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Baffled and Befuddled
(Market Update 6-6)
by Edgar J. Steele

May 30, 2006

"It's a jungle here-- right now we're advising our clients to put all they can into canned goods and shotguns!"
  --- Brain Gremlin in the movie Gremlins II: The New Batch.

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My name is Edgar J. Steele.

Unlike paid market analysts, I willingly admit that, most of the time, I haven't a clue what is going on or why the markets or individual stock prices move as they do.  (The biggest difference is that I admit it.)  However, when I study and follow a market segment and/or particular companies, then I am driven by a compulsive need to understand what is going on. 

I understand the fundamental shift that occurred a couple of years ago in response to America's towering deficit, debt and excess-liquidity problems, a shift which then quickened this past Fall:  This is a bull market for metals that likely will outlive me.  Certainly, it will outlive the general stock markets of all Western countries, not to mention the dollar. 

Being in metals now is a "no brainer," as it is the only sure way to transfer your wealth from this side of the economic chasm now yawning before us to the other side, which will appear out of the mists only many years down the road.  Picture yourself descending by foot on the donkey trail into a fog-bound Grand Canyon, with fully 95% of the journey to the opposite canyon lip ahead of you.  Therefore, when I get questions like, "Is it time (to move out of metals)?" I have difficulty with answering temperately.  No, it is not time.  Nor do I expect it to be time again during my lifetime. 

Already, you should have exited all equities except commodity, mining and energy stocks.  What will happen is that there will come a time in the near future when a move from even those stocks into Exchange-Traded Funds (ETF) will be advisable - that will be when we see the wheels coming off the American stock market.  Then, at our leisure, though not too leisurely, we will withdraw all our funds altogether from brokerage accounts, including IRAs, and buy physical metals.  Because ETFs exactly track metal prices, we can afford to take a little time with this move.  That is when metal prices will launch moonward.  Yes, of course we will take delivery.

What you have just seen is a market "correction."  The very word correction implies a reversal, which we now see taking place.  There will be many corrections on this journey, some larger, most smaller.  Remember that the stock market came almost all the way back even after crashing in 1929, before it then meandered over the next three years back down to new Depression I lows. 

Conventional chartists/technicians call the recent correction normal and the basis for consolidating a new floor from which to launch a new, more graduated upward assault on metal high-water marks that will surpass the peak of the parabola of a month ago.  Fundamental analysts refer to selling hysteria being over and the shorts now adequately squeezed so that we can get back to the business of a normal market.  Think of it as a financial wedgie.  Besides, options expire today, which itself should lead to a boost.

What has been new in recent years is the government's illegal manipulation of the markets.  The execrable Robert Rubin, Treasury Secretary under Clinton, allegedly engineered the beginning of the Plunge Protection Team (PPT) safeguarding against market crashes and dealing in gold price manipulation to ensure America's "strong dollar" policy of that era. 

Recall "Easy Al" Greenspan's "irrational exuberance" speech, delivered in late 1996, as the Dow (DJI) crossed 5,000, enroute to nearly 12,000, an untenable level in tandem with the bubble in tech stocks which then burst in 2000, a level once again approached by the Dow recently.  Greenspan knew the score, of course, but 1996 was the last time during his tenure as Federal Reserve Chairman that he would admit as much. 

Without market intervention, sometime during 1996 or 1997 the Dow would have corrected to the level dictated by historical earnings-per-share (EPS) averages at the time, somewhere in the range of 4,000 to 4,500, probably after dipping into the low 3,000s.  That would have presaged an economic recession which would have hurt, but which also would have fixed the financial imbalances then building, which were a pittance compared to those in existence today.

Shortly after taking office in 1992, Clinton signed the NAFTA agreement engineered by Bush the elder.  Sixteen months later, Clinton signed GATT.  WTO and a giant sucking sound followed (a sound eerily similar to that made by those new air-charged toilets).  The New World Order mold, one hundred years in the casting, had been filled and set into place.  America's planned economic destruction (to subordinate America, consistent with the NWO elite's worldwide point of view) then began in earnest. 

The men in control were not stupid - they knew what they were doing, just as they do today.  Recall that Ross Perot told us exactly how it would go.  How is that, you ask?  Why, exactly as it has been going, with American industry, including jobs, heading overseas and the rich getting much, much richer while the middle class devolves into poverty.  And the pain has only just begun, gentle reader, as America slides into place alongside all other second- and third-rate nations.

The financial imbalances set in motion by NAFTA and GATT have been exacerbated by America's intractable monetary and fiscal policies during the past ten years.  "Easy Al," once a gold bug himself, got into line with everybody else in Washington, DC and thereafter claimed not to see the bubbles building in stocks, bonds or real estate.  Now that he has passed the baton to "WhirlyBen" Bernanke (who mentioned increasing liquidity by raining dollar bills down from helicopters, needs be), Easy Al occasionally discusses the aftermath of the bubbles he never saw, showing that he still knows the score.  As I said, these are not stupid men.

And that is how we have come face to face with the huge financial pit now before us.  Some will fall in.  Some will trudge down the path.  Some will trudge up the facing wall's path.  A great many will be lost in the swift-flowing currents at the bottom.  Commodities, particularly precious metals, particularly silver, will serve as life preservers for some.  In fact, some will make great fortunes during the coming journey through Depression II and look down upon the carnage from on high.  Regrettably, America will not survive or, if she does, then she will not be recognizable. 

Of course, considering the Beast into which the NWO crowd has transformed America, best exemplified by her wars of aggression and genocide against the innocent children of nations like Afghanistan, Iraq and now, apparently, Iran, perhaps it is best that she be put down like the crazed animal she has become.  The coming economic catastrophe alone will accomplish that, I believe, but I also think it increasingly likely that the mad little dictator now in the White House will get us nuked in the process, too.  Frankly, we deserve it.  Nor would I be surprised to see our erstwhile European allies join in or, at the least, stand aside while the dirty work is done by the likes of China and Russia.

History likely will show that WWIII began with 9-11.  Think not?  A bill to draft all men and women, age 18-42, has been introduced in the House of Representatives.  Frankly, I thought those craven, perverted cowards who somehow get reelected (oh, yes, that's right - those Diebold automatic tallying machines used by Bush!) would wait until after the mid-term elections even to introduce it.  You can bet they won't act upon it until then.

So, lessee....bull market for metals...corrections...Depression II...WWIII...end of the world as we know it...  I sound pretty certain about all those things, don't I?  For good reason, grasshopper.  For good reason.  Even a blind man could smell this elephant in his living room.  My bafflement concerns smaller things set within the context of this chaos.

I talk now and again about my pitifully modest stock market investments (you see, there is no money in defending the politically incorrect...in fact, usually I have to pay for the privilege of defending your civil rights via their lawsuits).  I have been a cheerleader for Gold Corp (GG) for many years now, beginning with my touting that stock in my book, Defensive Racism, when it traded for a mere $8 and change.  Recently, GG topped $40 and was struck down more severely (25%!) than most mining stocks (about 20%, versus the 10% decline in the spot price of gold, from $720, along with its ETF:  GLD) during the recent correction.  Gold continues to have its head held under water (beneath the $650 level), along with GG, but other issues seem to be on the rebound.  Indeed, the new gold-mining-stock ETF (GDX), despite GG, which is a major component, has risen steadily since recently opening for business.

All metals and all mining stocks got hammered in the recent correction.  You see, the rest of the world treats gold (and silver) as "real money," since gold possesses what is called inherent value.  By comparison, the inherent value of a one-hundred-dollar bill is about 2 cents, its cost of manufacture.  Why does gold have inherent value?  Because everybody in the world thinks so.  Why doesn't the dollar?  Because everybody but Americans knows better.  Seeing the dollar go into freefall, evidenced by gold's price going hyperbolic earlier this month, the PPT considered it imperative to rein in both gold and the companies that produce it.  They are going to let the dollar become valueless (they have to, a fact set in concrete by America's unrepayable debt structures), to be replaced by a new currency, likely the Amero, enroute to the all-electronic Globo, but not so fast that the American people notice, then rise up and rip the financial elite to shreds, as they so richly deserve.

Both the timing and the way in which the recent correction began reflect the fingerprints of government lackeys, especially Goldman Sachs (from which the still-execrable Robert Rubin came to the Treasury position under Clinton).  Incidentally, and not at all coincidentally, Bush just named his newest Treasury secretary, going against all Street recommendations in a move reminiscent of his attempt to place his personal lawyer on the Supreme Court:  Bush crony Henry Paulson, moving over from his position as CEO and Chairman of (all together now) Goldman Sachs.  Hmmmmm...do we see a pattern emerging or, at least, smell an elephant hereabouts? 

Goldman Sachs, you see, is the prime player on the PPT and in manipulating markets of every stripe, as evidenced by the incredible stack of derivatives built up in its back rooms.  Sometimes I wonder if our "elected" officials don't take their orders via Goldman Sachs - it and AIPAC, of course.  Heaven knows that, if I were one of the world's elite, I would not sully my hands by dealing directly with the likes of George W. Bush.  But, I digress.

GG perhaps is the single strongest gold mining stock on the board (no debt, no hedging, good management, good reserves, low cost production), despite the outlandish recent looting of its treasury by its own officers via stock options, thus obviously was chosen for special treatment.  Skating along at just under $31 today, I think GG is a real bargain that will come back even further and faster than the rest of the pack.

Silver also dropped 20%, from $15 to $12.50, but keep in mind that it had trebled in price during the same period that gold "merely" had doubled.  As we have come to expect in recent months, silver has shown more strength in response to this correction, with a closing spot price above $13 today.  The new silver ETF (SLV), of course, parallels that price movement.

Still no mystery.  These aren't the 'droids we're looking for

But, I follow palladium (the poor man's platinum), too, and therein lies the source of my befuddlement.  The two palladium stocks I consider worthy of primary attention are North American Palladium (PAL) and Stillwater Corporation (SWC).  Both fell about 20% during the recent correction, just like other mining stocks. 

Before I did any sort of fundamental analysis of either PAL or SWC, and based strictly upon their technical (historical price chart) aspects, last Fall I took small positions in both and was touting them simply because the market price of palladium looked to me to be ready to take off, as it had been bumping along just beneath $200 per ounce for...ever, it seemed. 

Right on cue, palladium took off, with both PAL and SWC baying in pursuit.  PAL proved about twice as volatile as SWC, which suited my mood at that time (I refuse to do options and futures, just as should you).  Both companies turned in year-end losses for 2005, just as expected, but the price of Palladium crossed $250 at year's end and never looked back until it bounced off $400, just two weeks ago, when the market carnage began.  SWC had marched dutifully upward, doubling to $18 early in May.  Meanwhile, PAL tripled, jumping to $12. 

The recent correction took palladium down 10%, to about $350, where it still sits.  SWC dropped 22%, to $14, but PAL fell only 17%, to $10.  Here's the problem:  neither are coming back yet, with SWC closing at $13.86 and PAL closing at $9.43 today.  I must admit that I absolutely am baffled by the market price movement of both PAL and SWC.  Palladium has shown signs of moving up sharply since this last correction's long knives came out, yet both continue to slide sideways, even trending down a bit.

Here's another problem:  I have since crawled extensively through each company's annual reports, financial and operating statements for both 2005 and the first quarter of 2006 and concluded that SWC, by far, is the superior company, yet PAL's stock price seems to do better, even in decline now. 

Early this month, I mentioned that I thought PAL should be sold, just prior to the correction.  I hope you got out.  I always buy and sell with limit orders and got outrun by PAL's plummeting price all the way to the bottom of the correction, with the result that I didn't follow my own advice.  Given the odd way in which PAL's stock price seems still to be outperforming SWC's, I am going to risk it for a few more days, but then I certainly am dumping PAL for SWC, with some of it going into both molybdenum and energy stocks. 

I still believe in palladium, but, now that I have done the fundamental analysis that I should have done long ago, I simply can no longer recommend PAL.  SWC clearly is superior in all respects:  management, stability, financial condition and, especially, reserves.  The only thing PAL has had on SWC in the past is a lower production cost, but that went by the wayside during PAL's recent difficulties and, what with the very recent, huge surge in palladium's market price, becomes of less significance, anyway.  

Knowing that I still own PAL, you certainly can conclude that I get paid nothing by anybody for these occasional recommendations.

I do these financial pieces for two reasons:  First, it is critical that those in the "Patriot Movement" do everything they can to protect their families during the upcoming unpleasantness, even if it means our buying and putting away only a silver dollar or two each and every payday.  Second, I hope to entice the unsuspecting back to my lair (www.ConspiracyPenPal.com), where I then can have my way with their politically-correct belief systems.  Do your part to help make it a better world:  send the unsuspecting a copy of this newsletter today.

New America.  An idea whose time has come.

-ed

Copyright 2006, Edgar J. Steele

 

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