History Repeats...Again
Research for Online Investors

by John Dalt

5/05/11

The market is pushing lower this morning on lower crude oil and precious metals.  Initial claims for jobless benefits hit an eight month high in the Labor Department report released this morning.  No matter how hard the Fed has tried, they have been blowing hot air into a leaky balloon.

New claims for unemployment jumped to 474,000 last week.  This report followed ADP’s report yesterday showing slower job creation.  In the understatement of the day, Steven Ricchiuto of Mizuho Securities said, “The data is not consistent with the type of growth numbers that are anticipated for the economy over the balance of the year.”

We are reminded of the following testimony given before the House Ways and Means Committee, “We have tried spending money, we are spending more than we have ever spent before and it does not work. I say after eight years of this administration, we have just as much unemployment as when we started….and an enormous debt to boot.”

In all of the study Ben Bernanke has done concerning the Great Depression, I guess he didn’t read the testimony given by Henry Morgenthau Jr., Treasury Secretary for FDR. This testimony was in May 1939, unemployment was above 20%, six years after the NEW DEAL’s inception.

Those that do not study history are doomed to repeat it.

We are witnessing another case of history repeating itself.  The Comex Mercantile Exchange (CME) raised margin requirements 33% for silver contracts last night after market close.  This is the equivalent of kicking a dog that is whimpering from the beating you have already given him.

CME has raised the margins for silver traders four times in the last two weeks.  Thank you sir, can I have another.

This is exactly what the COMEX and CBOT did to the Hunt Brothers in 1979 and ’80.  The exchanges kept raising the margin requirements; the only problem was…the Hunt brothers had the money to play the game.  The price of silver hit $50 per ounce on January 17, 1980.  The brother’s silver operation was stopped when the exchanges would not accept any more orders.  They were taking delivery on their contracts, and the market was oversold.  There was more silver contracted on the futures than could be delivered.

COMEX and CBOT suspended trading in contracts and would only accept liquidation orders!  This allowed the exchanges to reduce the contracts for delivery and bring the market back into balance.  Without any buyers on new contracts, the price quickly dropped.  By March 14, silver had fallen to $21 per ounce.

While the actions described above show us a repeat of history, it shouldn’t surprise us.  The precious metals market, and especially silver, threaten the integrity of the monetary system.  As investors and traders ‘vote with their wallet’ and piled into silver and gold, Bernanke looked more and more like a clown.

How can the Treasury Secretary Tim Geithner keep a straight face when talking about a ‘strong dollar’ when silver is going parabolic?  How can the Bernank (twitch and all) talk about how the Fed can ‘fix’ inflation in ten minutes, when gold and silver are setting new highs?

Perhaps this is a larger repeat of history, “Do not attempt to prove that the Emperor has no clothes.”

The mailbag:
Haiti is the closest test case of Malthus' theory regarding overpopulation.  It's a country that cannot feed its citizens, who breed without restraint.  The bright ones flee in rickety boats for the US; most of the rest are destined to live short, mean lives.—subscriber J.R.

John’s reply:  I cannot argue.  I do not know the answer.  I do know that out of our bounty, we have the ability to help where we find suffering.  Not by our government, but individually.  How we do this, and for who, is up to each of us.  I only pass on the information from HAS for your information.  I recommended it last year after the earthquake; the ongoing problems will be there forever.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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