Economists Andrew Gause and Don McAlvany warn of a 1997 stock market collapse, with the Dow dropping 554 points after currency raids by George Soros destabilized Asia (Thailand, South Korea, Hong Kong). Gause predicts Fed liquidity will inflate the dollar while gold surges to $1,000–$2,000, citing insider trading and margin calls. McAlvany compares leverage to 1989 Japan’s crash, urges exiting equities for Treasury bills and physical gold (like U.S. $20 double eagles), and links Asian bond sales to a potential global deflation—far worse than 1929’s recovery timeline. The episode frames systemic debt and derivatives as ticking time bombs, demanding urgent asset shifts to avoid long-term financial ruin. [Automatically generated summary]
From the high desert and the great American Southwest, I bid you all good evening or good morning as the case may be across all these many, many time zones, stretching from the Hawaiian and Tahitian Island chains in the west, eastward to the Caribbean and the U.S. Virgin Islands.
Good morning in St. Thomas and south into South America, north to the Pole and worldwide on E-Old Internet.
This is Coast Coast AM.
I'm Marsh Bell, and we are going to examine what occurred in the markets and what is occurring as we speak, which all is not good.
So we'll get to that.
We've got two guests, two economists.
One is Andrew Gauze.
He'll be first up tonight, followed by Don McIlvaney.
And believe me, you want to hear both of them.
We'll try and get a take on what occurred, and we'll kind of give you the headline portion of that in a moment, and then go to Andrew Gauze.
I would like to welcome KPQ in Wenatchee, Washington to the entire show from 10 at night to 4 in the morning.
Actually, that's the entire show plus a little bit Tuesday through Saturday.
So good morning up in Wenatchee.
They're 5,000 non-directional 560 watts, 560 on the dial.
So obviously covering the entire region up there.
Number one, I want to thank everybody who came to the book signing in Encinitas on Saturday.
It was absolutely incredible.
And as I always try to do for you, I have done again.
And we've got photographs that will give you the essence of what occurred on Saturday.
Actually, there are others who know much more about it than I do, because I sat down and began signing books, I believe at about 9.45 in the morning, 9.45, and signed books until 6 o'clock at night.
At which point my hand was all swollen Up.
It still is somewhat swollen, as a matter of fact, and I had to give up.
So there you have it.
How many were there?
I don't know, thousands.
You'll be able to get some sense from some of the photographs.
It was just absolutely incredible.
So thank you, everybody, who came.
It was a stupendous success, Unless you count my hand.
But I was glad to do it and glad to get down to Southern California.
And I want to thank Kogo and Cliff Albert and company for all their hospitality.
My publisher, Paper Chase Press, Barnes Noble, and everybody who had anything to do with it.
It was just absolutely tremendous.
Now, before we get into the real stock market, there is the rogue market, and we have achieved a record.
Art Bell stock now has gone over $30,000 a share.
And I must tell you, it is bound now for $35,000 a share.
So if there's any way you can get into the rogue market, Andrew Gauze is probably sitting there going, what's he talking about?
The rogue market keeps track of about, I don't know, 1,500 personalities from show business and politics and so forth and so on.
And it issues stock on them just exactly like the real stock market.
Only, of course, it's not real, though you can win prizes.
And so this is going to be the one piece of good news that is related to any kind of stock market tonight.
And that is, of course, that the Art Bell stock is going right up through the roof.
So it would be a very, very good time to buy because I'm sitting here making the announcement.
So obviously the stock is going to head toward 35,000 and you can make a lot of money.
How do you get to the rogue market?
You go to my website at www.artbell.com.
You'll see it on the left-hand side on the main page.
Just go over to the rogue market, fill out their forms, and buy some stock.
Actually, it's gone beyond the point where you can afford to buy even one share, so you will have had to have been in the market for a while.
But the way the stock is headed, it's quickly headed toward $35,000.
If there's a way you can do it, you're going to make a lot of money.
The Rogue Market and Art Bell stock through my website.
Now, the Dow Jones, I watched the market very carefully.
Today was no exception.
I sat through every single hour and I kind of flipped between CNN headline news, CNN, and CNN FN, which I have here, which, by the way, if you have that on your cable system or satellite, CNN-FN will give you not a 15-minute delayed ticker, but the ticker in real time.
And it was truly a frightening day today on the stock.
I mean, really frightening.
The Dow Jones fell a total of 554.26.
It is the biggest point drop in all history for one day.
Though, percentage-wise, since the market has grown as far as it has, it is not the biggest percentage drop.
Now, it is said this was driven in part, or in total, I don't think in total, by what had occurred the previous day in Hong Kong.
Now, we're looking at the Hong Kong market now, which has just now reopened minutes ago.
And as of the breakpoint minutes ago, the Hong Kong market, brace yourself, was down, I am told by Andrew Gauss, I said 15%, and he corrected me, to 16.2% of the total value.
That is today, today, right now.
So we'll have to see what happens in the afternoon session there.
But we are going to discuss this whole thing with Andrew Gauz, an internationally, certainly nationally recognized expert on the economy in the U.S. So that is what's coming up tonight.
in a moment i'll tell you more about andrew gauze and we will take off the All right.
There was blood on the floor in New York today.
Author and currency historian Andrew Gause is a nationally recognized expert on the United States monetary system.
In the last 10 years, Mr. Gauss has been an invited guest on more than 900 radio and television shows, where he's, of course, answered questions on a very wide range of financial, political, and currency-related issues.
His new book is The Secret World of Money.
Mr. Gauss gives readers an inside glimpse into the mechanisms responsible for America's skyrocketing national debt, explains why America's overinflated economic house of cards is inevitably designed to collapse into chaos.
Well, I watched the bloodbath in New York today with increasing wide eyes as the day went on.
And it was rather amazing.
It got to the point, as we approached 350 points, where the brokers operating on Wall Street were cheering the possibility of the breaker coming in at 350 so they could all take a deep breath.
Well, there was a series of raids by currency traders, primarily George Soros.
They raided the currencies of the central banks of the Far Eastern countries and forced them to expend a greater portion of their reserves to defend or to prop up their currencies.
And of course, these raids have been going on since August, and they just finally drove the markets to the wall.
It was plain to see.
I think Thailand started it all.
I've been watching South Korea with a real keen eye because I know that's the last domino.
And once that one falls or finishes its fall, there's no choice for the United States Federal Reserve Bank but to step in and bail that institution out.
Yeah, and this is what I fear the most, Art, is that the Fed in the morning will be, they're already all over the phones tonight to all the heads of the brokerage houses, telling them, look, in the morning you buy.
And they want everyone to buy.
And the Fed, I'm sure, will provide all the market liquidity that's necessary, up to and including doubling the money supply if that's what's necessary, to try to stem this flow.
I was in the market myself, and I'll just tell you, I had a fair amount of money in the market, and at about $8,250 or somewhere in there, I called up my financial advisor and said, look, I see trouble coming, and I want out.
And she came running out here to me and said, no, no, no, no.
No, no, you're in this for the long term.
Even if trouble comes, you're in it for the long term.
And I said, look, I'm sorry, it's my money, and right now, I want out.
You know, if it's any consolation for those who didn't get out, if you held through the crash of 29, taking the long-term advice there and you had all blue chips, you would have been even again by 64.
But my argument, see, that's exactly the argument she made to me, and it's a good argument.
But my argument back to her was, look, if I think I know this is coming, am I better off getting out now and taking my profits and waiting until there's a 1,500 or 2,000-point drop or more and then getting back in?
Or am I better off having to wait 40 years to recoup my losses?
I was pretty much tipped off by Mr. Reese Moog, who is the Queen's advisor.
He started sending out a market letter back in late July, which incidentally is one of the most expensive market letters in the world.
And his well-heeled advisor started selling late July, early August.
So I would guess that the majority of the insiders were out of this market.
And just like, you know, you read about the crash of 29 now and you see how Winston Churchill and Joe Kennedy and all these other guys who are supposedly smarter than the rest of everyone else managed to get out before the crash.
You'll find in history that the very same thing has happened again.
All those folks that are inside, all friends of Alan Greenspan and friends of those inside the financial system, had the foresight to sell their own stock.
And certainly the little guy is going to take the brunt of this bath.
The mutual fund investors who will find that their mutual funds are falling in value faster than the market because in order to take advantage of a rising market, the mutual fund advisors, by and large, have been leveraging, which is something that is unheard of.
And the recent minor drops, instead of, for example, if you're Fidelity Magellan and you're holding $1 million worth of stock, which is, of course, an understatement, and you get a call that says, hey, I need my $10,000, instead of selling the stock, what you do is you margin it.
You borrow the $10,000, you pay the investor off, and then you worry about the market later.
And that's how we're going to get in trouble again.
I think when the truth be known, the mutual funds that most people think are holding their stock are in fact holding their stock on margin.
And when the truth comes out that this money has already been lost and there's no recouping it, I think most investors will panic and try to withdraw the rest of their money from the markets.
If you look at the flows for the last 14 weeks, now I'm not a stock market expert.
I'm an expert in currency and finance.
But if you look at the last 14 weeks, you've been averaging about $7.1 billion a week in money coming into the stock market.
Last week it was a negative $100 million.
And I'm sure that now the flow of funds will reverse, and you'll start seeing anywhere from $4 to $7 billion a week going out of the market, averaged, of course, over the next 14 or 15 weeks.
People were jumping out of their stocks and going into three-month Treasury bills, six-month Treasury bills, money-market funds, cash equivalents, and that's M2.
That's the portion of the money supply that is all of the money in checking accounts and mutual funds and money market funds, things like that.
It does not include bonds.
And so what it means is that it's ready money, ready to purchase goods and services.
Right now, or before yesterday, that number was at $4.7 trillion.
I think we'll end the week over $5 trillion, and probably by the end of next week, we'll be at $5.5 trillion as all of this money rushes out of the stock market and into M2.
Well, before today, what was the shape of the market?
I viewed it as oversold, and I thought that any little excuse, whether it was inflation, some new comment by Mr. Greenspan, whatever it would be, any little thing would trip it and start it.
And that's the condition I thought it was in.
And so Asia is certainly a problem, but it's not the whole problem.
When the market closed today, I predicted that we would hit the 350-point breaker by lunchtime.
I really think that the market will be at the 550-point breaker by lunchtime now.
And the interesting side of this is the rally in the long bond, in the 30-year government bond, which is quite the opposite of what I would expect in such an environment.
I don't think investors have caught on yet that this crisis digs much deeper than just the stock markets.
I think it's going to bleed through the bonds as well.
Dear Art, Taiwan is being blamed for the start of the worldwide stock market meltdown because of its refusal to devalue its money last June as requested by the International Monetary Fund, the IMF.
What we are seeing, ART, is the beginning of an attempt by the World Bank to justify the use of one currency throughout the world.
This can be verified by calling the World Bank and asking for Extension 666.
Obviously a joke, but perhaps not in the wider view of things.
Next thing you know, here comes George Soros and his currency raiders, who many have linked intimately to the IMF in terms of being their bulldog.
You know, they tell you to do something, you don't do it.
Here comes George.
So, yeah, there's a certain amount of truth to that.
You know, for the last five years or more, I've been predicting that we're heading to a time where we have one currency throughout the world.
This European Union is going to present us a currency that dwarfs the dollar in purchasing power.
Once the nations of the world start to denominate their reserves in this currency, then the three, the trilateral arm, which would be a North American currency unit, a European currency unit, and an Asian currency unit, would join together to form one currency unit issued by the International Monetary Fund, and all the nations of the world would simply surrender their monetary autonomy.
Now, we're not going to do that from a position of strength, Art.
It's going to have to be from a position of such extreme economic weakness that we'll reach our hand out the way we did to the New Deal in the 30s and gladly accept a world currency that will be more stable than the dollar.
But I think it will be just the very same idea with just different issuers.
Well, I've got at 1.20 a.m. Eastern Time, Tuesday, 28 October, a readout of every major market in the world, and they are all down by astounding, frightening amounts.
So this is worldwide, which indicates that everything is connected to everything.
I remember Britain's prime minister not long ago making some sort of statement, it was a couple of years ago, about trillions of dollars being exchanged by satellite overnight as we sleep.
And he said, one of these days, one of these days, something terrible is going to happen because of this grand monetary interconnection that we've got.
Now, our economy is in pretty good shape right now, or it's supposed to be.
I did a piece in my third quarter newsletter about New Jersey's river of money.
And it talks about just what the Prime Minister mentioned, how there is this little corridor in New Jersey where in a 72-hour period, enough money runs through this corridor to pay off the national debt or to fund Social Security from now on.
It's a little bitty town in New Jersey called Sekaucas.
And it is a concentration of wealth.
And each day at 5.30, through the Clearinghouse Interbank Payment System, all of the banks in the country, and in fact in the world, settle up with each other.
So the Prime Minister is correct.
And every day at 5.30, you should be watching the markets because after everything's closed, after the dust settles, after the settlements occur, if one bank goes bad, the whole system could collapse.
And I think that the Prime Minister is correct in his worry.
It's not like it used to be where they were limited in the amount of currency they could issue to the amount of gold or silver coin they actually had on deposit.
The only limit to the amount of currency they have now is the amount of collateral that they choose to take.
And tomorrow, the central bank, Federal Reserve Bank, will be in the mood to take any type of an obligation from a market maker.
So any, I would say any stock house, any brokerage house, anyone, even maybe some of the majors like Citibank, some of the big firms to buy their own stock will be provided liquidity by the Fed.
So I believe they'll be in there dumping buckets of money into the market to try to shore it up against the inevitable, which is another 1,500 to 2,500 point drop in market.
In other words, as they create this money out of thin air to prop up the market, I can understand how they can do that, but what then is the effect of doing that?
Sometimes I feel like a preacher in the supply and demand religion.
The equation will really determine the actual value of money.
If you have an endless supply or a doubling of the supply of money, then the value of all goods and services must naturally increase by an appropriate amount.
So if the Fed doubles the supply of money, then the price of goods and services here domestically will double.
Oil prices will double.
Bread will double.
Houses will double.
Now, there'll be attempts in the aftermarket to control this, such as restricting the rate at which people can take mortgages or restricting the rate at which individual investors can margin their stock.
But for the most part, those attempts will be fruitless.
If they increase the money supply, and that creates inflation, in the past, even a hint of inflation, even a little comment by Greenspan about the possibility of raising interest rates has caused the market to go into the EBGBs and dump.
Right.
So if they support the market with money and that causes inflation, they're going to get another dump anyway.
And the last thing they're worried about, I assure you, is the inflationary effects of propping up the supply.
We're not talking about doing something for convenience now.
We're talking about a choice between A, a default or a total meltdown in the banking system, or B, some inflation at some point down the road.
And it's only politically expedient to choose B because it spreads the burden out amongst even those who are not in the stock market.
You know, people who have money in savings accounts or in bond funds or whatnot, they will share the pain along with all the ardent speculators that have put in the rent money.
And it's unfair, but unfortunately, it's the way that the Federal Reserve sees fit to deal with this problem, and that is to just duplicate the money that is currently in the supply and do whatever is necessary to shore the markets, because otherwise it'll be bad for everyone.
Earlier today, I was watching CNN-FN, and they were all saying, oh, thank God, here comes the breaker at 350 points.
Everybody will have an opportunity to sit back and take a good deep breath and decide the economy is basically sound, and we expect when we come back from the breaker that things are going to be different.
Well, they came back at 12.05 Pacific time, and in 20 minutes, they lost another 200 points.
So let's talk about the psychology for a second of these breakers that they have installed.
350 points down, and the market actually closes down for 30 minutes so everybody can think.
I mean, from the perspective of the folks who are under the market, that's a great idea.
The first breaker, let's not forget it, 50 points, suspends program trading.
So now the guys who rely on their computers to measure the swings back and forth have to do manual entry.
The second breaker occurs, of course, at 350.
It used to be 250, but they raised it just in the nick of time.
So at 350, the idea is that the market shuts down for an hour and lets everyone assess their position, lets the ticker catch up, lets the brokers catch their breath, and then cooler heads are supposed to prevail.
And that's when people are supposed to come in and buy on these dips.
At 350, they broke, a half hour went by, and it got worse.
Now, since it in all history has never occurred before, in other words, they never got to that 350 breakpoint before, could it be true that the psychology is not what they thought it would be, but rather the opposite?
In other words, if you're a small guy, you're somebody like me sitting out there looking at the market plunging, and they suddenly tell you you're not allowed to sell your stock.
Yeah, Oxford Healthcare opened the day at 70, and they had had computer glitches for a couple of months now where they hadn't been paying their bills, haven't been paying their agents.
And when they finally got everything squared away, they realized that they had been losing money that whole time.
And in fact, their earnings estimates were overly optimistic.
The stock went down from 70 to 28 in one day.
And this is a major health care provider.
People just aren't used to that type of loss.
You know, you can stand a three or four point loss on a $70 stock, but when you lose two-thirds of your value in one day, it has to shake your confidence.
And then, of course, the baby gets thrown out with the bathwater.
You know, companies that are sound and shouldn't be sold are, in fact, sold in the frenzy.
So I think that's what's going to occur.
The market psychology is going to take it that if they can't sell stocks, that's what they want to do.
And as soon as we hit that breaker tomorrow, it's going to cause another wave of investor selling.
I just don't have a very pretty picture here.
I wish I could say that things are going to turn around and get rosy, but I'm advising every one of my clients to buy gold and silver coins.
And in fact, Friday at 2 o'clock, we put out for the first time in the firm an all-out buy price or buy signal rather on gold coins.
My understanding is there's something else going on in the background with gold, that a lot of countries are dumping gold, and that accounts for the reason for the gold price going down.
Now, traditionally, when the market has gotten in trouble, people have flown toward gold.
There's a temporary influx as many investors who have gold in the Far East, and remember, central banks have been selling for about 20 months now.
The Netherlands sold a great supply.
Australia sold two-thirds of their gold supply.
And many of the central banks of the world have been disgorging themselves of gold.
And interestingly enough, the private stock owners of the banks that owned the central banks have been the buyers of the stock, like the buyers of the gold, like Fibro-Solomon, the New York arm, the metals trading arm of Solomon Brothers.
They've been net buyers of the metal.
And so it indicates to me that in the beginning, in order to meet margin calls and support currencies, both central banks and big investors have been selling their gold holdings into the market.
A lot of gold selling came out of Australia.
A lot of funds were sold on Friday.
So it's a temporary situation that I think should be viewed as a great buying opportunity.
And it is an absolute reversal of what you would expect, which gold to shoot ultimately through the roof.
But I think that will occur once the central bank selling levels out.
And consider the timing of this, Art.
On Thursday, the Swiss National Bank announces that it may sell 40% of its gold reserves.
I think there has been a tremendous amount of talking gold down in an attempt to prevent investors from doing exactly what they would normally do, and that is rushing to gold as the place to put their money.
And on Tuesday, I recommended this investor move a portion of his wealth into gold coins.
And he told me, no, look, I just bought 1,000 shares of iOMega.
It's $22 a share.
I put up $11 a share.
And I'm not going to spend $11,000 on gold coins.
I'll spend the $11,000 on this stock.
Well, today, it was $11 a share.
He's got to come up with $0.50 a share today just to hold his position.
And tomorrow, if it drops below $20 a share, then he's going to have to come up with another dollar or $2 a share.
These are the margin calls.
When you own stock and you have not fully paid for it, each time 50% is the limit, each time it drops below that, your broker calls you and orders you to get him the money by wire, by check.
That's how Broucho Marks lost all his money in the crash of 29 on those margin calls.
That's where the real damage will be done because investors have been taught, you know, if a stock is $1 today and it's going to be $2 tomorrow and you have $1,000, you should buy 2,000 shares.
You know, borrow the other $1,000 and buy 2,000 shares.
And that's what investors have been doing.
They've been margining or leveraging their investment as they've been taught by many investment gurus.
Unfortunately, in a rising market, it's very profitable, but in a falling market, it can come back and chop your head off.
And that's going to exacerbate the problem as more people face their margin calls and are forced to dump their stock in order to raise the money.
After 1929, the logic was, of course, that this was the thing that caused the crash, and so we should eliminate this idea of margin.
But we've thrown all caution to the wind in the last 10 years, and the Federal Reserve, which sets those percentages, has constantly risen the rate at which people can margin their stocks, and it's up to 50 percent now.
So, you know, when you compare that to the crash of 29, of course, then it was 10 to 1 leverage.
It's not as bad, but it still is leverage.
And although they would argue that it's historically very low, I would argue that it's tremendous excess.
And if people buy stocks, they should be forced to come up with all the money, and they shouldn't be allowed to borrow against the stocks.
Well, again, a lot of this, I guess, is psychological.
But if I was sitting on stock tonight after what had happened today, and I looked at the Asian market, and I said, today's Asian market is worse than the previous day's Asian market that caused all this trouble, in the morning when the market opens, ding, ding, ding, ding, I'm going to be trying to sell my stock, I think, before the breaker hits.
I've never bought or given as strong a buy signal as I did Friday.
I mean, I'm just pulling.
I used to be very conservative.
10 to 15 percent of your total investment dollars.
I'm telling people now, 40 to 60 percent of your investment dollars that you're putting away for the long term should be in gold because this is the beginning of a gold bull market.
And I really see gold peaking over $1,000 announced by the turn of the century.
And I'm absolutely certain that the guest that you're having after me, Don McElvaney, will back me up on this because he's been following this as well.
And we're not connected with each other.
But when you have two points of view, you know, you look at the same information, you cannot help but come to the same conclusion.
Inflation is inevitable.
Those are the words of Alan Greenspan.
Gold supply is much smaller than the supply of Federal Reserve notes.
The cost versus Federal Reserve notes has to rise.
They have to devalue the dollar in order to stem this tide, and that is only good for gold.
And then when we come back, I want to open the phone lines and let people ask you questions.
And I also want to ask you about the president, what he's likely to do, whether he can do anything, and his announcement about the economy earlier today.
So we'll do all of that when we come back and open the phone lines.
If you have questions for my guest, Andrew Voss, a nationally recognized currency expert and economist, come now.
I'm Art Bell from the high desert on a rough day all over the world in the markets.
This is Coast to Coast AM.
unidentified
You're listening to Art Bell, somewhere in Time on Premier Radio Networks, tonight at Encore presentation of Coast to Coast AM from October 27, 1997.
You're starting to burn it up Oh, oh, oh, oh, oh I need to take it I've got to give it up Oh,
oh, oh, oh, oh I'm going to die I can't get high You're starting to burn it up I'm about to lose control I think I like it, yeah I'm going to die I'm
going to die I'm
going to die Premier Radio Networks presents Art Bell Somewhere in Time.
Tonight's program originally aired October 27th, 1997.
The President made some sort of announcement about balanced budget or something or another during the day yesterday, which of course got washed away by all the big news from Wall Street.
What is going on and is the President actually doing anything meaningful in terms of balancing our budget and does it mean anything with respect to the debt?
The American public tends to get the deficit and the debt confused.
That's exactly what President Clinton wants them to do.
He wants them to think that when he says he's reducing the deficit, that he means he's reducing the debt.
And certainly Bill Clinton is no more than a cheerleader on the sidelines.
He reminds me of Herbert Hoover.
Prosperity is just around the corner, chicken in every pot.
There is absolutely nothing that this president can do and nothing that he will do except sit on the sidelines and do exactly what Robert Rubin and Chairman Greenspan tell him to do.
I really have no confidence in this president's ability to make any meaningful change, certainly not to instill confidence in the investors in America.
You know, the Fed banks themselves will not hold the stock.
It will merely be pledged as collateral against the specialist's account.
But if the specialist ultimately goes bad, then the banks That extended the loan, and certainly the Fed to a certain extent will, in fact, control the stock of those companies.
So, yes, it's an absolute wealth transfer.
That is what's going on here from the very rich, from the very poor, rather, to the very rich.
The working man is the person who's driven this stock market rally, and he's the one that's going to lose the most.
outraged enough to maybe call me and sue me, because I would love for the opportunity to take depositions from some of his friends.
I just don't think that it's...
I don't think it's...
I think you would be naive to believe that insider trading does not occur in this market, and that those, in fact, who have advanced knowledge of some kind of market rumblings are not going to advise their friends and close associates, hey, sell the stock.
Maybe it won't be any more specific than that, but certainly these tips do occur, and maybe I'm cynical, but the more cynical I get, the further behind I am.
I just have to get a lot more cynical in order to catch up to the...
Well, if somebody on the inside calls and says, hey, buddy, sell, and he's not specific, does that make it enough of a gray area that it technically wouldn't be called insider trading or they wouldn't prosecute?
This is probably an all-time high in terms of individual investors.
The advent of the mutual fund has made it so easy for just anyone to invest $100 at a clip into the stock market that virtually everyone has taken advantage of it.
The growth in IRAs and the growth in individual investment and individual retirement plans have really fueled this.
I don't think there's ever been a period in our history where percentage-wise more people, Americans, have been involved in the stock market.
Yeah, any short maturities for the present are safe.
But again, I would keep a very close eye because, you know, there is a tendency of these banks to overextend themselves.
And while I don't think that any one bank would fail without being bailed out, if you see a single bank go bad, even if the Fed says, we're going to step in and bail out this bank, if you see a single bank go bad, then I would consider pulling my money out of my savings accounts or my short-term maturities.
But the real thing that I'm cautioning against here are 30-year bonds, long maturity bonds, short bills, three bills, three-month bills, six-month bills, even one-year notes, I don't think are at tremendous risk today.
Now, again, if you see a single bank, just one, go bad or say that it can't meet its obligations, even if the Fed says, we're going to bail them out, then that should be your signal to take your money out of the banking system.
But, you know, then again, what are you going to take it in?
Well, again, gold coin, $20 gold pieces, $10 gold pieces, silver dollars, these are all legal tender and exempt from any confiscation.
And this is another danger that many experts have predicted, that in order to stem this crisis, the federal government could outlaw the private ownership of gold and force all Americans to sell their gold to the Federal Reserve.
If that occurs, then the $20 gold piece will be about the only avenue that you can take to avoid such confiscation.
You know what?
I have a newsletter, and I usually try to do this towards the end of Art Show, because I cannot believe how many listeners you have, Art.
Last time I had to print up 10,000 extra newsletters, but I'll do it again.
If you're truly interested in this subject, and you want a free sample of my newsletter that deals with hard assets, you can get it by mentioning Art Bell.
the rockies you're on the air with andrew vause good evening good evening hi art this is mike in seattle and i just wanted to uh give you a little market update here um i trade the s p 500 future contracts full-time and when they open tonight on globex which is the overnight trading session um the s p 500s went instantly limit down 15 and the nasdaq uh futures went down limit 30.
So if those hold, we're looking at least $150 from the open plus.
You're saying that your indications are that from what you've seen happen tonight, tomorrow morning, it'll be down $150 in a blink?
unidentified
If they stay and those contracts went instantly limit down, so actually people were expecting the market to go more than $150.
but if they stay where they're at, at right now yeah it will open 150 down does that make uh sense to you after that absolutely i was going to ask this trader which side he was on oh i was going all day today it was well the screen was pure red so there was you know there was no reason to even buy i don't i don't know that there were there wasn't any buyers in there for most of the day well that's that was the scary part, that, you know, when you have all sellers and no buyers, it makes you wonder where the bottom is.
Yeah, it sure does.
And especially at the end there, when it dropped that 200 points after the the first session where it shut down, there wasn't a single buyer in there for the S ⁇ P contracts.
I think many people expected that that first circuit breaker would see the buyers come in on the dips, that when they reopened trading, that you would have a wave of buyers seeking bargain hunting.
But it's just as the caller described, there was not a buyer in sight.
It was nothing but sellers everywhere.
And I'm surprised we didn't hit that second breaker faster than we did.
Arbitrage is betting on the difference between two markets.
In other words, if in the Globex market here he saw an anomaly where something was trading for less in one market than it was in another, then that specialist would step in, buy it in the one market, and sell it in the other.
That's arbitrage.
And there's been a tremendous amount of that going on.
But again, that is only useful when there's both a buyer and a seller, when you have all sellers.
It's an impossible situation.
And I think that's why the Fed is out there trying to drum up buyers.
I'm sure there are people right now making phone calls to encourage buying in the morning and buying at whatever levels are necessary.
Don't worry, the Fed will step in there and give you more money.
Dear Art, as a runner for two years and then an arbitrage clerk on the floor of the Chicago Mercantile Exchange from 88 through 90, I can say only this.
It is very, very hard for an individual to get an order into the hands of a broker during a fast market, in quotes.
What he means by a fast market, first of all, is a market where the trade volume is not reflected in the ticker even in real time.
So what the professionals on the floor know is that even though the ticker says it's down 550 points and it's in real time, that in actuality it's down 700 or 1,000 points in real time.
So it is impossible.
That caller is absolutely correct.
It's impossible for an individual investor to get a trade in because those guys on the floor are worried about their own pocketbooks and those are the trades that come first.
Well, I don't think that it's going to matter much whether it's at 750 or 550.
I don't think that percentage-wise, although if I would have been the one doing the breakers, I would have made them percentage breakers instead of fixed-number breakers.
You know, if the market falls 10%, and then we'll do it.
But they didn't.
They picked a fixed number.
And, of course, that number's already been adjusted upwards.
It was 250, they raised it to 350.
And I think they're taking that into consideration.
But I don't think any circuit breaker will help.
The psychology is just as you suspected.
The minute you tell somebody they can't sell something, that's exactly what they want to do.
I mean, when we have the bank crisis back in the 80s, and people go into the banks and they start wanting their money and the bank closes the front door and says no, then it's all the worse.
And once again, I want to get that phone number out if I can find it.
I've got faxes rolling in by the millions here.
Andrew Gauze is offering a free newsletter.
Free.
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He's going to be a busy guy.
So if today's stock market has given you the jitters and you want to read about what Andrew Gauss has to say beyond what you hear tonight, call and get the free newsletter.
Just in the bond market alone, we have 44% foreign money.
In the stock market, I can't even hazard a guess, except to say that the flows into mutual funds being any indication, we've got a tremendous foreign presence in our market.
And certainly, I think a lot of the selling that we're going to witness in New York will be a result, even in good stocks, of folks who have had enough and are selling out and repatriating their money, taking it back to the country of origin.
In view of the amount of money that the Japanese have invested in the U.S., if the Niki Dow starts to plummet, do you foresee the Japanese pulling their money out of the U.S. to shore up their own market?
They've threatened to do it many times in the past.
You know, we're just on the cusp of a trade war there where the ports were closed to the Japanese last week.
Anything could happen, and certainly anything that causes the Japanese to sell their Treasury debt would be devastating to the bond market.
And, you know, as of now, the bond market is holding up quite well in the face of all of this, and I think that any reversal in that market would be devastating on the stock market.
Anyway, I stand to get $20,000 by the beginning of next month, and I'm wondering, part of it's going to go into debt consolidation, but I feel that there's going to be a certain amount of it I'm going to be able to invest with.
And I'd like to know your best advice I could use for.
That's the only avenue that I see right now in already established markets that will provide any degree of comfort or safety in the coming year.
Gold coins.
And I know that's my market, and sometimes I sound like a broken record, but I don't think there's another vehicle out there that will outperform gold over the next year.
Hi, I'm a professional in the market, and I'm a tape watcher, and I'd like to ask a couple questions.
First, I noticed a strong change in the tenor of the tape back when the capital gains reduction in rates was passed through on August 1st.
After that point, it seemed we got a lot more volume hitting on the ass side, and it appeared to me that a lot of insiders were beginning to get out of the market and short the market since they basically locked out individual investors from taking advantage of that lower capital gains rate until next year, us freezing them out of the market.
You know, it's amazing the timing of that thing, and I'm glad that you brought it up.
unidentified
And the other question I had was regarding you put George Soros into the mix going after those currencies in Southeast Asia.
Do you see some fingerprints of the IMF involved in this as well, and are they, in fact, in concert working with each other to destroy these smaller countries' currencies?
Yeah, I describe George Soros as the IMF's bulldog.
Certainly, the IMF in late June, early July, asked them to revalue their currency, and when they refused to do that, then they forced them by means of their bulldog, George Soros, and others like him.
unidentified
And are they now intentionally or unintentionally going to create a worldwide mass deflation a la 1929 to 1939?
I don't think that's possible because the Fed would have to lean against the wind on this one.
I mean, tomorrow will tell the tale.
If the Fed does the opposite of what I think they will do, which is provide extreme liquidity, if the Fed shuts off the tap tomorrow and tells these dealer specialists, well, that's it, we're not providing any more liquidity, then yes, a 1929-style deflation and crash will ensue.
I just don't see that as a political expedient.
It's much easier to simply create additional money to throw at this problem.
unidentified
Well, is there an intentional or ultimate goal to try to rein in the U.S. point of view, the economies in East Asia, to put a check on China then?
No, I think more of the intent is to consolidate the world's currencies into one single unit.
While they may be separate currencies, they move in unison.
And I don't think that the plan is ready to implement.
If the European community had already come online with a single currency, or if maybe there was a vehicle already in place that could accept the flows of currency, then I would be suspicious of such a move as an attempt to consolidate into a world currency.
But the mechanism is not in place yet.
So I think a move in that direction is premature at this point.
And again, I see weakness in the dollar as endemic to the problems in this system.
If we have to continue to provide liquidity, the dollar has nowhere to go but down.
Now, I know we're getting that temporary bump in bonds and the flight to quality, but as soon as the investors realize that they've jumped out of the frying pan and into the fire, I think they'll be selling treasury bonds as well.
Well, the question would be, he keeps, Andrew talks about gold, and I'm wondering on the commodities market if that would represent a good buy, say, tomorrow.
I would go short on the dollar, and I think that an interest rate hike is the only sane, logical move to make at this time, just to show the markets that we are serious about regulating and controlling inflation.
But I don't think Chairman Greenspan will have enough gumption to lean against the wind on this one.
It's my guess that interest rates will stay the same.
Please ask Mr. Gauss if he thinks the recent demonizing of Switzerland is in any way related to the quest for a one-world currency.
I understand Swiss have one of the few gold-backed currencies in the world and that they are currently being forced to sell off some of their reserves.
The Swiss have always been the loan holdout, if you will.
And if all the other nations in the world inflated their currency, the Swiss would make that action stand out like a sore thumb.
If we're all operating in concert and inflating our currencies together, currency to currency, we don't notice it.
If the yen is inflating at the same rate as the dollar and the mark and so on.
But when you have the Swiss in there constantly throwing a wrench into the operation with a set, fixed gold-backed currency, very, very difficult.
Now, last week, the Swiss National Bank announced that it might sell some of its gold reserves.
But I would urge people to consider that this is going to require a constitutional amendment.
And I think the bashing of the Swiss on the Holocaust gold is all just part of a big plan to convince folks that gold is a barbarous relic and has absolutely no place in an investment portfolio.
I would lean against that, folks.
The minute they're telling you to sell, that's when you ought to be buying.
Here's a criticism or a question with regard to the recommendation to buy gold.
I know this is far off in the future, but what good is a closet full of gold going to do anyone if there's no food in the stores?
Your ISP's internet service providers are out of business.
You can't connect with anyone who'd want to buy your gold.
You can't find gas to travel to someone who'd buy the gold.
In general, when the total infrastructure breaks down, which we know it will eventually, if all the indicators are correct, what good will all the gold do you?
Well, because you still will have producers out there producing.
Farmers will still be growing.
And the need to conduct commerce will still exist.
The difference will be that gold and silver will offer an alternative to a non-existent currency.
You know, if folks lose their trust in the dollar or in the ability of the banking system to conduct transfers of dollar, then they'll be most amiable to a gold or silver-backed barter exchange with their neighbor.
You'll be able to take your gold coin to the farmer or to the person selling a house.
See, I don't believe that commerce will come grinding to a halt.
Americans are very inventive, and they will just simply turn to a barter-based economy, which is one of the reasons why I recommend what we affectionately call junk silver.
These are quarters, dimes, and halves that have no collector value but are merely bought and sold based on their silver content in quantities as little as a dime, which is 0.1 ounces.
You have a medium where you can actually go all the way down to a dime and make change.
So I think it offers the perfect alternative to an electronic currency that doesn't exist.
Folks will naturally turn to a barter economy, and gold and silver coins will provide that currency for them to conduct that business.
So your best take on what's going to occur in the morning, despite the best efforts of the Fed, is going to be there's going to be more trouble, and you think this will go on for several more days, perhaps as much as 2,000 points?
Well, the computer, any program, any computer program worth its salt has a sell signal on it.
Certainly, I don't think that program trading will last more than 15 minutes tomorrow morning before we hit the first circuit breaker, which is at 50 points, and they stop program trading.
So programs are out the window on this one.
They're not going to be effective because the size of the drops will make them ineffectual.
Don McIlvaney is the editor of the McIlvaney Intelligence Advisor.
It's a monthly geopolitical financial intelligence newsletter analyzing global economic, social, political, and monetary developments and their effect on our country, free enterprise system, families, and personal finance for today and the future of America.
Don is eminently qualified to comment on what occurred during the day and what may be coming and what this really is all about.
In the last two hours, we spoke with Andrew Gauz.
We'll see if Don McIlvaney's opinion adjives with his or takes issue with his.
It should be very interesting.
So coming up in a moment, the man who hasn't been with us in quite a while, very well-respected, Don McIlvaney.
you All right, Don McElvaney serves as a member of the Council on National Policy.
He is chairman of the Council on Southern Africa, was founder of the Industry Council on Tangible Assets with a background in undercover intelligence work.
Don remains closely connected with the international intelligence community.
He is sought out by leading high-level political, business, and military leaders throughout the world who desire his consultation in understanding geopolitical factors affecting global freedom and the international marketplace.
After graduating from the University of Texas, Don worked for six years as the national marketing director of the world's largest gold share investment company.
Mr. McElvaney is president and owner of International Collectors Associates, a 24-year-old Durango-based securities precious metals brokerage and consultation firm serving clients in over 20 countries.
Don and Molly have four children and currently reside in Durango, Colorado.
Now, those of you who have read the McElvaney Newsletter know that he has been predicting for some time an October surprise.
Historically, October has proven to be the most likely month for a financial collapse.
In October of 1929, the stock market crashed, triggering the Great Depression.
In October of 1987, 10 years ago, the market had another substantial crash.
In October of 1997, it says here, prophetically, well, time will tell.
Well, I think you had a bit of a crash in the speculative psychology and the speculative bubble that we've been talking about for some time.
This is not a bull market.
We've gone beyond a bull market to a mania.
There is a major difference between a mania and a bull market.
A bull market has some healthy aspects to it.
We've gotten into a mania over the last, I would say, six to twelve months with people stampeding into the stock market like there is no tomorrow, people believing that, oh my gosh, the worst thing that could happen to them is that they miss all the profits that are out there.
75 million Americans have plunged into the most overpriced stock market in U.S. history with their life savings, with their retirement funds.
These people have, you know, you've got now, what, 9,000 mutual funds, about half of them equity mutual funds, over $4 trillion in equities, I guess.
And these mutual fund managers believe that the stock market can only go up forever.
You've got this classic speculative bubble.
And it doesn't take a Mac truck to flatten a speculative bubble like this.
A tiny pinprick will do it.
For example, in Japan, Japan had a speculative bubble going in 1989.
The stock market was roaring.
The real estate market was roaring.
It was going to just go up forever.
And nobody could imagine anything else.
Japan was heralded as the leading financial country in the world.
And boom, there was a little uptick in interest rates, and that did it.
The Japanese Nikkei DAO ultimately collapsed 60%, dropped close to $4 trillion.
The real estate market dropped $12 to $15 trillion, which is more than the combined value of all real estate in the United States of America.
And they're now in about their eighth year of a depression.
So it just takes a tiny pinprick.
Now, what's scary about what's happening today, and as you know, the stock markets are dropping all over the world now, all throughout the Pacific and Asia and so forth.
They've been dropping all night.
What's scary about this situation is we're looking at a worldwide crash that happened without a tightening of interest rates.
And we have said for some time, I wrote a newsletter which later on maybe we can tell people how to get a free copy of it called Extraordinary Popular Delusions and the Madness of Crowds, America's Coming Financial Meltdown.
We have said that there were going to be one of 19, 20 different triggers that would puncture this speculative bubble.
It could be snowballing scandals that would destroy the confidence of the people related to Al Gore and Bill Clinton and Hillary and so forth.
It could be an uptick in interest rates.
It could be a financial crisis somewhere else in the world that would reverberate to us.
It could be a flight from the dollar, a flight from U.S. Treasury bills, a war in the Middle East with the company and oil embargo, that there would be a number of different triggers that could trigger this thing.
And it could have been any of about 20 different things and probably 20 more that we never thought of.
In this particular instance, I believe it was the instability in Hong Kong and in those tiger countries where the currency started dropping a month or two ago over in Thailand and it began to spread to the different countries in that area.
They then began to panic about their own currencies and that has begun to spread this direction.
I think what's important to note is that this is a global type thing.
It's not just in the United States.
It didn't really even start in the United States, although something else could have come along and triggered this in this country.
Now, I understand that anything could have triggered us and that we were probably oversold, but the Asian markets, Thailand particularly, and even Hong Kong compared to ours are minuscule.
How can the flea cause the elephant to jump like this?
You have a lot of foreign ownership of U.S. stocks.
You have a tremendous amount of foreigners have put money in the U.S. stock market, believing this propaganda that the market was going to go up forever, that there are no more bear markets, et cetera, et cetera.
So it's not difficult to have selling start one place and kind of begin to reverberate somewhere else.
Once the selling started, then you begin to hit all kinds of stops, and then you violated.
The market gave a giant Dow Theory sell signal yesterday.
You've broken the back of the bull market or what I would call the mania, technically speaking.
Now what happens is computer programs then here and all over the world begin to kick in and they begin to do automatic selling because a lot of people are technicians, but this has all been computerized now.
So a lot of things can create the snowball, but it just, the snowball can, it's like a giant forest fire.
It can start with one tiny little spark.
What part of the forest is the spark going to start in?
How big is the spark?
Once it's all over, you may have a hard time going back and finding the spark, but if it was a real, real dry day like we've had out in Colorado a few times in the last few years, it's just kind of predictable that it could be a lightning strike here, a camper there, an odd cigarette there, but something is going to start it.
So what we had was a very, very vulnerable system.
Now, the scary part of this is middle-class America has piled its entire life savings into this overpriced stock market.
We're talking about their savings accounts, we're talking about their retirement funds, their IRAs, and so forth.
To give you an idea of how overpriced this thing is, in 1929, when the stock market collapsed, stocks were trading at 35 times dividends.
Today, as of a week or two ago, stocks had hit 65 times dividends.
They're now back to about 58 times dividends and probably lower than that after this drop yesterday.
There's a number of things that are impacting this thing.
But the thing to understand, it was fragile.
It was fragile.
It was just something.
It was something coming along that would have done it.
I thought it might be the Clinton scandals at some point.
The Clinton scandals, obviously, are escalating.
The scandal a day is not going to keep the prosecutors away.
And when scandals like that began, very minor scandals in comparison, to plague the Nixon White House and impeachment talk started, as it has been bannered around in Washington here lately.
This was the beginning of a 10-year drop for the U.S. stock market.
So I figured it might come from a lack of confidence in people around the world that, hey, this administration really is headed for trouble, and we like predictability, we like stability, et cetera, et cetera.
It doesn't look like that's going to be what triggered it.
This stock market blow-off, mania, whatever you want to call it, has been based on raw, unadulterated greed, which has been fed by Washington and Wall Street.
I worked 30 years on Wall Street, and Wall Street are masters at getting people to throw their money at them and separating people from their money and wringing their own cash registers.
But greed is a funny thing.
It can turn on a dime.
Let's say, Art, that I throw 10 Krugerans down at your feet.
And I tell you, Art, you can pick those up, and if you can pick them up in 10 seconds, they're yours.
And boy, your greed locks in, and all of a sudden, your eyes glaze over, and you look like a very different person.
But I say, wait, Art, you need to understand.
There's a 10-foot gorilla with a straight razor standing behind you.
Suddenly and instantly, all you can think about is getting in there.
Your fear, or your greed melts into fear, and all you can think about is getting away.
And that's how fast a greedy stampede into the stock market where, my gosh, I mean, we've had cab drivers and bellhops and housewives writing books about how you can make millions in the stock market.
We've had people retiring from companies so that they can do nothing but trade stocks.
We've had agricultural magazines saying, well, the only way to really make it as a farmer these days is to start buying and investing and speculating in stocks.
I mean, farmland and crops won't do it anymore.
And so you've got this speculative stampede where people are just scared to death they're going to miss the market.
And then suddenly something comes along and turns that to panic, and it goes just as fast the opposite direction.
If you and I were sitting in a theater with 750 other people and four exits, calmly eating our popcorn and watching the film, and suddenly we smelled smoke, and somebody cried, fire it, and we saw the, we'd all head for the exits so fast you couldn't believe it.
Now, in a theater fire, what happens is they find the bodies piled up inside the exits because the exits were too small.
And this is the scary thing about this market, that as millions of people try to go to the sidelines, they're going to find that the exits are very, very small, that this market was in fact very, very illiquid.
And that's the problem the mutual funds are going to have.
The mutual funds need to raise cash in here to meet their liquidations.
They're going to get massive liquidations in the next few days.
They need to raise cash to do so.
In order to raise cash, they've got to sell stocks.
All right, I want to ask you about the exits, the size of the exits.
Now, in effect, haven't they been made smaller?
There were literally no buy signals going on, no buy orders yesterday at all.
It was absolutely incredible.
And here we ran, for the first time, into these breakers.
One at 350.
I sat and I watched it on TV yesterday.
It was incredible.
And they cheered and they cheered when they got to 350 as though everybody was going to now all of a sudden stop and think, oh, I don't really need to sell.
And then after the half hour, the 30 minutes went by, the exact opposite occurred.
In about 20 minutes, it went down to 550, and that was it for the day.
Baby, it was over.
Isn't the psychology exactly the opposite?
In other words, if I'm sitting out here as a small investor and there comes along a breaker and I can't sell my stock, I want to do exactly what they're telling me I can't do.
Who is going to be the buyer when the market is dropping 554 points?
By the way, had this not all happened close to the close yesterday, I believe the stock market would have been down over 1,000 points yesterday alone.
Speaking of 1,000 points, let's remember that if you take last week's losses and yesterday's losses, six trading days, we have about 1,000-point drop.
That's only about $1 trillion.
You know, a trillion dollars here and a trillion dollars there.
Pretty soon it begins to add up to real money.
That's a big loss over a period of just six trading days.
What people don't understand is how illiquid this market is.
I've been in every aspect of the investment business, municipal bonds and real estate trusts and stocks and gold stocks and so forth.
And I got out of the muni bond.
Let me just give you an example of the muni bond market and how illiquid it is.
People sell muni bonds all over the country and there's $1.3 trillion in muni bonds owned by so-called conservative investors who love the tax-free income, et cetera, et cetera.
About a year ago, we had some people call us from a family and they wanted to liquidate $200,000 worth of muni bonds, which is not a large liquidation.
And these were general obligation bonds, and I can't remember which city, but some large American city, good old conservative bonds.
I think these bonds were rated like AA or something.
There were no bids in the market for these bonds.
Now, this was not a crisis day or anything like this.
There were no bids.
And these people, so we need to get out today or tomorrow.
If we had taken those people out of those bonds on that day or the next day, they would have taken about a 50% discount on those bonds.
So what we're seeing is there was no liquidity in that market.
Now, that was not bad times.
That was just kind of normal times.
If you look at your bond markets, and by the way, the bond market is about five times larger than the stock market, and that's where the vulnerability really is.
This thing will spread to the bond markets.
But if you look at your bond markets and you look at your stock markets, everybody thinks, well, these are really liquid markets.
I can get out at will.
You can't get out when there's no buyers.
Look at Los Angeles general obligation municipal bonds have dropped to BAA status.
That's almost junk bond status.
And that drop started, I guess, about the time of the L.A. riots.
Now, in a crisis or in the next set of L.A. riots or whatever, who's going to come in and buy those bonds?
Well, now you can say the same thing about stocks.
Where are the buyers from the stocks going to come from?
And the answer is in a meltdown.
And I'm not saying, by the way, that they will not turn this back around some tomorrow.
I don't know what makes traditions take place, but it has become a tradition with the crash of 29, the crash of 87, again the crash of I think the Japanese crash may have taken place in October.
We had the largest single-day drop in U.S. stock market history yesterday.
Now, not percentage-wise.
It was 22% in 1987.
Yesterday it was about 7.18%.
So percentage-wise, it wasn't the biggest drop.
But as far as, you know, half a trillion-dollar drop yesterday is still a half a trillion-dollar drop, and a trillion dollars over a six-day period is still a substantial drop.
As a matter of fact, they liberalized these breakers in February of this year.
They were so confident that this stock market was going to go up forever that they liberalized the breakers.
And the breakers don't stop anything.
They don't stop a decline.
And in fact, the so-called stock market insurance with the futures contracts and so forth, they don't stop it either.
Let's go back and review the 1987 crash.
The crash of 87.
We started talking about that in about August of 87, just like we did in August of 97 in our newsletter.
And you could see the stock market going straight up.
You could see the charts.
I mean, they were incredible.
Vertically rising charts are always followed by vertically declining charts.
You had about a half a trillion dollar drop over 60 days.
This time we had it over five days.
And then it was climaxed by the October 19th drop of 508 points.
It was very interesting, Art.
I spoke to a group of security analysts in Denver about three weeks after the crash of 87, and I gave a pretty dark, dim analysis, long-term view of the economies of the world and so forth.
And I had a guy come up to me after the meeting.
He said, I'd like to talk to you over in the corner.
None of the securities analysts liked what I had to say, of course, because they're always bullish on America.
When you go to Wall Street, you're programmed to always be bullish.
Tell people what they want to hear, whisper sweet nothings in the air, keep them in their comfort zone, and keep them buying stocks, because that's the way you keep your commissions going.
So the security analyst didn't like what I had to say, but this guy said, I want to talk to you over in the corner.
I thought, oh, my gosh, one more guy that's going to jump on my case.
And I walked over there, very distinguished-looking guy, sipping on a scotch water, and he said, you're way too optimistic.
I said, I beg your pardon.
He said, yeah, you're way too optimistic.
He said, it's much worse than he told him.
And he handed me a card.
And he was like the number three or four official with the New York Stock Exchange.
He said, we came within an hour of a total meltdown of the U.S. stock market and financial system.
He said, we lied, we cheated, we stole, we manipulated the market.
We put Fed funds in there.
We put Treasury funds.
We manipulated the S ⁇ P 500 index.
And he said, it was like an airplane crashing into the ground, and we turned it about two feet before it hit the ground.
He said, we came within a hair of a total meltdown.
And then he said, we haven't changed anything.
Nothing will be changed.
Everything that is being done and that will be done will be window dressing.
And he said, it's only a matter of time until another meltdown, a real serious meltdown, finally comes.
Well, he walked away.
In fact, the last thing he said as he walked away, muttering to himself and sipping on his scotch, I assumed it was Chevez Regal, was, I think I'm going to go out and buy a couple of pounds of gold tomorrow.
Well, most people buy it by the ounce.
But anyway, I never saw the guy again, but I never forgot that and how close we came to a meltdown at that point.
Now, what we've done, but you have to back up away from the stock market because the stock market's not the whole story here.
We have a very, very fragile U.S. economy today.
We've got a $20 trillion debt pyramid, another $20 trillion in derivatives, which, by the way, were very small back in 1987.
Derivatives are famous because they helped St. Orange County, California, the most prosperous county in the United States, goes broke because their city manager is trading derivatives.
Okay, derivatives are computer-generated products that have been generated by large Wall Street firms and banks based on the underlying price of stocks, bonds, real estate mortgages, and so forth.
There are hundreds of different kinds of derivatives.
And they are a new computerized way of speculating that makes playing commodities futures on 5% down and the rest leverage look like real conservative.
I guess an option or a commodities futures contract could be a simple form of a derivative.
I mean, an ABC, 101 type form of derivative.
But the derivatives are far more complicated than that.
The April 4th issue of Time magazine had a dynamite article explaining the derivatives things.
I wish I had my notes here on that.
Displaying how complicated they are.
And you wouldn't understand them very well if you read the article, but it helps some.
But the point is they're used by large financial institutions.
They're not individuals, by and large, don't go out, except for the simple ones.
They don't go out and buy derivatives.
It's the big banks.
Some of your big New York banks have literally trillions of dollars in derivatives.
And I say trillions, I know that's hard to believe.
I guess if you combine half a dozen of the large banks up there, they would have in the trillions of dollars.
And they're incredibly highly leveraged.
And these are traded all over the world.
It was trading, remember when Bearings Bank went under over in Singapore?
Okay, oldest bank in England.
My gosh, I mean, they had financed the Napoleonic War, England's war against Napoleon, when Wellington beat Napoleon.
They've been around forever.
And there was a trader, a derivatives trader for Bearings who made some mistakes and guessed wrong on the markets over in Singapore and lost several billion dollars and sunk Bearings Bank.
These things are traded by banks, securities firms, mutual funds, etc., etc.
If you have a mutual fund or money in a large bank today, you probably have exposure to the derivatives markets.
Now, there's derivatives that are based on bond prices.
Let's look at the bond market.
It's very important that we understand that the bond market is also vulnerable to a crash.
Because a lot of people are going to say, oh, I'll go from the stock market to the bond market.
Well, the whole idea back in the crash of 29 crash I understand that the crash was able to occur because of the amount of leverage there was so I thought we learned our lesson and we weren't leveraging things anymore no no quite to the contrary in the stock market today and in the bond we are we are in the most highly leveraged situation in the world today it's done with computers it's very sophisticated today but if you take the bond market if you take
the so-called yen carry trade where you would have large institutions in Japan and the Pacific Rim they would go out and borrow money in Japanese yen at a half a percent or one percent turn around and come in and take that money and use a hundred to one leverage and buy U.S. government bonds long government bonds on a hundred to one leverage how'd you like to be in that position a 1% rise and you've just doubled your money a 1% drop and you've just lost all your money 1994 the
crash of the U.S. bond market long U.S. bonds dropped 29% it was the greatest drop since 1926 $1.5 trillion was extinguished how would you like to have watched that 29% drop and been leveraged 100 to 1 in those bonds there were major institutions all over the world got wiped out by that but it it had it and they don't put this in the headlines of the financial press and and Wall Street Week and these kind of people don't talk about it,
but that's one of the areas of vulnerability.
Okay, getting back to the overall debt bubble, you've got this $20 trillion debt bubble in the United States, another $20 trillion in derivatives.
By the way, $40 trillion in derivatives on a global basis.
The average American consumer is maxed out on debt.
He's been borrowing like there's no tomorrow.
Well, you know how commodities work.
You put 5% down, the market goes up 5%, whoopee, you just doubled your money.
It drops 5%, uh-oh, you just lost all your money.
It drops 10%, you're in real trouble.
And so a lot of people don't do well in commodities.
Okay, that's what the whole U.S. economy looks like today.
It's leveraged up like a commodities contract with everybody butting on the cum, betting this thing's going to rise.
It's turning around and going down.
1.2 million Americans went bankrupt last year.
That's a record since the peak of the Great Depression.
1.3 to 1.5 million Americans are estimated to go bankrupt this year.
Actually, from 1990 to 95, there was about a million a year going bankrupt.
Too much debt.
They're up to their eyeballs in debt.
They're maxed out on debt.
People have been going out and borrowing $10,000 and $20,000 on half a dozen credit cards and putting that money into the stock market.
They've been borrowing money from banks and putting that money into the stock market, which they used to say was against the rules.
Let me give you an example.
I met with a man in 1986, November of 1986.
He was laying on his deathbed.
His wife had asked me to come down and consult with them and their family.
His name was Clint Murchison.
Maybe that rings the bell.
He was the owner of America's football team, the Dallas Cowboys.
Oh, yes.
In 1980, Clint Murchison had been worth $2.1 billion.
By 1986, Clint Murchison was broke, bankrupt, laying on his deathbed.
They were having a garage sale to sell off all of their furniture, all of their dining room stuff, their spoons and bedding, et cetera, et cetera.
And the people from their church were bringing them food to eat.
How'd the guy lose $2.1 billion?
He was highly leveraged in Texas real estate.
And he had a piece of about 400 different corporations, but much of his money was in Texas real estate.
There was a sudden downdraft in the oil price.
That took the Texas economy down.
That crunched the Texas real estate market.
And this guy who was leveraged up to his eyeballs found out what reverse leverage was like, and he went broke.
He lost $2.1 billion.
There were tens of thousands of other Texas real estate investors that also went broke at the time.
And that's happened in California with a lot of the stuff that's happened out there in the last few years.
And so these people learned what reversed leverage is all about.
You're leveraged up to your eyeballs with debt in the market, and everything starts going down, whether it's the stock market, the real estate market, whatever.
And you get caught in a buying and you get squeezed and you go broke.
Now, that's what the entire American U.S. economy is leveraged up today with debt like a commodities contract.
Well, we've got a lot of taxi drivers, average people out there in mutual funds, more people in the market than ever before, and they are nervous tonight.
The same advice I've given to my readers for months now is you need to be 100% out of this stock market.
You need to be 100% out of your equity mutual funds.
You need to be on the sidelines.
Where do you go with your money?
There's a couple, two or three places, very, very short-term Treasury bill money market funds, under 120 days, and T-bill money market funds only, not general money market funds, because the general money market funds play heavily in the derivatives market to try to bump their yield.
You want to have gold and silver.
I want to come back and talk about gold in a minute because gold has been heavily manipulated over the last year or so, but particularly in the last week.
Gold is a kind of a barometer of financial problems around the world.
Oh, because they've been beating up on the barometer.
If a barometer gives you the information you don't want to have, you know, you can put it on the ground, you can stomp on it, and it looks like powdered glass, and all of a sudden it doesn't tell you what you didn't want to hear.
And so they are able to manipulate the gold market through the central bank selling.
Earlier this year, the Bank of Australia sold 167 tons of gold, and that puts some pressure on the gold market.
And manipulation of these markets is very important to understand.
I want to come back in a minute and also talk about the manipulation of the U.S. stock market.
But manipulation of markets by governments is something that's not new.
From 1968 to 71, they had the so-called London gold pool.
And the central banks of the world dumped gold in order to hold gold at $35 an ounce.
When you manipulate a market, it's like leaning against the trend.
You do so for a while, and then all of a sudden it's like water that begins to build up pressure behind the dam, and the dam breaks, and it goes harder than ever the other direction.
So by 1971, there was a devaluation of the dollar in August of 1971.
We cut loose from the gold from the U.S. dollar, and of course a lot of inflation followed.
And the free market forces took gold, and gold blew from $35 an ounce up to $197.50, and that was by the last day of 1974.
So they failed in their ability to hold it down.
Then they came in and they slammed the gold market.
They announced that gold was legalized thanks to Jesse Helms.
And starting in early January of 1975, they announced a series of IMF and U.S. Treasury auctions.
And they said, oh, gold, we're demonetizing it.
We're taking it out of the monetary system.
By the way, the same thing that was said about Switzerland, and I want to come to Switzerland in a minute, which is what triggered the drop in gold last Friday.
And it was a manipulation.
And so they started knocking gold, talking about IMF and U.S. Treasury auctions.
They knocked the price down from $197.50 to $102 by late August of 1976.
I was in the gold business.
I watched it.
There was blood running in the streets, which, by the way, is when you want to tend to buy into a market.
And so they said gold will never come back.
Well, free market forces began to work again, and gold blew from a low of 102 in August of 76 up to 875 inter-day high in January of 1980.
I remember that.
And so for the 1970s, in spite of their massive draconian efforts to manipulate and hold down the price of gold, gold actually went up 2,500% from August of 1971 to January of 1980.
We're talking about all that breath taken away from Wall Street earlier today.
And in a moment, we'll ask about the Fed.
What Don thinks the Fed will do later today.
Are they going to jump in with their Superman cloak on and provide all kinds of money?
They're going to turn the printing presses on or what?
The End Earlier tonight, during the newscasts, I heard the various newscasters quoting various sources as saying, well, they think things will be better.
People will rethink their positions.
And today will be a far better day in the markets.
Now, with what's occurred in Asia, somewhere between 14 and 16 percent drop in Hong Kong, I now hear on the newscast that they're being far more cautious, and they're now suggesting that nobody really knows what is going to happen later today.
Don, I'm looking at some of the numbers right now.
Hong Kong down just about 14 percent, Japan 4.26, Singapore 7.87, and now late news, London down about 10 percent of the total market as of this hour.
I presume that portends not good things for New York.
This is a global stock market crash, not just a U.S. stock market crash.
Like we said earlier, there will be draconian efforts by the U.S. Treasury and the Fed to pump money in and to try to turn it up.
I think the market will probably open down dramatically, and then they'll probably bounce it around a lot tomorrow as they put a lot of money in.
But what has happened here is I think you have broken the back of this incredibly greedy mania, of this incredibly bullish psychology.
I think you've broken the back of it.
Once you do that, I can remember back in the good old heady gold days when we had gold spiking straight up.
In a six-week period, gold went from $400 to $875 in the latter part of 1979 and 1980.
It scared me to death.
I thought, oh my gosh, this thing has gone way too far.
A lot of people wouldn't believe that this thing could top out, because at that point, with the markets just going straight up, everybody said, oh, man, it's going to go to $1,500, $2,000.
And we were a little concerned that that was not going to be the case.
When the back was broken of that psychology, and it was broken because you had 50 and then 100 and then 200-point drops over the next few weeks, when the bullish psychology was broken, it has taken over 15 years for it to come back.
In fact, that bullish psychology is not really back yet.
And that's what can happen to our stock market.
You had all these roaring, roaring bulls.
And when they break the psychology, now I'm not saying it'll happen in one day, but over the next few weeks, I think you're going to see a lot of this volatility.
One of the things we said in my newsletter, and we've been saying, the volatility has gotten vicious.
I mean, when you start seeing up and down, 150 in 250-point days, by the way, the volume on yesterday's sell-off was the highest volume in the history of the U.S. stock market.
Really?
On up days, down days, the volume's been kind of leveling out and so forth.
Yesterday, the volume exploded on this market.
So we're talking about a major, major change in psychology and the technical side of the market.
And the damage that has been done now is going to take a long time to heal.
So they've broken the back of the bull market.
Once you puncture a balloon, you've got this giant overinflated balloon.
And you and I can debate as to how big the balloon can be blown up.
But once one of us sticks it in the side with the needle, you know, you'll never put it back together again, not like it was before.
They've got one on America's Coming Financial Meltdown where we kind of told people what was going to be coming.
Well, one of the things we've written about in the newsletter is the plunge protection team.
Right after the 1987 crash, they panicked, and of course they came in and they manipulated the market, and they lied to the people, and they pumped a lot of U.S. Treasury and Fed money into the market, and they barely turned it.
They then set up what they called the Plunge Protection Team.
This was in the Reagan years.
It has continued through the Bush years and now into the Clinton years.
And it is made up of the Secretary of the Treasury.
It's headed by the Secretary of the Treasury, which today would be Robert Rubin.
By the way, he looked a little green when he was on television last night explaining why the problems are really not so bad.
It must have been something he ate.
And Robert Rubin was on.
You had the head of the Federal Reserve Bank is on the plunge protection team.
The head of the Federal Reserve Bank of New York, head of the SEC, the CFTC, the President's Council of Economic Advisors.
There's about eight of these guys on there, maybe ten.
And they are armed with the powers of the U.S. Treasury, what we would all like to have.
They have a blank check on the U.S. Treasury to come in and prop the markets.
Now, if people want to get more detail on this, you can refer to my newsletter and also the February 23rd issue of the Washington Post carried an interesting article on the plunge protection team.
And so when the markets will drop 100, 200 points, then the plunge protection team comes in and they put U.S. Federal Treasury money in, our taxpayer money.
Well, you know, sometimes they make it up as they go along, and rules are made to be broken, I guess, if you're a government bureaucrat or whatever.
And wouldn't you like to be a friend of Bill Hillary's or Al's and know in advance when the plunge protection team is going to work?
It would be like Hillary taking $1,000 and running it into $100,000 in commodities trading with the help from her friends.
And so we're talking about the most massive insider trading in the history of the world with these billions of dollars that the plunge protection team will put in.
Now, they do it in a number of ways.
They will come in and they will buy certain stocks on the Dow.
You can run the Dow by turning up three, four, five, six different large stocks.
That's one way to do it.
Another way is to come in and buy S ⁇ P 500 contracts, and maybe you come in and pop 5,000 or 10,000 at a time.
It's going to take a lot more this time because there's the beginning of a panic out there right now.
And so they're going to have to put a lot more money in.
But that's one of the things that's propped this market up and helped it to go up to the 8,000 range.
Anytime the government does massive bailouts, like the bailouts of Mexico and a lot of these third world countries, it definitely will add to inflation.
Although right now, I think we're in the early stages of a global Deflationary collapse.
We are in a global deflationary crisis.
I think that the next step will be for the governments and the central banks of the world to crank up their printing presses, move them into high gear.
A friend of mine reminded me of something I wrote about 18 years ago, 17 years ago, called the Monetary Control Act of 1980.
And that basically gives the federal government the ability to come in and run the printing presses and create infinite amounts of money to bail out anybody, other central banks, other countries, our own markets, et cetera, et cetera.
So they do have the legal authority through the Monetary Control Act of 1980 to run the printing presses.
Now, but that's going to take a little bit of time to gear up.
Yes, the plunge protection team is going to come in and they're going to move a lot of money into this market.
But when you've had a trillion-dollar drop in the stock market, by the way, the decliners to gainers were 29 to 1 yesterday, which means that there's just no buyers around.
You know, they're going to try their best, and they may turn the market before the day is over.
But basically what's happened is you got a massive Dow Theory sell signal in this market yesterday.
You have broken the back, the technical back of the market.
And technicians and traders and people with computer programs all over the world know that.
So even if they turn the market back up in the next day or two, and they will sing these siren songs to their friends on Wall Street and the financial press that it's all wonderful, this was just a little hiccup, et cetera, et cetera.
It's not just a little hiccup.
This is the beginning of a period of financial tribulation.
Unlikely, this will not be a 1987 because that only lasted for a few days.
This is going to be like the 1920s and the late 20s and the early 1930s.
So yes, I think they'll come in with Fed money and Treasury money.
Yes, there'll be a massive propping operation that comes tomorrow.
Will they be able to turn the market up by the close tomorrow?
I kind of doubt that they will.
I think there's going to be a massive amount of selling coming in early on.
So I kind of think that they're not going to be able to turn this thing up, but they might turn it up for a few days.
The point is, I believe we have now entered a bear market.
I said all summer into the fall that, look, your upside potential is maybe 5% in this market.
Your downside potential is 80 to 90%.
It's an imprudent place to be.
Conservative investors, risk-adverse investors, everybody but speculators and the greedy ought to be on the sidelines.
They ought to be out of this market.
But the reality is, Art, that most of the people listening to us tonight have got their retirement funds, their IRA funds.
They are up to their eyeballs in stocks and mutual funds.
And now what you're going to have to do is you're going to have to find a way to move out of this market.
It sure would have been better over the last few months.
But I would rather take my losses early now than wait and let this thing cascade down over the next three to six to nine to 12 months where you could have 50% losses, 30% losses, 70% losses, et cetera, et cetera.
I believe it is time to get out.
This is going to be a very, very interesting trading day.
I would guess that the market will probably open down dramatically.
Then they'll drive a lot of funds into the market and try to turn it.
I would suspect that the plunge protection team has probably been pouring money into a lot of these foreign markets, which are a lot smaller and thinner than ours, to try to do damage control overnight because they know a lot of people like us and a lot of other people are watching these foreign markets.
They might have poured a lot of money in and prevented a lot bigger drop.
Damage control doesn't mean you can control all the damage, but it may mean you can control some of the damage.
I think we need to understand governments can manipulate markets.
We talked before the top of the hour break about the manipulation of the gold market, but they were only able to hold it back for so long.
They've slammed the gold market over the last few months.
They knocked it down to the low 300s with central banks selling.
They came in and floated this thing last week about the Swiss were going to dump all their gold.
Let me tell you something.
That's got to be done with a referendum in 1999.
And there's a darn good chance, I've talked to a lot of my Swiss contacts, darn good chance the Swiss people will never vote that through.
If they do, it's 1,400 tons, which is 1.4 tons per year, or 140 tons per year, which is about $1.2 billion a year, which is like 5% or 6% or 7% of the market.
It's absolutely nothing.
But see, they made a big deal of that last Friday, and they slammed gold down.
And so they're going to try to suppress gold, because when people see gold begin to move, they say, uh-oh, I mean, this thing is really getting bad.
So they're going to try to suppress gold, and they're going to try to prompt the market.
The plunge protection team will work hard to hold the price of gold down.
They'll get their central bank friends to hold the price of gold down.
They psyched the market last Friday with this announcement that Switzerland was divesting itself of its gold.
That's not true.
Even if they sold off 1,400 tons over 10 years, they'll still have 100% backing of their currency.
So, you know, see, they use this to try to psych the market.
The big central banks in the Pacific Rim have been big buyers of gold.
Now, they're not buying so much gold right now.
Now, listen, this is very important.
They're not buying so much gold right now because they don't have a lot of spare money.
They're fighting their own homegrown crisis.
But I'll tell you what they have a lot of.
They have a lot of Treasury bills and Treasury paper and U.S. dollar obligations.
And that's the next thing that they're going to start to dump.
Do you remember my most unfavorite actress of all time is Hanoi Jane Fonda?
Don't like her very well.
Her husband, Ted Turner, just gave a billion dollars to the, or is about to the U.N., et cetera, et cetera.
But she made a great movie about 15 years ago called Rollover.
And it was a story of what happened to Wall Street and the U.S. financial system when the Arab OPEC oil producers decided not to roll over their treasury bills, but to take a bunch of their money and take it home and go play with it another place.
India began to do this over the last couple of months.
And yes, I believe those other central banks are.
Remember when Prime Minister Hashimoto came out of the group of eight, group of seven plus Russia, meeting in Denver in June, and he went back and he spoke at Columbia University.
And he said, we really don't like the way America is running its financial system.
And so we may start selling our Treasury bills and buying gold.
And I think the stock market dropped 150, 160 points literally within hours of him saying that.
So yes, that possibility is very strong.
I think some of them have already begun to do so.
About a year or so ago, the Central Bank of Brazil dumped $6 or $7 billion of U.S. Treasury paper because they were having financial problems at home, and they needed the money to defend themselves at home.
Well, okay, that was a small central bank, not particularly in a crisis period, but you multiply that by a couple of dozen central banks around the world led by Japan, maybe our good friends China, good friends in quotation marks with Bill Clinton, and you have got a massive crisis.
So the idea that you can run to dollar obligations, that you can run to bonds, even government bonds, is going to be dead wrong.
People are going to do that for a very short time, and then when the dumping of that starts, then the number one place to go and there's not going to be enough of it left in the world is going to be gold.
Gold could ultimately, in the financial crisis that comes over the next 3, 6, 9, 12, 18, 24 months, gold could literally go into the thousands of dollars an ounce as people are looking for someplace to run and hedge their funds.
What I'm saying is this is not a U.S. stock market crisis.
This is a global financial crisis.
This is a global deflationary crisis, the unlikes of which we've seen in the 1930s.
And the scary thing was that this thing started, it didn't start this worldwide crash with a massive tightening of interest rates.
It's kind of spontaneously begun.
And there's many reasons, as we said before, for this thing to get kicked off, but it's on a global basis.
So it's going to be wild and woolly.
And one of the things I talk about in my Meltdown newsletter is there's a whole bunch of things, not just selling stocks and mutual funds, that you need to do to get out of harm's way.
You need to be reducing your debt as quickly as you can.
It's the Achilles heel of the whole world financial system, of the U.S. financial system, and of most Americans.
The newsletter is Extraordinary Popular Delusions and the Madness of Crowds, America's Coming Financial Meltdown.
I wrote it a month or two ago, kind of talking about what was coming now, and then it lists a whole lot of things that you can do to get out of harm's way.
If you want, it's 24 pages long, so it'll give you a lot of information.
Absolutely, it could be affected, along with much of the $5.1 trillion in the pension industry in America.
America has a pension industry, or pension funds, the total of $5.1 trillion.
A few years ago, that would have been kept strictly in short-term government paper, very conservative bonds, although I don't think there's any such thing as a very conservative bond today.
Today, a large portion of that, probably 40, 50 percent of the funds and pension funds across America have now been diverted to the stock market.
After all, I mean, we're all going to get rich and it's going to go up forever.
And so what you're looking at in pension funds, in profit-sharing plans, in 401ks, in IRAs, in KEOs, in credit unions, et cetera, et cetera, everybody always says, well, how's that going to do?
How's my pension fund going to do?
Tell me what the underlying investment is.
If you've got an insurance annuity or a pension fund and it's invested in the stock market, guess what's going to happen?
Well, I guess you have to ask yourself, and I'm not advising everybody to pull all their money out of 401ks.
I am saying that if you have some options within that 401k, some more conservative options, you should exercise those options and go into a short-term T-bel money market fund if you can.
Okay, for some people, I would say closer to retirement.
There's a lot of people I know that have retired early or have found ways to pull their funds out.
Yes, they've had to pay a penalty.
Yes, they've had to pay some taxes.
But you know what?
It might be worth it if we end up seeing a 40, 50, 60 percent drop in the stock market, not in the next two days, but let's say in the next six or eight months, let me tell you something.
The penalties that you will have paid will have been very minor.
There are about 30,000 companies a year that are actually liquidating their pension funds and getting out of it.
They've gotten tired of being hassled by the government.
Their pension funds have become a liability, et cetera, et cetera.
This whole pension fund thing is a giant, tempting nest egg for the government to come in and regulate and control.
Early on in the Clinton administration, they proposed 15% tax on all the $5.1 trillion, which would have raised them a tidy sum, and then 15% on all profits thereafter.
If you're going to be in a 401 and you have any say as to what it's in, then you need to go into something more conservative like gold, short-term T-bills, or whatever.
If you can pull your funds out or you're getting close to retirement, as a lot of people are, a lot of people are taking those funds in a lump sum earlier and are saying, hey, I'll pay my taxes, I'll pay my penalties, I'll at least have control over the funds and I'll try to preserve them.
I'm saying that a lot of the funds that are in 401ks and pension funds are going to be badly eroded, 30, 40, 50, 60, 70 percent over the next couple of years via the financial crisis which is out there.
So if you can pull your funds out, I would do so.
It's tough when you're 30 to know what to do, but anyway.
A lot of people have asked me that question over the years.
I'll just go into a lot of debt and then I'll pay it off with inflated dollars.
But a lot of those people are now bankrupt and broke.
I believe that the first turn of this thing is going to be a deflationary crunch.
The Great Depression was a massive liquidation crisis, forced liquidation of a lot of debt.
And I do believe that there will be inflation.
I think there's a lot more inflation in the system now than they tell us, probably more like 8% or 10%.
However, an awful lot of people who are in debt, what happens if you go into heavy debt?
You've got debt on your home, on your credit cards, consumer debt, everything.
You lose your job.
You get downsized.
You're probably going to go into bankruptcy.
So I think right now I would not be betting on inflation to bail you out of your debt, although I think they'll run the printing presses and give us a lot of inflation before it's all over.
So I think it's a very, very foolish move to be in debt.
If you are debt-free, if you have your powder liquid and dry, you will be in a position to buy the world at 5 and 10 and 15 and 20 cents on the dollar.
When I first went in the stockbrokerage business, I was down in Houston, Texas.
And the head of my stockbrokerage firm came from a German family who had lived through the trials and tribulations of the teens and the 20s over in Germany.
And so when 1929 rolled around, this guy had this little firm down in Texas.
And he began to get some really negative vibes from Wall Street.
And he began to get just the kind of same feeling that I've had for about the last three months about Wall Street.
Literally days before the collapse, he pulled a million dollars out of the stock market.
He was able to go out.
He literally kept his powder dry.
He was able to go out and buy the world at 5 and 10 and 15 cents on the dollar.
And he emerged as a millionaire, a really wealthy millionaire after the Great Depression.
There were over 10,000 people who became millionaires during the Great Depression.
And the reason they did so is because they did not enter the Depression with a lot of debt.
They did not enter it.
They were liquid.
They had a lot of cash or cash equivalents.
And so they were able to buy the world very, very cheaply.
So, you know, I think debt is a gigantic trap in here right now.
And if you can liquidate debt or get out of debt, the lower your debt is, the better.
In my day, I probably marketed $350 million worth of gold stocks, which have been in a big downtrend in the last couple of years, but which will have their day again.
Gold stocks are paper gold, okay?
And as such, they're paper receipts.
Now, in a financial crisis, a massive financial crisis, people are going to move into hard, tangible assets, something that is not just a paper promise to pay.
And so, whereas I would tell people, yeah, maybe 5, 10, 15 percent of a portfolio could be in gold stocks and let the dust settle in here over the next few weeks and probably pick some up fine.
But to understand, that's very speculative.
I think people should have between 20 and 35 percent of a portfolio in precious metals, hard precious metals, and I would buy them in the following manner.
I would put two-thirds into gold coins, and I would make those gold coins semi-numismatic, U.S. $20 double eagles.
And I have a strong reason for saying so, and I'll tell you that in a minute.
I would put one-third in silver coins, and I would split that one-third in silver coins between junk silver coins and old silver dollars.
Now, why do I like the semi-numismatic coins?
Back in 1982, the TEFRA Tax Act was passed, and basically they said that all transactions had to be reported to the government, paper transactions.
I had helped set up a group called the Industry Council for Tangible Assets, because we reckoned that there was going to be an onslaught out of Washington against gold ownership and so forth.
And so we started lobbying with the government, with the IRS, got a kind of a negotiated settlement, which was that any coin with a 15% premium or more over bullion would be considered to be a collectible.
Below 15% would be considered to be bullion and would be reportable.
You have three categories of coins.
You've got the bullion coins.
Those would be the Krugerans, Maple Leafs, Mexican 50 pesos, etc.
You've got the rare coins over on the other side, and they do qualify for the over 15%.
And then right in the middle, you've got the semi-nemismatic coins.
We like those the better because they're more liquid than the rare coins, but they don't have to be reported on 1099s, either when you buy or when you sell.
They are considered to be a collectible, and that definition has now stood for about 14 or 15 years.
The government did not confiscate collectibles when they grabbed the gold in the 1930s.
They took the bullion coins, but they didn't take the collectibles.
So we think the semi-numismatics are more likely to remain legally tradable, less likely to be confiscated.
There's no reporting requirements, so they are more private.
But when gold goes up for every dollar, the gold goes up.
The semi-numismatics will usually go up $1.50 to $2 simply because there's less of them around.
So there's three pretty strong reasons.
You don't want to buy gold coins on margin.
You don't want to buy them on any kind of leverage.
You don't want to ever leave them with a gold coin dealer, no, no, no, no, or a stock brokerage firm or a bank.
People say, well, can I put them in a safety deposit box?
Yeah, you can, but in a real crisis, the government could freeze those boxes and make everybody have a government official looking over them when you open them.
There's all kinds of creative ways to store gold, but don't leave them with a coin dealer or anybody else.
You want to have them in your own hot hand.
That's the way I would buy it.
I think the metal itself will be the most conservative investment around.
I like gold a little better than silver because if we go into a deflationary depression first, and I think that's what will happen, I think it'll be a deflationary depression, then they'll run the printing presses and they may give us an inflationary depression, something I call egospasm, a very spastic situation where you've got inflation and depression at the same time.
But in the deflationary scenario, gold can do well.
Gold did well during the Great Depression.
During the Great Depression, it was up 75%.
The government had a lid on the price of gold, but gold stocks, which are kind of the free market trading for gold at that time, there was no lid, and they went up over 500%.
Okay, I would recommend that he probably put between 20 and 30 percent of that into gold coins, as I've mentioned, that gold and silver coins split two-thirds gold, one-third silver.
I would put probably the majority of the rest of it in a very short-term Treasury bill money market fund.
Now, I'm not saying notes, I'm not saying bonds, I'm saying bills, and I'm saying probably under six months.
The government can't default on those.
I have friends who say with the computer 2000 problem and everything, Gary North and others say, well, the government's going to default on all its Treasury paper.
No, it won't.
It'll just print more.
And at that point, if it really cranks the printing press, then you want to come out of those T-bills.
But as a short-term place to park funds, a short-term Treasury bill money market fund under 120 days where I would go with part of the funds, probably 25 to 30 percent, 20 to 30 percent in the metals themselves.
If you want a hedge against the dollar, if you want to bet against the dollar, then you have a couple of other options.
You could put maybe 10 or 15 or 20 percent into a foreign currency fund, and I mean a foreign currency fund that is invested in like 6, 8, 10, 12 foreign treasury bills.
So it's kind of a bet against the U.S. dollar.
Another way to go would be to do a Swiss annuity.
That's not going to be for most people.
Another way to go, there's a bank called Mark Twain Bank, and you can actually get C there in St. Louis, and you can get C D's in Deutschmark, Swiss francs, et cetera, et cetera.
I've got to say one thing about Swiss francs.
Switzerland is being tarred and feathered all over the world right now because they allegedly held Nazi money.
They held everybody's money during the war.
And everybody says, oh, they're going to dump the dollar.
They're going to dump their gold, et cetera, et cetera.
That's got to be taken to a Swiss referendum, and the people will probably vote against it.
I'm not a bear.
I'm a bull on Switzerland.
I think Switzerland's fine.
And that might be a place to have a few bucks in a Swiss annuity or whatever.
For the most part, though, what I would say is precious metals and a short-term P-Bill money market fund are the most conservative places, most liquid places I can find to put money right now.
And so if I was nervous about the financial system, that's where the lion's share of my funds would be going.
Well, Andrew Boz, before you, and now you, Don, both of you, I remember a few years ago were recommending 010 or at the most maybe 15% of a portfolio in gold.
Now, both of you, as a matter of fact, Andrew talked about 40% perhaps of a portfolio in gold.
Well, a lot of people still use safety deposit boxes.
If you were in Europe or Mexico or places like that, you would never use a safety deposit box.
You would find a creative place to squirrel them away at home in the backboarding in your garden, et cetera, et cetera.
And I'll just bet you that the creative mind of man could find a thousand one ways to squirrel away gold, midnight gardeners, etc., etc.
By the way, another thing I like about gold better than silver is it's a highly concentrated form of wealth.
I could put a million dollars worth of gold coins, these $20 double eagles, in my briefcase and walk out of the room or the country with it if I had it.
A million dollars worth of silver, I'd need a dump truck for it.
So there are creative ways to squirrel it away.
The beauty of it is that's a portion of your wealth that you have in your own hot hand.
Most of our money is tied up in the paper, in this giant $20 trillion paper pyramid, which I think could be gone with one.
Anyway, I do cover these things in a lot of detail in my newsletter, so if people want to get a copy of it, I'll be glad to send them a free copy of that.
As a matter of fact, you're listening to the man who called what is occurring right now.
I've got a copy of it.
He said it was coming in October, and sure enough, here it is.
I'll tell you a little story.
Don, I was in the market fairly substantially, and I have a financial, had a financial advisor, and she would come to me and she would say, look, I know you think that the market's going to dump, but don't worry about it.
You're in this for the long term.
And that was constantly what you, long term, long term, long term.
Doesn't matter if the market takes a dump.
She said, it'll recover.
You're in a long term.
You're going to be fine.
And I kept saying, no, I think it's going to be a 15, maybe a 20% correction.
I want out.
And she kept arguing with me.
And I finally said, look here, damn it, it's my money.
There were people, the stockbrokers all say, well, any time in the last 60 years you would have made money in the stock markets, guaranteed return on your money.
That's just total hogwash.
If you had been in the stock market in 1929, I understand many of those stocks didn't survive.
Many of them went under.
But of the stocks that survived, the average stock that did survive in the 1929 crash was not back even until 1965.
The stockbrokers don't want to tell you that.
It took 36 years.
You realize that most of the people that took the long-term view that were waiting to get even, dead, their debt, they died way before their stocks ever got.
It took 36 years for their stocks to get even.
So what your financial advisor was telling you was dead wrong.
Well, I think in the bull market, in the bear market and depression, and I believe, see, I think this stock market thing is going to trigger the depression.
That's the most important thing I can say tonight, is that this stock market thing is not happening in a vacuum.
It's going to trigger the depression.
The stock market has been the only thing that's been propping up a fragile economy.
The government has been lying about the economic statistics from inflation to GDP to unemployment.
They have been lying through their teeth about what's going on.
I know you say Bookman would lie.
Some people would say that, but I'm telling you they have been.
The stock market has been propping up the economy, and when the stock market goes, the economy is going to go with it.
I think the stock market can ultimately drop 60 to 80 percent, maybe even 90 percent.
I'm not saying that's going to happen in two months or three months or three days, but over about a two-year period, maybe a three-year period, I think you could see it unwind.
It dropped from the time it started dropping in October of 1929 until the middle of about 1932.
It dropped 92%.
92%.
I'm not saying it can drop that far this time.
I'm not saying it can't.
I think the possibility is there.
There's more debt.
There's more derivatives.
We are 10 times more overextended and vulnerable today than we were in October of 1929.
Well, Proverbs 27, 12 says, the prudent see danger and take refuge, but the simple keep going and suffer for it.
The simple I construe to be stupid.
The majority of the people in this country will believe what the government says and Wall Street tells them over the next couple of days that everything is fine.
They'll believe it because they want to believe it, and so they will retain their positions in these markets.
All I can say is it is a time to hunker down.
I mean, today was just one small chapter.
I think it's going to be a long-term period of economic pain in this country and around the world.
So get out of debt, get liquid, get out of the stock market and equity mutual funds.
You probably want to reduce your real estate position to no more than 25% of total holdings, and they're better off in a rural small town area.
I would get 20, 25, 30% of a position in gold and silver.
I probably would put my real conservative funds in a Treasury Bill money market fund.
There's a lot of things you can do, and yes, there's a lot of things you can still do because the majority won't believe this for a while.
So people can act and they can act very quickly.
Anyway, this newsletter has a big section on getting out of harm's way.