After the Bank of Canada’s announcment today that it was holding the key interest rate at record lows, Michael talks to John McComb about the effect that will likely have on money and the markets.

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With gold currently trading 34% below its September 6, 2011 peak, today’s chart provides some long-term perspective on this millennium’s gold market. As today’s chart illustrates, the pace of bull market in gold that began back in 2001 increased over time. In late 2012, however, the parabolic trend in gold prices came to an end and a new downtrend began in earnest. While the price of gold has recently ticked upward, in the end, this latest move has resulted in gold coming right back to resistance of its one-year downtrend.

Notes:
Does the gold rally resume? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

Quote of the Day
“The difference between a rut and a grave is the depth.” – Gerald Burrill

Events of the Day
January 26, 2014 – Grammy Awards – NFL Pro Bowl
January 31, 2014 – Chinese New Year
February 02, 2014 – Super Bowl XLVIII – Groundhog Day

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— Find out which stocks investors are focused on with the most active stocks today.
— Which stocks are making big money? Find out with the biggest stock gainers today.
— What are the largest companies? Find out with the largest companies by market cap.
— Which stocks are the biggest dividend payers? Find out with the highest dividend paying stocks.
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To some, they think the NSA is perfectly fine for they respond – I have nothing to hide. However, what if it were not just emails and SMS they intercept, but your thought? Would you still feel the same way? What these people fail to grasp is you cannot hide anything – even your thoughts!

For those who do not believe in psychic abilities, it might be time to open your mind to deeper dimensions. Governments have used psychics to read minds and tell the future. In ancient times they climb the mountains in Greece and went to the oracle at Delphi for her to predict the fate of kings and events. King Croesus of Lydia where coinage first appeared, proclaimed the oracle at Delphi to be the most accurate, since she correctly reported that the king was making a lamb-and-tortoise stew. He then consulted Delphi before attacking Persia, and according to the historian Herodotus, he was advised, “If you cross the river, a great empire will be destroyed.” Croesus heard what he wanted to hear and believed the response was to his favor. Croesus crossed the river and attacked Cyrus the Great, but it was his own empire that ultimately was destroyed by the Persians. Obviously, context is everything.

We all have some sort of psychic ability. Some clearly have more than others. How many times have you thought of someone and suddenly they call? The film Minority Report is worth watching for it is a SciFi film based upon psychics who can predict violent crime and then the thought police arrest the person before they commit the act. This has long been a wish that what-if we could have stopped Hitler before he gained power?

Jules Vern’s Twenty Thousand Leagues Under the Sea was a SciFi novel at its time first published in 1870. It was based on the theory that it would be possible to create a ship that sailed under the sea. Wild idea to most back then. However, a submarine is no big deal today. The film Minority Report also has a scene where stores can scan your eyes and know who you are and greet you.

The Global Market Watch is analyzing the entire world and building a knowledge base extracted from patterns it observes in the world capital flow movements. It searches to patterns and then determines what will follow next. It may sound off the wall to those unfamiliar with programming, but it is now possible to track you and develop patterns. It is possible to create systems that will anticipate you leave your desk every day about 10AM to go get a coffee and thus the coffee maker will already respond to that pattern and the elevator will arrive at the floor knowing you just left your desk and anticipate your next move is to get the coffee.

Already, there is technology that will allow you to control devices with your mind known as mind-reading EEG neuro sensors. Neurosky.com is working to capture those brain wave patterns that can be harness into using programs. This is moving beyond voice recognition that you can have on you phone, but the next frontier is mind control.

It is now a piece of cake to link people through Facebook creating circles of friends and then predict your likes and dislikes from your associations. But you can log in to your account somewhere from a laptop, a desktop at work of home, and from your smart phone. It is easy to then see all the devices you have.

You have no idea where this is all going. The NSA is just the beginning. The revelations so far have stunned the world. They can fly above and zero in on anyone. Spy satellites can zoom in and see you working in the backyard. You can wear a mask and face recognition can still accurate identify you. If anyone in your family is arrested for anything, a DNA sample is a map to your entire family. Yes, they can even read patterns in your mind. There is no putting this back in the bottle.

Read more on Martin’s contantly updated blog HERE

“World War II marked the end of the British Empire and the pound as the reserve currency.  The monetary forces of deflation may have ended the US Empire.  In its frantic effort to hold back the forces of deflation, the Federal Reserve has created trillions of federal reserve notes.  

Against this tide of liquidity, the dollar, so far, has held its own.  I’ve been saying that the dollar is the Achilles heel of the US economy.  As long as the dollar index holds above 78, I think it will continue as the world’s reserve currency.  I believe one of two positions will occur in the near future: either the dollar will begin to break down, or interest rates will rise.  Either course will set off a parade of mishaps. 

Meanwhile, the newspapers are filled with stories about the US economy.  But we read very little about the rising ocean of debt.  It takes money to carry debt, and this in itself is deflationary.  Therefore I see the year 2014 as a key year in US history.

All serious investors know that the US is facing a debt predicament.  If so, what is the answer?  We know that the current expansion of debt in the US is unsustainable.  We also know that governments will do anything they have to — to remain in power.  So what, I ask, are we going to do about our compounding debt?  The newspapers are filled with talk and gossip about business and profits, but not a word about the exploding debt. 

Could the US simply announce that it is going to renege on its debt?  To most serious analysts, that would be unthinkable.  The Russell view is that the whole monetary system could come apart.  And if it does, the entire world would be affected.  I believe a new monetary system would have to be invented.

At present, it seems to me that the overriding trend is to “get out of dollars,” and maybe to spend dollars on US goods and assets.  Buy US corporations, land, real estate and even New York apartments.

In the coming nightmare mishmash, serious money will want to be in the safest of all currencies, and by that I mean gold.  If the current monetary system comes unglued, I believe the big investors of the world will go for the gold.

My own stance is to stand aside and watch history unfold.  I’m not sure why, but I believe that this year is the year when the excrement hits the fan.  My instinct is to be in gold and pray that it all turns out for the best.  I think one of the main issues of the year will be the incredible disparity in income between the wealthy 1% and the rest of the population.  I believe a second bone of contention will be computers and robots taking the place of middle and lower class laborers.

As I see it, we are in the latter stages of a bull market.  My feeling is that this long bull market will end in an absolute explosion of excitement as prices rise to unbelievable heights.  We are not there yet, but the trend is up, and we have not seen the end of the melt-up.  From this point on, I believe matters will accelerate, and time will be shortened.  The year 2014 should end up as one hell of a year. 

Meanwhile, gold closed higher and the entire universe of gold ended across the board higher (Friday).  With each passing day, gold is shining brighter.  

It’s a mystery how many items can be manipulated – gold, short rates, bonds, long rates, the stock market, the dollar, the CPI, and the economy.  All of these are being juggled.  The overall situation is unsustainable.  Some area is going to give, and my guess is that the dollar will be first.  Meanwhile debt continues to expand in almost every area.  The Fed now owns over $4 trillion in assorted bonds.  How they’re ever going to get rid of this mountain of debt is beyond me.

Overall, the Fed’s nonstop creation of dollars is creating an avalanche of liquidity, and it’s liquidity that’s driving the stock market higher.  As I see it, the picture is one of a market melt-up that will not be denied.  It reminds me of a child’s game of building blocks, piling block upon block, until one last block topples the structure.  Valuations are ignored in this historic melt-up.  

Money managers cannot afford to be out of the melt-up and they’re not thinking of answers to the build-up.  Their only thought is to be part of this year’s rising tide.  The tide will continue rising until the structure is so top-heavy that it tumbles over.  I don’t know how the mountain of rising debt will be solved.  It’s like a force of nature that seems to be unstoppable.  Could the US simply announce to the world that it cannot pay its debts?  That would be tantamount to bankruptcy and would result in a loss of the dollar as a reserve currency.  But is there another way out?  If something is unsustainable it must have an end.  The build-up of debt in the US is unsustainable.  But the stock market could not care less.  It is caught in a psychological melt-up that will not be denied. 

As I see it the year 2014 will be a headline in the history of the United States.  Who to blame our unsustainable position on?  My choice – fiat money.  Fiat money created by the Fed.  Obviously the stock market cares about only one thing: liquidity, as created by an out of control Federal Reserve.

I have a lot of new subscribers, and they have not seen or read any of my WWII stories… 

Last night I went to a party.  It was given by a lady who is the CEO of a large start-up company.  The wealthy venture capitalist who was backing the start-up was there too, along with about six other people.  Nobody at the gathering was over 50, most were in their late 30s and 40s.  We finished a delicious appetizer, and somehow the talk drifted to Italian wines.  It seems, the venture capitalist was an expert on Italian wines.  He told us that he had just purchased a great case of a rare Italian wine with a cost of just over one thousand dollars.  I wasn’t particularly interested in the wine stories.  The wine tales droned on, and I started to doze …

Wine, Italian wine.  Spumante.  The voices at the party fade.  My mind drifts off to another time and another place.  I’m in Italy.  It’s 1945.  We’ve just returned from a difficult mission, and our nerves are still on edge.  We’re on a pebbly beach on the shores of the Adriatic Sea.  My Pilot, Art Herron, is with me along with our tail gunner, big Hank Buhrmaster.  We’re watching an Italian family as they unwrap their picnic baskets.  They bring out bottles of wine.  It’s Italian wine.  They’re drinking Spumante, which is a light, sparkling Italian wine, much like a carbonated sauterne. There aren’t a lot of spirits to drink in Italy here in 1945 — except for cheap Spumante and dry vermouth.  No hard liquor at all.  No whisky and no ice.

I watch the Italians tie thin ropes around the necks of their bottles of Spumante.  Then they toss the bottles into the sea to keep them cool.  They wrap the other end of the ropes around large rocks.  Clever, I think — I’ve never seen people do that before.  After an hour in the hot Italian sun we decide to take a swim.  We strip to our shorts (we don’t have bathing suits), and slide into the cold Adriatic water. 

When I’m about 10 feet from the shore, I see something floating in the water. It appears to be a log. I paddle closer.  It’s a body floating face down in the water.  I move still closer.  The body is headless — a long streamer like a strand of spaghetti trails out from its headless neck.  I call Art over.  We see that it’s the body of a German airman.  We immediately recognize the uniform — he’s an officer.  He must have been shot down at sea and now he’s floating to shore. 

The German is wearing a pistol.  I wonder whether it’s a Luger, which is much wanted by every G.I..  I move up to the body, and with an effort I undue the holster (the leather is wet).  I tug at the pistol.  It’s not a Luger, it’s a P-38.  (The P-38 is a standard German side-arm that has been manufactured by Nazi slave labor).  I work the P-38 out of its holster and return with it to shore.  Art looks at it and says, “Too bad it wasn’t a Luger.” 

I look back. The body of the dead German bobs up and down with the undulation of the waves.  The Italian family is busy eating, they don’t pay any attention to the body.  We move down the beach about 30 yards and continue our swimming.  It’s no shocker.  Corpses are no novelty in war-torn Italy in 1945.  Nevertheless, I feel slightly nauseous.  Maybe I should have left the P-38 with the poor dead German.  I think, “He was somebody’s son and maybe the father of children.” I still have the P-38 pistol today.”

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