Delusions of Adequacy...
05.17.04

As the editor of the Silver Bear Cafe, I spend a whole lot of my time reading. Reading things about the markets, the war, precious metals and energy. In this weekly column I will attempt to condense the week's events and put them in perspective. JSB

California again topped the leader board when it came to statewide gas prices, with regular averaging $2.22. Los Angelans are paying about three cents a gallon more. The state of Washington followed a few cents back at $2.18 per gallon and regular gas in the Empire State cost an average $2.02 per gallon. Texans continue to enjoy the lowest prices in the country at $1.80 a gallon, while Houston motorists are pumping gas at an average of $1.78 -- 16 cents per gallon lower than the national average.

China's throttling-back will be tough on commodities for the next few months but it is temporary. They have stuffed 200 years of Industrial Revolution into a single generation's lifespan and there's no looking back. By 2050 China, urbanizing along a trend experienced by Japan, Europe and the U.S. during their industrial revolutions, will shift their population from the country to the cities, necessitating the construction of the equivalent of a Los Angeles every two years or less. China has now replaced Japan as the world's second largest oil consumer.

Expect a 20 percent increase in prices for electricity and a 15 percent overall increase in your utility bills, including charges for distributing power, after July 1.

The economic recovery is not sustainable. Wage and salary growth has been unusually weak in this recovery and consumer spending has been sustained on the basis of ever lower interest rates, two major tax cuts, billions of dollars of cash-outs from REFIs, ballooning asset values, and a low savings rate. Unless wage and salary growth kicks in, consumer spending cannot be maintained, and without a continuing robust rise in jobs, wages and salaries will remain in the dumper.

A drop in asset values will undermine the collateral that under-girds trillions in consumer and financial debt which, in turn, will screw the bankers. During a deflation, people will be forced to sell; almost everything will fall in price. The credit bubble has become so large that the only policy option now is a depression or hyperinflation. These two options are the only recourse to getting rid of too much debt. Hyperinflation will make the currency worthless, which, in turn, will make the debt worthless. A depression causes its liquidation. Given the horror in which governments and central bankers view deflation, hyperinflation is the more probable outcome.

Nobody ever really made money in stocks or bonds when interest rates were rising.

I believe that the Fed is in a box, and that the market is in a no-win situation. Either we get higher rates and a down market or a weaker economy and a down market. The entire financial system is Enron and Long Term Capital times one-hundred.

Phase II of the Great Bear Market seems to have gotten underway...

The Dow has posted a 3.8% loss for the year. The Nasdaq nurses a 4.7% loss for the year to date.

The American "Sheeple" strangely regard real estate inflation as not inflation at all, but rather appreciation. As soon as mortgage funds become less available, or more difficult to secure, property will be seen for what it really is: an asset inflated by bond speculators.

The bond market is starting to recognize the fact that the United States is out of control fiscally and is saying that if you want people to hold this garbage you call debt, you had better be prepared to pay a lot more than you are. When the yield goes up, the price goes down. Look for bonds to be a lot lower a year from now than they are today. How much lower? My guess is that the 30 - year Treasury will touch 90 sometime next year. A substantial fall in bond prices will occur this summer.

Mortgage rates rose for the 7th week in a row.

Among the ranks of college students, fully 23% have already declared bankruptcy, a shocking statistic. Our generation celebrates debt, and abuses it to unbelievable levels. It has thoroughly confused wealth and credit access.

From 1787 to 1970 the US money supply increased to 600 billion. Since 1971 the money supply ballooned to $6.6 trillion by 2000, a ten-fold increase! Since 2000, the money supply's growth accelerated 37% from $6.6 trillion to over $9 trillion, while mortgage debt is up 33%, and state and local government borrowing is up 30%. Anyone that claims we are not experiencing rampant inflation is either lying or simply does not understand what inflation is. Prepare yourself for 8% inflation in 2005. The value of products is not going up, the value of the dollar is going down!

The public in the grand indoctrination process has been duped, deceived, conned, misled, cheated, swindled, topped off by incredible mind games. The Nazis and Soviets wrote the book on disinformation. Our political, financial and economic leaders are using their playbook, and take its deceptive theme to heights never seen before. Government is not the solution; government is the problem!

Thank God we don't get as much government as we pay for.

Beware the U.S. financial economy. Get out of debt. If you've got money left over... the commodity market might not be a bad long-term place to be.

Fresh water is going to become a very big deal in the next two years. Got control over any?

Despite gushing profits and $40 oil, energy stocks remain grossly undervalued.

My fundamental viewpoint is that we are still in the early stages of an unprecedented gold and silver bull market. I expect gold and silver to exceed the 1980 highs of $850 and $50 per ounce in the next two years.