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Last night Susan and I attended the high school graduation of our oldest grandchild. Senator Al Franken was the keynote speaker. Franken grew up in St.Louis Park, and our granddaughter was graduating from St. Louis Park High School. I am so unhappy with the way that things are going in our country these days, that I just knew I wouldn’t like what Franken had to say. As it turned out, Franken, “the politician,” didn’t speak last night. Franken, “the comedian,” was onstage. Before his life in politics, he was a comedian and a writer for Saturday Night Live. I really wanted to dislike him, but at least for 10 minutes, it wasn’t to be. He had my daughter, my wife and me laughing out loud non-stop. I’m not sure about his skills as a Senator, but he is still a very good comedian.

All of the speeches were similar. The speakers talked about responsibilities and opportunities and hope. I leaned over to my daughter and said “for many of these kids, tonight will be the highpoint of their life.” I guess I don’t hold out too much hope for what lies ahead for the class of 2010.

The future won’t be dark for all of these kids, but I do believe that the class of 2010 will not have the same limitless opportunities awaiting them that the class of 1959 – my class – did. Life seems to loosely follow the 80%/20% formula. I know it works in business. 20 percent of a sales force does 80 percent of the business. If they are lucky, maybe 20 percent of these kids will rise above the rest and find a good job. That’s where we seem to be headed now. One in five will do well and support the other four. That’s what happens when the middle class disappears. There are a small percentage who are relatively well-to-do and lot who are not. “Tax the wealthy” is becoming more and more popular. Everyone wants to tax the wealthy, but by wealthy they mean anyone who earns MORE than they do.

Moving on – Andy and I were in New York on Tuesday and in Chicago on Wednesday. Tuesday, we met with one of our suppliers, who provide 40% of the gold and silver to the retail marketplace. They are the “elephant” in the business. They agree with our assessment that in the near future, the mints (US, Canadian, Austrian, South African, etc.) will not be able to meet the demand. From their perspective, the Europeans dislike us and would rather buy Maple Leafs or Krugerrands than US Eagles. That’s why it is almost impossible to source Maple Leafs or Krugerrands now, at any price. The Europeans are buying gold and silver like it’s going out of style. They agreed with us that next they will move in on the American Eagles and the premiums will start to rise like they did in the fall of 2008. We were assured that we will be at the front of the line and get whatever they have to offer. Miles Franklin is well positioned to have product when most dealers in the US will not.

Later, we had dinner with the CEO of Casey Research. Their newsletters go out to nearly100,000 people. They are now endorsing Miles Franklin. I have admired Doug Casey for over 25years and am honored to have been chosen to work with them. They have this to say about Miles Franklin: “For physical gold, while you have to do your own due diligence, we have done some for ourselves and have a new company worth checking out for purchases of bullion coins – Miles Franklin. The principals have been in the business for decades, and everyone we have spoken to gives them two thumbs up for service and for pricing. They have just about anything one could want, from U.S. bullion coins to pre-1965 U.S. silver bags.”

On Wednesday, we spent an hour on the floor at the Chicago Board of Trade. One of the traders is a client of ours and we are working with him on a joint venture at the “fringe” of our regular business. I will write more about it when the time is right. It was an interesting experience and brought back memories of one of my all-time favorite movies, Trading Places.

On Thursday, I got a call from a very close friend. Recently, he asked my advice about gold and the stock market and wanted to know what his girlfriend should do with her money. She has already purchased $200,000 worth of gold from us. My advice to him was that she should get out of all of her non-mining share stocks now and into cash. Her money manager did not agree. I know him and he is very good at what he does. He thinks that I am very bright, (I’ll take all the compliments that I can get) but have a rather “narrow” view of the economy. He told my friend, and his girl friend, that there are $10 trillion dollars sitting on the sidelines waiting to jump back into the market. He also said that they shouldn’t listen to Richard Russell’s advice and that he has been wrong for years. I can accept criticism of my views but I get upset when people put down Russell. He is not getting senile. He is scared and concerned for his subscribers. When it comes to the “Big Picture” and the major trends, I have found Russell to be extremely accurate. He called the market crash in the fall of 1987. He called the market crash in the fall of 2000. He is warning of a similar event this fall. I take his warnings very seriously. What’s wrong with being on the sidelines, in cash and gold, and out of harm’s way, for a while? The downside is that you may miss out on a rebound. But – if Russell is right, and I say he will be, then you will not have to watch your hard earned money go down the tubes.

As for his comment “there is $10 trillion on the sidelines,” I say GREAT! I hope it enters the market. I hope the economy starts to really rebound. Nothing would be better for my business and my portfolio. Nothing would be more inflationary. Gold is rising now during a period of deflation. Wait until the winds of inflation blow at its sails.

Jim Ehmke is our representative in the state of Washington. Jim is a personal friend of Harry Schultz, a legend in our industry. Harry wrote the following to Jim:

Jim, this is quite clear-cut and professional.
They say things are ominous in regard to deflation outlook. And give the correct data to make the case.

Part IV: Our Four Star Inflation-Deflation Model
We are starting to see weakness in our inflation signals with a movement toward deflation. These are the same signs we were seeing in 2008. Gold and commodities are higher, but commodities are starting to weaken.

We’ll now look at the two-month and six-month changes during the last six months to see what our readings have been. The results have shifted to deflation and look quite ominous for the future.

Date CRB2 CRB 6 XLB 2 XLB 6 Gold 2 Gold 6 XLF 2 XLF 6 Total
Lower Lower Lower Lower Higher Higher Lower Higher
May -1 -1 +1 -1/2 -1.5

I also wanted to show you another chart that I think helps explain what is going on in terms of the inflation picture. Typically when the Federal Reserve is stimulating the economy, money is pumped into the banking system and the banks lend out more than they receive; this has a multiplying effect. However,because many banks are in danger of failing and the government is requiring them to increase their reserves, the banks are not lending out the new money they are getting. The graph below, from the St. Louis Federal Reserve shows this happening with the M-1 money multiplier. When the banks stop lending money, the multiplier goes below 1. Right now, it is at 0.87. To put the current levels in perspective, look below at the longer term chart of the money multiplier with the numbers sometimes being above 3. It would be interesting to see this chart going back to the time when interest rates were 15% or more in the early1980s. Even though we’ve been in a recession since 2000 (according to real inflation numbers, not what the government says), the Federal Reserve claims that the most recent recession ended last summer.
The return of “deflation” that Schultz is warning about threatens a repeat of the fall of 2008. You remember what happened then – everything went DOWN. Stocks, real estate, commodities, and yes, even gold. But gold was the first to recover and it rebounded the most of all financial assets.
We are living in the worst of both worlds – deflation is threatening our financial assets and the Fed and the Treasury will fight it with money and debt creation that will dilute the value of the dollar. There is a word for this -STAGFLATION. Get to know it,because it is our future. That is why that old “geezer,” Richard Russell, is pleading with his readers to get out of stocks and into gold and cash. That’s why I am repeating these warnings to you nearly every day. The clock is ticking and we are counting down now, in months, not in years. Get you financial house in order now. There really isn’t much time left.
Whenever anyone tries to tell you that gold is in a bubble, and not a safe investment, think gold rising in ALL currencies now, and it has been for some time.