This from Reuters…a few moments ago

NEW YORK (Reuters) – Wall Street opened slightly higher on Thursday as aggressive action by the Bank of Japan and supportive comments by U.S. officials indicated continued support for the market.

Have you noticed how paranoid the central bankers of the developed world have become lately.  At the slightest hint of a market downdraft, they are on the keyboard and at the microphone…printing and talking the market back from the brink.

This is micro managed capitalism and ultimately it does NOT work.  Capitalism works on the free and unfettered flow of funds and ideas.  It is organic.  By its very nature, it is chaotic and responsive to the changing needs and wants of the main street marketplace.

The current arrangement is perverse and hugely ironic in the sense that the more the bankocrats try to control the world, the more chaos they create.

Take a look at the graph below which tracks the Dow vs. Gold ratio…which, simply explained…is how many ounces of gold do you need to buy a share of every stock on the Dow.   This graphs comes courtesy of the smart folks at Cambridge House via that other smart Singaporean based Englishman, Grant Williams.

As you can see…since the Fed started their little game of print the dollar back in 1913, we have seen massive spikes, both in relative and absolute terms.   It was bad enough while there was still some modicum of respect for a gold based currency, but once Tricky Dick Nixon took the US off the gold standard in August 1971 (14th to be exact), the smarties could really get down to some serious fractional reserve banking and it was off to the races.

And things have been just peachy since then, haven’t they?

The good news is that it makes it easy to know when to sell your gold.  When that one ounce buys the Dow, you’re there.

Forewarned is forearmed!

While the market goes back into “risk on” melt up mode,  the S&P salivates about taking out the old intraday high (1576.09)  and the subway sentiment indicator (SSI) remains on neutral, I thought I would provide you with a cogent example from the recent Cypriot tragedy as to why you should never trust a central banker.  The attached letter comes courtesy of Zero Hedge via Grant Williams in his recent Things That Make You Go Hmmmm….both fantastic sources of all things that bankers and politicians would prefer that you not know.

Now, if you were the acting CEO of Laiki, you might feel pretty good after reading this.  Your depositors are protected not  only by the Cypriot Constitution but also by the European Convention on Human Rights…”which protect the right to own property and which are crucial to the functioning of  free market economy”.

Ahh….there’s the catch.  Euroland is not operating in anything that resembles a “free market economy”.  Silly Cypriots….they should have read the fine print…like the wily Russians did.  The smart money was well gone by the time the poor depositors with more than 100,000 euros woke up to the rort.

Now these poor saps look like getting stung for up to 80% of their excess funds.  Deserves them right for being prudent savers and not imprudent consumers…which, of course, is what the current “not so free market economy” run by Inventive Ben and Super Mario desperately require.   We shall spend our way to prosperity!

OK…enough ranting…how can we invest and trade to take advantage of this folly.  Stay tuned my friends…more on that later.   In the meantime, if you hear a central banker anywhere say…”we shall never default”…run straight to the withdrawal window of your nearest bank.

The market is just itching for the S&P to take out its high from October 2007.  Of course it will.  And of course, we know what happened thereafter.  But this time is different, right?  Well…who knows…but we’re staying vigilant.  Our Fortress Portfolio is now showing much value at all, with the possible exception of Intel and possibly Altria, which continue to pay nice dividends of 4% and 5% plus respectively.  The gold miners continue to look cheap and may be a good buy on today’s pullback. And some of them, like Newmont, pay a healthy and attractive dividend.

Well…all is good with the world again…unless, of course, you happen to have an uninsured (over 100,000 euros) at the Un-Popular Bank of Cyprus…aka..Laiki Bank.

If you’re one of those unfortunate (undeserving) rich Russians…or more likely an equally undeserving rich Briton (there are a lot of them with Cypriot accounts, too), then you’ve just been subjected to the worst kind of wealth distribution…that is, stealing from the rich to support the richer…the bankers, of course.

Who knows how much of their money will need to be “redistributed” to meet the debts of this “bad” bank but if I were an account holder, I’d not be feeling too chipper this morning.

Of course, this is the bureaucrats’ way of sending a stark message to those evil souls who chance their arm in tax havens, especially those in or around the Eurozone.  ”We are coming to get you”…is their war cry.

The Britons may be a forgiving lot but the Russians aren’t.  It could be a long cold winter for the Euros come November.

So, what is a tax cheating, money laundering scoundrel to do these days?  I have no idea but I suspect that their confidence in so-called tax havens has diminished substantially since this latest scare.  Perhaps, ultimately, it will not be in governments, but in gold, that they put their trust.

As for the Cypriots, I think that they can kiss their offshore banking business a mournful “dasvidaniya”!  Olives anyone?

Have we seen the bottom yet?   As you know, the gold / silver miners have been grinding out a horrible and tedious bottom over recent months.  It’s been gruesome but I sense that an upturn is near.  The action in the GDXJ today was the most solid its been for a while.  For some clients I have been selling naked puts on larger miners like Newmont and Barrick but have now moved to aggressive buying of both the stocks themselves as well as some long dated call options.  I expect that they will pay off handsomely over time.

Why do I think that?  Well…consider, among other things:

1. The recent Commitment of Traders (COT) reports the commercials net short position has reduced significantly and is close to where they were at the bottom in 2008.  The smart money is betting that gold is not going much lower, if at all.

2. The not so smart but not entirely dumb money either mob (basically asset managers who get paid to do what they do) are increasing their shorts on gold but possibly in some cases to hedge their long positions, if they have them.  While they are not ready to sell their gold, they are increasingly nervous about where they stand with the shiny stuff.

3. The commercials have a real solid (no pun intended) interest in the bullion itself.  The other guys are probably holding paper.

4. If gold does not fall through the floor and in fact does the opposite, the not so smart money will rush to cover by buying more gold paper, thereby creating a squeeze of sorts which will only accelerate the rising price.

Let’s face it.  The fundamentals are in place…

• the dollar is way too high
• the printing presses are running 24/7
• the politicians continue to prevaricate and fabricate
• governments are pressing for audits of their gold holdings in foreign vaults (Mexico is the most recent)
• there are no great new gold sources being discovered
• the costs of gold recovery are increasing, the central banks are hoarding
• the effective interest rate is zero so there is no lost opportunity to holding the actual stuff
• many of the miners offer compelling values and more than decent dividend yields…

I could go on but I’m sure you get the picture.  And being a bit early is much better than being a lot late to this party.