Is Now the Time to Get Out of the Stock Market?

Last week gold and silver got killed, especially after the rumor hit that Cyprus would sell gold to get a big fat bailout (honestly I doubt that will happen).

The slaughter continued today. I am writing this with gold at $1365. Margin calls are probably dropping left and right.

Other commodities have fallen, including oil. Bonds have rallied recently. The 30-year Treasury offers less than 3%, which is pretty much completely crazy. Meanwhile, Canada lost 54,000 jobs in March — the worst employment update in four years.

To me, these are pieces of data which imply an economic correction trying to work itself out, rather than a rippin’ recovery. If these developments justify concerns about a slowing economy, then you want to be careful about the mainstream coverage about this gold panic, and their general frenzy about  buying stocks.

US stocks, which are the hot ticket these days, seem to me dangerously high. Corporate earnings in the US are 70% above their historical average due to massive fiscal profligacy by government and citizenry, and aggressive cost-cutting post-2008. Periods of strong corporate profits are never permanent and eventually regress towards the mean. Therefore it should be expected that future earnings and dividends will disappoint.

The Fed is struggling to perpetuate the error cycle and keep the ‘recovery’ going.

Meanwhile, the TSX is not performing well this year, after being one of the world’s worst stock markets in 2012. And the TSX-V — which is where all the most exciting action is — is going to get smaller. The average level of cash held by TSX-V-listed stocks has fallen from $4.3 million in mid-2011 to about $2.8 million now. This might not sound too bad because it is still several times higher than pre-2008 levels, but on a per-share basis, it is terrible. TSX-V companies have only about 2.8 cents per share as of last quarter, a drop of more than 50% in two years. Remember, these companies don’t usually generate their own cash flows from any operations, and cash is frequently their only good asset. All the while, TSX-V companies have doubled their liabilities per share — so when the nearly 2.6 cents per share is paid off, they are basically broke. So while this says nothing about any individual companies, it suggests the junior resource sector is going to come up on some hard times.

I absolutely expect Canada and the US to join the other developed nations suffering from recession.

If you hold stocks at this time, you should seriously think about just selling most or all of them. Be ruthless about keeping only the absolute best ones. Keep the balance in cash and patiently await buying opportunities as prices fall.

If you are a long-term believer in gold, this is clearly a huge buying opportunity. Gold could still fall another 10-15% before hitting a bottom, and it could take a 6-12 months to recover. I would like to point out that during the previous gold market, there was a 20% price drop in late 1978.  We know how that turned out. Yet, if the fundamental argument for gold is still sound, then today’s prices are a godsend.

The myth of the “independent” central bank

The theater of Canadian politics never ends. Its inanity would be more embarrassing if every other country’s mainstream media were not basically just as bad.

The Canadian media was making a big deal yesterday about Bank of Canada GG Mark Carney hanging out with his friend, Liberal MP Scott Brison. OMG, was he going to join the liberal party? Was he arranging special favors?

Uh, maybe I’m missing something, but the whole thing just seems to be “business as usual”. High-level bureaucrats hang out with high-level legislators and high-level businessmen who are politically connected. They are often buddies. They hang out at dinner parties, or golf together. Their wives get together to gossip. Their kids go to the same private schools. Whatever. Seriously, follow any central banker around, and see who their friends are. It’s the same story for all of them.

Why does anyone care? Because it anything that threatens the myth that central banks are “independent” is a threat to the Establishment’s most important tool — the monopoly on money creation. So a story is created where there is none.

Well, much to the relief of mainstream economists, governments, and the sycophantic media everywhere, Carney has been cleared of any misconduct. He wasn’t seeking political office when he was staying at Brison’s summer home, smoking cigars, drinking scotch and discussing the best ways to exploit the rabble. So it’s cool. I guess.

But let’s be serious — does anyone who doesn’t have a PhD in economics and write economics textbooks really believe in the idea of “independent central banks”? I know a lot of people like to think the central bank only has the public interest at heart. They like to think none of the normal monopoly problems apply to central banks because central bankers are just so noble and wise. At least that is what the textbooks say, and the idea is key to the ultimate scam of monopolized money supplies.

So now the knaves who support central banking can say to anyone ignorant enough to listen: “Hey! Don’t worry! The central bank is totally independent! It’s looking out for us!”

Central banks are not independent, by any stretch of the imagination. Central banks exist to manipulate money supplies. If you think they do this for the “public interest,” you may also believe in things like Santa, decent highways in Saskyland, or the pantheon of Greek gods. To anyone who thinks “outside the box” in regards to this for two seconds, it becomes clear that the central bank benefits their scandalous stakeholders, like inefficient export industries, debt-laden governments, and inherently insolvent financial systems.

Talking about whether Carney and Brison hanging out together constitutes a conflict of interest is just so outside the realm of importance, there is no surprise that the national media focuses on this “scandal” — rather than the scandal of central banking as such. This is theater. It pretends to be newsworthy when it is truly pointless theatre for government and media to put the shucks on the Canadian rubes.

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