Have You Got the Hesitation Blues?

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I am not writing
this for those readers who have bought gold and silver, sold their
stocks, and bought foreign currencies. I am writing this for readers
who have read my recommendations for over six years and who have
not done what I recommended.

I am writing
to people with the hesitation blues.

If you are
unfamiliar with the hesitation blues, you need to hear Jesse Fuller
explain them. He was the legendary one-man band of the folk-blues
era: 12-string guitar, harmonica, kazoo, cymbals, and the world’s
only fotdella — a six-string hammer-activated base fiddle activated
by piano keys played with his right big toe. Click
the fourth (last) song.
It explains the hesitation blues.

The chorus
says it all: "Tell me how long will I have to wait?"

Back in 1961,
I sat in the front row of the Ash Grove in Los Angeles to hear the
Lone Cat. I bought my first silver coins two years later, at face
value at the bank. That was a long time ago.

Yes, I should
have bought Berkshire-Hathaway shares instead.

Oh, well.


In the various
publications sent out free of charge by Agora, one theme has been
constant in the 21st century: buy gold. Agora editors
told readers to buy gold in 2001, the year it bottomed at $256.
They told readers to buy gold every year thereafter. Over and over
and over, the refrain has been the same: buy gold.

Have most of
our readers bought gold? I have taken no survey, but this I do know:
(1) the main coin sales firms are still tiny, just as they were
20 years ago and (in one case) 40 years ago; (2) there are only
about half a dozen of them well known to hard-money newsletter subscribers,
just as was the case in 2000 and 1990.

In 1964, Camino
Coin company in Burlingame, California had as many employees as
it has today. That was when my father-in-law told his readers to
buy gold coins — U.S. double eagles — from Camino.

Franklin Sanders,
the Moneychanger, has been selling gold coins for over 25 years.
His on-line sales operation is still family-staffed.

Rarities was larger in 1980. It got a lot of free promotion from
Howard Ruff. It also hired Jay Abraham to design its marketing program.
It is a much smaller company today.

For details
on how to contact these firms, click

With the growth
in the number of Agora letters and subscribers, these firms should
have their phones ringing from morning to night. Such — sadly —
is just not the case.

For most of
my readers, paralysis regarding gold was widespread back in 2001.
Gold had fallen for 21 years. Paralysis regarding the purchase of
gold was healthy, 1980—2001. But not after 2001. Yet the hesitation
factor seems to get worse for most readers. They want confirmation
that they were correct in 2001, 2002, 2003, 2004, 2005, 2006, and
2007, when they made a bad decision: sitting tight (standing pat).
Their hesitation will probably be repeated in 2008. It will not
end for most of my readers until a few weeks before precious metals
mania peaks. At last, they will buy. "I can’t stand it any
more! I’ve got to get in!"

The price of
precious metals will then fall like a stone.

This is what
happened to gold and silver in late 1979 and January, 1980. My hard-money
newsletter, Remnant Review, went from 2,000 subscribers in
1978 to 22,000 in early 1980. That was the peak — for gold, silver,
and my newsletter’s subscriber base.


We see hesitation
in every field. The question is: Why do we see mania moves at the
high and low peaks of an investment cycle?


Most people
are not early adopters of new technologies. They wait and see. This
is sensible for most people most of the time. "If you live
by cutting-edge technology, you will die by cutting-edge technology."

With technology,
there is no mania-driven peak curve. People are still buying microcomputers
today, just as a few people did in 1978. These computers are no
longer called microcomputers, because the mini-computer market died
by the late 1980’s. There are mainframes and desktops and laptops
today. Mini’s are gone. Non-mainframes are called PCs or Macs. This
market is huge, and it will remain huge. But sales growth has slowed.

You don’t really
need a faster computer. I am composing this on a 1995 166mz computer
using a 1991 word-processing program. The key to my productivity
is a 1984 PC AT keyboard. Without that, I would be in big trouble.
I have spares.

we will buy faster computers. Computers will get faster every year,
even after 2020, when a $1,000 computer will have the computing
capacity of the human brain (sharper than mine, I hope). Raymond
Kurzweil, the inventor of speech-recognition technology, in March,
2001, described
the future as follows

IBM’s "Blue Gene" supercomputer, now being built and
scheduled to be completed by 2005, is projected to provide 1 million
billion calculations per second (i.e., one billion megaflops).
This is already one twentieth of the capacity of the human brain,
which I estimate at a conservatively high 20 million billion calculations
per second (100 billion neurons times 1,000 connections per neuron
times 200 calculations per second per connection). In line with
my earlier predictions, supercomputers will achieve one human
brain capacity by 2010, and personal computers will do so by around
2020. By 2030, it will take a village of human brains (around
a thousand) to match $1000 of computing. By 2050, $1000 of computing
will equal the processing power of all human brains on Earth.

Even so, people
in 2051 will still buy new computers. They will have to, just to
keep competitive. "My computer is smarter than your computer!"
"The software designed by our computers’ software is smarter
than the software produced by our competitors’ computers’ software!"
In short, the computer market will not peak in the way that gold
and silver peaked in mid-January, 1980.

Why are investment
markets marked by manias when technology markets aren’t?

One reason
is better understanding of cause and effect. An individual inventor
may be driven by a belief that the big event — a technological breakthrough
— will happen to him. He will get rich overnight. Consumers of technology
have no similar faith. They know that their lives improve by only
tiny steps most of the time, as new information, new technology,
and new applications of older technology transform their lives.
There will be no major breakthrough in lifestyle except possibly
for someone suffering from an obscure disease who becomes the beneficiary
of a major medical breakthrough.

In contrast
is the get-rich-quick-and-easy dream that drives investment manias
— that, plus central bank monetary inflation, which creates investment
bubbles. The dream of easy riches and the policy of easy money are
made for each other. "And he spake a parable unto them, Can
the blind lead the blind? Shall they not both fall into the ditch?"
(Luke 6:39).


Early adopters
in investments take big risks. Early sellers don’t seem to, but
they do. They take the risk of missing the big move. As word gets
out, a few more buyers enter the market, matched by a few more who
are willing to exit it.

As word spreads,
most people don’t hear. "Berkshire-Hathaway? Never heard of
it." Of those who do hear, most fail to act. The train leaves
the station. It will stop at many stations. Few passengers climb
on board. "Warren Buffett? I think I’ve heard of him. I don’t
know what he does, really."

I think I remember
reading the following story by the Dow theory master, Richard Russell,
maybe 25 years ago. He told this story on himself. He had bought
Berkshire-Hathaway at (say) $25 and sold it at $75 — I forget the
numbers. He had been proud of himself, he said. He had tripled his
money! At the time, the stock was probably around $500. Ha, ha.
He should have held.

Today, it’s
$140,000 a share.

kept coming, year after year: up 25%. Hardly anyone bought the stock.
Buffett’s track record was impossible, you see. No man can make
25% per annum long term. It is statistically impossible. It would
mean that random walk theory is wrong, that Ph.D. economists with
little money to invest are wrong. "Yes, it was a great run
of luck. But it just can’t last."

It has lasted.

The stock had
one really bad move: 1999. In the midst of the final year of stock
market mania, the stock fell 50%, from $80,000 to $40,000. Then,
exactly at the peak of the mania — March,
2000 — the stock reversed. Up,
up, and away it went.

I can remember
one newsletter writer chortling in early 2000 that Buffett had lost
his touch, that the general stock market would now outperform Buffett,
especially the NASDAQ. It didn’t.

What keeps
confirmation-seekers away from Berkshire-Hathaway is that the stock
pays no dividends and Buffett never splits the stock to lower its
price. Only the very rich can buy shares.

They tend not
to move in and out of a stock. They buy as he buys: long term.

For normal
investors, confirmation is the big motivator, but it only registers
late in the process, after big moves up.

Some people
hear about a hot market in the making, but they don’t really hear.
As Isaiah, Jesus, and Paul said, "hearing, they do not hear."
The competing noise is too loud. Procrastination is too powerful.
Their commitment to rectifying their past mistakes is too great.
They want to prove that they knew what they were doing. That means
sticking with a bad investment, which generally stays bad. "It
will go up some day. I’ll be proven right." Maybe it will go
up. Meanwhile, other things go up more.

So, by the
time the confirmation registers — maybe years after they first heard
about the opportunity — they hesitatingly invest a little. It rises.
Now confirmation registers strongly. Why? Because they are in the
market. So, they buy more. It goes up more. Now confirmation creates
a new psychology: mania. More, more, more!

Investor by
investor, the mania increases. It pulls in new investors, which
drives up prices, which persuades late-comers to buy even more.
The bubble appears. At this point, confirmation becomes the great

Then a rumor
begins. "It’s time to sell. It’s even time to sell short."
Almost no one listens.

The classic
case was October, 1979 to January, 1980. Federal Reserve policy
shifted to tight money. Paul Volcker announced this in October.
He said the FED would no longer target interest rates. Rates began
to climb. No one believed the FED would stick to its guns. It did
. . . until August 13, 1982, when Mexico threatened to default and
nationalize the banks. Over the weekend, the FED shifted policy,
as did the world’s central banks. The boom began.

Also in late
1979, the Comex changed the rules for buying silver futures contracts.
No more longs would be allowed except to cover shorts. This was
to stop Bunker Hunt’s attempt to drive up prices. No one listened.
No one could believe that Hunt could be stopped. They were wrong.
For the next two decades, silver and gold declined.

We are now
well into the confirmation stage for gold. Most people still hesitate.
"It’s January 1, 1980. I’ll wait." But is it? Should they?


This is what
I keep asking, decade after decade. Is the trend toward more or
less debt, more or less monetary inflation? I keep answering, "more."

There are interludes
when the trend slows. October, 1979 to August, 1982, the trend slowed.
There was a massive recession. The Dow hit 777. But then it reversed.

I believe we
are in an interlude again under Bernanke. The FED is not expanding
the monetary base by much. There are signs that recession is coming.
That will eventually slow the rate of price inflation, which is
still under 4% (median CPI). But the dollar is falling, gold is
rising, and oil is rising. It looks as though the world is in the
process of replacing dollar-denominated debt instruments as the
central banks’ primary foreign reserve. That is undermining the
international purchasing power of the dollar. It is neutralizing
FED policy in the international currency markets.

Can the precious
metals fall in a recession? They usually have. But will it be different
next time? That depends on foreign central banks. It also depends
on how fast the FED reverses policy in a crisis. That in turn depends
on just how bad the capital structure of the banking system is today.
It looks very weak to me. The bad news keeps coming, week by week,
bank by bank, brokerage firm by brokerage firm: $5 billion here,
$10 billion there. The losses add up.

This crisis
appears to be international. The dollar and dollar-denominated debt
are at the heart of it.

Gold is rising
in relation to foreign currencies, not just the dollar. You
can see this here.

The trend has
not changed: inflation. But the business cycle seems to have peaked.
This will put downward pressure on the international economy. Stocks
will decline. Commodities used in construction will fall. Bonds
will rise.

What of the
precious metals? Until you have 10% of your portfolio in them, don’t
worry about it. You have had confirmation for six years. At some
point, you had better decide one way or the other: What is the trend?


Jesse Fuller sang "Hesitation Blues," he always had one
big toe in action.

I suggest that
you get at least your big toe into action.

Buy some gold
coins. Buy some silver coins. Sell some stocks.

me how long will I have to wait?"

5, 2008

North [send him mail]
is the author of Mises
on Money
. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible

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