO – Agnico-Eagle Mines Ltd.

RGL.TO – Royal Gold

SLW.TO – Silver Wheaton Corp.

My thinking on the blue chips is: they are blue chips, so are unlikely to get killed; they are already down substantially from their peaks.  Also, stocks like Agnico-Eagle pay a decent dividend, over 2%, which is better than sitting in cash.

My other thought: if these blue chips are long term holds, I can increase my returns by selling some out of the money covered call options.  I pocket a few cents when I sell the calls, and if the stock stays stable I keep the premium.  If the stock goes way up my stocks get called, but I make a profit on that as well.  More details next week if I start covering.

I also picked up a few juniors to balance things out, but I’ve still got lots of cash, so we will wait and see what happens from here.

Thanks for reading, and see you next week.

Port Dover is a small town on the shores of Lake Erie, with an interesting tradition: every Friday the 13th, bikers from around Ontario, and other areas, travel to Port Dover to hang out for the day.  It’s not well attended when Friday the 13th is in the middle of wintery February day, but yesterday the weather was good, and lots made the trip.  The next Friday the 13th is in July, so attendance will be huge.  The roads in Ontario are filled with bikers heading for the party.  Apparently a fun time is had by all, since to most of the bikers are in their 40s, 50s and 60s, so it’s not exactly Woodstock.

In fact, it would not surprise if, as they sit around the streets of Port Dover shooting the breeze, the topic of discussion may be the stock market.

The stock market, which this week dropped (TSX down .52%, DOW down 1.61%, and the S&P500 down 1.99%).  Are we near an inflection point?  Perhaps.

The uptrend from the low in October remains in place (depending on how you draw your lines, but the market has slipped in April, and is now down below it’s 50 day moving average, although just barely.  The RSI didn’t get above 50 and is turning down, so a further correction is very possible.

But it’s an election year, so I would assume the powers that be will do everything in their power to keep printing money to support the market.

On the year the DOW is still up over 5%, and the s&P 500 is up almost 9%, so clearly the four people who are still buying stocks still think it’s a good deal.  For now.

Even our old friend Mr. Dines, of The Dines Letter, said yesterday, referring to the markets: “Something is going on backstage, and we can’t quite put our finger on it, although we sense that it is probably important.”  He goes on to speculate that higher interest rates, a stronger US dollar, or inflation in China could be problems.  Massive government money printing probably isn’t helping much either.

You would think in this uncertain environment gold would be very strong, and you would be partially correct.  Gold was up 2.28% on the week, and is up 5.73% on the year, so it outperformed the markets this week, but still lags on the year.  Gold stocks might be showing signs of life.  Or not.

Gold peaked back in September with a double top just over $1,900, and then proceeded to drop down through $1,550 by the end of the year.  It’s trying to recover, and has done well over the last week, but it remains below both it’s 50 day and 200 day moving averages.  Individual gold stocks are doing even worse.

AEM.TO – Agnico-Eagle Mines Ltd., a gold blue chip, was over $85 at the end of November; today: $33.30.  I’ll help you with the math: that’s a drop of 60%.  Some of that drop is related to company-specific news, like the flood at their Goldex mine, leading to a class action lawsuit.  But Goldex was 15% of total production, so a 60% drop is arguably unwarranted.

Here’s the kicker: Agnico-Eagle pays a dividend of 80 cents a share, so at a stock price of $33.30 that’s a dividend rate of 2.4%.  That’s better than the 0% you get on a T-bill or bank account.

At these depressed levels some bottom feeding purchasing may be in order.  What’s the risk to holding this stock long term?  Not much.  Even if the price continues to drop you earn 2.4% forever (they’ve paid a dividend for 30 years, and just increased it).  Sounds like a no brainer to me.

You could argue that it’s not a good bet, since the stock is trading not that far from where it was in May, 1996 (around $27), and that would be true.

However, we are now back to the October, 2008 low of $33, after the crash, so this could be a very important bottom.

I don’t see the stock going much lower than where it is, so I will continue to hold the shares I own, and I may consider some stink bids at $32.50 (which would have been filled three times already this month, so it’s not that low a level).

I’m not suggesting that you bet the farm on AEM.  There are lots of better looking gold stock charts, like FNV.TO – Franco-Nevada Corp.:

This is a much more stable chart, and if the recent weakness is coming to an end, this may be a good buying opportunity.

Why do I say “may” be a good buying opportunity, not “is”? Because as we observed in October, 2008 a general market crash drops everything, good and bad.

My plan, therefore, is to start dipping my toes in the water, but I’m not jumping in.  Currently I’m 50% in cash, so I may up that to 60% invested over the next week or two, but maintain a cash balance to deploy on future weakness.

Those are my thoughts, such as they are.  Thanks for reading; see you next week.

Expect on Good Friday, since I wasn’t working, and I was awake, I started my day with a nice easy stretching workout, with the television on in the background.  And, luckily for me, CNBC was broadcasting live with a special Good Friday morning edition of Squawk Box, in advance of the Jobs Report.

It was classic CNBC.  Each guest gave their predictions for the number of jobs that would be created.  I don’t remember everyone’s exact prediction (because really, who cares?), but the predictions ranged from 185,000 to 280,000, if my memory serves me correctly.

And then, at 8:30 Eastern, the official number was breathlessly announced:

120,000

Oops.

It was really cool watching the real time futures chart on the CNBC screen, as the Dow futures, where were up marginally, started to tank, and finished the holiday shortened session at 9:15 am, down the equivalent of 131 Dow points.

So what does this mean?

Presumably it means that on Monday the markets will open lower, but that may only last for an hour, or a day.  Who knows.

A closer read of the Employment Situation Summary from the Bureau of Labor Statistics shows that the United States still has many festering problems, and those problems could have a significant impact on the elections this November.  For example, the unemployment for adult men is 7.6% and for adult women it’s 7.4%, which are decent numbers.  If you are white, the unemployment rate is 7.3%.

However, the rates are much higher if you are a teenager (25%), black (14%) or Hispanic (10.3%).  That racial divide can’t be healthy.

Another worrisome number is the number of long term unemployed, at 5.3 million; that’s 42.5% of all unemployed people.

If you’ve been out of work for a week or two, it’s no big deal, but if you are one of the long term unemployed, you’ve been looking for work for 27 weeks or more, and things aren’t looking so rosy for you.

In a booming economy there will always be unemployment, but as long as it only lasts for a few weeks it’s not a serious problem.  Unfortunately there are over 5 million people who will think this is a very serious problem.

I’m not an American, and I don’t get a vote, but it will be interesting to see which candidate can tap into this feeling of ill will.

Obviously the Republicans will make the argument that unemployment is as high today as it was when President Obama took office, so it would appear the trillions in government spending has done no good at all.

Of course the Democrats will argue that without that spending things would be much worse.

All I know for sure is that the Dow was down over 1% in this short week, and will likely fall on Monday.  Is the top in?

I have no idea, but it’s obvious that the “bull” market that started with the “correction” in December is running out of gas, and the 13,300 level looks like solid resistance.

Of course you could also argue that 13,000 looks like solid support, so time will tell whether this is simply a necessary pause in a resumed up-swing, or if in fact the top is in.  The Relative Strength Index sits at just under 50, and if it turns upward that’s a good level to resume rising, so we are at a near term inflection point.

Of course 13,300 isn’t the important number.  Of greater interest is the 14,093 peak from October, 2007.  If we can get above that number, it would be very hard to argue that we are not in a bull market.

I’m conflicted on this one.  I assume that a week economy, with high unemployment and massive government spending is not good.  I assume that will eventually lead to lower markets.

However, it is an election year, and what better way to prove that the economy is fine than to engineer a new high on the stock market?  Print money, invest it in the market, and make the market go up.  Then you can stand up and say “re-elect me, everything is great!”  That scenario would not surprise me in the least.

Of greater interest to me is the future for gold.

As the blue up trend line shows, the bull market for gold is still going.  I could draw the chart back ten years, and the chart would look the same.

Of course since the peak last summer at $1,900, we gold bugs have watched the precious metal decline substantially, and a decline back to the $1,500 level would not look good technically.

But again, would it really mean anything?  If the Big Boyz decide to drop the price below the support line, does it mean the bull market is ending?

Nope, it’s just a way to get the weak hands out of the market.

If I had more guts I’d be buying now.  But I don’t.  I’m still nervous and expecting a further correction, so I’ll sit on the sidelines, and then look back in a year and wish I had taken advantage of this opportunity.

Perhaps.

We shall see.  Thanks for reading, and see you next week.

All of the signs of impending collapse are there:

• stubbornly high unemployment, even after three years of “recovery”;
• Greece collapsing, with Spain next to follow, and perhaps many more after that;
• massive government spending, which no rational person can believe is sustainable;
• a stock market rising, but on very low individual investor volume.

And yet, here we sit at the end of March, and the stock markets just continue to go up, almost in an unbroken line:

The Dow sits up 8.14% on the year, while the S&P 500 is up an even 12.00% on the year.  Amazing.

And so, here we sit, not at the end of the world, but merely at the end of the quarter.

Speaking of the end of the quarter, that means it’s “how did we do on our predictions?” time.  You will recall that at the end of 2011 I invited readers to give their 2012 predictions, specifically where the Dow and gold would close at the end of each quarter.  You can see a summary on our 2012 Predictions page, with links to all of your individual predictions.

First, the Dow predictions.  The Dow closed the quarter on March 30, 2012 at 13,212.  Who had the worst prediction, with a prediction of 11,000?

Me.

JDH.

The author of this blog.

You are currently reading a blog written by a guy who didn’t have a clue what would happen with the Dow this quarter.  Who did have a clue?

ChrisC predicted Dow 12,700, so he was only 512, or 4% off the mark.  Honorable mention goes to JohnB at 12,500, 712 off the correct answer, and Uboat, the most optimistic person with a 14,000 prediction, who only overshot by 788 points.

Clearly my pessimism was misplaced, or at least premature.  Presumably I should have assumed that in an election year the Powers That Be would do everything to keep printing money to keep the stock market inflated, because a crash would expose the market for what it really is: a manipulated mess.

(For more on the subject of manipulation, MetalMeister over on the Buy High Sell Higher Forum has come to the conclusion that the markets are a giant fraud, and it’s hard to disagree….).

There are two possibilities:

First, the market is a fraud, and the heavy money printing is all that’s keeping the balloon aloft.  At some point the balloon bursts, and it all comes crashing down.  A debt default, perhaps in Spain, could cause a ripple effect that takes everything down with it.

The other possibility is that the worst is over, and the Bernank’s active helicopter spending has indeed saved the world, and as our confidence is gradually restored we will spend more, and lift the economy, and everything will be fine.

Unfortunately for my predictive reputation, it’s the latter scenario that appears to be the operative one.  Don’t believe me?  Look at the charts.

I’m forced to concede that at the moment I’m very wrong.

I faired somewhat better on my gold prediction, but not much.

On March 30 gold closed at $1,672.  I predicted $1,800, as did Uboat, so we overshot by 7%, which in the volatile world of gold isn’t horrible, and ours were not the worst predictions.

The best?

It’s a tie: both Beginner and Peter518 predicted $1,700, which is about as close to “bang on” as you can get.  Well done.

Where do we go in Quarter #2?  Obviously I have no idea.

Fortunately for me, despite my poor powers of prediction and my over-weighting of precious metals stocks I remain up 2.2% on the year, which isn’t great considering the market is up more than that, and I was up 13.2% at the end of February, so March was not a good month.

However, I’m currently 57% in cash, so even a crash won’t wipe me out at this point.  The only debate now is when do you start deploying that cash?

We all know the old saying, sell in May and go away, so I have no plans at this point to resume buying.  It may be that the summer shopping season started in March, and may end earlier as well, in which case some selective buying may be in order.  For me, I’ll wait.  I’m in no hurry.

Unless I change my mind, so check back next week and we’ll see if the first week of April made any difference in my thinking.

• DOW down 1.16%
• Gold down 1.01%
• Oil down 1.65%

But even after that down week, years to date everything is up:

• S&P 500 up 11.09%
• DOW up 7.06%
• Oil up 6.66%
• Gold up 4.83%

I find it amazing that after massive money printing by governments around the world, the paper stock markets (S&P 500) are up by more than twice as much as gold this year.  Amazing.

Even taking a longer view, gold is up about 15% from a year ago, but even the DOW is up about 10%.

So what will happen tomorrow, or next week?  I have no idea.

Where will we be 5 years from now? I think the answer to that question is much clearer.  You can print money and pump up the markets for a day, or a week, or a year, but you can’t inflate forever.  You can use the paper COMEX to depress the price of gold and silver for a short period of time, but eventually that game ends as well.

I can only assume that we will look back on gold at $1,660 and silver at $32 and say to ourselves “wow, want a fantastic buying opportunity.”

John Embry of Sprott Asset Management is quoted as saying that for gold, the downside may be $50, but the upside could be $1,000, and I suspect he is correct.  If so, the time to continue accumulating is now.

You can stare at a tree for a week and nothing changes.  You can’t actually watch grass grow.  But if you step back, and observe over a longer period of time, the trend is obvious.

Since nothing much happened this week I have nothing more to say.

I am now going to step back and watch.  See you next week.

Here’s gold, over the last two years:

Gold bullion has increased from $1,100 to $1,660, a gain of just over 50%. And yet, over the same two year period, here’s the AMEX Gold Bugs Index, the HUI, comprised of a basket of gold stocks:

As you can easily see, over the last two years the HUI has increased from 424 to 476, a gain of just over 12%.

How is it possible that the product gold miners produce can increase by 50%, but the producers themselves are only up by 12%?

One explanation is that producers have expenses to get the gold out of the ground, and as those expenses increase, their profit decreases.

What expenses do miners have? Fuel is a big one, to power the excavating trucks and blast furnaces.  If fuel costs are increasing, profitability won’t rise as fast as the price of gold.  Back to the charts:

Here’s Brent Crude Oil over the last two years:

No surprises here; the price of oil is up from $80 to $125 over the last two years, or about 45%.  So, it’s possible that increasing fuel costs have contributed to the suppression of gold stock prices.  However, here’s a chart of Brent Crude Oil, but instead of pricing it in dollars, it’s priced in ounces of gold:

Interestingly, as shown by the St. Patrick’s Day green line, the price of crude oil today is about the same as it was two years ago, when priced in terms of gold.

Stated another way, if you go to the gas pumps and pay for your gas with gold coins, it costs about the same today as it cost two years ago.  Gold has indeed preserved your wealth, because unlike paper dollars, you can buy the same amount of oil today as you could two years ago.

Does that mean I am therefore concluding that gold share prices are low because of high fuel costs?

Nope.  It may be a partial explanation, but that’s only a small part of the story.

Year to date the S&P 500 is up 11.65%, while oil year to date is up 8.45%.  Fuel costs are a component in most industries.  Airlines obviously depend on it, but any industry that produces a product, or consumes or ships a product, is influenced by the price of oil.  AAPL – Apple Inc. ships every iPad from China; it doesn’t appear that the higher cost of shipping has dented their stock price.  Ditto for every other industry.  And yes, I realize that fuel costs in a tiny iPhone are much less than the fuel costs to mine and refine gold, but if high fuel costs explained everything, every stock should be down, and in fact the exact opposite is happening.

(As an aside, I happened to be in my local Best Buy store at noon on Friday, the day the new iPad was released.  I asked the salesman if they had any, and he said “sure, over there, we’ve got lots”.  I asked if there was a mad rush, and he said they had a few people lined up in the morning, but there was no mad crush, and anyone who showed up at noon could buy as many as they wanted, with no line up.  That tells me that the stories like the one about Apple co-founder Steve Wozniak standing in line all night to buy the New iPad are just silly media creations.  No sane person waits all night to buy something they can get the next morning.  Here’s a tip: probably time to think about shorting Apple.  But I digress).

So why are gold stocks not tracking gold?  What happened to the leverage gold stocks should have compared to gold?  Here are a few more explanations, as I detailed last year in my post on Gold Bullion Up – Gold Stocks Flat – Why The Divergence?

1. Hedge funds buy gold and short the mining stocks as a hedge;
2. Fuel costs (as we just discussed)
3. Gold is priced in U.S. dollars, but mining companies are in other places, like Canada, so currency fluctuations explain some of the difference
4. These are short term anomalies, and will revert to normal over time
5. The markets are manipulated.

Hmmmmmmmmm – markets manipulated; is that even possible??????

Yeah, it’s possible.  It’s possible that the boys with the printing presses don’t want to make it obvious that they are running the printing presses, so they keep a lid on the paper price of gold, but they also keep a lid on the price of paper mining shares.  Given that the entire gold mining sector isn’t that large (certainly nowhere near as large as the trillions in phony money being printed), shorting stocks to depress prices isn’t difficult.

(Feel free to read Ranting Andy’s thoughts on why it is that the markets get hit at certain times of the day, almost every day).

So what are the implications for investors?

I suspect that until the lid is blown of this thing share prices will remain depressed.  I have no idea how long the suppression will last, but since it’s existed for at least two years, a few more months, or even years, is possible.  That’s why I’m 50% in cash now, and it would appear wise to continue buying physical on dips.

Those are my thoughts. Feel free to comment below or over on the Buy High Sell Higher Forum.  Thanks for reading; see you next week.

The United States Department of Labor issued their Employment Information Summary on Friday, and it was great news!: “Nonfarm payroll employment rose by 227,000 in February, and the unemployment rate was unchanged at 8.3 percent.”

Imagine that: 227,000 formerly unemployed people are no productive members of the American workforce.  Well, sort of.

As Charles Hugh Smith breaks down the numbers on his OfTwoMinds website, the numbers aren’t anywhere near as good as they may appear.  Specifically:

• 33 million people have joined the workforce since the year 2000
• the economy created 4 million new jobs (full time, part time, temporary, etc.) since 2000.

Well, when you put it that way, the numbers are abysmal.

The U.S. economy now has 115 million full time jobs, about the same number as in 2000.

Let’s review: 33 million new people have joined the workforce since 2000, but the same number of people are employed. How is that possible?  Simple.  You just take out 20 million people from the workforce, to keep the unemployment rate reasonable.

It’s a simple math trick.  Just make a rule that says something like “if you haven’t found a job in a year, you are a discouraged worker, and therefore no longer in the work force”, so that you don’t count in the numbers.

If you didn’t arbitrarily subtract workers from the workforce, what would the unemployment rate be?  According to John Williams at Shadow Stats it would be closer to 25%.

You know, 25%, like in the Great Depression.

But we are obviously not in a depression, because so far this year:

• the TSX is up 4.59 %
• the DOW is up 5.77%
• the S&P 500 is up 9.o1%

(Gold is up 9.3%, but let’s ignore that fact, since it disproves the fact that all is well).

But all is well, and the world is not coming to an end.

Unless you are an American.

On American soil.

Because FBI Director Robert Mueller isn’t sure if President Obama can kill Americans on American soil.  He’s pretty sure he can kill them on foreign soil (like if they come here to Canada?), but he has  to Check to See If Obama Has the Right to Assassinate Americans On U.S. Soil.  Yeah, Bob, why don’t you get back to us on that one…..

So with that backdrop, I can only conclude that we are travelling head long over the abyss.  The books are cooked to make it look like we don’t have the same unemployment levels as we had in the Great Depression, the FBI has to check to see if they can kill you without a court order, but the markets are up, so that’s all that matters.

I think I’ll go buy some gold.

Of course there is some good news out there.   Harold Camping, that old guy who predicted the world was going to end last May, and then last October, has finally admitted that his apocalypse prediction was ‘wrong’.  Of course I guess that was obvious to us when we all didn’t die.  More good news: the solar flare this week didn’t kill us, but spaceweather.com says that there is another one due to arrive on Sunday, so there could still be some fireworks.

And in the final bit of good news, MetalMeister over on the Buy High Sell Higher Forum has announced that he has written his first column for Silver Doctors; you can read his analysis about the COT report and the gold and silver futures market.  Sidewinder thinks he’s wasting his time, since this type of detailed analysis takes a lot of time, and since it’s likely to simply encourage ignorant comments from disbelievers.  My thoughts? Go for it.  This blog proves that some people will read anything…….  The COT market is very complex, so my compliments to MetalMeister for even attempting it.  His predictions of the end of the COT market are interesting, and will no doubt be proven true.  Whether or not the world will end, we shall see.

And that’s my point: predicting the end of the world is risky business.  And, as of today, every single person who has ever predicted the end of the world has been completely wrong.  We are all still here, and I expect we will all still be here next week, so thanks for reading, and see you next week.

(And yes, do check out  Silver Doctor’s COT report and the gold and silver futures market; if we all survive, and understanding of that complicated stuff can’t hurt).