From the Desk of Craig Griffin

Last week I wrote:

“Here is what I think…I believe that big money is not making any decisions based upon going over the fiscal cliff. The stock market, in all its wisdom does not believe we are going over the FC for any meaningful period of time. In other words, big money believes the problem is going to be pushed down the road. Of course they will kick the can down the road until they can not do so any longer! At that point no one will show up to buy our bonds and no one will want to hold U.S. Dollars! Are we there yet? No!”

“This is also reflected in the gold movement…gold is now under $1700 and if big money believed the FC was a REAL problem TODAY gold would be soaring!”

I had stated this opinion in earlier updates as well. I imagine that you have noticed by now that the U.S. did not go over the fiscal cliff.

I went on to say that I felt that the Fiscal Cliff would be used as the excuse that the U.S. economy went into a recession in 2013. However, I don’t think a recession will begin in 2013. Why? Because I believe it began in the summer of 2012, to be more specific, July of 2012.

Below is piece on the debt and the dollar from Richard Russell’s Dow Theory Letters, January 2, 2013, Daily Remarks section. I believe this piece by Russell points out the biggest problems facing America today.

According to Russell, gold will be the big benefactor! It is short and well worth the read.

I hope you had a joyous holiday season!

And remember, “It would be unwise to acquire gold for the short term but it would also be foolish not to own some gold for the long term!”

Craig P. Griffin
President

Richard Russell’s Dow Theory Letters January 2, 2013 (Excerpt):

Bull market or bear market? Below we see a listing of the year-end cost of gold denominated in Federal Reserve Notes (these notes are now commonly called “dollars”). From a market standpoint, we’re looking at one of the greatest bull markets in history. But ironically, referring to “dollars alone,” this is one of the worst bear markets I’ve ever seen.

Bear market? Sure, back in the year 2000, for only 273 dollars you could buy one ounce of gold. But by 2012, you needed over 1600 dollars to buy the same one ounce of gold. The eternal value of gold doesn’t change. It’s the purchasing power of the Federal Reserve note that has changed.

2000 — $273.60
2001 — $279.00
2002 — $348.20
2003 — $416.10
2004 — $438.40
2005 — $518.90
2006 — $638.00
2007 — $838.00
2008 — $889.00
2009 — $1096.50
2010 — $1421.40
2011 — $1531.00
2012 — $1675.00

The price of gold in terms of “dollars” has now risen thirteen years in succession. But what is even more remarkable is the fact that most Americans have totally ignored (even despised) this remarkable bull market. Let a stock rise seven or eight years in a row, and it will be the talk of Wall Street and the talk of every social gathering in the nation.

Yet this amazing bull market in gold stands alone, sneered at and almost hated. I’ve been in this business for over 60 years, and I’ve never seen anything quite like it.

However, I do think I know something about human nature. What I’ve learned about human nature is that it doesn’t change. For instance, if a stock creeps up year after year, sooner or later the crowd will discover it — and then they’ll pounce on it, ultimately sending that undiscovered stock far above its reasonable price.

My belief is that somewhere ahead, the crowd will “latch on to” gold. Then, as disinterested in gold as they are now, the crowd will pile into gold with the same frenzy that overtook the storied “49ers” when they packed their bags, kissed their wives and kids good bye, and headed West in search of gold.

Gold is the only item that elicits both greed and fear. The greed factor is so well known that I don’t have to explain it here. But the fear factor only arises when men (and women) see the “value” of their money disappearing. Nothing concentrates the mind as dramatically as seeing the purchasing power of one’s hard-earned income and savings being ruthlessly destroyed.

As I write, Ben Bernanke’s Federal Reserve is systematically shaving off the purchasing power of the dollar in the same way that you can peel the layers off an onion. The US has been in the process of constructing the greatest credit bubble in history. The world has never seen anything like it. This enormous bubble is now being attacked by the worldwide forces of deflation. Fed Chairman Bernanke is terrified by the mere thought of deflation. Bernanke will not stand for deflation. He has said as much. And he will attack deflation and crumbling asset prices with all the inflationary power at his command.

As the ocean of new dollars pours out of the computers of the Federal Reserve, the purchasing power of the dollar erodes. It erodes slowly at first, but as the river of dollars turn into an ocean, slowly-rising inflation segues into a monster. Finally, the crowd recognizes what is happening to their money. The loaf of bread that cost a dollar last year suddenly costs four dollars. The cup of coffee that cost a dollar last week goes on special today for two fifty. The college tuition that cost four thousand dollars now costs sixteen thousand and there’s the extra for a dorm. You’re suddenly paralyzed. A light bulb in your head starts to glow. And just as suddenly, the mad, frantic rush for gold is on.

Old timers shake their heads knowingly and repeat the old saw, “There’s no fever like gold fever!” And the rush for the yellow metal turns into a full frenzy.

Even as I write, the subtle but tell-tale signs of “gold-fever” are seen and heard. New gold funds and new gold ETFs are started. Full-page advertisements appear in the newspapers, drawing attention to the loss of purchasing power in the dollar, and lauding the advantages of owning gold and silver. Gold vending machines appear at airports and in European and Asian department stores. Pressure is rising to force lawmakers to elect gold as legal tender. On March 29, 2011, the state of Utah passed a law stating that gold and silver will be legal tender in the state of Utah. Imagine, just imagine — gold being treated as real money! That alone shows us how far and how completely insane the nation’s attitude towards gold and silver has become. Gold has been treated as money for 3,000 years. “As good as gold” is a well-known expression. Yet, today in the US, gold is not considered to be legal tender.

No fiat money has lasted for as long as a century. The US has had prior experience with fiat money — the Civil War Greenbacks, the “Bills of Credit” of the original American colonies, the ill-fated Continentals during the Civil War. None of these have survived, and neither will the Federal Reserve notes that we now refer to as “dollars.”