The

GLEASON
REPORT
Market Timing for Investors
Identify Turning Points in Asset Classes

December 2010 www.gleasonreport.com

Status of the TGR Timing Models

Stock Models Currencies 10yr Tbond Gold Commodities

Value: IN Trend: IN ---- OUT IN ----

Inside This Issue ………..

 Review of the asset classes

 The Argentina Experience and the Lessons for America
 The Chinese/American Dance of Yin and Yang
 America will survive a collapse, will you? Post-collapse reform
 Systemic government failure is evident

This issue of the Gleason Report can be linked to at: www.gleasonreport.com/emails/2010-12-tgr.pdf

IMPORTANT: The Gleason Report is a newsletter of general and regular circulation published by Southwest Ranch Financial,
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The Gleason Report December 2010

S&P500 at 1180 on 30 November 2010

manipulation for refusing to take actions that
benefit the name-caller.

Bonds
My bond model remains out of US treasuries.
With the Fed buying bonds and holding down
rates, it’s a phony and rigged market. Because of
the dollar’s power, this can go on until an
external shock causes international capital
outflows from America. With so many
currencies pegged to the dollar or in a weak
position themselves, I can guess what will
happen but can’t say when.

This past month Vanguard cautioned investors to

be careful with treasuries. They also warned on
TIPS as I did last month. These warnings from
Vanguard are infrequent and usually timely.

Vanguard isn’t saying to sell bonds. They say to

Stocks be careful and do not over allocate because
The S&P500 remains range bound while expectations of continued good returns are not
corporate earnings continue to improve. Those realistic.
predicting a stock market collapse will have to https://personal.vanguard.com/us/insights/article/
wait a while. The TGR Value Model says stocks sauter-cautions-investors-
are inexpensive. The TGR Trend Model says the 11222010?SYND=RSS&Channel=AN
momentum remains with equities. I expect
stocks to rise higher from here unless earnings Should an investor short treasury bonds? War or
go into a ditch. another financial panic could cause dollar
inflows and upset that strategy. Longer term, it’s
The stock market is propped up by growing a solid play but can you wait it out?
government debt and defense spending. Other
nations are dependent to various
degrees on this spending and, as
much as they don’t like it, are in no
position to complain too loudly.
The debt problems in Europe won’t
be helped by weaker US spending.
China needs to manage a liftoff of
its consumer society and can’t do it
if our consumer spending declines
even more. So, we have a financial
standoff where problems are
patched over. Meanwhile, nations
accuse each other of currency

~2~
The Gleason Report
Commodities
The price of agricultural commodities and basic
materials remains strong. Some are saying the
prices are too high. The rising prices reflect
pricing reality in a world of rigged currencies. If
you own a mine or something needed by many,
you are sensitive to the purchasing power of
currencies and are reluctant to sell your valuable
ore only to own currencies being printed willy-
nilly. It’s simple common sense. Thus,
commodity prices are the indicator of fiat
debasement. Producers can sell for dollars but
can’t earn anything on those dollars. The wise
action is to demand higher prices – sell less ore
for more dollars.
We know that America can never pay off its
debts, China is said to be a currency manipulator
and Europe has severe debt problems too.
Nobody will blink and reduce
risk. They are all gaming the
system and it will go on until
something breaks.
In an interesting interview, fund
manager Jeremy Grantham
expressed his concerns about
the stock market and the
potential in commodity assets.
He says the Fed has spent the last 20 years
manipulating the stock market because a strong
stock market creates a wealth effect and causes
people to spend money.
He says stocks may go to 1500 over the next 1-2
years but will fall badly again (agrees with my
forecast). The market will fall in half after the
run-up and QE2, 3, 4 ends. Emerging markets
are also a bit overpriced but they have a better
future. Bonds are terrible.
His super high net worth clients are being
advised to place their money into commodity
companies.
http://www.zerohedge.com/article/jeremy-
~3~
December 2010
grantham-fed-has-spent-last-20-years-
manipulating-stock-market
He believes oil has broken out of its price pattern
and fair value is perhaps $75. More
importantly, he says that the world is running out
of everything – all basic materials and ores.
Own commodity firms with stuff in the ground -
not firms that have to buy and process stuff.
Own farmland and timber. This advice is for
investors with a 10-20 year timeline. Think
about it. This is exactly what the Chinese are
doing.
In addition to commodity firms, if you must own
stocks now, buy into a franchise Coca-Cola-type
firm and also hold some cash for future
opportunities. He sees only 1% growth plus
inflation for stocks over the next seven years so
domestic consumer stocks are
probably not a good idea. Own
what the world needs.
Grantham thinks the dollar is sort
of cheap now based on purchasing
power but QE (money printing)
could extend losses because that's
what the Fed wants.
He’s advising wealthy people to
preserve their cash in real things and to own
firms with strong earning power. TGR has
shown the link between oil and gold and
Grantham’s words only confirm what you’ve
read here before. It’s another voice and a well-
reasoned one. It should be obvious that we’re at
the end of the dollar-anchored monetary system.
Anyone hoping to preserve purchasing power
has to place their money into things of value.
Currencies
My model remains out of the dollar. I sold my
Merkx shares at the right time. I believe the
dollar’s downward thrust has abated for a while.
The Gleason Report
Gold
The precious metals have moved up strongly
with other commodities. The fundamentals for
gold ownership are still good. I believe gold will
move up steadily over the next five years or until
a monetary realignment. Periodic price declines
have to be accepted. The wise investor will exit
gold during a rising blow-off/panic stage and
shift money to stocks and real estate. Don’t
linger in bullion when it buys huge amounts of
everything else. My timing models will
hopefully alert you in time.
Relative to oil, gold is fairly priced around
$1350. I believe, based on the sciences of
geology and physics, that it will rise a lot over
the next decade. Silver might be a bit frothy at
this time.
The Argentina Experience
Comparisons of America with Weimar Germany
are dated because of the widespread gold
standard in the 1920s and various other reasons.
We can look at the 2001 Argentina economic
collapse for better information. Events will
certainly play out different in America but I’ll
note some similarities.
In the 1980s Argentina experienced rampant
inflation. Carlos Saul Menem was elected in
1989 and was handed a difficult economy.
Domingo Cavallo was appointed Minister of
Finance in 1991. The Argentina stock market
soared when Cavallo pegged the peso to the
dollar to stop inflation. From that point, Pesos
had to be backed with dollars and were
convertible into dollars. This linkage to a known
standard caused inflation to drop along with
fiscal discipline.
By 1998, the economy had grown 45% over the
previous seven years. National utilities were
privatized and tariffs were reduced dramatically.
Free trade agreements were signed with other
South American countries. The United States
~4~
December 2010
supported the transition by providing Brady
Bonds to provide liquidity to the central bank.
With the international credit window open,
President Menem began to borrow heavily to pay
for jobs and infrastructure.
Economic troubles rocked the region in the mid
90s with Mexico devaluing it’s currency but
Argentina performed much better than others.
The 1997 Asian economic crisis and 1998
Russian crisis caused panic worldwide and credit
lines to Argentina shriveled and by 1999
recession set in. The boom times were over.
President De la Rua took office in the 1999
elections and promised he would fix the
economic damage. He adopted a plan forced
upon him by the IMF. That plan said to lower
interest rates and produce a new boom by raising
taxes. This would reduce the government's
deficit and stabilize bond prices. The IMF’s
timing was dreadful. World interest rates were
rising thus increasing taxes didn’t lower
domestic interest rates. The economy went into
a tailspin.
Election fraud in 2000 angered the populace and
crowds demanded all the politicians should be
thrown out.
De La Rua resigned in 2001 and the dollar peg
was dropped. Argentina couldn’t pay its foreign
The Gleason Report
borrowings and the IMF walked away. A severe
depression ensued and the Peso plunged.
Hyperinflation arrived as people fled the
currency.
Rather than cut spending, the Economy Ministry
tried to get even more in taxes. More disaster
followed. Are you listening Mr. Obama?
By 2002, many people were in poverty. The
unemployment rate rose to 22%. Argentina
pleaded for US help in 2002. President George
Bush said they needed to adopt economic
reforms and start firing government workers as a
precondition of IMF assistance.
President Duhalde took office in 2002. With an
unstable peso and no dollar convertibility, he
decided to freeze the bank accounts of citizens
and limit withdrawals. Inflation and a 70%
devaluation ravaged savers. The middle class in
Argentina was wiped out.
Nestor Kirchner was elected in 2003. Kirchner
fired corrupt officials and cleansed the military
of war criminals from the 1970s torture era. He
initiated impeachment trials against Supreme
Court judges. He restored credibility to
government.
Kirchner was smart with the economy. He
refused to be bled dry by the IMF. When foreign
loans came due he stood firm. He won. Bond
holders were required to take a 30% write-off on
their principal. [US bond buyers pay heed.] The
economy improved by 2003 and Argentina
moved away from the ravages of globalization
and the demands of western bankers.
Commodity export growth has allowed steady
improvement that still continues.
From bust to boom to bust and Argentina’s
investors got wiped out. Not many can survive
regular market crashes. One will get you
eventually. America is not Argentina. It’s the
world’s dominant economy and others peg to the
~5~
December 2010
dollar. If you look at the chain of events though
it’s clear we’re experiencing the same symptoms
of failure but not yet the dire consequences.
America had virtually no inflation while on a
gold standard because borrowing was
constrained. Since the first market collapse in
2001, the US has borrowed heavily. Wars were
started to grab oil and forestall a deeper
recession.
The IMF and world opinion has no control over
America’s military actions or debt expansion.
Two stock market crashes, massive deficits,
money printing and endless war and we get only
token moves towards sensibility.
Rather than cut spending or reign in the military,
the government’s deficit commission says we
need higher tax rates to increase government
revenues and to keep interest rates low. This is
the same stupid advice the IMF gave Argentina
and it caused an economic collapse and
hyperinflation. Interest rates are now rising just
like when Argentina raised taxes.
The real US unemployment rate is approaching
20%; the Argentina tipping point. America is
racked with political corruption. We’ve ignored
the rule of law for the politicians. Crimes by
bankers are rewarded. Just like in failed
Argentina, the politicians are listening to the
bankers. Behind the scenes, the authorities are
gearing up for a massive tax grab on savers and
small business. In 2012, all US business
transactions over $600 will be tracked. They
want a federal sales tax. The military budget is
off limits.
Nothing done under the tent of this corrupt cabal
can fix the problem. It’s time to open the tent
flaps and expose these crooks and start over.
America implies China is a bad international
citizen. China doesn’t start wars, has no deficits,
issues no bonds, executes corrupt officials, and
always pays cash. Sounds good to me.
The Gleason Report
The Dance of Yin and Yang
The Argentina experience has lessons for
America. We’re on a similar path but, being the
world’s dominant economy, different rules
apply. The China-America relationship exposes
what’s really going on with our economy. It has
similarities to the America-Argentina experience
but reversed.
To understand the relationship between China
and America let’s consider it from the traditional
Chinese perspective – the Taoist concept that
dominates Asian philosophical thinking. In Tao,
all actions have their origin in emptiness; in
perfect calm and tranquility. Any force that
disrupts balance will be met with an opposite
force that serves to cancel it and return the
system to balance. China has countered
America’s financial dominance by creating an
internal economic system that counteracts it. To
the Chinese mind this is the creative and organic
way to oppose economic aggression. Let’s
examine how this is playing out right now and
use the experience of Argentina to illustrate how
the forces interact.
At the turn of this century,
Argentina kept a fixed peg to the
dollar and overvalued its
currency. Economic strength
allowed it to borrow too much
money and its debt-based growth
collapsed when the system
became unstable. The peso had
to be devalued to wipe out the
debt burden and restore balance.
The middle class was sacrificed
and 80% ended up in poverty.
From prosperity to poverty
within ten years.
In 2002, gold priced in Argentine pesos rose
400% in one year. This is a hyperinflation blow-
off. If America exactly followed the Argentina
experience (unlikely) gold would rise from
$1300 to $5000 within a year during a panic.
~6~
December 2010
Since 2002, gold has risen in dollars and other
currencies about 400%. Gold is thus adjusting
slowly to current conditions and is not out of
control. It’s just acting to restore balance.
America borrows from China to maintain its
standard of living and an illusion of GDP
economic growth. Remember, the GDP number
includes spending even if the money is
borrowed. The US controls the IMF so there
won’t be any coordinated external financial
discipline imposed on the US.
The Chinese are aware that if
they play by America’s rules
and got into trouble, the IMF
hammer would come down and
nail them. China refuses to play
a rigged game with America’s
bankers. Like Argentina in
2000, China has a fixed peg to
the dollar but, unlike Argentina,
the Middle Kingdom blocks its
currency from international
trade. Thus the bankers and the
IMF can’t manipulate the Yuan. It’s absolutely
brilliant.
China doesn’t borrow and therefore can afford to
keeps its currency undervalued Money flows
into China and employment rises. Argentina had
huge external debt whereas China has little. No
The Gleason Report
debt and no currency for the western bankers to
manipulate gives China flexibility to pursue its
growth strategy. America’s impotence at forcing
China to change has Ben Bernanke stymied.
Talk about turning the tables! This is the
Chinese way – the way of Tao.
Other emerging market economies should follow
China’s lead. Nations with natural resources
need to carefully manage their internal growth to
avoid the clutches of the IMF and America’s
bankers. Once trapped, the “solution” is always
the same. The
IMF provides
loans but requires
severe austerity on
the people. The
nation’s resources
are sold to western
corporations who
then move the
processing jobs to
cheaper labor
countries and bleed
the nation until the
resources are
depleted.
This is exactly what the bankers have done to
American citizens for twenty years and with the
same results. America has borrowed heavily and
shipped jobs overseas. We’re burdened by debt
and unemployment. All that’s needed now is
higher taxes and wealth confiscation to crash the
dollar. Argentina listened to America’s IMF
bankers and we’re getting the same stupid
advice.
The US Fed has countered China’s shrewd
currency strategy by adopting Quantitative
Easing (QE = massive money printing]. What
China and Europe won’t lend to America, it just
prints. Does China care? I think they’re angry at
the double standard but in typical Chinese
fashion they play the Yin to our Yang. A good
chunk of our printed dollars are spent in China.
~7~
December 2010
They use the money to buy commodities and
companies across the globe to restore balance.
They’d buy our corporations too but, like their
currency, our corporations are off limits for
purchase. Now, who’s the real manipulator in
this scenario?
They spend our money and buy world assets for
their future. You can call China a currency
manipulator but is that accurate? They have
insulated their economy from the western
bankers and IMF while using our profligacy to
strengthen their
economy. They
won’t be a patsy for
Goldman Sachs and
Bernanke.
America has massive
debt that cannot ever
be paid off. The
Argentines who
survived their
country’s
devaluations had
moved their money
overseas beforehand. Everyone else got scalped.
Argentina devalued the Peso and then grabbed
the retirement assets of its citizens to pay off the
IMF. Herein lies something important for every
American. When our budgets and dollar go bust,
will your savings be the solution to the
government’s problem?
You had better hold some assets where the
government can’t see them. This has become
much more difficult over the last year with all
the new regulations passed supposedly to prevent
money laundering. These are really capital
control measures to close the doors on panicked
money seeking shelter. It will have nowhere to
go.
After the Argentine economy collapsed, the
country experienced a social breakdown with
murders and kidnappings. The police were
The Gleason Report December 2010

powerless against the rioters and looters. Your and agricultural prices today. Food is being sold
neighbors became predators and home invasions to Asia. America’s vast, fertile farmland will
were common. This stage didn’t last long – benefit Asia as much as us – maybe more. Have
perhaps a year. Will it happen in America? a six month supply of food on hand. Rice and
Don’t be so sure that we’re different. Here’s a beans and canned foods are cheap now but may
long first-person account of someone dealing not be available in a crisis. And, for heaven’s
with the dangerous situation in Argentina. sake, keep a low profile when trouble arrives.
http://www.survival-spot.com/survival-
files/argentinas-collapse.pdf China places social Stop worrying about the rate of return on your
stability as its highest priority. They will never money and get it to safety. The angry people on
sacrifice this to appease America. Fox News blame liberals for our troubles. They
can’t see the big wart on their own nose.
Take a look around folks. Our unemployment MSNBC is almost as bad with over-educated
rate is approaching wonks ranting
Argentina’s worst days. about hard-line
The world can’t lend us any conservatives.
more money so we’re Let them all
printing it. We have corrupt argue – it’s
politicians working for the actually good
corporations and not the news because
people. We have endless there’s no
wars we can’t afford or even national
explain This can’t possibly consensus yet.
continue much longer. Our You should be
Ying is going to be restored taking action to
to balance by a powerful protect your
Yang countermove. China knows this and has family while they bicker. Yin is going to
positioned itself. The very wealthy advised by balance Yang and restore equilibrium. This will
intuitive thinkers like Grantham know this. be the birth of a new world financial system and
ascendant China will be a big part of it.
You absolutely, positively must get out of the
dollar to some degree. Own physical gold. In
your IRA own gold in Canadian funds like CEF, Will America Survive the Collapse?
GTU and PHYS. Buy some PRPFX or Yes it will. However 80% of the middle class
MERKX. Do not own GLD or SLV where the won’t unless they protect themselves.
metals are held in American or British banks. Hyperinflation is possible but can be avoided.
More likely, the gold has been leveraged or lent It’s triggered by a widespread understanding that
out and you’ll be cheated. Invest money in the money is becoming worthless. It’s a
companies that will benefit from the powerful psychological shift. When that shift occurs a
forces about to descend on the world economy. currency can fail within weeks. I think the US
government will act preemptively but it can’t be
Argentina is a country of 40 million with fertile assured.
farmland that can feed 300 million. After the
collapse there was widespread starvation within As James Rickards has stated on
a land of plenty. The food was sold overseas to KingWorldNews, the US is the Saudi Arabia of
get foreign exchange. Look at grocery prices gold. When the dollar falls, America can switch

~8~
The Gleason Report
to a gold backed currency – if the gold is still in
Fort Knox. Ron Paul says it may not be. We
supposedly have more gold than all of Europe.
China and Russia have very little. To
accomplish a switchover to gold, the price would
have to rise to well above $5000 per ounce.
http://www.zerohedge.com/article/jim-rickards-
tells-cnbcs-joe-kernen-gold-going-5000
You may find that statement outrageous but it
makes a lot of sense. Central bankers abhor the
gold standard but Bernanke thinks about gold a
lot.
This past month, Ben Bernanke called for a new
world monetary system. He used the speech to
attack China’s “currency manipulation” but it
smacked of desperation.
―On its current economic trajectory, the United
States runs the risk of seeing millions of workers
unemployed or underemployed for many years,‖
Bernanke said.
…. unemployment ―might rise further in the near
term,‖ he said. This could bring an end to the
tepid U.S. recovery ..‖
―The strategy of currency undervaluation has
demonstrated important drawbacks, both for the
world system and for the countries using that
strategy,‖
―Currency undervaluation by surplus countries
is inhibiting needed international adjustment and
creating spillover effects that would not exist if
exchange rates better reflected market
fundamentals,‖
―Unfortunately, so long as exchange-rate
adjustment is incomplete and global growth
prospects are markedly uneven, the problem of
excessively strong capital inflows to emerging
markets may persist,‖
~9~
December 2010
―As currently constituted, the international
monetary system has a structural flaw: It lacks a
mechanism, market based or otherwise, to
induce needed adjustments by surplus countries,
which can result in persistent imbalances. This
problem is not new. For example, in the
somewhat different context of the gold standard
in the period prior to the Great Depression, the
United States and France ran large current
account surpluses, accompanied by large inflows
of gold. … These policies created deflationary
pressures in deficit countries that were losing
gold, which helped bring on the Great
Depression‖.
Source:
http://www.federalreserve.gov/newsevents/speec
h/bernanke20101119a.htm
Imagine you’re China listening to this bullshit.
Bernanke wants China to drop its dollar peg and
play by his crazy banker rules. Yet, America
will not adjust its own policies.
We are in the early stage of the most dramatic
monetary realignment in 100 years.
Pre-Collapse Negotiations
Let’s dissect Bernanke’s conundrum and
possible actions and see how it will affect you.
Bernanke talks about unemployment and the
need for adjustments in his speech.
Unemployment is the biggest concern because it
presents a threat to the establishment. When
people are out of work they have family
problems, lose hope, don’t pay taxes and get
angry at the government.
Greenspan and Bernanke didn’t worry when high
paying jobs were shipped to China because
crappy jobs took their place and people were still
employed. Bush spent trillions on war and
stimulus to ensure that economic bubbles kept
everyone fat and happy. When the bubbles
popped, unemployment emerged and D.C. got
The Gleason Report
worried. Look at the huge congressional
turnover in the past two elections. That’s all
these guys care about – the next election cycle.
They didn’t care that our standard of living has
been in decline since 1974 and they don’t care
about your family today. It’s about their jobs
and their power and the banker and corporate
friends who fund their campaigns.
Bernanke can demand that surplus countries [aka
China] take actions to weaken their economies to
help America but it isn’t going to happen. China
has blocked its currency from international trade
and is thus mostly immune to the actions of
George Soros and the currency trading crooks at
Goldman Sachs. China won’t play America’s
game. It doesn’t borrow money so the IMF is
irrelevant. It doesn’t
invade other nations and so
has no problems with
terrorist payback. It buys
what it needs with
America’s dollars. These
guys are shrewd and have
turned the tables on the
western bankers.
A politician’s first priority
is to shore up their political base. D.C. needs to
get a diplomatic trade deal done with China that
they can tout as a victory. China thinks long
term and America short term so you can see
where this is going.
China will concede to a quicker increase in the
value of the Yuan and perhaps limited exchange
trading of its currency but will demand things
now. It will drive a hard bargain. It will want
guarantees on energy supplies and the ability to
purchase American companies in exchange for
not dumping US debt. It will want military
treaties and guaranteed protection from banker
currency manipulation. All these long term
payoffs America will concede in exchange for
more jobs at home. We’ll give away the store
~ 10 ~
December 2010
once again and further weaken our long term
health.
China is positioning itself for the long haul
whereas America is trying to slow its descent. If
China keeps buying our debt we can keep our
navy afloat and continue our wars but we must
agree not to meddle in China’s sphere of
influence in Asia. We will continue to drain our
lifeblood and China will facilitate it.
Post Collapse Reform
One day you will awaken to learn of global
monetary reform. China and American
diplomats will be on CNBC toasting each other
with big smiles. Your money will buy less at
Wal-Mart. Foreigners will buy US based
corporations. No doubt, the
agreement will be touted as a
victory that establishes a new
world monetary order.
Massive domestic and military
spending cuts will be necessary.
The price of imports, food and oil
will soar. We will experience
what happened to Argentina in
2001 but at a different pace. The
rich and the leading politicians will already have
their money hedged. The Wall Street bank
coffers will be replenished. Corporate tax rates
will be cut and yours will go up. The wars will
end.
Former assistant Treasury Secretary, Paul Craig
Roberts, presents this summation in The Stench
of US Economic Decay Grows Stronger.
Meanwhile in America, the sheeple remain
content with, or blind to, their role as sheep to be
slaughtered to feed the rich. The Obama
administration has managed to come up with a
Deficit Commission whose members want to pay
for the multi-trillion dollar wars that are
enriching the military/security complex and the
multi-trillion dollar bailouts of the financial
The Gleason Report
system by reducing annual cost-of-living
increases for Social Security, raising the
retirement age to 69, ending the mortgage
interest deduction, ending the tax deduction for
employer-provided health insurance, imposing a
6.5% federal sales tax, while cutting the top tax
rate for the rich.
The American government only has resources for
wars of aggression and bailouts of rich
banksters. The American citizen has become a
mere subject to be bled for the ruling
oligarchies.
Source:
http://vdare.com/roberts/101128_us_economic_decay.htm
You may not agree with his rhetoric but there
can be no doubt that services will decline and
taxes are going up on Americans. This
government, like Argentina, will sell out its
citizens to protect the banks, corporations and
the political class.
Governments always survive these events but
people don’t. Americans are going to be pissed
but powerless. As part of the reform process,
America will have to discredit and bury the Bush
era. They’ll confess to bad deeds once the sickly
Cheney is dead and will defuse the anger with a
few show trials.
Geraldo Rivera, in a piece with Fox’s Judge
Andrew Napolitano, stated this month that he
~ 11 ~
December 2010
now believes WTC 7 was brought down by
explosives on 9/11. This was on Fox News!
What?! Watch it yourself. They run the
BuildingWhat.org clip stating that 9/11 was an
inside job.
http://beforeitsnews.com/story/274/897/FOX_Co
ntinues_the_WTC_7_Discussion_with_Geraldo_
and_Judge_Napolitano.html
Why this story was allowed on national news is a
mystery to me. I suspect it’s part of a concession
to public opinion and a preparation for future
news. Regardless, Rivera states directly that it’s
a demolition job and the Judge appears to be on
board. Rivera has a reputation something less
than ideal but the Judge is a good guy. It appears
that as we approach a post collapse America,
they intend to give some explanations or
excuses.
Failure is Clearly Evident
Look at our military leaders. Generals
McChrystal and Petraeus negotiated for months
with a guy claiming to be the head of the
Taliban. They paid him money to attend
meetings. In reality he was a shopkeeper from a
province. They tried to blame the embarrassing
blunder on the
British but the
Brit press
spilled the
beans.
Peace talks
conducted with
an impostor
who posed as
a Taliban
leader, and which led to a meeting with Hamid
Karzai in Kabul and thousands of dollars in
"goodwill payments", were started by the Afghan
government and approved by the former
American commander, Stanley McChrystal, the
Guardian has learned.
The Gleason Report
Source:
http://www.guardian.co.uk/world/2010/nov/26/u
s-general-mcchrystal-taliban-impostor
They’re desperate to get out of Afghanistan. Our
military agreed to pay billions to the Russians for
helicopters in exchange for allowing fuel routes
through their territory after Pakistan closed
access. They claim to be kicking ass but are
losing the war and spending your money to keep
up appearances. Every failure is announced as a
victory against Al Qaeda.
US military figures show that supplies pass
though Pakistan at a rate of 580 truckloads per
day. The Associated Press, citing government
officials, said about 100 trucks had been stopped
this morning. Yesterday the CIA chief, Leon
Panetta, arrived in Islamabad for meetings with
the ISI chief, Lieutenant General Shuja Pasha.
The US is redoubling its pressure on Pakistan to
mount fresh anti-Taliban operations
in the tribal belt stronghold of North
Waziristan.
The surge may be linked to the
discovery of an alleged al-Qaida plot
involving Mumbai-style attacks on
cities in the UK, Britain and France,
which is said to have originated in
Pakistan's tribal belt.
Source:
http://www.guardian.co.uk/world/2010/sep/30/p
akistan-blocks-nato-route-afghanistan
Do you think the Russians and Chinese see some
humor and opportunity in this?
The National Institute of Health claims 26% of
Americans are mentally ill. When you screen out
the mentally ill, political extremists and fringe
religious zealots, there’s only a thin ribbon of
sanity running through America.
An estimated 26.2 percent of Americans ages 18
and older — about one in four adults (57
~ 12 ~
December 2010
million) suffer from a diagnosable mental
disorder in a given year.
Source:
http://www.nimh.nih.gov/health/publications/the-
numbers-count-mental-disorders-in-
america/index.shtml
Where are the insane working? Perhaps at
Homeland Security and Immigration? Why is
TSA fondling travelers genitals? Either the
leadership is nuts or it’s a security response to
blowback from our wars and bad foreign policy.
America has imported 300,000 Pakistanis within
our borders and who knows how many recent
Somalis, Iraqis, Iranians and Arabs. These guys
are angry at their clan members being killed and
a few do pose a threat to internal security.
Rather than profile travelers like the Israelis,
TSA does feel-ups.
People can’t send packages weighing more than
one pound from Japan to America
anymore unless they provide the
US recipient’s social security
number. Ever wonder who’s
winning the idiotic war on terror?
Our mass credulity is astounding.
We don’t question the absurd. The
FBI sets up a Somali born kid as a
terrorist. The only terrorists they
catch are the ones they create. If they had
knocked on his door and told him to get a job
rather than giving him a van, cash and explosives
he’d be out looking for a girlfriend. Now, he’ll
go to jail for 30 years. It’s a victory folks!
… as they've done many times in the past – [the
FBI] found some very young, impressionable,
disaffected, hapless, aimless, inept loner; created
a plot it then persuaded/manipulated/entrapped
him to join, essentially turning him into a
Terrorist; and then patted itself on the back once
it arrested him for having thwarted a "Terrorist
plot" which, from start to finish, was entirely the
FBI's own concoction. Having stopped a plot
The Gleason Report
which it itself manufactured, the FBI then
publicly touts -- and an uncritical media
amplifies -- its "success" to the world, thus
proving both that domestic Terrorism from
Muslims is a serious threat and the
Government's vast surveillance powers -- current
and future new ones -- are necessary.
Source:
http://www.salon.com/news/terrorism/?story=/op
inion/greenwald/2010/11/28/fbi
Then there’s the Wikileaks release of State
Department cables. I worked in computer
network security for many years. I audited
secure networks, hacked them, and reported on
system vulnerabilities. How did a young Pfc get
access to all this information? How did he
download it without the system security alarm
warning of a breach? This goes far beyond bad
security. It’s criminal negligence. My
experience in security tells me there are many
breaches when you can find one this big.
Do you honestly believe
TSA will maintain the
privacy of their naked
scanner images, your
passport data, and travel
records?
Obama continues the
Bush wars because he’s
in a political box. If he
leaves Iraq it will turn
into a post-evacuation
Vietnam with revenge
killings and tribalism.
The Republicans started
the wars and won’t let him out of it. It’s all about
the next election. Obama lacks courage and
imagination. He’s given in to the military-
security establishment and their money. He’s
moving to the right and we’re all moving down
hill.
~ 13 ~
December 2010
Summary
Look, it’s a waste of time to get angry at the
government. Decades of neglect and
incompetence means the financial forces are now
beyond their control. All the government can do
now is react. I can guarantee that things will get
worse for the average person. You’re in a
ragged column of soldiers marching to the front
lines where the enemy intends to cut you to
pieces. Get out of the line and take control of
your destiny. Forget this liberal/conservative
claptrap and act smart.
If you have capital to invest, move a portion to
safety. I doubt US consumer stocks will do well
as federal taxes rise. It’s difficult to invest
directly in commodities but gold and silver are
excellent proxies and easily purchased. Buy
them now before oil rises even more and a
federal sales tax is applied. If the Feds apply a
6% sales tax, gold sold privately will jump by at
least 6% to account for the tax and to avoid
tracking. I’d own the shares of
companies that own minerals or
that get a percentage of the price.
I’m wary of the oil giants like
Exxon because they process oil
and it’s in depletion.
The world’s monetary alignment
is going to change dramatically
over the next five years. China is
in ascendancy and the West has to
make huge spending adjustments.
Yes, China has a property bubble
in coastal cities but they don’t
have a credit bubble. People
make large cash down payments. It’s not a
credit economy. So, don’t believe those who
predict imminent collapse. Problems yes but not
a rollover.
What America can’t change, it will adapt to.
Those adaptations will affect each of us. I firmly
believe that holding big cash deposits is not a
good idea. It’s what everybody else is doing and
The Gleason Report
that means a tsunami of cash will be forced to
move. I believe the wise investor will act before
the crowd.
Q&A
Q. Thanks for another great issue Tom.
Regarding the down slope of the peak oil curve,
Nicole Foss at The Automatic Earth website
(http://theautomaticearth.blogspot.com/) , who
was a former editor of The Oil Drum, makes a
key point that is rarely mentioned about the oil
curve. The curve usually shown does not take
into account the added energy required to extract
each barrel of oil compared to what was required
on the up slope of the curve.
As the return per unit of energy invested has
gone from something like 100 barrels extracted
per 1 invested in the early days, to something
like 5 to 1 or less nowadays, the reduction in
extraction cost and efficiency drives the down
slope curve much steeper than is typically
shown, because so much of the oil being
extracted on the down curve must be plowed
right back in to the extraction process to make up
for the lost efficiency. This becomes a negative
feedback loop which predicts a much faster
decline rate than even the alarming ones
typically shown on the peak oil bell curve. What
you end up with is, a few years after the peak, a
cliff-like free fall on the down side, rather than
the multi-decade decline many expect.
A. You and Ms. Foss are correct. The down
slope of the oil production curve is much steeper
than the curve up. In other words, the oil
depletion crisis will hit us harder and faster than
even pessimists expect. I should be amazed this
topic gets so little press considering the
economic danger it poses but America’s
compromised, weak, corporate controlled press
needs the air time for Lindsey Lohan’s latest
rehab. Ignorance and passivity rules America.
~ 14 ~
December 2010
Keep filling your pantry and buy what you need
now. We’re going to get what we deserve.
Q. 1) You said that you currency model is in
foreign currencies, but that you recently closed
your position in MERKX. Is this a contradiction,
or are you overriding your model based on the
strength of the trend.
2) I like MERKX as well (although management
fee is a bit high for a currency fund) but the fund
charges a 1% fee on the sale of shares held less
than 6 months. This would seem to be quite a
drag on returns if we move in and out a few
times a year.
3) I love PRPFX; perhaps more than I should. I
like the philosophy and the discipline behind the
fund, and I have owned it for a few years.
However, I'm questioning how things will go
moving forward. One fourth of the assets are in
USD cash (yielding nothing) and one fourth is in
bonds yielding about 3.5%. So we have half the
portfolio yielding 1.75% with significant bond
exposure. Part of me wants to trust the method,
but the more analytical part of me is wondering
if this method will continue to perform in the
coming five years or so.
A. 1) Yes, I'm overriding the model and taking
profit. It's an intuitive judgment. My currency
model has only a 70% probability of success.
Many are predicting the dollar to fall a lot after
QE kicks in. Maybe it will. [Note: The dollar
has gone up]
2) The merkx fund does have a 1% penalty for
shares held less than the required time but the
maximum charge is $250 (I use Vanguard). So,
if the trade is greater than $25k, the fee doesn't
change. If you know of a currency basket fund
that offers a better deal let me know because it
would benefit others.
3) I understand your point about prpfx. It holds
35% in dollar assets last time I looked but only
15% in longer bonds. The point of the fund is to
be an all-weather place to park cash. It assumes
the future will do the unexpected. I'd rather park
cash in the fund than hold a mm account. I can't
The Gleason Report
think of any other fund that can protect a passive
investor better. Now, if we have high inflation,
the short term dollar holdings will move up
at mm rates which are usually close to inflation.
So, it's not that worrisome if you consider that
fact.
Q. 1) Did the Sprott physical silver ETF ever
start trading?
2) Have you considered GCC (based on the
CCI) as an alternative for DBC? It
geometrically rebalances the "basket"
commodities, I think, so, for example, oil would
not grow to dominate the ETF as it does in DBC.
I have never used it myself, but thought I would
pass it along as an idea.
A. No, Sprott hasn't started trading yet. They did
place an order for 500,000oz of silver! It should
be soon.
The problem I'm having with commodity efts is
they're trading the next month's futures contract.
Traders know the etf must buy and then they buy
ahead of it pushing up the price. Then they sell
into it. Thus the gains aren't being realized by
the etf. I see that GCC has done much better
than DBC. Is it the commodity weightings or is
it doing something different? Ag has soared the
past couple months whereas oil has not. Could
that be it? [Note: It was agriculture] I think
DBC is weighted by # contracts traded and
energy dominates.
Q. Are there plans to update your excellent book,
"How to Invest if You Can't Afford To Lose"?
A. I don't have any plans to update it at this
time. I'd simplify the number of portfolios
though to make it easier. It’s free on the website.
Q. I was glad to see you brought up the whole
peak oil issue. This was white hot two yrs ago
and now has fallen off the map. It had not fallen
off of mine and I have continued to research and
~ 15 ~
December 2010
invest in this area believing as you that it is only
a matter of time before it becomes a pressing
issue.
The Canadian oil sands are faced with a
different set of dynamics. Most compelling is on
the exploration and recovery side. Oil sands are
relatively shallow and are surface mined.
Exploration over the past 40 years has mapped
extremely well what the reserves look like. You
don't drill dry holes in this industry. The
exploration costs are mostly done, and are cheap
and fixed. The compelling part is on the
extraction side. There are no enhanced recovery
mechanisms like nitrogen injection, fracking or
other rework. Production volume essentially
equals bulldozer and earth mover volume.
Extraction of the last barrel equivalent is very
close to the same cost as the first. The projects
scale in a predictable way both in cost of
production and recovery. Oil sands do suffer
from large start up costs. You have to build the
Bitumen processing plant before the product can
come to market. Additionally, it is an energy
intensive process. Break even for these guys is
in the $65/ barrel range. There are
environmental concerns such as carbon footprint
and destruction of land due to the mining
process. On the whole, the Canadian
government has worked through these issues and
I don't think they can afford to
kill the industry because of it. Multiple plants
are in production, so technology risk is less.
Investing in Canada has been a growing theme in
my portfolio. I own CEF and Canadian dollars.
They are physically close to the US and will be
the last to isolate us when the resource wars
escalate. As for the stocks, SU and COSWF are
worth a look. The latter is a pure play on the oil
sands. While listed on the pink sheets, it is a
good sized company and easier than trading it
on the Tor exchange.
A. I was watching cnbc this morning and some
big names were discussing the oil problem. The
IEA, always pandering to power for political
The Gleason Report
reasons, says oil could hit $200 by 2030. I'd
guess 2015. T. Boone Pickens says oil will hit
$95 next year.
The tar sands will never be a big energy producer
because of the time it takes to process the
material. But, it is a profitable producer and
investments in this area are worth considering.
You know we have an energy problem when
we’re leeching the oil out of sand. Again, it’s
astonishing oil depletion gets so little attention.
I recently bought Energy Transfer Partners
(ETP). This is an energy Master Limited
Partnership. It owns 17,000 miles of gas
pipelines and just completed a new segment in
partnership with Kinder Morgan Partners
(KMP). ETP pays a 7% dividend. I bought this
stock because I believe that as oil prices rise,
natural gas will be in more demand. Gas is
cheap now at around $4.50 and ETP makes a
percentage on the transport. There’s a high cost
to enter this business and it’s essential to our
economy.
Q. I wondered whether the Permanent Portfolio
approach might be improved by hedging
downside risk. To represent the Permanent
Portfolio's 25% allocation to each of Gold, Long
Term Treasuries, Stocks, and Cash, I used the
four ETFs - GLD, TLT, SPY, SHY.
As we have data for these going back through
2005, I began my test on 1/1/2005 through the
end of October 2010. The baseline I wished to
improve upon by hedging was the Permanent
Portfolio fund PRPFX. The worst drawdown
ever experienced by that fund since its inception
was a loss of about 26% during the recent big
market crash. Even though it has bounced back
nicely since then, that was still a really big draw
down.
For my test I used monthly data only. I always
held 25% in SHY, as proxy for cash. The rest
~ 16 ~
December 2010
was allocated 25% each to GLD, TLT, and SPY
so long as each was above it's 10 month moving
average. If any was below its moving average at
the end of the month, I switched it to SHY. If it
rose back above its moving average by the end of
the month, it went back into the relevant ETF.
The only unrealistic aspect of the test is that it
assumes equal re-balancing at the end of each
month. In reality this could probably be done
once or twice a year.
Here are the results over the nearly six years for
2005 through last month:
PRPFX: Annual compound rate of return =
9.6%, max draw down = -26%
Hedged ETF portfolio:
Annual compound rate of return = 10.95%, max
draw down = -5.5%
Number of trades = 25 (about one trade per
quarter, on average).
Percent months with positive returns = 66%
Since this test covers bull, bear, and flat markets,
I think it's safe to say that the hedged ETF
portfolio gets equal or better returns than
PRPFX, with a huge reduction in draw downs.
A. I think this easy to apply idea has validity for
avoiding severe bear markets. It's certainly
better than buy and hold of the S&P500.
MA systems are ok. You might also want to
look at a 10 month / 2 month combination using
month-end data. Buy when the 2mo goes over
the 10 month. I ran a quick report and it beats
the straight 10mo/300day system significantly.
A higher win percent and a higher overall gain
relative to the market. Since 1954 it beats BH by
55%. 38 trades and a 68% win percentage. It
doesn't work for other asset classes but that's to
be expected. I've never seen this simple system
discussed outside of my own research
I rarely discuss using moving averages because
most investors aren’t like you and me. They
The Gleason Report
prefer passive ways to protect their investments
that don’t require trading and mathematics.
That’s understandable; people have jobs and
families and are busy. I have no problem using
whatever works.
Q. I am confused about your currency stoplight
red/green light. What is the difference between
the Dollar stoplight and the currency stoplight?
A. The stoplight should read "Currencies" and I
had changed the web site and report to use the
same term. When green, it means I am invested
in foreign currencies. When red, I'm in the
dollar. The signal is now yellow. That means
I'm negative on the dollar but took profits on
currency investments and am waiting for another
chance to buy.
Q. I would like to sign up for your free
newsletter in January. If you have a signal
change do you notify us by e-mail on the date it
happened, or do we wait for the newsletter at the
end of the month?
A. After January 1, everyone will receive free
alerts by email on timing changes. I’m doing
this for several reasons. I prefer giving away
information over running a business. I hate
record keeping and don’t need the money so why
bother. I believe we face difficult times ahead
and possible social upheaval and want the option
to discontinue publishing without a lingering
financial obligation to subscribers. You can sign
up the free service using a link on the main web
page. Existing subscribers will receive a pro-rata
refund this month – December 2010.
Q. I came across this article and it made a lot of
sense for the portion of a portfolio dedicated to
stocks. If you have time to read it, I'd like to
know your thoughts.
Thanks again for all the time you put into The
Gleason Report - it is very much appreciated.
~ 17 ~
December 2010
http://seekingalpha.com/article/237971-
preparing-for-crashing-markets
A. I agree that dividend stocks are a good idea
and especially if linked to a dominant economic
theme. I like the energy theme and believe it's
best to act before oil shortages become news in
the next 2-5 years. Building a portfolio of div
stocks is a gradual process that requires waiting
patiently for the value to offset the risk. I don't
like div mutual funds and prefer to make my
own mistakes. Dividend funds will get
hammered in the next crash because most have
too many stocks with low yields.
Q. I was thinking over the long holiday about the
current worldwide financial mess. Do think the
home mortgage fiasco was passed off on to
Europe in the form of derivatives, collateralized
securities, etc ON PURPOSE to cause the EU
to collapse? Is Wall Street happy with the EU’s
existence? Wondering what your thought are
and if you think the EU will be around 5 or 10
years from now.
A. I think the fiasco was passed on to Europe
because of greed on both sides. Wall Street only
cares about profit and loss and how to make
money. Corporations are now transnational
except for where they pay taxes. A new
monetary system may even change where those
are paid.
The plague affecting Europe is the same here.
Bloated government that can't be supported by
the revenue stream. Huge domestic and military
spending cuts are required but resisted. I think
the EU will be around but not sure about the
Euro. America will be around but maybe not the
dollar as we know it. A new monetary system is
coming.
Best Regards,
Southwest Ranch Financial, LLC
The Gleason Report December 2010

(www.gleasonreport.com)
Tom Gleason, Manager & Researcher

Author of: How To Invest If You Can't Afford

To Lose (Free download on the website)

Tom Gleason has degrees in finance and

information systems. He's worked as a bullion
dealer, fraud investigator, real estate appraiser
and financial analyst.

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~ 18 ~
The Gleason Report December 2010

~ 19 ~