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Bill Bonner
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Bill Bonner is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and the principal author of a daily financial column, Inside Investing Daily.
My company:
Bonner & Partners
  • This Gold Bug Ain't For Turning!

    Whoa! This is getting interesting...

    Gold crashing on Monday. Slight recovery yesterday. Stocks crashed on Monday too. Now surging.

    What happened to gold? No one knows. There were reports of a 124.4 ton sell order from an investment bank on Friday morning. But from whom? Why? Nobody knows.

    From Bloomberg:

    The CME's Comex unit is making it more expensive for speculators to trade after gold fell the most in 33 years today, dropping to the lowest since February 2011, after prices entered a bear market last week. Silver, also in a bear market, slumped 11% today and extended the year's loss to 23%.

    In the financial markets, we spend most of our time waiting for something to happen. When years go by and nothing happens, we assume that nothing will ever happen. When it does happen, we are totally surprised.

    Is something happening now? A major change of direction? Is another shoe dropping?

    All Downhill for Gold?

    A consensus is forming that the gold market has reversed direction. The bull market of the last 14 years has finally ended. It's all downhill from here, say the mainstream pundits.

    But if that is true, what else will have to be true? The last bull market in gold ended when the Fed dramatically changed course.

    Paul Volcker replaced G. William Miller as chairman in August 1979. A loose money policy became a tight money policy. Volcker jacked up interest rates, which had trailed behind the inflation rate by such a degree that real interest rates (the difference between nominal interest rates and the rate of consumer price inflation) were as high as 5%.

    "Don't fight the Fed," they say on Wall Street. Those who fought the Fed back in the early 1980s were wiped out. The Fed was tightening - sharply. Volcker was determined to bring inflation rates down. That was not the time to own gold. It was the time to own bonds. You could buy a 10-year T-note with an 18% coupon. And interest rates (along with inflation rates) were headed down. Bonds would go up in value for the next 30 years.

    By contrast, gold went down... down... down. By the end of the bear market in gold, there was hardly a single gold bug who was still sober or still solvent.

    But what's the Fed doing now? Has it reversed course? Has Ben "Bubbles" Bernanke been replaced with a tough-as-nails inflation fighter? Has the FOMC vowed to stop printing money? Has the loosest monetary policy in US history given way to a tight policy?

    Nope.

    Has the bull market in bonds ended? Have the lowest interest rates in half a century suddenly started to turn up?

    Nope again.

    Bubbles, Crises, Booms and Busts

    What has fundamentally changed to reverse the fundamental direction of the gold market? Nothing we know of. Instead, the Bank of Japan has recently joined the central banks of the US, the euro zone and Britain in promising to keep printing money "as long as necessary" to get the inflation rate UP!

    Every major government in the Western world is running a big deficit. Every major central bank is printing money. And every saver, as David Stockman put it, is being "crucified on a cross of ZIRP."

    That's right, too. Savers had a field day when the Fed changed direction in the early 1980s. They were paid to save... and paid well.

    Now savers are being punished. They earn less in interest than the real rate of inflation. Is that changing?

    At the time the last bull market in gold ended, everything stopped in its tracks and turned around. Stocks had been going down for at least 16 years; they suddenly started going up. Bonds had been going down too, ever since the end of World War II; they too started moving in the opposite direction. Savers were rewarded; borrowers were punished.

    And gold reversed course and began an 18-year bear market. Is there any major turnaround now that would justify or at least signify a historic turn in the price of gold?

    Nope.

    Central banks and central governments are committed to a particular course of action. Does it lead to more valuable paper money? Does it lead to price stability? Does it lead to growth and glory?

    Or does it lead to bubbles, crises, booms, busts and an eventual blowup? As far as we can tell, central banks are looking for trouble.

    We still want to own as much gold as possible...

    Regards,

    Bill Bonner

    Bill

    To learn more about Bill visit his Google+ page or Bill Bonner's Diary

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 17 12:33 PM | Link | Comment!
  • Why I'm Delighted To See Gold Smacked Down

    We are delighted to see gold getting smacked down. From the International Business Times:

    Gold prices posted their biggest two-session drop in 30 years Monday as retail investors and large institutional speculators capitulated to a six-month downdraft that accelerated in the last week into bear market territory. The violence of Monday's plunge reinforced the view that the 12-year bull market in gold is finished.

    In New York trading, a troy ounce of gold closed at $1,360.60, a more than 9% plunge and the most extreme drop since 1983.

    By the close of trading Monday, the price was off more than 13%, or more than $200 per ounce, from last Thursday's closing price of $1,564.90.

    Why is this good news? It settles our nerves. And gives us an opportunity to buy more.

    If you're in a card game and you look around the table... if you can't figure out who the fool is, he might be you. Then you get nervous. You start rubbing your hands or scratching your forehead. The other players will see that you've lost your nerve.

    Then you're finished...

    We've been looking around the table of the investment world, too, wondering who's the fool. The people who are buying stocks? Probably, but maybe not. The folks who are buying bonds? Yes. But who knows?

    Then who is it? Are we the fools?

    A lot of people think so. It was beginning to make us nervous.

    Maybe there really is a recovery... however weak. Maybe the feds really do have the situation under control. Maybe the central banks are right to print money. Maybe it will be clear sailing from now until kingdom come. And we'll be fools not to be on the boat along with all the other stock buyers and gold dumpers.

    Why is the price of gold falling? The papers say it's because speculators fear that China is slowing... or that Cyprus will dump its holdings. From British newspaper The Guardian:

    The price of gold fell to its lowest level in more than 18 months on Friday night amid fears that sales of the precious metal forced on Cyprus by its desperate financial plight would lead to wholesale dumping by hard-pressed countries in the coming months.

    At the end of a week dominated by the plight of the troubled Mediterranean island, gold slid below $1,500 per ounce for the first time since July 2011 in anticipation that Cyprus would seek to raise 400 million euro by offloading a chunk of its reserves.

    The False Premise

    "Find the trend whose premise is false," says George Soros, "and bet against it."

    And today, behind the drop in the gold price is a very foolish notion. The premise is that real money (financial reserves) can be replaced by credit and debt. People who believe this must be the real fools in the market. Which takes some of the pressure off us.

    Imagine you are a major holder of, say, antique Buicks. Imagine you are in financial trouble. The market for antique Buicks anticipates the upcoming supply. Prices of old Buicks drop.

    OK... but are Buicks the same as gold?

    Imagine that, instead of Buicks, you held cash -- a big wad of cash in your vault. Then, in financial trouble, you need to open the vault, get out your cash and use it to pay your creditors. Does the market for cash go down? Does the value of your cash decline because people know you will have to give it to someone else?

    The premise is false. Real cash does not become less valuable when people find themselves in financial difficulty; it becomes more valuable. People scramble to get it. They need to pay their debts... settle their accounts... reduce their illiquidity by raising cash. They need cash. The demand for cash goes up, not down.

    But wait. Today's bills are payable in paper cash... not gold. Debtors must raise paper cash by selling their gold for paper. It's paper they need... not real money.

    That's what makes this business so interesting, isn't it? And so funny. The system runs on paper money. People spend it. People borrow it. Now people need more of it to pay their bills. So they sell their valuables -- namely, gold -- to get more paper money. Gold goes down, while central banks print up more paper money -- just to make sure there's plenty to go around.

    But one day... and we won't say when... (saying "what" seems like more than enough to ask from a free publication)... people will stop worrying about the quantity of the paper and begin worrying about the quality of it.

    They will find that they have plenty of paper... and that more is coming all the time. They will look in their vaults and wonder what they will do with all this paper money.

    They will have bills to pay then too... and creditors with sharper eyes and tougher standards. When they offer these new creditors more of their paper money, they will say, "Uh-uh."

    They'll want some better cash. Gold, in other words.

    Regards,

    Bill Bonner

    Bill

    To learn more about Bill visit his Google+ page or Bill Bonner's Diary

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 17 10:17 AM | Link | Comment!
  • We Can Barely Stop Laughing

    Whoa! On Friday, gold got whacked hard - down $63. It's barely holding above $1,500.

    Is this the end for the bull market in gold? Everybody says so. From The New York Times:

    In Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled... A $29,000 investment that Mr. Norstog made in 2011 is now worth about $17,000, a loss of 42%.

    "I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something," Mr. Norstog, 67, says of his foray into gold.

    Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking - fast. Its price has fallen 17% since late 2011. Wednesday was another bad day for gold: The price of bullion dropped $28, to $1,558 per ounce.

    And this was before gold tumbled on Friday.

    We can barely stop laughing.

    This sad sack "investor" thought he would make money by putting $29,000 into gold stocks.

    Ha-ha. Wrong on all counts. He thought gold was an "investment"... he thought an amateur speculator could make money in gold stocks... and The New York Times thought he was an investor.

    And now The New York Times thinks gold is going down. Why?

    Now... things are looking up for the economy and, as a result, down for gold. On top of that, concerns that the loose monetary policy at Federal Reserve might set off inflation - a prospect that drove investors to gold - have so far proved to be unfounded.

    So Wall Street is growing increasingly bearish on gold, an investment that banks and others had deftly marketed to the masses only a few years ago.

    Ha-ha. Do you remember Wall Street deftly marketing gold to the masses a few years ago? Show us the ads! Give us the brokers' phone logs! Prove it!

    The fact is, the masses never got anywhere near gold. Not even close. Most people have never seen a gold coin... and few are as reckless as the aforementioned Mr. Norstog. Most are even more reckless! They'll wait for gold to hit $2,000... or $3,000 before they buy.

    Which is why we're nowhere close to the top. Wall Street never marketed gold deftly... or any other way. Not even in its usual greedy, heavy-handed fashion. And the masses never bought it.

    Just the opposite. As the price of gold rose, we saw ads in the paper soliciting people to SELL gold. The masses held gold parties... in which they sold their golden heirlooms at preposterously low prices.

    And those concerns that money printing by central banks would cause trouble that have "so far proved to be unfounded"? Well, stay tuned!

    The Good News About Gold

    More good news from the NYT:

    On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11% from where it traded on Wednesday. Société Générale of France last week issued a report titled "The End of the Gold Era," which said the price should fall to $1,375 by the end of the year and could keep falling for years.

    Why "good news"? Because the more bearish on gold Wall Street becomes, the more the rubes and pumpkins sell. The more they sell... the cheaper it is for the smart money to buy.

    Yes, dear reader, we hope Goldman and SocGen are right. We'd like to see gold crash down around $1,300... or lower.

    First, because this would mark a real correction in the bull market. It's been going on for 12 years without a serious correction. Not a healthy situation. We'd like to get the correction out of the way... shaking out the Johnnies-come-lately and the two-bit speculators. Then, the final stage in the bull market could begin.

    Second, because it gives us a chance to buy more. Because no matter what noise you hear in the press or in the street, central bankers are far more reckless than Mr. Norstog. The monetary authorities are convinced that they can revive sluggish economies by printing money... and they'll continue printing until all hell breaks loose.

    Then, when the dust settles... when pounds, pesos, yen, euros and dollars have all been beaten and bruised... there will be one currency still standing tall. That will be gold.

    Regards,

    Bill Bonner

    Bill

    To learn more about Bill visit his Google+ page or Bill Bonner's Diary

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 15 11:02 AM | Link | Comment!
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