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A Turbulent Year

Miles Franklin sponsored this article by Gary Christenson. The opinions are his and are not investment advice.

The DOW hit an all-time high on December 3, 1968 at 985.

WHAT WAS DIFFERENT IN 1968?

In 1968 gold sold for $41, silver averaged $1.96, gasoline cost $0.30, an average house was $14,950, cigarettes sold for $0.30 and a new truck cost $2,500 – $3,000.

The Vietnam War raged even though the war and military draft were violently unpopular. President Johnson declined to run again in 1968. Martin Luther King was suspiciously assassinated. Robert F. Kennedy was assassinated under equally suspicious circumstances in 1968.

Protestors violently disrupted the 1968 Chicago Democratic Convention. North Korea captured an American ship, the USS Pueblo. Feminists marched, burned their bras, and complained about gender bias and unequal opportunities. Racism and abortion were “hot-button” issues. Cities burned, while people hated the police more than usual.

The national debt was $350 billion.

The DOW high of 985 lasted for over four years in nominal dollars and much longer when measured in inflation-adjusted dollars.

The DOW to gold ratio was 24. That ratio declined to one as gold surged over $800 in 1980 while the stock market languished during the 1970s stagflation.

***

TODAY – JUNE 2020:

In early June 2020 gold sold for $1,737, silver stood at $17.48, gasoline cost $1.75 – $2.50, a new house was $250,000 – $400,000, cigarettes cost $5.00 – $12.00, and a new truck was priced at $50,000 to $80,000.

The Afghan War raged even though the U.S. military admitted it could not win, presidential candidates made huge promises, no major politicians have been assassinated, and rioters burned businesses in hundreds of cities.

The Democratic and Republican conventions are coming and could be violent. North Korea remains a political and nuclear problem, women are not burning their bras, but many people are complaining about inequality in wealth, income, privileges, race, and gender. Racism and abortion remain “hot-button” issues.

Rioters burned buildings, tore down statutes, and demanded cities “defund the police.”

The national debt exceeded $26,000 billion, after rising $2.8 trillion since January 1, 2020.

Some people remain scared about the COVID-19 pandemic. Most people worry about being unemployed, unable to make mortgage payments, can’t pay rent, overdue credit card bills, food prices, and wealth inequality.

The DOW hit its all-time high of 29,551 on February 12, 2020. The NASDAQ surpassed 10,000 on June 10. Those highs might last days or a decade. Fed “printing” and market levitation are not all-powerful, but they can’t be ignored.

The DOW to gold ratio reached 22 in 2018 and has fallen to under 15 in early June 2020. The ratio will fall further.

***

Was 1968 materially different from 2020?

People are angry and rioting. The Powers-That-Be (PTB) are fomenting wars, encouraging spending, and creating massive debt. The media is compromised, social unrest is rampant, and the populace is polarized by political party, race, gender, wealth, religion, hatred, racism, and abortion.

The above describes both 1968 and 2020. They are similar.

***

The decade following 1968 saw violence, protests, riots, consumer price inflation, flawed policies, anger, and stagflation—economic stagnation combined with consumer price inflation—caused by excessive spending, and too much debt.

In 2020 we have experienced massive violence, protests, riots, higher prices, anger at government and the Fed, all-time high unemployment, and economic stagflation. Debts are skyrocketing higher, while politicians want to spend more, not manage better.

These trends will not last forever, but for several years we should expect:

a) Deficit spending, more debt, and Fed intervention in markets.

b) Asset deflation and commodity price inflation.

c) A weaker dollar with volatile stock and bond prices.

d) Increasing wealth inequality along with larger protests.

e) A bloody presidential campaign.

f) Stagflation, regardless of Fed interventions.

g) Weakening confidence in the dollar and U.S. government policies.

h) Welfare, warfare, and bailouts.

i) Anger at the Fed and banking cartel.

j) Economic and political stupidity.

k) Protection for the political and financial elite.

l) Higher gold prices as investors seek to preserve their capital.

m) Higher silver prices based on reduced supply and larger demand.

WHAT DO THE GRAPHS SHOW?

The DOW to gold ratio trends for years and then reverses. The ratio peaked in 2018 and will probably fall for much of this decade as gold prices rise, and the DOW languishes or collapses.

The (log scale) gold and M2 graph shows that as M2 increases, so do gold prices.

Stated differently, as the Fed and the banking cartel devalue the dollar, gold and most other prices rise. Look at the cost of cigarettes, trucks, and houses in 1968 versus today. Prices could have remained stable, but the PTB want more debt, inflation, larger M2, and higher prices.

The result has been a gradual transfer of wealth from the poor and middle classes to the wealthy. However, income and wealth inequality create social unrest.

From Bill Holter:

“In the past, the safe haven has been the dollar and Treasuries, but if the problem is the dollar and the credit worthiness of Treasuries, what’s the next step of protection? All capital roads lead to gold.”

From Charles Nenner: Gold will be in a bull market until 2026.

Read: Charles Hugh Smith: “Unstoppable: The Greater Depression.”

THOUGHT EXPERIMENT #1:

The Fed wants to control the value of the dollar, stock market, and bond market. The Fed can’t control all three.

The Fed is owned by huge money interests (top 1%) who also own most stocks and bonds.

If the stock market collapses, it will hurt the political and financial elite.

If the bond market falls hard (interest rates rise), it will severely damage the political and financial elite.

The bottom 85% own few or no stocks and bonds. A market collapse might hurt them, but not directly.

What would you expect the Fed to do?

a) Let the market correct lower from current “nose-bleed” conditions.

or

b) Print dollars, buy bonds, MBS, ETFs, and stocks to levitate the stock and bond markets to protect the wealthy?

THOUGHT EXPERIMENT # 2:

 A collapsing stock and/or bond market will hurt the wealthy (top 1%).

A dollar crash affects everyone, and all prices skyrocket. However, it is less destructive to the wealthy while rising prices damage the poor and middle class more. Necessities are a major portion of expenses for the poor and struggling middle class.

Given the expected consequences of a stock, bond, or dollar crash, which would you expect the Fed to encourage?

a) Stock and bond crash that hurts wealthy cronies.

b Dollar collapse that hurts everyone, but primarily the lower 90%.

THOUGHT EXPERIMENT # 3:

It seems likely that Fed will allow the dollar to crash rather than stocks or bonds.

a) Will that boost the prices for gold and silver? Yes or yes?

CONCLUSIONS:

  • Since 1968 prices and debts are much higher, televisions are larger, social issues are similar, and in many ways, not much has changed.
  • A decade of stagflation followed the 1968 DOW high. A decade of stagflation could follow the June 2020 NASDAQ high.
  • The Fed and the wealthy prefer strong stock and bond markets. They will allow the dollar to crash to support stocks and bonds.
  • The Fed is not all-powerful. They can’t print gold, silver, confidence, social contentment, employment, prosperity, or health. The Fed can and will print trillions of dollars in their attempts to bail out state governments, pension funds, Wall Street, ETFs, and levitate the stock market.
  • But poorly run states, cities, and sovereign governments will implode with or without Fed assistance. Wealth and income inequality destroy public confidence in politicians and institutions.
  • A weakening dollar will inspire people to spend now to avoid higher prices later—the inflationary mindset. A weaker dollar and higher exchange velocity are a recipe for hyperinflation.
  • Hyperinflation, or even moderate inflation, plus declining confidence in the dollar, the Fed, and government are the ingredients for a huge runup in prices for commodities and precious metals. Expect higher prices for food, metals, and necessities.

Protect your assets from the predations of central banks, the developing stagflation, devaluing dollars, and increasing fiscal and monetary insanity.

Buy gold and silver, especially silver, from Miles Franklin. 1-800-822-8080.

Gary Christenson