Political Investing?

Asset Classes: Paper vs. Physical
[courtesy Google Images]

Investment U Daily

“Last year, Marc Lichtenfeld predicted a big year for healthcare stocks, especially for HCA Holdings, Health Management Associates and Omega Healthcare Investors.  A year later, those stocks have gone up as much as 55%, 79% and 54%.

“Marc also recommended two of the biggest performing stocks in the market this year: Celldex Therapeutics and NPS Pharmaceuticals were up 419% and 188% respectively.”

Clearly, Mr. Lictenfeld’s predictions were remarkable.

But, what was the basis for his predictions?  Did he intensely study the corporate structure and earnings capability for each of those corporations?

Or did Mr. Lictenfeld first study the political environment that was or would be prevalent in A.D. 2013?

After all, it’s hard to see how any one corporation’s stock could rise 54% to 419% in one year, unless either: 1) it was hugely undervalued in the previous year; or, 2) something spectacular and unexpected happened to the corporation’s earning capacity.

For example, suppose a corporation owned 20,000 acres of waste land in A.D. 2012 but they discovered oil there in A.D. 2013—could that cause that corporation’s stock to jump dramatically and unexpectedly?

Of course.

But, when we talk about the prices of several stocks jumping dramatically higher in one year, we can’t assume that each of them found oil in their former waste lands.

And when we find the prices of several stocks in the same industry jumping dramatically higher, we can’t easily assume that each of these exceptional stocks were suddenly enriched by better management.

Instead, when we see that the prices of several healthcare industry stocks jumped dramatically, we have to presume that something happened in the political or economic environment that directly benefited the healthcare industry and thereby indirectly benefited some of the healthcare industry’s stocks.

What happened circa A.D. 2013 to benefit much of the healthcare industry?

Obamacare.

Therefore, I suspect that Mr. Lictenfeld’s remarkable stock predictions were based less on an analysis of the intrinsic economic potential of individual stocks in the healthcare industry than on an astute analysis of the political and economic implication of Obamacare.

Further, insofar as government has decided to support and manipulate the stock market, if you want to be a savvy investor, you’ll need to study government as much or more than individual stocks.   If you can understand the implications of government policies—especially if you know about those policies before the majority of investors—you can do well in the stock market—even if you know little or nothing about a particular stock or industry sector.

Therefore, I suspect that Mr. Lictenfeld made some very astute and fantastically profitable stock investment picks in A.D. 2013 because of his knowledge of politics moreso than corporations.

•  Do you suppose that healthcare stocks will be similarly profitable in A.D. 2014?

It depends on Washington politics, doesn’t it?

What will be the political impact on healthcare stocks if Obamacare tanks in 2014? We can suppose that if Obamacare drove healthcare stock prices higher last year, a revocation of Obamacare in A.D. 2014 could push the prices of healthcare stocks down.

And, insofar as Washington politics are holding stocks up and gold down, how long do you suppose those politics can continue?  How much longer do you suppose that a government that is already technically bankrupt can continue to exert enough influence to keep stocks up and gold down?

•  In the same sense that Mark Lictenfeld made some dramatically profitable stock picks in 2013 (presumably based on his reading of the political and economic implications of Washington politics), Melody Cedarstrom and I have been making our own predictions of the ultimate implications of Washington politics on the price of gold.

The difference between Mr. Lictenfeld’s predictions and our own is that Mr. Lictenfeld was able to make astute predictions within a single year because he knew exactly what the government would do that year (they’d implement Obamacare).

Melody’s predictions and my own are less specific.  We don’t know and can’t say exactly what the government will do in A.D. 2014.  We don’t know and can’t say what the government will be capable of doing in A.D. 2014, or A.D 2015, etc.  Therefore, we can’t predict which particular year will mark the return of gold’s bull market.  Nevertheless, we can predict the inevitable:  the prices of gold and silver will rise this year and on several years into the future.  But when will gold hit $3,000 an ounce?  $5,000?  $25,000?

We don’t know.

But we do know that just as surely as Obamacare enriched some healthcare stocks in 2013, the day is coming when the national debt and fiat currency will cause the price of gold to skyrocket.

Sooner or later, Washington’s political power to deny reality will fail.  When reality finally overpowers the lies and illusions of politics, Washington’s support for stocks and suppression of gold will fail.  Result?  Those holding gold will be dramatically enriched.

•  But when, when, when will this happen?

Here’s a quote from silver analyst Ted Butler that may suggest an answer to my question:

“The CME Group (owner-operator of the Comex) lists a spot month position limit and monthly limit on actual deliveries of 7.5 million silver oz. and 300,000 gold ounces by any one trader.  Yet the CME is reporting that JPMorgan in its house account took delivery of more than double the amount of gold allowed in any one month.

“Since JPMorgan held the 6,254 gold contracts from first delivery day forward, it also means that JPM was in violation of CME rules limiting spot month holdings in gold futures of 3,000 contracts for the entire month.

“I’m sure, if pressed, the CME could come up with some cockamamie excuse why JPMorgan was allowed to hold and take delivery of so many gold and silver contracts in one month, but the real reason is that JPMorgan is above all rules and law.”

Maybe so.

But, is JPMorgan really “above all rules and law”?  Is JPMorgan really a criminal enterprise?

Or, is JPMorgan so vulnerable to financial collapse right now that it’s desperate to survive, within the law or without?

Ted Butler didn’t say so, but his text might still be interpreted to raise the following question:  Is the whole financial system so fragile right now, that the bankruptcy of an entity as large as JPMorgan would surely collapse the national and even global financial systems?

If so, is JPMorgan being allowed to break the rules because it’s so powerful?  Or is JPMorgan being allowed to break the rules right now because if it fails, it’ll cause the national and even global financial systems (that are extremely vulnerable right now) to be plunged into bankruptcy, economic depression and chaos?

Again, Ted Butler didn’t say so, but his text might be viewed as evidence that the national and global financial systems are so fragile right now that that the big players are allowed to commit crimes to prevent what might be an imminent collapse.

Bill Holter offered another clue to the “Riddle of When?” that also touches on JPMorgan’s peculiar conduct.

“There is a COMEX Dec. delivery problem.  As of right now [mid-December, 2013], dealers barely have enough gold to make settlement.  The total standing (and stood) for delivery is 667,000 ounces of gold, just under 21 tons.  After deducting what has been delivered, there looks to be about 9 1/2 tons left to be delivered upon while the dealers have just less than 10 tons available.

“Interestingly, JP Morgan has ‘stopped’ 97% of all deliveries so far, so they are accumulating the metal.  This is not a new story and we have watched it as it has unfolded all month long but may act as a spark that connects the dots.”

Connect what “dots”?

The timing “dots”.

If COMEX barely escaped running out of physical gold in December and might run out in January, and if JPMorgan is refusing to deliver gold but is instead “accumulating,” then we can reasonably suspect that JPMorgan knows that the moment is near when government will fail to control the markets and the price of gold may be allowed to skyrocket.   If so, JPMorgan may be stockpiling gold in order to take advantage of an imminent and significant rise in the price of gold.

We don’t know for sure, but it seems reasonable to suppose that the moment of gold’s price resurgence might occur as soon as the first or second quarters of 2014.

•  In fact, COMEX’s capacity to deliver physical gold will ultimately control when the paper gold market collapses and the price of physical gold explodes.

So long as gold investors consented to accept gold certificates (paper gold; “fool’s gold”; promises to later “pay” in actual gold) or paper dollars in return for their gold investments, paper gold could be used to manipulate the market.  Why?  Because it’s easy to spin “paper gold” out of thin air.  Therefore, there’s an unlimited supply of paper gold that can be used to drive the price of paper gold—and, by implication, physical gold—downward.

But.  People accept paper gold based on the presumption that “paper gold” is “good as [physical] gold”—meaning that you can always trade your paper gold certificates for physical gold.

So.  If COMEX markets are suddenly forced to admit that they have no physical gold and can’t make good on their paper promises to pay in terms of physical gold, the COMEX paper gold will be suddenly seen as worthless and the price of physical gold will soar.

Why?  Because the government, Federal Reserve and COMEX can spin paper gold out of thin air, but they can’t spin physical gold.   When the paper gold is no longer redeemable in physical gold, the presumed equivalence between the prices of paper and physical gold will be rebutted.  Inevitable result?  The current price of paper gold will crash while the price of physical gold soars.

Bill Holter adds,

“We also know that China has imported through Hong Kong an amount of gold over the past 2 years equal to 50% of ALL gold that was mined over that time.  HALF!  Then of course you must add in the demand from India, Russia, Europe and the rest of the world.  Demand without a doubt has equaled and most probably close to doubled “current production,” the supply has had to come from somewhere.  That “somewhere” is obviously the western central bank hordes.

“The question remains, ‘how much is left?’”

If Bill Holter’s reports on COMEX running out of gold and JPMorgan stockpiling gold are accurate, it appears that the moment when COMEX can’t redeem paper gold with physical gold may be imminent.  If JPMorgan is stockpiling gold now, we might presume that JPMorgan knows that the price of gold will soon rise dramatically.

If Holter’s suspicion (that much of the gold purchased by China over the past two years was taken from Western bank vaults) is true, then it also follows that we may be at a moment when the US, Federal Reserve and other western central banks are about out of gold.

Today, when it’s presumed that the US Treasury holds about 8,200 tons of gold, the price of gold is about $1,245.  But what would the price of gold be if the US Treasury admitted that it holds only 1,000 tons of gold?

No one knows.  But you can bet that the price of gold would rise dramatically if it turns out that our 8,200 tons of gold exist only in our memories—not in US Treasury vaults.

More, if there’s no longer a central bank or sovereign government source for gold and no way to make good on COMEX promises to pay in physical gold, then a dramatic break between the prices of paper and physical gold should be close.

If so, we may be about to witness a moment that’ll be the “mother” of all economic dominos and which will trigger economic chaos and a soaring price for physical gold.

Got gold?