Can the government create wealth? No -- governments create expenses. The Founding Fathers were well aware of this, which is why, almost to a man, they wanted limited government with as few foreign "entanglements" as possible.
Why do the top men in government today want? One word describes it -- POWER. Yeah, they can call it patriotism, leadership, service -- but I call it POWER.
In order to retain power, our leaders in government must create the illusion that they are "giving us something." The government taxes us and returns part of the tax-take in the form of government, more government and still more government.
But the tax-take doesn't provide all the gifts that the government bestows on us. As the spending increases, the government creates another illusion. The government tells us that it alone can create wealth (money). Actually, back in 1907 a group of greedy "stealth bankers" formed a money-manufacturing machine which they call the Federal Reserve. The Federal Reserve is the entity that creates "wealth" without working and without sweat. This wealth is accepted by the American people and the rest of the world -- although the rest of the world now accepts the Fed-created "wealth" with increasing skepticism.
Our government states that the Fed-created "money" is legal tender for the payment of all debts. Thus, the money that the Fed creates is wealth by fiat. The government simply states -- this is money.
But as usual, the government creates too much of its legal tender. And when that happens, wise men become suspicious, and their thoughts turn to real money -- gold.
Gold is "all right" as far as the government and the Fed are concerned as long as it "behaves," meaning as long as it remains in a trading range. And all the while the government and the Fed tell the people that gold is just a "relic of the past," and that holding gold is a lost cause, since gold is "going nowhere, and it pays no interest." In fact, we are told that "gold is just another commodity, and an outmoded and useless commodity at that."
But wise men know better. Wise men know that for 5,000 years gold has been considered MONEY.
So is gold just a commodity? If it is, then gold will trade like a commodity. Ah, but the problem is that gold is not now trading like a commodity, and we can easily prove it.
It's been said that all economics can be reduced to a FLOW OF FUNDS. So saying, let's examine some flow of funds with the help of a chart.
The P&F chart below shows gold in relation to the CRB Commodity Index. And what's this? Gold is rising in relative strength against a basket of commodities! Gold has ceased to act like a commodity.
We see two rising blue bullish trendlines. Let's refer to the second or the more recent rising trendline. The ratio hit a low in October, 2002 (marked "A" on the chart), and since then gold has again been rising in relative strength against the CRB Commodity Index.
Gold is now at a very interesting juncture. Gold is pressing against the top of the whole structure. We see a peak at 1620 back in June 2002, and two more peaks this year just a bit lower at 1610 (number printed in red). Gold is now in position to break out against all three peaks. If this happens, I believe we will experience a "different feel" to gold. The gold bull market will feel more "insistent," more "powerful," more "visible." Gold, in effect, will break out big-time against all commodities.
Next, how about gold against stocks? Below we see a chart of exactly that -- gold divided by the S&P 500. Note that the ratio is holding above the rising blue trendline in favor of gold. But starting in July of 2002 a "battle" began. Here we see the ratio reaching a high in February 2003 (red 2), then backing off in June, and most recently forming a rising vertical line of X's starting in September. But remember, all this is taking place above the rising blue line, which indicates that on a longer trend basis gold is outperforming the S&P.
The question -- will this ratio break out above its peak to the 45 box, or will it break down to the 34 box? If gold breaks out to the 45 box,it will mean that gold has reached a new peak of strength against the broad stock market. If this is to occur, the first step would be for the ratio to hit the 42 box, which would be a "triple-box breakout."
Exciting times are coming up in 2004. And hopefully, my subscribers and I will be on top of it.
The FLOW OF FUNDS -- that's what it's all about. Our job -- to go with the flow.
I believe the flow, an incredibly important flow, is towards real, honest money. I'm not talking about money created "out of thin air" by the Fed, I'm talking about money created through the expenditure of capital plus the sweat of tens of thousands of men -- I'm talking about gold, dear subscribers, I'm talking about gold (and by the way, I'm also talking about silver).
Richard Russell Editor-in-chief - DOW THEORY LETTERS www.dowtheoryletters.com/dtlol.nsf
