Fiat -- Sharefin, 19:56:34 02/11/03 Tue Kurt Richebächer - DOLLAR APOCALYPSE Entering the New Year, the dollar's fate is definitely the single most important question for the world economy and world investors. It is really the greatest wild card in the world economic outlook. After a very slow start, the dollar's decline has been gaining momentum. But where will it end? Could last year's dollar retreat turn into a dollar crash, possibly with disastrous implications for the U.S. financial markets if not for the whole financial system? On Dec. 31, 2002, the euro traded against the dollar at $1.05, up from $.8915 at year-end 2001, reflecting a gain of 17.8%. Compared to its earlier peak of less than $86, the U.S. currency has lost altogether 22%. For European investors, these currency losses are adding hugely to their heavy losses on U.S. stocks. The dollar index topped out a year ago. Starting very hesitantly and gradually, its fall has distinctly gathered momentum in recent months. Considering the resistance of the trade deficit and the worsening economic situation in the United States, it is plainly time to ponder a protracted decline of the dollar and its broader implications. What could stop the dollar's slide? And what could happen in financial markets if the dollar's slide proves unstoppable? As for the first question, it is established experience that trade balances respond to changes in the exchange rate with enormous sluggishness, if at all. During 1985-87, the deficit continued to soar, even though the dollar virtually collapsed. In essence, such a deficit reflects an equal excess of domestic spending over domestic output. But currency depreciation, by itself, affects neither of the two. To reduce its trade deficit, the United States would need to lower consumer spending. But that is precisely what the government and Federal Reserve are desperately trying to prevent, as it implies recession and rising unemployment. While sharply slower U.S. economic growth in 2003 may moderately improve the trade deficit, the worsening economic news would frighten foreign investors even more. It is, in actual fact, one of our key assumptions concerning the dollar that an unexpectedly poor performance of the U.S. economy and its stock market in the current year will act as the catalyst that will finally break the illusions about the U.S. economy and the dollar. While the indulgence of foreigners to invest in the United States is incredible, sharply lower capital inflows are effectively depressing the dollar. With this in mind, the second question becomes paramount. What will happen if the dollar continues its irresistible decline? Up till now, the dollar's decline has been orderly, for an obvious reason. Inertia rules - there remains a fixed, very negative image of the European economy and its currency versus a fixed, very positive image of a dynamic American economy trumping the trade deficit with a superior growth performance. The result is a still-predominating view in the markets that the euro's rally is narrowly limited, while the dollar's next recovery is only a question of time. Yet this faith in the dollar's impending rebound must be fading. Its decline is ominously gaining speed. The usual explanation is the war in Iraq. In the past, though, the dollar used to enjoy safe-haven status. In actual fact, there are plenty of other reasonable explanations for a weak dollar. Most of them are not new. But what is new is the proliferating bad news about the U.S. economy, putting its expected recovery into question. In short, confidence in the U.S. economy's growth prospects is cracking. Could the dollar's orderly decline turn into a chaotic decline, capsizing the financial markets? Look back to 1987, a year in which American and foreign investors did lose their nerve about the falling dollar. For several months, this loss of confidence spelled disaster for U.S. stocks and bonds. Yet it proved a brief crash, which ended in a soft landing for the dollar and the markets. As such, it seems a comforting experience. On closer look, it is not. Today's economic and financial conditions in the United States are incomparably worse than they were in 1987-89. Economic growth is much slower today, the trade deficit is much higher and interest rates are much lower. But there is yet another factor that makes a great difference: unprecedented exposure to the risk of a falling dollar. Both foreign holders of dollar assets and American holders of euro- denominated assets have much at stake. The important point is that both groups have principally abstained from covering their exchange risk. Strong expectations to gain from a strong dollar or from a weak euro prohibited any hedging. When will foreign investors and American borrowers finally give up on the strong dollar? There is a widespread assumption that there exists a "normal" level of the dollar against other currencies, from which it will not diverge too far or for too long. But no such level exists. The dollar is effectively out of control. There is no way to predict where it may bottom. This is a measure of the macroeconomic costs of allowing an external disequilibrium to become so large and to accumulate for years. The dollar's fate no longer lies in the hands of central banks or private banks, but in the hands of many millions of fickle private investors.  Gold -- Sharefin, 19:49:38 02/11/03 Tue IAMGOLD GOLD MONEY POLICY In January 2002, IAMGOLD established a corporate GOLD MONEY POLICY whereby it would hold the bulk of its corporate discretionary funds in gold bullion. WHY DID IAMGOLD EMBARK ON SUCH A POLICY? Notwithstanding current industry initiatives, such as the jewellery marketing campaign to promote demand for gold, IAMGOLD believes that gold is first and foremost a true store of value. Furthermore, gold is the only form of money that is no one else's liability and hence the only independent measure and store of value. Unless those in the gold industry who believe that gold is money actually use it as money, then the industry cannot expect others to treat gold as money. Gold -- Sharefin, 17:30:01 02/11/03 Tue What does gold stock weakness foretell? The price of gold has been as much as 17% higher than where it ended last year, yet gold equities have been struggling with every subset except small caps underperforming the metal, and even they have lately swooned. As of yesterday, gold was still showing a 13% gain for the year-to-date, yet unhedged gold stocks are off 15%. Since precious metal equities are expected to lead rather than follow their underlying products, does this signal a potential end to the rally? The primary cause for concern is that this is the longest period since the market got geed up in late 2001 that unhedged gold stocks have been so feeble. The most comparable period was the retracement from late May to late July, but that was punctuated by several spikes and the gold price advance had stalled. There is simply no question that equities are leaning heavily against the wind. Unhedged stocks are preparing to test a key support line on the second chart. There is a fairly neat base line that runs from the left bottom corner of the chart to touch the bottom of each low for the past year. Similarly, the hedged stocks are getting close to an intersection with the indexed gold price, which has occurred three times in the past year. Gold -- Sharefin, 02:32:56 02/11/03 Tue Important Announcement I would appreciate if you would review with me the "ONLY" Gold share index in the entire advisory of the Gold community worth your time. Both the XAU and HUI have, in my opinion, outlived their usefulness. ~~~~ Only one index is credible as a constituent for decision as to what the gold shares are doing in reference to gold and that is the Schultz Gold Index: An Index of Pure Gold Shares Devoid of Corporate Noise. ~~~ Cyberspace Is Filled With Hot Air Now let's look at the inadvertent next development - that is the Cyberspace Internet-based gold investor community. Three years ago there were a few investment sites that had views divergent from the mainstream. They were bearish on equities. Slowly they began to grow. They all have something attached to their sites that are their own personal business, which there is nothing wrong with. They sell memberships, request voluntary membership payments, seek clients dealing in gold, or are small boutique brokerage and money management shops. That is all fine. As the interest in gold grew, which has a fraternal relationship with bear markets, these Internet sites began to gain "hits" from those seeking information on gold. Few of these sites have real credentials in the gold market. Most of the people running these sites were not even in business of any kind in the 1960s when it all began. Few if any have distinguished themselves in open competition in trading gold successfully in huge numbers. Few, if any, have distinguished themselves in currency trading. Few, if any, of these sites have ever constructed or traded a derivative beyond a listed gold future or gold put and call. Precious few, if any, of these Internet sites that are so powerful in influencing the gold community have even one small credential qualifying them for the power they exercise with such naïve convictions. One sight run by a war hero tells me I know nothing about derivatives and that he does. He refuses to publish anything I write on derivatives because he feels I am being overly influenced by another site he is at war with. Another site posted an article calling those that feel there is a conspiracy in gold "Trailer Trash." Yet these supposed "trailer trash" people actually sued the Bank for International Settlements and personalities in the Fed. In my opinion, they were not hoping to win but rather to expose the damning anomalies in gold trading. What courage William, Regional, and Christopher had to expose themselves at significant financial and reputation risk to make a point to those that would listen. Trailer trash? Okay, I am not a conspiratorialist but I certainly know what a conspiracy of common interest looks like in the market. There is a popular Internet site that is publishing wonderful real-time market information but have you ever seen one article of mine on it? No you haven't. Yet, I have submitted every one that I felt of significance to them, a total now of 32 articles rejected for publication. Why would they reject 32 articles of merit since my credentials to speak on gold are orders of magnitude greater than those they hold? Have you ever asked where they derive their incomes from? The result of all this is that gold sites are applying their own spin to the news just like many anti-gold sites have done in the past and continue to do in the present. In the end, what we are seeing here is news that is largely based on personal objectives. Other gold sites are being used because of their lack of in-depth knowledge of gold which is a direct result of their lack of real experience in gold. These are the glibly naive websites that give platforms to defrocked equity market predictors of "disaster scare tactic book sellers" with non-functional systems and others that seek PR by badmouthing gold in hopes of being right by serendipitous timing and then selling more subscriptions to worthless services. One such glaring example took place right at the beginning of February when a well-meaning site invited a bookseller to opine on gold. ~~~~ Now to the Matter at Hand I am no longer going to post my articles on any popular websites. I have asked that those that manage websites that post my material on a regular basis to delete me from their current pages and list of contributors. I am no longer going to give technical instructions or answer questions from website viewers on any popular websites. I will re-start my activities on a website specific to this service to the gold community and re-start all my activities there. All are welcome (except nasty people). I am splitting the "Chairman's Corner" off from the www.tanrange.com web site THEREBY ESTABLISHING my own web site: www.JSMineset.com. This is where I will post all my articles and opinions. All news posted will have my commentary. Around the world, prices will be available on this site. I intend to have this site set up so changes in gold, like the $390 during the US non-trading hours, can be analyzed for those that want that type of information as and when they happen. It is here that you will find discussions with the world's best technician, in my opinion, Kenny Adams, and from time to time I hope Harry Schultz has something to post. I don't give a hoot about hits. I will not promote my public company. I don't even want my site as part of my public company website. Be assured that when I believe this bull market is going to end, I will tell you just like I did in early 1980. Now that only those with a strong cup of coffee among the real gold gang is still reading this posting, the others having been thoroughly tired out, here is the hidden message: Thanks to the badmouthing of gold by two or three PR seekers, getting undeserved publicity on the Internet, thereby scaring the hell out of many of the new non-committed members of the gold community, gold will blow out the first leg of the gold bull market, in my opinion, at between $409 and $418 in the coming weeks. Gold will react back down, but much less than expected, and start the second leg of the long-term gold bull market from prices higher than expected, in a shorter time than expected. Gold shares in the pure gold category will get a long play to new highs, in my opinion, into the top ($408 - $418) of the first leg. Traders reduce by 33 1/3%. Investors take delivery of certificates of core positions and stop watching at $409. Come back when I give a heads up call. I will guide you from the new location only at www.JSMineset.com. Do not buy into what you feel is a sure $420 at $408. I don't think it will be. DO NOT post this anywhere as I will not repeat it until it occurs. Just read it and delete it. Your watchman, Jim Sinclair -------- Gee it really worries me when gurus claim that noone should listen to anyone else.(:-))) And also when they say that the only gold index to watch is one which is private to a group who charges to see it. Seems like some interent marketing going on here. Sorry to be critical but when I read the above I just have to wonder why. Balanced & varied opinions are what makes the markets. Not gurus jumping up & down on their soapboxes. No offence intended but all I can say is be cautious. All goldbugs have varing understandings & opinions & that doesn't make them right or wrong. To jump up & down and slander the rest of the gold market & insist that your view is the only right ones makes me wonder where this is all coming from & going to. I could read volumes more into it but don't want to . Enough that a few should watch out & wonder why. Watch your fiat watch your butt & sleep well on physical.... Viva la gold bull.  Gold -- Sharefin, 02:20:38 02/11/03 Tue No Free Drinks At The Gold Boom Party In Perth The gold boom is official. Well, ahhh actually, it's as official as a crowd of 70 loud Australian “diggers and dealers” can make it when gathered on a hot Friday evening at Perth's Celtic Club. Whether anyone ever recognises the event as the certified starting point of the 2003 gold boom could not dull the enthusiasm of the crowd when Ron Manners, founder of Croesus Mining and aspirant to the title of grand-old-man (GOM) of Australian gold, stood on a chair to wave a hand, hush the audience, and declare “there is no question, this is a gold boom”. Manners, and a few mates, organised the ceremony to coincide with regulation first-Friday-of-the-month drinks at the West Perth club. Normally a more mundane affair, 6pm on Friday, February 7, may well be recorded as the time when someone had the nerve to publicly declare the death of gold's bear market, and the re-birth of the golden bull. Gold -- Sharefin, 02:08:10 02/11/03 Tue World Business Review In World Business Review Martin Webber looks at the boom in gold and platinum, two precious metals which have proven far safer investments than volatile stockmarkets in recent months. When investors get nervous they traditionally rush to buy gold. The past week was no exception, as tension mounted over Iraq and North Korea. The price of the ultimate safe haven rose strongly, with Gold hitting 390 dollars an ounce at one point - that's a rise of 40 per cent in the past two years. It's all rather embarrassing for one man - Britain's chief finance minister, Gordon Brown, who sold off a huge chunk of Britain's gold when it had just hit its low point three years ago. According to some analysts that mistake has cost Britain more than a billion dollars. Mr Brown certainly seems to have been outwitted by millions of people in India who've done the opposite of Mr Brown and cleverly bought gold when it was cheap and are selling it now that its gone up. ~~~ But is this just a temporary gain for the gold price, will the metal plunge in price again when international tension abates? Not according to Bobby Godsell - who's the Chief executive of AngloGold - the world's second largest gold producer. BOBBY GODSELL "The world has discovered that we aren't at the end of economic cycles, you know three years ago the view was that US equities were going to go up forever, people were talking about the Dow at 26,000. They're not doing that anymore. "People realise that every wealth asset has its cycle, property, equities, bonds have cycles and gold has a cycle that is often counter-cyclical to, for example, equities and bonds, so it is much easier to interest investors. "Now these are long-term factors, these are not Iraq war driven. This is a secular change and I think the prospects for investment in gold are much better now than they have been for the last two decades." ~~~ ROSS NORMAN "We've had a continuing collapse in the equity markets and we've got the war on terrorism. Specifically we've got on the agenda Iraq, but of course there is a fear that the canvas could be broadened to encapsulate North Korea, there are questions about Iran, Algeria and so on. And all this is served to undermine investors' confidence in other investment vehicles and gold has benefited. MARTIN WEBBER But these are all sort of more negatives for other things, rather than specifically positives for gold and we have heard quite a lot of reports of people in India, which is the key source of actual demand for gold, and they're all selling because they seem to think that gold at $400 an ounce is an unsustainable price and now is the time to get out. Do you think they're right? ROSS NORMAN "I don't think that's altogether the case, gold has got some fantastic fundamentals in its own right. I mean South African production is at its lowest since 1953, below 400 tonnes. Mining exploration spend, the curve is so steep you wouldn't frankly want to ski down in it." MARTIN WEBBER There's a collapse in spending basically ROSS NORMAN "Absolutely the case. Touching on India, funny enough we were speaking to some Indian banks this morning and they corroborate your sentiment there about queues of people looking to sell gold. "Bear in mind in Indian rupee terms gold is at an all-time-high and in the South and an Agrarian society like that there's a huge temptation to want to take profit at those levels. Conversely in Japan and in China people are also queuing but to buy gold. "China, last month, liberalised its gold market, and like the Indians the Chinese have a strong cultural affinity for gold, so there is strong physical buying out of China and indeed in Japan. "The Japanese have the same concerns that we do in the West about the investment world. In addition to which they've got the concerns over the banking. The government provided guarantees against deposits held by banks. That is being withdrawn. Consequently there's been extremely strong buying out of Japan." MARTIN WEBBER All those people in India are getting it wrong then, you think that prices could go even higher? ROSS NORMAN "My concern is that the Indians stop selling and there's a reasonable chance of them doing so if they believe the market could rally significantly higher. You could see a self-fuelling momentum being created whereby buying leads to higher prices, leads to greater buying. And that could lead the gold market significantly higher. "The gold producers have stopped killing former rallies in the gold market because they believe the market could rally. If the Indians held back from selling then the gold market could shoot higher and that would not be constructive for gold in the long-term." ~~~ "The other interesting aspect about this is that roughly 75% of central banks reserve assets is the US dollar. There is a sense that the US is becoming both politically and economically more isolated as a result of its war on terrorism and there is a sense that some central banks may be less inclined to hold US assets, whether it's dollars or indeed US equities, and for that reason we've seen the collapse in those currencies. "There is a move at the same time by a group of Islamic countries to create a gold-backed Islamic dinar and that would be the basis of trade between those nations and of course significant amounts of trade goes through those countries in oil. So I think that this indicates several central bankers unease with the US policy, politically and economically." Gold -- Sharefin, 02:03:14 02/11/03 Tue PS Note the volume in the Yen-Gold chart - this equated to approx 540 tonne of gold - almost twice higher then the prior records. ChartsRus -- Sharefin, 02:00:58 02/11/03 Tue Gold in major currencies Gold in global currencies Another reason why gold was trashed by the Powell speech. Have a look at gold in all the global currencies. Gold has broken out in most all currencies. The last ones to break out are the Euro - Swiss - German etc. In other words Europe is the last quarter where gold hasn't broken out to new highs. Now we're all seeing the anti-European sentiment towards the war. I am sure that the last thinkg the American Empire wants is for major European selling of the US Dollar to go and start buying gold as it breaks out. Now if you don't think that this would happen just feast your eye's on what happened to gold in Japan once it broke out. America is manipulating the global markets more now than ever before. The level playing fields of global markets are tilting away from the US Dollar & towards gold so what does the ESF do? Stage a stage show - just like JS & RR have commented on.  Also not the Silver chart in Yen Exciting you think - wait till the dow is passing down through 6000 - 5000 - 4000 etc This gold game has just begun...... Lenny's Corner -- Sharefin, 01:46:16 02/11/03 Tue GENERAL COMMENTS: It was a wild and volatile week in the precious metals, as those precious metals that are currently wearing the mantle of "industrial metals" came under severe selling pressure as the market now judges that any global economic recovery is not as likely as previously thought. Consequently, silver plunged 21 cents per ounce. (Musings from the side fence - What Lenny fails to mention is the market movers jumping all over silver with their fiat paper - they had little choice but to dump on silver or let it break out. Lenny being a paper man must surely recognise this yet fails to include this most important aspect in his report. Why isn't the news discussed that the US Dollar was bought - gold & silver were dumped all within minutes of Powell's speech. I guess when you only play the paper markets you don't want to admit to the levels of manipulation present. I wonder what Lenny's clients will say when the paper metals markets lock up & they don't collect or he doesn't have a business - yikes?)  Gold: The gold market is suffering a major disconnect from its fundamental supply/demand conditions at present. With gold being the first and safest refuge for investment capital in times of geopolitical and economic tension, investors and speculators have piled into this market to virtually historic records, and have rocketed prices in the last month. On the other hand, the physical market is simply awful, with the ACTUAL product unloved and unwanted. All of the action is in the futures and derivatives marketplaces and the psychology of investors and speculators, and their actions derived there from, are now establishing the global gold price. (Duh - more paper speculations - Russia & China have already said they'll take care of 350 off tons - 15% of production - miners are still removing hedges & sales of physical bullion & coins is soaring around the globe, yet Lenny claim's it's only the paper market moving gold. I guess I have a physical bias but Lenny sounds here like he's speaking with a forked tounge. Now I wonder how much of that 540 odd tonnes traded on the TOCOM will go to delivery?) --- Gold, unlike its characteristics in years past, is now behaving like a monetary instrument, a currency, a barometer that seems to accurately quantify the level of fear and tension inherent in these unstable times. (Wasn't gold in the last decade behaving like a barometer in that it was saying that the financial system was going fine?) ~~~~~~ This is neither good nor bad, neither bullish nor bearish. It is just what is occurring at present. And, as such, it makes the gold market quite difficult to forecast as the emerging news and headlines are difficult to forecast. Careful and thoughtful examination of the underlying supply and demand fundamentals of the gold market is almost totally useless at present as such investigations may only yield some information as to how far gold can go down until actual physical demand reemerges and prices stop declining. From a fundamental perspective, gold is drastically overbought. But from a monetary perspective, it could be dramatically undervalued dependent upon your view of the coming events in the coming weeks. Fundamentals are easily quantified, global tension and investor psychology is much less easily pinpointed. To reiterate a continuing theme, ALL DEPENDS ON THE NEWS. If fundamental analysis has little value at this time, then technical analysis now reigns. The charts seem to be the only way to quantify the gold market. Technical support and resistance levels, careful analysis of other technical indicators such as moving averages, stochastics, and relative strength studies, are now the only tool to "objectify" the market. Investors and speculators must now pay very careful attention. Again, as volatility and uncertainty has reached new higher levels in the precious metals markets, it is recommended that traders both cut back on the size of their positions and use rather tight stop-loss orders. There is very considerable risk being long or short. Investors, on the other hand, can rest a bit easier knowing that while gold may have a sharp decline if "peace" breaks out in the world, that gold is in a secular bull market and that time will eventually see significantly higher prices than present values. ~~~~ (My final comments are beware of paper sellers & what is coming down the pipeline - gold per se being the ultimate financial barometer is only going so high if these markets are going so low & if fiat paper is going down then so to will many paper precious metal derivative. Caveat Emptor) Gold -- Sharefin, 01:30:01 02/11/03 Tue The Internet Gold Sites Pounce on Gold You talk about shooting yourself in the foot! These guys just shot themselves and all gold investors in the foot with a Heat Round from a recoilless Field Cannon. The huge selling that stone-walled gold at the top of the recent rally when gold hit $390 was a combination of: ---- Gee - someone's going over the deep end.... A little correction & the sky is falling. Gold is 10% along the way from A to Z & has far to go. That some people get so feisty about a few dollars of movements or an article or two speaks volumes. Sit back sit on your gold & let the worry worts fight their ghosts as gold rises ever higher. Ya gotta worry about the guru's who start dancing on their soapbox. IMHO Gold -- Sharefin, 01:24:02 02/11/03 Tue Gold geezers say, 'Go' A wild week for gold -- but it's not over yet, say the gold geezers. Gold surged to $390 an ounce Thursday, fell back to the $360s and is currently trending back above $370. ~~~ What about gold? Several letters focusing on gold were around at the time of the Great Gold Spike in 1980, which took gold above $800. Contrary to the gold bug image, at least some of them thereafter bailed out. The gold geezers: The Dines Letter (James Dines) Dow Theory Letters (Richard Russell) Elliott Wave Theorist (Robert Prechter) Growth Fund Guide (Walter Rouleau) Harry Schultz Letter (the eponymous Harry Schultz) Investors Intelligence (Michael Burke) All of them are bullish on gold right now -- except for Prechter. Gold -- Sharefin, 01:16:34 02/11/03 Tue Uncle Harry on GOLD Gold is the sleeping giant that has awakened. Gold rose to multi-yr highs as the US$ crashed to multi-yr lows. Watch the $ as your guidedog to gold direction. Both are destined for strong moves in 2003, in opposite directions! Gold is overbought, say most indicators, but momentum still OK. $ very oversold; Mkt Vane reported only 8% bulls on 1/24. So a $-rally-gold-correction is somewhere ahead. ••Bullion has been outpacing the shares for a change. That's not unheard of, just not frequent. In late 1979, gold shot to $800 with shares far behind. But on a smaller gold rise in the 2nd half of 1980, shares reached spectacularly higher highs. I suspect gold will go sideways soon as gold shares catch up & outpace bullion. ••Excuse this philosophic blurting: What goes around comes around. They took away the gold-backed $ standard & replaced it with an unbacked (fiat) paper $. They got away with fiat for many years, with people accepting air-backed paper. But now reality is setting in. People are selling the fiat & buying gold. End of blurt! Fiat vs Gold -- Sharefin, 07:41:09 02/10/03 Mon PIECES of EIGHT Pieces of Eight, by FAME Foundation Scholar Edwin Vieira, may be one of the most important books of the century. Because it lays the legal groundwork to reform our monetary system, it has the potential to have a major impact on the reordering of our society. Beautifully written and impeccably researched, Pieces of Eight is accessible by both laymen and scholars. Edwin Vieira has performed a magnificent and heroic service in researching and creating this book, laying bare the rank hypocrisy and mendacity of those who have illegally corrupted our money, to the detriment of ordinary people everywhere. The creation of fiat money, i.e., money created out of thin air, affects every person on the planet in a fundamental way: it puts their savings and the efficacy of their pensions at risk and, in effect, puts their very lives at risk. The history and legal background about how our nation lost its patrimony of sound money is essential if the U.S. is going to reform its monetary system as envisioned by our Founders, and as cast into law in the Constitution. Edwin Vieira has earned the gratitude of everyone for his splendid achievement. Fiat -- Sharefin, 05:10:42 02/10/03 Mon The Dollar, the Euro and War in Iraq The dollar is the world reserve currency. This gives a huge subsidy to the US economy because if a country wants to hold lots of dollars in reserve they must supply the US with goods and services in return for those dollars. In return the US just prints a few notes. The more dollars there are circulating outside the US, the more goods and services the US has imported virtually for free. This is how the US manages to run a huge trade deficit year after year without apparently any major economic consequences. No other country can run such a large trade deficit with impunity. It is in effect getting a massive interest-free loan from the rest of the world. One of the primary objectives, if not the primary objective, of setting up the Euro was to try and get some of this free lunch for Europe. If the Euro became a major reserve currency, or better still replaced the dollar as the major reserve currency, then Europe too could get something for nothing. This would be a disaster for the US. Not only would they lose their subsidy, which has been increasing in size and in importance to American economic well being as the years have gone by, but countries switching to Euro reserves from dollar reserves would start spending their dollars in the US. In other words the US would have to start paying its debts to other countries. As countries converted their dollar assets into Euro assets the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble as it is currently openly considering doing, There is, however, one major obstacle to this happening: OIL! Oil is of course by far the most important commodity traded internationally, and if you want to buy oil on the international markets you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. This meant that oil importing countries, like Japan, needed to hold dollar reserves in order to be able to buy oil. So long as this remained the case, the Euro was unlikely to become the major reserve currency: there is not a lot of point to stockpiling Euros if every time you need to buy oil you have to change them into dollars. But in November 2000 Iraq switched to the euro, with potentially perilous consequences for the US. Only one country has the right to print dollars: the US! If OPEC were to decide to accept euros only for its oil, then American economic dominance would be over. Not only would Europe not need dollars anymore, but Japan which imports over 80% of its oil from the Middle East would have to convert most of its dollar assets to Euro assets (Japan is of course the major subsidiser of the US). The US on the other hand, being the world's largest oil importer would have to acquire Euro reserves, i.e. it would have to run a trade surplus. The conversion from trade deficit to trade surplus would have to be done at a time when its property and stock market prices were collapsing and its own oil supplies were contracting. It would be a very painful conversion. The purely economic argument for OPEC converting to the Euro, at least for a while, seem very strong. The Eurozone does not run a huge trade deficit like the US, nor is it heavily indebted to the rest of the world like the US. Nearly everything you can buy for dollars you can also buy for Euros. Furthermore, if OPEC were to convert their dollar assets to Euro assets and then require payment for oil in euros, their assets would immediately increase in value. Also, since oil importing countries would be forced to convert their reserves into euros, whose price would therefore be driven up. OPEC could then at some later date back some other currency, maybe the dollar again, and again make huge profits. This would offer a virtually inexhaustible source of profit for OPEC. Fiat -- Sharefin, 05:08:31 02/10/03 Mon War clouds obscure fiscal crisis Some strategists see Iraq talk as smokescreen Middle East war talk is distracting many investors from accepting the reality of an overpriced American stock market and flagging U.S. dollar. "For weeks, we had been hearing that the dollar's bleak performance is because of fear of war in Iraq," notes Donald G. Coxe, a U.S. portfolio strategist with Nesbitt Burns in Chicago. "For weeks, we had been hearing that the run-up in gold prices is because of fear of war in Iraq." So what happens? The dollar surges and gold loses $18 an ounce after Colin Powell makes a strong case for almost immediate action against Iraq, with backing from allies that include the British. "War is nearer than ever," says the strategist, one of several who see Iraq as just a smokescreen for a deflating American economy and depressed interest rates. "Iraq may well be the distraction that is keeping the dollar from breaking down decisively, and thereby sending gold through $400." ~~~ Some economists, led by Morgan Stanley's Stephen Roach, contend the $31 trillion or so of U.S. paper debt swishing around the globe, along with low interest rates that give eurodollar holders and others with American "cash" a mere 1 percent return, will continue to sink the dollar, regardless of war. In the best analysis, war is a trick mirror, a blinding flash in the face of a circus economy. Fix the economy, and you fix the dollar. "Businesses are already ratcheting down Wall Street's optimistic growth forecasts for 2003," says Frank Giustra, chairman of Endeavour Financial, a Canadian merchant bank. "And we're only in February. Erroneously, most economists -- and as of last week, Alan Greenspan -- seem to be citing concerns about a pending war with Iraq for everything from the lack of improved retail sales to the dearth of capital spending by corporations." At Nesbitt Burns, Coxe told me Friday, "Until the dollar has established a secure trading range, gold will be a superior asset. For the dollar to establish a secure trading range without some violent market activity is as probable as Saddam ceasing to be a threat without some violent activity." James Turk, the newsletter writer and gold researcher whose dollar and bullion forecasts have been on the mark for more than a year, says war, to have a lasting influence on the value of a financial market, must have a monetary consequence. Turk sees the dollar continuing its swoon, and gold's price rising to $430 or so an ounce by month's end from its current $370. Periodic Ponzi Update PPU -- $hifty, 21:16:21 02/09/03 Sun Preiodic Ponzi Update PPU Periodic Ponzi Update PPU Nasdaq 1,282.47 + Dow 7,864.23 = 9,146.70 divide by 2 = 4,573.35 Ponzi Down 114.01 from last week. Thanks for the link RossL ! Go GATA ! Go GOLD ! $hifty  Fiat -- Sharefin, 20:19:01 02/09/03 Sun Rich world prepares economy for war The Group of Seven leading industrialised countries are drafting a plan to prepare the global economy for the effects of a war against Iraq, according to media reports. The plan is believed to be based on a coordinated surge in government spending, financed by heavy borrowing, in an effort to stimulate economic growth. If true, the proposal would be a significant expansion of efforts taken since Septermber 11, 2001, which have mainly involved repeated cuts in interest rates. Ministers from the G7 - which comprises Canada, France, Germany, Italy, Japan, the UK and the US - is likely to discuss the plan in greater detail at a Paris meeting later this month. Richard Russell -- Sharefin, 20:15:00 02/09/03 Sun No link. -------------- Every period or stretch in the stock market has its own unique characteristics. Every once in a while I'll ask myself, "Five years from now as I look back at this period, what will I be saying about it?" OK, I'll ask myself that question now. What about the current period? If I had to characterize it in one simple way, I'd say, "What was remarkable about the years 2002 and 2003 was investors' stubborn, almost surreal, optimism. Nothing, it seemed, no turn of events, no ridiculously high price/earnings ratios, no dearth of dividends, no micro-dividend yields, no parade of accounting frauds, no stream of phony "pro forma" earnings, no deterioration in bond ratings, no impending war -- nothing, it seemed could turn investors bearish. Back to the present -- even now with the Dow down four weeks in a row and with much of the rally off the October 9 lows wiped out, advisors remains bullish by a ratio of almost two-to-one over bears. Why the relentless bullishness, why the stubborn optimism? It doesn't matter "why." What does matter is the fact -- bullishness and optimism reign. And the question -- can this continue? Obviously, I can't predict moods and sentiment. I can only guess. My guess, based on the deterioration that I see in the stock market, is that somewhere ahead, today's ingrained bullishness is going to turn to panic. How will this come about? I think it will materialize if or when the major averages break below their October 9 lows. Wait a second Russell, you're saying that you think the major stock averages will break below their October 9 lows? What do you base that on? I base it on my technical reading of the market. I've been telling subscribers that my Big Money Breadth Index has broken to new bear market lows (below the October lows). My Most Active Stock Index broke below its October low last week. We've seen a number of "distribution" days, days in which it is obvious that institutional money is leaving the market. We've seen the deterioration in the Lowry's statistics. What is obvious is that there's a buyers strike on. Nobody, it seems, wants to buy stocks. And I turn to that old stock market adage, "It takes real buying to move stocks up -- but in the absence of buying, stocks will fall of their own weight." All of the above suggests to me that the market, in its own good time, is going to break below the October lows. One of the beliefs of the bulls runs like this -- "OK, a lot of stocks have been hurt. And January turned out to be a rotten month for stocks. Furthermore, February has not been much better. But with it all, the market is now oversold, and the major stock averages are still well above their October lows. Thus, it's clear that October 9 was THE LOW for the market. The market has been declining week after week, the bad news is out, and still we're holding above the October lows. How can you be bearish about that performance?" And there's a logic to the above. And the logic may hold as long as the major averages remain above the October lows. But -- what if the averages break below the October lows? If that happens, I believe the current bullishness and optimism could turn to panic literally overnight. So here's what I think we could see ahead. First, a break below the October lows. Then near-panic or outright panic as months of optimism turn to FEAR. The fear will be expressed by a series of 90% downside days as identified by the Lowry's studies. These 90% downside days are days when down-volume is 90% of up + down volume and down points is 90% of up + down points. Points are changes in the price of stocks. Each day Lowry's adds up all the accumulated points of stocks that were higher (NYSE), and all the accumulated points of stocks that were lower. I can make the calculations for volume but I depend on Lowry's to calculate the points and announce whether we've seen a 90% downside day or not. Consider this -- we haven't had a single 90% downside day since April 3, 2001, despite all that has happened. At any rate, this is what I expect in the months ahead. A breaking of the October lows. A series of declines characterized by 90% downside days. And finally -- at last, an important bottom -- a bottom in which I will urge subscribers to buy stocks for maybe the first great upside correction in this bear market. If all the above comes to pass, how will we know that this long- awaited "final bottom" won't be the end of the bear market? I don't know whether it will or not. I'll be guided most by valuations. But one thing at a time. First let's see if the October lows are violated. Then let's see if we get those 90% downside days. If this scenario develops, we'll take it from there. In other words, one thing at a time. The Dow is down 5.72% for the year so far, S&P is down 5.70%. Nasdaq is down 3.97%. Wilshire 5000 is down 5.63%. Investor's Business Daily's Mutual Fund Index is down 4.99%. Few people have been making money so far in this fourth down-year of the bear market. And a lot of people have been sustaining losses. Here are the figures for the real (all common stocks) advance- decline ratio (minus closed end bond funds, ADRs and preferreds) -- Feb. 3 minus 2.83; Feb. 4 minus 3.03; Feb. 5 minus 3.22; Feb. 6 minus 3.53; Feb. 7 minus 3.94. The week ended with the S&P selling at 27.82 times trailing reported earnings while providing a dividend yield of 1.95%. These are hardly bear market bottom figures, but maybe this time it's different. The bond market tends to zero in on credit quality, and the bond market is a lot less emotional than the stock market. The Confidence Index (I seem to be only guy on the planet who still follows this statistic) dropped from last week's low 72.0 to this week's still lower low of 71.1. This is the lowest CI figure since the 69.0 figure of November 1, 2002. For traders -- the stock market, based on the McClellan Oscillator and on Lowry's short-term index, is in heavily oversold territory, which in a bear market means that the market is in a territory where ANYTHING can happen. My advice -- don't try to trade this market, it's in an area where it can "take your head off." That, I believe, does it for today. But be sure to read John Mauldin's latest epistle on www.2000wave.com As usual, it's a beaut. More recently, Argentina went into a major slump owing massive amounts of money to foreigners. What was the result? Yesterday's press reports brought news that the Argentine peso lost 70% of its value last year...with domestic inflation running at about 40% per year. The Argentine economy collapsed another 12% last year. Are we in America headed towards the pampas? Or the land of the sinking sun? We don't know. For all we know, we have a 'round-the- world ticket, with stops in all the world's troubled economies. So we buy gold...and prepare to enjoy the trip... Gold -- Sharefin, 19:54:23 02/09/03 Sun Return to an old standard? The current ascent of gold has been driven by geopolitical worries. But this year will see a whole new source of demand open up, and a partial return to the Gold Standard. An audacious plan, pushed by Malaysia, seeks to reassert the role of the precious metal in the international trading system through the minting of 'gold dinars'. For Malaysia, and its Prime Minister, Mahathir Mohamad, below, it marks a strike back, of sorts, against the inequities of the global financial system. Malaysia, despite having a prudent approach to economics, was unceremoniously dumped by world markets. Mahathir eschewed the International Monetary Fund's medicine and instituted capital controls and a currency peg. Most world trade is settled using international currencies, predominantly the dollar, followed by the pound, yen and euro. Malaysia says that the Middle Eastern and Asian countries are acutely vulnerable to the exchange rate with these major currencies. 'The gold dinar could be an important facilitating mechanism to help the smaller countries of the world move away from an inherently unstable and ultimately unjust global monetary system,' Mahathir told a conference recently. The scheme, which is set to be launched in the next few months, has been coolly received by some central bankers, who point out that the gold price has its own supply and demand dynamics. But at least part of the motivation for this mainly Muslim scheme is political - to provide an alternative to use of the US dollar. Mahathir believes that the scheme will provide fertile conditions for stronger economic development in the underperforming Muslim world. But the dollar's current descent and the prospect of endless growing budget deficits has served up an economic rationale for an alternative unit of account. Morocco, Bahrain, Iran and Saudi Arabia have entered bilateral discussions with Malaysia. There is a real possibility that the oil markets could propel usage of the new coin. And there is a British connection too. The Bank of England holds the gold reserves of many Middle Eastern nations. Member countries would settle dinar trade balances every quarter by transferring gold held at the Bank. But this move is only part of a generally more positive attitude towards gold emerging in the East. The Bank of China has increased its reserves by 205 tonnes over the past two years. Mongolia, the Philippines and Kazakhstan have also upped gold reserves. Some analysts believe new anti-money laundering laws have encouraged investors to shift assets from dollars into gold. But there may be a simpler explanation. In this time of uncertainty, people are turning to the one asset that has symbolised a globally recognised store of wealth since the Pharoahs. The three decades since President Nixon took the dollar off the Gold Standard is still the anomaly in three millennia of monetary history. Gold -- Sharefin, 19:47:06 02/09/03 Sun Stock-take sparks the new gold rush Is there a bubble building in the international gold market? That question is doubtless on the minds of speculators who have driven up the price of the metal by 35 per cent to nearly $400 an ounce in little more than a year. United States, European and Japanese hedge funds have been buying aggressively, and it is easy to understand why. There is still a lot of money swilling around, held by both wealthy individuals and institutional investors. They have seen three consecutive years of negative returns from the stock market, but they have to put their cash somewhere, and if equities are still going down, they will look elsewhere. ~~~ Michael Temple, of Gold Investments, points out that the performance of gold is linked to the decline of the dollar. The greenback has been hit by fears of conflict in the Middle East, doubts about the underlying strength of the US economy and fears over America's yawning current account deficit. 'The dollar/gold connection should not be underestimated,' says Temple. He adds: 'Gold should be treated as a safe-haven currency, and one that comes to the fore when the dollar is under siege, as it is now. The euro may have strengthened as a result of the greenback's woes, but much less so than gold.' And with fears spreading about the stability of the global financial system, investors with a jumpy disposition are taking delivery of gold bullion for the first time since the Gulf War. 'We are holding gold in our vaults for a number of clients,' says Temple. 'What is happening in the UK and US has already happened in Japan, where the banks have hinted that they may not be able to meet all their commitments to depositors, and that has led to people buying in gold. But we are nowhere near a Japan-situation here,' he adds. Hugh Hendry at Odey Asset Management says: 'The rise of gold has nothing to do with Iraq. It has more to do with the policy mistakes of the US Federal Reserve; lowering interest rates in the face of sharp market falls in 1987 and 1998 propped up share prices and then inflated them to an unsustainable level. In other words, easy credit helped to cause the biggest stock market bubble in history.' Gold -- Sharefin, 19:37:34 02/09/03 Sun More invest in gold despite price rise Despite the gold price notching a seven-year peak, it has only encouraged more businessmen to invest in the “safe-haven” metal, increasing speculation that the price of gold will go up further. Over the last three weeks, goldsmiths in the Jalan Tengku Kelana Indian business enclave have found that the price increase has not dampened gold buying in the community. Federal Territory and Selangor Indian Goldsmiths and Jewellery Business Owners Association adviser N.P. Raman said nervous businessmen in Klang and Selangor were investing in gold as it was a safe cache for their money. Gold -- Sharefin, 19:30:16 02/09/03 Sun Investors on a gold rush Gold is the pessimist's investment of choice: It rises when the dollar slides, the stock market sinks, the economy slumps and the world descends into war. No wonder it just hit a six-year high. Gold -- Sharefin, 19:23:43 02/09/03 Sun Gold war: bullion-market proponents and detractors exchange views Why gold? It has intrinsic value, which most owners of jewelry will confirm, and it traditionally has been a haven in times of uncertainly. "We are into a fear cycle right now," McEwen says. "People are not looking for capital gains. They are looking to preserve wealth." Others don't share his enthusiasm. The rush to gold is "the continuation of the speculative frenzy that surrounds anything that is going up when other assets are dropping," scoffs Gary Schatsky, a financial planner in New York. "The same people who threw money at technology stocks are now looking at gold. And they're also looking at real estate," he adds, urging a diversified portfolio of stocks, bonds and cash. Gold -- Sharefin, 19:20:11 02/09/03 Sun Safe-haven gold receives support from Europeans Safe-haven gold found support from European investors who saw looming war clouds over Iraq and tension in North Korea as good enough reasons to keep their grip on the precious metal on Friday. Gold -- Sharefin, 19:16:18 02/09/03 Sun Gold Prices Likely to Level Off as Rally Ends, Analysts Say Gold prices may have peaked for now and may fall after rising for 10 straight weeks as the U.S. prepares for a possible attack on Iraq, according to analysts who rely on technical charts to judge price trends. ---- Maybe - maybe not. Gold -- Sharefin, 18:54:51 02/09/03 Sun India's Love of Gold - Part 1 - The History of the Passion India's Love of Gold - Part 2 - The Macro view of India's Gold Consumption India's Love of Gold - Part 3 - The Micro view of India's Gold Consumption War -- Sharefin, 18:47:14 02/09/03 Sun Bush threatens military action against North Korea With tensions rapidly spiralling out of control on the Korean peninsula, US President Bush added further fuel to the fire yesterday by bluntly warning North Korea that, while the US was seeking a diplomatic solution, “all options are on the table, of course.” Bush previously insisted that Washington had no plans to attack or invade North Korea. Now a military strike is firmly on the agenda. Fiat -- Sharefin, 18:33:56 02/09/03 Sun The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking -- it is an oil currency war. The real reason for this upcoming war is this administration's goal of preventing further Organization of the Petroleum Exporting Countries (OPEC) momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. This lengthy essay will discuss the macroeconomics of the `petro-dollar' and the unpublicized but real threat to U.S. economic hegemony from the euro as an alternative oil transaction currency. ChartsRus -- Sharefin, 08:02:34 02/09/03 Sun Charts updated Fiat -- Sharefin, 07:58:33 02/09/03 Sun Credit Bubble Bulletin, by Doug Noland - Scenario #3 This is the link to the prior post. Fiat -- Sharefin, 07:56:48 02/09/03 Sun OFHEO's report should be taken very seriously and accomplishes much more than simply addressing “quite remote” hypothetical scenarios. Indeed, Mr. Falcon should be strongly commended for courageously formulating the first examination of the GSEs and their critical role in fomenting heightened systemic risk. The 118 page report is comprehensive, thoughtful, independent, formative, and extraordinarily timely. It is by far the most relevant and important “policy research” I have read. ~~~~ It would not take a wild imagination to create Scenario #4, with “Big Three” GSE debt and securitization markets dislocating, the dollar in free-fall, the ABS market closed for business, derivatives markets “seized up,” the leverage speculating community in chaos, and financial markets faltering in systemic liquidity crisis. But putting disastrous scenarios aside, it is rather clear to us that the entire U.S. financial sector has evolved into one massive, unmanageable leveraged speculation; the dollar one historic confidence game. And the GSEs have developed into the epicenter of systemic liquidity with a Mortgage Finance Bubble running the financial and economic show. Silver -- Sharefin, 06:44:28 02/09/03 Sun BERKSHIRE HATHAWAY Silver - 1998 The company owns 129,710,000 ounces of silver. Its first purchase was made on July 25, 1997 and its most recent purchase was made on January 12, 1998. During 1998, Berkshire has accepted delivery of 87,510,000 ounces in accordance with the terms of the purchase contracts and the remaining contracts for 42,200,000 ounces call for delivery at varied dates until March 6, 1998. To date, all deliveries have been made on schedule. If any seller should have trouble making timely delivery, Berkshire is willing to defer delivery for a reasonable period upon payment of a modest fee. Over 30 years ago, Warren Buffett, CEO of Berkshire Hathaway, made his first purchase of silver in anticipation of the metal's demonetization by the U.S. Government. Since that time he has followed silver's fundamentals but no entity he manages has owned it. In recent years, widely-published reports have shown that bullion inventories have fallen very materially, because of an excess of user-demand over mine production and reclamation. Therefore, last summer Mr. Buffett and Mr. Munger, Vice Chairman of Berkshire, concluded that equilibrium between supply and demand was only likely to be established by a somewhat higher price.  Gold -- Sharefin, 04:36:20 02/08/03 Sat JP Morgan, Enron & Gold I have today mailed the following letter to the Enforcement Division of the Securities & Exchange Commission. It's about time that we learn the truth regarding JP Morgan Chase's activity in the gold market, the full extent of its gold exposure, and whether it used gold loans to fund the so-called "disguised loans" that it arranged for Enron. Perhaps the SEC will help us learn the truth by investigating these matters and reporting the results. Dear Sir/Madam: I am writing in regard to recent statements made by the management of JP Morgan Chase ("JPM") relating to its activity in the gold market. This is to ask for your determination whether their statements are false or misleading. On January 2nd JPM announced that it had reached an out-of-court settlement with several insurance companies regarding JPM's involvement with Enron. You will recall that these insurance companies had initiated this litigation, alleging in their lawsuit brought in New York federal court that certain trading transactions between JPM and Enron were shams, thereby negating the insurance contracts covering these transactions. In a press conference subsequent to their January 2nd announcement, JPM management commented on rumors relating to its activity in the gold market. I refer to the following CBS.MarketWatch.com report by Luisa Beltran and Greg Morcroft published on January 2, 2003: "...[JP Morgan Chase] executives said that, despite persistent rumors to the contrary, it has no exposure to the recent run-up in gold prices. "We don't have any real exposure to gold. I don't know where that rumor keeps coming from, but it's not true," CEO Harrison said. "We have seen this rumor pop up again and again," added chief counsel McDavid, "and we have asked the SEC to look into it." I have no specific knowledge about these rumors, other than what I have learned from the media. But I am very pleased to hear that the SEC has been asked to investigate them. In this regard, I am writing to bring the following matters to your attention. Given that these so-called rumors "pop up again and again" as Mr. McDavid states, perhaps they have some basis in fact. It is a well-established truth that 'buzz' about a company will often circulate before an event. For example, rumors about derivative problems in Long Term Capital Management circulated well before that company's collapse. More recently, word of potential problems in Enron circulated freely, much of which was reported in the media. The protracted drop in Enron's share price for several months before the resignation of its CEO, which itself occurred three months before that company's bankruptcy, was an indication that the market believed (as evidenced by that company's declining share price) the rumors about Enron's problems had some basis in fact. In both of these instances, company management denied that there was any substance to the so-called 'rumors' that were circulating, as JPM management has now also similarly done. I also bring to your attention the decline in JPM's share price that occurred last year while these rumors about its gold exposure circulated. Thus, your investigation into the rumors about JPM's activity in the gold market is timely, but the focus of your investigation should not be, as JPM management implies, how these so-called "rumors" started. Rather, your investigation should determine whether these rumors have any basis in fact. If they do, then this is to also ask for your determination whether the statements above by Messrs. Harrison and McDavid are false or misleading. To assist you, I would like to bring the following matters to your attention: 1) The Wall Street Journal published an insightful article about JPM and Enron on January 25, 2002 ("Insurers Balk at Paying Bank Up to $1 Billion in Claims On Complex Transactions"). That article provides an overview about the financing provided by JPM to Enron, through Mahonia Ltd., a company Chase Manhattan (one of JPM's predecessor companies) established in the Channel Islands. The article states: "Prepaying for future delivery of a commodity is known as a "gold trade," because it is the way gold bullion has been trading for centuries. In recent years, trading companies, whether from Houston or Wall Street, have been making more use of this structure to buy and sell oil, natural gas and other commodities. Some commercial banks, including Chase Manhattan…had to set up part of these trades overseas because their banking charters wouldn't allow them to take delivery of commodities." The article describes what is generally known as a commodity swap, and gold is frequently used in one side of the transaction. As an ex-banker (1969 to 1980), I have some knowledge about how these transactions work, as banks are a facilitator for them. When gold is used to finance a commodity swap, bullion is borrowed from a central bank, and sold to raise dollars, which are then used to purchase the commodity on the other side of the transaction (oil and gas in the case of Enron). It is noteworthy that the WSJ article specifically mentions a "gold trade"; given this remark, anyone knowledgeable about commodity swaps might naturally assume that JPM/Mahonia was arranging gold-for-energy swaps for Enron. Thus, this WSJ article may be the original source of the so-called "rumors" referred to by JPM management. But importantly, this WSJ article also suggests that these rumors may have some basis in fact. The article did not specifically state from where Mahonia was obtaining the funding needed to purchase the commodity contracts it acquired from Enron (the so-called "disguised loans" which the insurance companies contended were shams). Nor did a WSJ article published August 13, 2002 ("Enron Probe Shines Harsh Light on Financiers") disclose the nature or the original source of the funding needed to complete these commodity swaps, but this later article does provide more information about potential gold activities by JPM in its dealings with Enron: "In the world of commodities, particularly gold trading, the 50-year-old Mr. Mehta [Chase's and then JPM's head gold trader] was well known. His successful marketing of derivatives, and his enthusiasm for the use of these instruments, helped the gold-hedging business take off in the 1990s. Mr. Mehta and his team executed…[deals which]…allowed Enron to use an offshore vehicle known as Mahonia to raise hundreds of millions of dollars from J.P. Morgan." Taken together, there are enough facts disclosed in these two WSJ articles to suggest that gold loans could be one possible source of funding for Mahonia's commodity swaps with Enron, and if so, these gold loans could lead to the "gold exposure" denied by JPM management. 2) An article about Enron in The New York Times published on February 17, 2002, was important for the following statement [note the emphasis added by me]: "Partly because of the way the loans [by JPM/Mahonia to Enron] were accounted for, the company [i.e., Enron] reported a surge in its hedging activity, accomplished using financial contracts called derivatives, during its last few years. When pressed about the increase by skeptical analysts, Enron officials said the numbers reflected hedges for commodity trades, not new financing, the analysts said." The key point here is the "surge" in derivative contracts entered into by Enron "during its last few years". Each derivative has two-parties to the contract. It has not been disclosed to my knowledge who took the other side of the Enron contracts, but the following information from the Office of the Comptroller of the Currency offers one possible answer. According to its website, the OCC "charters, regulates, and supervises national banks to ensure a safe, sound, and competitive banking system that supports the citizens, communities, and economy of the United States." As part of this responsibility it collects derivative exposure of the nation's banks. The disclosure by Chase Manhattan Bank (before its merger with Morgan Bank) is telling. In three years from December 31, 1997 to December 31, 2000, there was a surge in Chase's gold derivative contracts from $11.8 billion to $29.8 billion. Because of the merger, it is not possible to determine from the OCC reports Chase's derivative activity for 2001. But looking at the derivative exposure of JPM on a combined basis subsequent to its merger, it is noteworthy that after the Enron bankruptcy at the end of 2001, the gold derivative activity of JPM was unchanged at $41.0 billion reported at December 31, 2001 and $41.0 billion as of September 30, 2002, the latest reporting period available. Thus, Chase's derivative contracts in gold surged while Enron's derivative contracts surged, and then remained unchanged after Enron collapsed. This pattern suggests that it is possible Chase (and JPM as its successor) was the counter-party to Enron's derivative contracts. Further, this growth in gold derivative contracts provides further evidence to the possibility I note above that gold was used by Mahonia to fund the commodity swaps (the so-called "disguised loans") that it entered into with Enron. The August 13, 2002 Wall Street Journal article states: "Mr. Mehta has had other high-profile scrapes with controversy while at the bank. For instance, Mr. Mehta came under fire for the bank's earlier arrangements with Sumitomo Corp., the Japanese trading company and the employer of a copper rogue trader named Yasuo Hamanaka who lost $2.6 billion in copper trades. Mr. Mehta's team structured a number of derivatives transactions that allowed Mr. Hamanaka to raise money that didn't appear to senior Sumitomo executives as debt, said people familiar with the deals." Thus, perhaps the rumors circulating about JPM's gold exposure have some basis in fact. In any case, the above material does highlight the importance of your investigation. I note again Mr. Harrison's statement: "We don't have any real exposure to gold." Perhaps in your investigation you can ask him to define the term "real". That JPM has exposure to gold is undeniable from the OCC reports. There are different kinds of exposure from derivatives - price risk and counter-party risk. It may be that through its derivative contracts, JPM believes that it does not have any price exposure to gold. However, while the gold market has been generally quiescent and its price relatively stable the past few years, gold has in recent weeks become very active. As we have learned from the collapse of Long Term Capital Management, volatility undermines what otherwise may appear to be a safe derivatives position. So we will see in the weeks and months ahead whether JPM's derivative exposure to the gold price is indeed under control. Given the size of its position, it may be difficult for JPM to keep its price risk controlled. JPM's gold derivative exposure of $41 billion of notional value represents 117 million ounces of gold - a number that is nearly 50% greater than all the gold produced worldwide in a year. Thus, it seems likely that the gold market may not be able to provide the liquidity JPM will need to keep its gold derivative position in balance in a period of increased gold price volatility, which is a result that would clearly negate Mr. Harrison's contention that JPM does not have "any real exposure to gold." Then there is counter-party risk, which is always present because the financial position of companies changes. Counter-parties deemed creditworthy when JPM entered into derivative contracts may no longer be financially as strong as before. Further, if in fact the simultaneous surge in Enron's and JPM's derivative contracts was not just coincidental and that they were counter-parties to each other, one has to wonder whether JPM has any ongoing exposure to Enron in these derivative contracts. It is noteworthy that JPM's most recent 10-Q shows that derivative receivables rose $16.4 billion, or 23.0%, in the nine months from December 31, 2001 to $87.5 billion as of September 30, 2002. The net change is actually 25.0% when adjusting derivative receivables as of December 31, 2001 to reclassify to Other Assets the Enron-related surety receivables from the insurance companies in the case now settled. Does this glaring (and potentially alarming) surge in derivative receivables reported by JPM reflect an inability of JPM's counter-parties to deliver under their derivative contract commitments? And perhaps more importantly to help evaluate the accuracy and therefore reliability of Mr. Harrison's statement, what portion of this derivative receivable relates to gold? The point is that certain aspects of JPM's derivative disclosure appear to be inadequate. Thus, this is to ask that you make a determination in your investigation whether JPM's disclosure about its gold derivatives has been sufficient, and indeed, whether the statements by its management about JPM's gold exposure are not false or misleading. Lastly, your website states: "The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves if a company's securities are a good investment." To achieve this objective, the SEC must investigate JPM in order to determine whether it is providing the investing public with sufficient disclosure on its gold exposure, which from the OCC reports is undeniable. Further, the SEC must determine whether the statements above by JPM management are false or misleading. I look forward to reading and learning the results of your investigation. For the sake of disclosure, I do not have any position in the stock of JPM. Yours truly, James Turk Gold -- Sharefin, 19:52:24 02/07/03 Fri British Gamblers Bet on Gold as War Signals Get Louder City bookmakers are attracting bets as large as UKpound 950,000 on the gold price as war fever makes the yellow metal the latest speculative mania for British private investors. Gold's spectacular advance, from $278 a troy ounce a year ago to $316 by early December and then $388 at one stage yesterday, has caught the imagination of traders starved of bullish stock markets for the past three years. The main vehicle for this latest craze is spread betting, which enables speculators to take long or short positions of almost any size without having to worry about paying capital gains tax on profits. Unofficial estimates are that between 1000 and 2000 clients of spread bookmakers such as IG Index, CMC/deal4free and City Index are betting on gold at present. Most of these trades are up-bets, aimed at taking advantage of further rises in the metal's price but also vulnerable to any sharp setback. A few of these positions are believed to be very large, at up to UKpound 2500 a dollar -- equivalent to an exposure of UKpound 950,000 to the bullion price. One City punter is understood to have pocketed a UKpound 600,000 profit after betting just three weeks ago on a surge in the price of gold. The unnamed man placed a buy order with City Index when the price stood at $350. Each $1 rise in the price of bullion netted him a profit of UKpound 20,000. Stacey Ash at IG Index said: "Volumes in gold are vastly higher than they were this time last year. People who only traded stock indices and shares in the past have started to move across to gold, and also to silver, platinum and oil." Bookmakers' spreads on gold reflect the underlying price of the metal in the spot and futures markets. So for instance, late yesterday, IG was quoting 382.2-384.2 (dollars) for the US April gold future, while CMC/deal4free was quoting 380.1-380.6 for rolling cash, or spot, gold. For ultra-sophisticates, it is also possible to make a spread bet on an option on the gold price. One punter active in both gold and silver said: "The crises over Iraq and North Korea, and the weakness of the dollar, are forcing gold up. "When you tell friends that you have gone long of gold, they are more impressed than when you tell them you are long of Vodafone or the Footsie." Gold -- Sharefin, 19:41:38 02/07/03 Fri Gold and Gold Shares GOLD and GOLD shares are early in a long term bull market and are busy corroborating technical and fundamental and cyclical upward trend potential. The next phase of the upside breakout confirmed as the $Gold price today penetrated $372, trading at $382 as I write. Some resistance at $396, but really very little until $417, perhaps before end March. $Gold is in the rare super trend I have been talking about, which accelerates despite the hope and expectation of would- be buyers that they can buy lower when a dip comes. But the dip does not come, because too many people are hoping for a dip. That is one of the reasons why gold shares are not yet performing. Both sceptics and gold bulls hope to have an opportunity to buy lower down. In South Africa, the Rand strengthens as the Gold price runs -- but when the Rand meets resistance -- or the $Gold price doesn't pause at $400 -- the fireworks will start. Our behavioural counts show scope for $Gold at $491 and above in the next 18 months and many of the shares 30% -40% + higher in under year. Short positions on golds are already being forced to cover and close [buy back shares shorted or buy back physical gold shorted through futures or leases or swaps]. But again, I don't think the real panic will start until those who are happily waiting for the $Gold price to dip -- begin to realise that it won' t. The belief is still prevalent that the stronger $Gold prices are mainly due to currency factors and war fears. The belief is that after the US goes into Iraq -- the Gold price will collapse and the US$ will recover. Sorry, the war is not the most important issue. I've talked about this at length before -- but the bottom line is that central bankers and bullion dealers and some large gold mines have for years been assuming that the price of gold will stay stagnant or go lower and that the US$ and other paper investments such as Wall Street and US Treasury Bonds will outperform. Those bankers, dealers and mines have shorted gold, leased it out, swapped it and have sold it through derivatives for more gearing -- and now they have a problem -- because the mines cannot increase output quickly -- and central bank sellers are now central bank buyers. All assumptions about a strong US$ and Wall Street are having to be reassessed -- and traders are beginning to realise the squeeze that will happen to the Gold price, not only to $417 resistance, but to well above $500 in the next year or so -- if the US$, US bonds and Wall Street are dumped any faster than is already happening. Demand exceeds supply and demand will increase as a combination of US$ weakness and asset shifts accelerate. It is as simple and fundamental as that. The US is particularly vulnerable right now -- private, corporate and public debt at record levels -- anti- American feeling is high -- and much of the Muslim world and Asia must be keen to disinvest to the extent they have not already done so. The average American is a consumer, not a producer of hard goods. In the last few days, Japan has been a huge net buyer of physical gold, gold futures and gold shares -- traders say as a hedge against a weaker US$. Whatever is driving this push, watch the Gold Rush that is developing. Private investors, fund managers, institutions will be scrabbling over each other to avoid missing the boat -- or at least to avoid being criticised for completely missing the boat. They will only wake up somewhere near $400. Gold -- Sharefin, 19:34:07 02/07/03 Fri After the gold rush Prices touched a six-year high this week and times have never been better for the precious metal, but investors have failed to catch the bug. Brian Robins reports. With the gold price hitting six-year highs this week, the disconnect could not be more pronounced, since shares in leading goldminers have barely moved. Take Newcrest, the biggest of the local miners. Its share price has gained barely 20 per cent over the past few months as investors have reacted coolly to the ascendant gold price. The surge in the gold price has triggered optimism that gold should be able to hold well clear of the $US350 an ounce level for some months yet. And the impact on the bottom line for goldminers will be acute. Yet investors have been slow off the mark. And when they have taken their lead from the stronger gold price and put money into miners, most of the buying has come from offshore, with local investors keeping their hands firmly in their pockets. The last time the gold price spiked like it has in recent months was more than 20 years ago, when shares in goldminers took their cue directly from surging bullion prices. ~~~~ After the gold rush February 8 2003 Investors have failed to react to the ascendant gold price. Prices touched a six-year high this week and times have never been better for the precious metal, but investors have failed to catch the bug. Brian Robins reports. With the gold price hitting six-year highs this week, the disconnect could not be more pronounced, since shares in leading goldminers have barely moved. Take Newcrest, the biggest of the local miners. Its share price has gained barely 20 per cent over the past few months as investors have reacted coolly to the ascendant gold price. The surge in the gold price has triggered optimism that gold should be able to hold well clear of the $US350 an ounce level for some months yet. And the impact on the bottom line for goldminers will be acute. Yet investors have been slow off the mark. And when they have taken their lead from the stronger gold price and put money into miners, most of the buying has come from offshore, with local investors keeping their hands firmly in their pockets. The last time the gold price spiked like it has in recent months was more than 20 years ago, when shares in goldminers took their cue directly from surging bullion prices. advertisement advertisement Gold has been on the nose for years, with the patience of many worn thin by the late 1990s - towards the end of the bear market for the precious metal. So much so that when the big international mining houses came shopping, taking advantage of the super-cheap Australian dollar to buy control of some of the best goldmine properties going for a song, investors were only too willing to take the cash and run. Gold bulls were last sighted in financial markets during the Gulf War a decade ago. But it was more than 10 years before this that they were last in the ascendant, when the price of gold soared to $US850 an ounce at the start of 1980. It held at the $US600 to $US700 an ounce level for most of that year, and averaging around $US500 an ounce for the first half of the 1980s, which helped to kick-start Australia's goldmining industry. At the time, the main issue in major industrialised economies was "stagflation" - defined as weak growth against the backdrop of rising inflation - as governments battled ballooning deficits. And once again, concerns about stagflation are on the rise. Aiding gold's advance over the past few months has been a "war premium", as investors factor in concerns over the fallout from the US attacking Iraq. But even if this premium is removed, gold would still be trading at around $US350 to $US360 an ounce, traders argue, with the prospect that it could top $US400 an ounce in coming weeks. The weak greenback and anaemic economic growth in the US are propelling gold higher. This is set against the backdrop of renewed economic uncertainty, especially with interest rates in both the US and Japan at record low levels, with little evidence of any success in rekindling growth as China has progressively cornered much of the world's low-end manufacturing industry, exporting deflation in the process. Gold's renewed lustre comes as the "cult of equities" of the 1990s is finally at an end. Globally, funds have been fleeing equities for some time, as investors withdraw funds from mutual funds. This shift of money has been most notable in North America. ~~~ As the "cult of equities" has dissipated, the cost of money raised through the sharemarket has surged. For companies issuing convertible notes and the like, a yield of upwards of 10 per cent is not uncommon - a punishing real rate of interest at a time when inflation remains remarkably subdued. Gold always prospers at times of economic uncertainty and this time round is no different. The other driver has been the fall in the US dollar, as it reverses its gains of the late 1990s. And, as is usually the case with gold, the gains have been overlaid with a series of global economic concerns, such as the rising tide of government deficits and the anaemic economic outlook as the excesses of the late 1990s are worked out of the system. "The plunge in the value of the dollar relative to gold is the biggest monetary policy story of the past two decades," argues Ken Landon of Deutsche Bank. "The Greenspan era of stable and falling rates of inflation is over." Landon argues that the gold price surge is signalling a new era of stagflation in the US. However, it may be too early to make this call, since inflation in most big economies is muted, as they grapple with the deflationary pressures exported by China. But if one factor in the renaissance of the gold price is fears of rising inflation, this would spell the death knell for equities. ~~~~ Those analysts who have been around the gold sector for some time say the lack of any share-market reaction is reminiscent of 1979-80, the last time the gold price was in full flight. "At that time, the gold price rose, but gold shares didn't," said Keith Goode of Eagle Research. "They waited for the correction, and ran on the second leg. "I don't think it is too late," Goode says when asked whether the best has now passed the gold miners. "The shares aren't reacting to the gold price because they don't believe it. The Philadelphia Gold and Silver index was at 75.91 on January 3, when the gold price was at $US345 on February 4, with the gold price at $372 an ounce, it was at 79.64 points. "We've seen this kind of thing before. In 1979-80, the gold price ran from $US500 to $US850 an ounce and back to $US500, and the market didn't blink at it. Fiat -- Sharefin, 19:23:41 02/07/03 Fri The coming collapse Technology companies better watch out--China's economic miracle is just another Internet bubble. China's economic miracle is comparable in many ways to the Internet bubble. Such bubbles keep inflating and fulfilling expectations of extravagant growth--as long as investors believe in a pyramid of dreams. But, as in the boom of the late '90s, economic fundamentals in China simply are not solid enough to assure long-term, sustained growth. And should investors ever lose that giddy but unrealistic sense of the inevitability of China as a great and profitable market, the collapse of confidence and the flight of capital could be frighteningly rapid and devastatingly destructive. Gold -- Sharefin, 19:13:26 02/07/03 Fri Golden Bull Buy Signals What a fantastic year for gold thus far! The Ancient Metal of Kings continues to gallop higher after utterly obliterating the $325 Maginot Line fortifications and leaving their still smoldering hulks far behind over the horizon. For the hardcore contrarian investors who have been long this awesome gold bull since the beginning, it is a wonderful blessing to see gold actually within spitting distance of the fabled $400 levels! Less than two years ago the noble metal had been beaten way down to near $250 and the mainstream investment world considered it to be officially dead. It is fantastic to see gold make fools of the naysayers and vindicate the contrarians! If you were investing in gold and gold stocks a couple years ago near the bottoms, you certainly remember the endless scorn heaped upon us by the mainstream. Gold and gold stock investors, who look like geniuses today two years later, were treated as untouchable outcasts and infectious lepers, utterly shunned near the bottoms. Back then believing in gold was the kiss of death in financial social circles. ~~~ They will assume the gold bull is dead because the Iraq war is on, but they will almost certainly be wrong. Primary bull markets in gold this powerful run for many years or even a decade historically, not just a couple. This gold bull has nothing to do with wars and everything to do with fundamental underlying structural economic factors. Gold -- Sharefin, 19:06:34 02/07/03 Fri Ross Norman At The Bulliondesk.com Is Determined To Simplify Purchases Of Physical Gold By Investors. Fed up with the equity market, insurance plans, endowments and pension schemes a lot of private investors have started to wake up to the fact that gold is on the trot. They would have woken up much earlier if financial commentators on leading newspapers and their own brokers had done their duty, but that is another argument. What they want now is a bit of advice on how to buy a bar of physical gold as do our cousins over the water in France. A first port of call might be the website of the World Gold Council, but it would be a disappointment. The big effort is towards sales of jewellery and coins. Investors are perfectly aware that such products are priced at a substantial premium to the underlying gold value, and what they want is pure 9999 bars at a minimal mark-up. Try to track down the sale of bars on the WGC website and you end up with a list of four shops.. Two of the shops, ATS Bullion and Gold Investments are in London but ATS did not even have a website as of last October and if it has one now the WGC has not caught up with it. Baird and Co are in Stratford and Chard (1964) Ltd are in Blackpool. That is your option, take it or leave it and the WGC inserts the usual caveat that it carries no responsibility for any problems encountered when trading with these companies. In addition, of course, the WGC site offers gold accounts, gold certificates, gold accumulation plans, gold linked notes, gold future and option and gold oriented funds all of which cost investors dear in terms of commission or front end loading. But physical gold, pure and simple. No sirree. Even less helpful is the Goldavenue website. Early in 2000 the South African gold producer AngloGold announced that it was developing a monster website to be called goldavenue.com which would provide information on, promote and sell all things gold. As an indication of its ambitions for this site a budget of US$20 million was split three ways between AngloGold and its two partners partners in this e-gold venture - US banker JP Morgan which has a very strong presence in South Africa and the big Swiss gold refiner PAMP ( Produits Artistiques de Metaux Precieux). ~~~ The wind of change is blowing through the gold industry, but strangely neither the World Gold Council or Goldavenue.com seem to have scented the appeal to the mass of investors that bars of pure gold can have. War -- Sharefin, 19:04:28 02/07/03 Fri War 'would mean biggest oil shock ever' The world will suffer a bigger oil crisis than that during the Arab-Israeli conflict of 1973 if the US declares war on Iraq, according to leading US investment bank Goldman Sachs. 'The combined effect of Venezuelan and Iraqi disruptions has the potential to be the biggest shock in oil market history, even allowing for offsetting supply increases by other players,' says Gold man's respected analyst Jim O'Neill. Crude oil prices of $31.10 per barrel - a two-year high - do not include any war premium, says the team. It argues that tight supply conditions, small inventories, and severe capacity constraints will see the price soar. 'A war could drive crude oil prices up by an additional $10-$15, or 30 to 50 per cent [to $46],' says Goldman's report, 'More Perfect Storm than Desert Storm'. Fiat -- Sharefin, 18:31:26 02/07/03 Fri Japan's desperate market move The country's economy minister has called on his cabinet colleagues, including the Prime Minister, to start buying shares in a desperate bid to prop up the Japanese stock market, Heizo Takenaka said he would invest in tracker funds and "will definitely make money". "I want us to take the lead," he said. Japan's economy has been lingering near recession and the Tokyo Stock Exchange's Nikkei index of leading shares has been at near 19-year lows since last year. Mr Takenaka expects Prime Minister Junichiro Koizumi to follow his lead.  War -- Sharefin, 20:09:39 02/06/03 Thu The article that follows was commissioned by Resurgence magazine but, in view of its urgency and potential importance, the editor, Satish Kumar, has decided that its publication cannot wait until the next available issue appears. It is therefore being placed on the Resurgence website, http://resurgence.gn.apc.org/ and distributed on several Internet lists. It may be reproduced freely provided Resurgence is mentioned. Comments to the author are welcome. How to stop the war Richard Douthwaite So far, the main actions open to people keen to stop the United States and Britain invading Iraq have been limited to street protests, writing letters to editors, signing petitions on the Internet or voting on a BBC website. None of these seem likely to achieve very much but there's another avenue to make one's views felt which, if enough people took it up, could be very effective indeed. The precedent is certainly promising. In 1956, after bombing Egyptian airfields and destroying its airforce, British and French forces began landing at Port Said and Port Fuad on November 4th in an attempt to seize the Suez Canal which the Egyptian leader, Colonel Nasser, had nationalised earlier in the year. The troops were making good progress moving south down the waterway, occupying both banks, and were only two or three days from reaching their objective, Port Suez on the Red Sea, when, all of a sudden on November 6th, they were ordered to halt. Less than four weeks later they began to withdraw and by December 22nd, they were all gone. So what happened? How was the invasion stopped so quickly? The answer is that the Americans pulled the monetary plug - a technique that can now be used on them. Britain in 1956 was in a much healthier financial state than the US is today when you consider that its exports exceeded its imports whereas America's imports now exceed its exports by a massive 50%. Nevertheless, the Bank of England was having to fight off currency speculators the famous Gnomes of Zurich who were borrowing pounds and using them to buy dollars. Their aim was to run down the country's dollar reserves to such an extent that sterling would have to be devalued from its fixed rate of $2.80 to the pound. Such a devaluation would have been highly profitable for the Gnomes because afterwards they could have used some of the dollars they had bought to purchase enough of the now-cheaper pounds to repay their loans and pocketed the difference. Even if the Bank of England was able to resist their attack, they would not lose much because, thanks to the fixed exchange rate, they could always buy sterling to repay their pound debts at the price they had received for those they had sold apart, that is, from the currency dealers' commission. So the most they could lose was the commission plus the difference between the interest rates they had to pay on their sterling loans and the rate they had earned on their dollar deposits. They were taking an almost riskless bet. The Bank of England reckoned it could fight off the Gnomes' speculative attacks if it had at least $2bn.in foreign exchange in its war chest. By September 1956, however, as a result of the speculation its dollar holdings were slipping uncomfortably close to the danger level. The speculators knew this, of course, which caused them to redouble their efforts. Accordingly, the British Chancellor of the Exchequer, Harold Macmillan, decided that the country had to borrow a sum so large that it was bound to cause the Gnomes to back off. He asked the IMF for a $1.3bn. loan. US approval was needed, however, as it would be the biggest loan the IMF had ever made and far above Britain's automatic entitlement. But when the attack on Egypt brought matters to a head by increasing the speculative attack with the result that the reserves fell sharply, the US Treasury Secretary, George Humphrey, made it clear he would not give his approval unless Britain not only obeyed a UN resolution calling for a cease fire but pulled its troops out as well. The British Cabinet regarded giving in to the speculators and devaluing the pound as a worse fate than losing the Suez Canal, so the Prime Minister, Sir Anthony Eden, felt he had no option but order the invasion to stop. On December 3rd, the British told the Americans that all the troops would be withdrawn by December 22nd and the full $1.3bn loan was approved the same day. The crisis was over and the pound was saved. So how can this technique be used to stop the Americans in their tracks? The first thing to recognise is that the reason the US, a country with 283 million people, is a superpower, able to spend more on arms than the next 20 biggest arms spenders put together, because it has been getting a massive subsidy for many years from the rest of the world. The counties that it outspends have a total population of over 3 billion people and include Russia, China, India, Iran, Israel, Britain, France, and Germany. The subsidy has come about because the rest of the world has allowed the US to import very much more than it has exported since 1982. In that period, countries receiving dollars for the goods and services they have supplied have only spent a proportion of them on imports from the US. Most of the remainder has been loaned back to America, typically by being used for the purchase of US Treasury bills or shares in companies quoted on the US stock exchange. $2,500 bn, roughly half the rest of the world's total savings, have been invested and lent in this way. Amazingly, this huge inflow of funds has cost America nothing - so far. True, interest has been paid on the loans and dividends on the shares but both payments have been in dollars that have simply been added to the outstanding debt. The US has not had to supply anything that cost it real resources to make for the use of this massive amount of capital. Moreover, the bigger its trade deficit has been, the more dollars foreigners have had to invest and the higher they have pushed Treasury Bond prices and the Dow Jones share price index, making investment in America seem very attractive. Even more foreigners have consequently been keen to get hold of dollars to put their savings there. Last year, the US spent. $379bn., almost exactly the amount of its trade deficit the previous year, on its armed forces. In other words, all the resources required to run the US military machine can be considered to be coming from the rest of the world rather than America itself. Some commentators realise this. In a revealing article published by the U.S. Naval Institute in January 2002, Professor Thomas Barnett of the US Naval War College, wrote: "We trade little pieces of paper (our currency, in the form of a trade deficit) for Asia's amazing array of products and services. We are smart enough to know this is a patently unfair deal unless we offer something of great value along with those little pieces of paper. That product is a strong US Pacific Fleet, which squares the transaction nicely." At the moment, the US trade deficit is running at much higher levels and America is having to borrow around $1.25bn every single day. So the way to stop George Bush's war machine in its tracks is not only to refuse to lend it its daily bread but for everyone with savings invested in the US to take their money back. Very few of us have direct investments in America, of course, but anyone who does should sell them immediately and repatriate the proceeds. If they fail to do so they will be complicit in whatever happens. People saving for their retirement through a life assurance company or some other financial institution will almost certainly have indirect investments in the US. The problem is to get them out. All they can do is to write to the company urging it to rapidly reduce the share that transatlantic investments make up in its portfolio because international outrage over Iraq is likely to cause a sharp fall in the value of those investments and of the dollar itself. The fact that they are personally against a war and don't want to be invested in it will cut little ice. They could add, however, that several American commentators expect the value of the dollar to fall by at least 25% when the market makes its inevitable adjustment to correct the present trade gap. For example, as long ago as 1999, Catherine L. Mann, a professor at Vanderbilt University, investigated current account corrections in industrialised countries in the previous two decades. She concluded that a current account deficit of over 4.2% of the Gross Domestic Product (GDP) was unsustainable and that a large and rapid fall in the value of the US currency was likely within two or three years. "The US cannot live beyond its long-term means forever, nor will US assets always be so favored by global investors" she wrote in an article 'Is the US Current Account Deficit Sustainable?' published by the IMF in March 2000. "When a change in investor sentiment comes, it could be dramatic. What would happen if the dollar depreciated by a significant amount, say 25 percent?" Caroline Freund of the Federal Reserve researched the same ground as Mann and also found that the US deficit was unsustainable except that she reckoned that the markets normally bring these corrections about when the deficit rises above 5% of GDP rather than 4.2%. It is now at the 5% level. The timing might therefore be right to try to prevent the war by using a financial strategy almost exactly the same as that used by the Gnomes of Zurich half a century ago. Go to your bank and tell them that you want to sell $5,000 (or $10,000 or as much as you can afford) in three or six months' time and that you would like fix the exchange rate now. The bank will quote you the rate at which it will purchase those dollars from you and give you a contract to that effect. This is a perfectly standard banking arrangement. Businesses expecting payments in foreign currency do it all the time. If your credit record is good, you won't have to pay anything at all. Should the bank be unable to match your sale of dollars in three months' time with an order for dollars from somebody wanting to buy them then, it will borrow the dollars you intend to sell from a bank with which it has links in the US and sell them now. It will then lend out the proceeds of the sale until it has to pay them over to you in exchange for your dollars, which it will use to pay off its American loan. In other words, through the agency of your bank you will be doing exactly what the Gnomes did in 1956 - borrowing dollars in the US, selling them, and hoping to repay the loan at a profit if the dollar falls in value. You get the dollars you need to hand over to the bank in three month's time by buying them from the bank at whatever rate is ruling on the day the contract falls due. If thousands upon thousands of ordinary people join you in protesting in this way, the value of the dollar will be forced down over the next few weeks as banks borrow dollars in the US and sell them on behalf of their customers. So, when the three months are up, the chances are that you will be able to buy the dollars you need for less than the price you agreed with the bank for selling them. In other words, if this form of direct action becomes wildly popular or the dollar falls for other reasons you should end up with a small profit. Of course, if the dollar stays where it is you will show a small loss and in the unlikely event that it rises, a rather bigger one. Your assessment of how much of a loss you can risk having to shoulder will obviously determine how many dollars you can sell. In 1956, two big battalions stopped the British - the US government and professional speculators employed by the Swiss banks. This time, if the strategy I've outlined above is taken up, it will be more of a guerrilla action and the outcome will depend largely on the numbers of people who get involved. But we may just find that we have powerful allies fighting beside us. For example, in order to minimise their dependence on the dollar a group of Islamic countries led by Malaysia is introducing the Islamic gold dinar later this year for trading amongst themselves. Moreover, several OPEC countries are considering quoting the price of oil in euros rather than dollars. And as long ago as last August, the Financial Times reported that the Saudis had sold an estimated $200bn. of their US assets. The Kuwaitis have also withdrawn hundreds of millions of dollars from America having decided that, despite the threat of a war next door spilling over the border, it is better to invest at home. Within the past few months the dollar has already lost 26% of the maximum value it held against the euro in 2001 and a smaller amount against the pound. Our small gestures coupled with the actions of much bigger players could continue this fall which, almost certainly, still has some way to go. The Economist magazine believes that a further 20% drop against the euro is 'not unthinkable'. Moreover, just as there was a virtuous circle on the way up, with the increasing US trade deficit providing foreign investors with extra funds to push the dollar and Wall Street higher and higher, there will be a similar effect on the way down. Falling stock markets and a depreciating dollar caused by investors moving out will panic others into getting out too, thus accelerating both markets' decline. Consequently. the more people you can persuade to join you in becoming a Gnome for Peace, the better the chance there is of weakening the dollar and the American economy by enough to prevent or limit a war. That's the real profit. Of course, if investor sentiment does really change - helped in part by your actions - virtue would not have to make do with merely being its own reward. Besides peace, it would bring something of a financial bonus too. Richard Douthwaite, Cloona, Westport, Ireland. richard@douthwaite.net Richard Douthwaite is an economist living in Ireland. He is the author of The Growth Illusion: How Economic Growth has Enriched the Few, Impoverished the Many and Endangered the Planet, The Ecology of Money, and Short Circuit: Strengthening Local Economies for Security in an Unstable World. Fiat vs Gold -- Sharefin, 19:47:07 02/06/03 Thu NYMEX upping COMEX gold margins at close Thursday New York Mercantile Exchange will raise the amount of collateral required to trade gold futures contracts at its COMEX Division as of the close of business Thursday. Margins on COMEX gold futures will be increased to $1,500 from $1,000 for members, member firms, and hedgers; and to $2,025 from $1,350 for speculative customers, the exchange said in a release issued late Wednesday. * * * The gold war is on in full fury. The "Comex division" is loaded with members of various bullion dealers, who are the big shorts. A number of these folks have been part of the Gold Cartel all these years. From the Commitment of Traders Report, they know gold is filled with small speculators who are very leveraged. So Comex waited to raise the margin requirement when it would do the shorts the most good. Gold reversed yesterday after reaching $390 in the futures contracts. The open interest had increased to 245,682 on Wednesday. That is the highest since January 13, 1981. It went up 4521 contracts on the big spike yesterday. A 50 percent margin increase is a hefty one. They did not raise it sharply as gold went up, but as gold reversed sharply to the downside, making the specs vulnerable to such a significant margin increase. The Gold War is heating up. The good news for us is that all crooked cabal types are doing is buying time. They are finished. That does not mean we could not get a doozy of a swift, sharp correction. Because the spec position is so large, it could even be dramatic. My thinking is that no matter what happens, the drop will be a quick one and gold will shoot right back up. There is too much power behind the move and too much physical market demand for gold to stay down for very long. Besides, the massive, trapped shorts will have to cover when they can. This may be their last chance to do so before the inevitable gold- buying panic kicks in. ---- Note also the hammering silver has taken - da boyz know they mustn't let it break & take care to hammer it hard at the appropriate time. Gold -- Sharefin, 19:29:46 02/06/03 Thu Fair Weather Gold Analysts Have you noticed that when the gold price posts good gains all the gold orientated websites are awash with a constant procession of gold price forecasts, many of which run into several thousand dollars an ounce? Most of these superlative prognostications come from analysts who were conspicuous by their silence for the past three years as bullion and the shares forced their way into investment contention. There is nothing like a strong gold price to bring all the fair weather analysts out of the woodwork. But when bullion or the shares have a retraction in value these commentators are suddenly absent from the analytical fray. One can judge the over bought or oversold nature of bullion by the number of popular website postings on the gold price. A rising gold price enhances the psychological confidence for the average analyst to expound the latest theory, whilst a contracting market apparently diminishes the desire to be read. The greater the number of positive gold postings the more overbought becomes the gold market, conversely the more silent the chat pages the closer one is to a buying area. Bullion's break above the critical $330 level prompted a sudden out pouring of extremely bullish analysis with upside forecasts ranging from a conservative $600 to an outlandish $35 000. Richard Russell -- Sharefin, 19:26:59 02/06/03 Thu There's no fever like gold fever "There's no fever like gold fever." Is this phrase about to be revived? It's too early to tell, but it does seem that the gold choo-choo train is slowly emerging from that long dark tunnel and is now chug-chug chugging down the track. The smart boys are telling us that gold is rising because of declining gold production. Bull shit -- we old timers know better. Gold moves when people get the fever. Steel and copper and sugar and oats move on production numbers. Gold mover on human emotions. And believe me, there's no fever like gold fever. I'm not saying that the fever is here yet, but I'll tell you something -- I'm getting little hints that the fever might not be far off. Gold was up on a stilt and needed correcting. And it got 'correcting.' Today's action was just another way for gold to warn the public -- "Hey suckers, you see how dangerous it is to buy and to hold this useless yellow relic of a bygone era." Gold -- Sharefin, 19:17:03 02/06/03 Thu Picking Winning Gold Companies My main focus is on companies involved in precious metals, and in particular gold. Before talking about companies, I need to say a few words about the economy and the gold market, because it is important to have a broad outlook from which to evaluate a particular company. I'm involved in a lot of conferences, and I hear a wide range of opinions. Over the past few months, I've heard an extraordinary range of opinions on the economic outlook. For example, at the big New Orleans investment conference last November, famed newsletter writer Richard Russell predicted that the Dow and the gold price would cross ... probably around 3,000. Since then, actions in the broad markets and gold seem to be giving that prediction some credibility. Personally, I believe that extreme view is very unlikely to come about. Certainly, the extraordinary volatility and uncertainty that we've experienced over the past couple of years is likely to continue for a while. Some companies may not recover for some time yet, if at all. On the other hand, some areas of the economy and some companies are already well on the road to recovery. With such a cloudy economic outlook, gold looks particularly attractive. Gold has always provided stability in times of turbulence. It has performed that role admirably over the past couple of years. The technology sector and most other investments have tanked, yet the gold price is up more than 40% from its low point, and many gold equities have performed even better. In other words, it's worth owning gold even if for no other reason than the stabilizing effect that it provides in a portfolio over time. At $370, gold is now at the highest level in over 6 years. Will the gold price continue to move higher from this level? Over time, the answer is YES. In fact, I believe that gold will move substantially higher in the not too distant future. However, the path from here to that higher gold price may not be a straight line. We have all heard a lot about gold recently. We've heard about the government manipulation of the gold market. We also heard about the enormous derivatives position that has been built up around the gold market -- a multi-trillion dollar house of cards that could collapse very quickly and accelerate the upward movement in the gold price. I prefer to view the gold market more from a fundamental perspective. In essence, the world uses nearly 120 million ounces of gold every year, mostly in the form of jewelry. Yet, mines only produce about 80 million ounces. The balance -- about 40 million ounces per year, nearly a third of the total market -- has been coming out of the vaults of central banks. Even if those central banks elected to let go of all of their gold -- which is incredibly unlikely -- the central banks can not go on filling the supply deficit indefinitely. The most important mechanism for the central bank gold to get into the market has been through producer hedging. This whole area gets very complicated. Anybody that wants can get a copy of my June 2001 issue which discussed this area in some detail. In essence, the gold mining companies borrow gold from banks, which in turn borrow the gold from the central banks. The producers sell that gold into the market for dollars to run their businesses. They repay the gold loans from future production. In that June 2001 article, I noted that investors were getting turned off hedging. Since then, the hedge position has been steadily declining. The resulting decline in the supply of gold has contributed to the upward move in the gold price. We can add to this analysis the fact that gold production is in the third year of decline. That isn't likely to change soon, because the mining industry has been replacing only about one-quarter of the amount of gold that is being mined each year with new deposits. Another important factor is that the Shanghai Gold Exchange has just begun to operate. Currently, India is by far the world's largest consumer of gold. The Chinese have a similar attitude toward ownership of gold. And now for the first time in decades, a system is being put in place that makes it practical for the 1 1/4 billion Chinese to buy gold. There is also a lot of nervousness about the U.S. dollar, which is leading some investors, and even some central banks, to convert some dollar holdings into gold. Fiat -- Sharefin, 18:16:25 02/06/03 Thu Sitting On The Dock Of The Cliff Is the Fed Willing To Go Unconventional Preemptively? That's a mouthful of a question, but a key one, I think. Last November, in the testimony before Congress,5 Fed Chairman Greenspan trumpeted the unused powers of the Fed to address deflationary risk, even if the Fed funds rate were to hit the lower zero limit: the Fed could bring down long term rates by lengthening the duration of its holdings. A couple weeks later, in a speech before the National Economists Club,6 Fed Governor Bernanke saw Mr. Greenspan's ante and upped him: the Fed not only has the power to address deflationary risk, hopefully preventing it, but also the power to cure deflation reality, if preventative efforts fail. Mr. Bernanke quite logically argued that the "best way to get out of (deflationary) trouble is not to get into it in the first place." It was, in his own words, a "commonsense injunction." And he offered three conventional preventative steps. Again in his own words: "First, the Fed should try to preserve a buffer zone for the inflation rate, that is, during normal times it should not try to push inflation all the way down to zero. Second, the Fed should take most seriously - as of course it does - its responsibility to ensure financial stability in the economy. Third, as suggested by a number of studies, when inflation is already low and the fundamentals of the economy suddenly deteriorate, the central bank should act more preemptively and aggressively than usual in cutting rates." But what if this three-prong preventive program were to fail? In the finest example of policymaker transparency I've witnessed in over twenty years of looking for it, Governor Bernanke candidly asked: "…suppose that, despite all precautions, deflation were to take hold in the US economy and, moreover, that the Fed's policy instrument - the federal funds rate - were to fall to zero. What then?" The answer, he declared, was "the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys." Echoing Chairman Greenspan, he opined, "I suspect that operating on longer-term Treasuries would provide sufficient leverage for the Fed to achieve its goals in most plausible scenarios." But he didn't stop there, going on to say that if such efforts "proved insufficient to restart spending, the Fed might next consider attempting to influence the yields on privately issued securities." I immediately dubbed this statement as the birth of The Bernanke Put, an explicit reflationary promise beneath private sector debtors' heavy wings! It was a powerful statement about the power of the Fed's printing press. Wall Street rejoiced, notably those trafficking in corporate bonds. The Fed was not too blind to see the risk of a debt deflation meltdown, and was ready to respond forcefully, if that risk morphed into reality! That declaration by Governor Bernanke was the stuff of headlines, and rightly so. I only wish that the headlines had also included what Mr. Bernanke said about fiscal policy, and particularly the scope of anti-deflation coordination of monetary and fiscal policy. Here's what he had to say, which I believe is hugely important, as it applies not just to the case of arresting deflationary reality but mitigating deflationary risk. Indeed, I submit that Mr. Bernanke should have made a coordination of monetary/fiscal policy the fourth course on his three-course menu of monetary cooking to prevent deflationary anoxia in nominal aggregate demand! Here's what Governor Bernanke said: "Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous 'helicopter drop' of money. Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets" Bottom Line Wow! Every time I read and re-read that passage from Governor Bernanke, I ask: why doesn't Mr. Greenspan - the Maestro, remember? - read it, and surrender some of his hegemony in the Beltway to the fiscal authority? Why do fiscal authorities continue to genuflect to Mr. Greenspan, a man who achieved much for his country by grasping power, but who doesn't know how to let go? Why, why, why? I don't know. But what I do know is that until the monetary/fiscal policy mix is structurally changed to restore the preeminence of the fiscal authority, monetary policy promises to address deflationary risks, and to reverse deflationary realities, are a frankfurter without onions, smothered with dividend tax-cut brie, chased with a flat chardonnay spritzer, served in a dirty beer cup. Pardon me if I my risk appetite refuses to belch with satisfaction. It's hard to do so while sitting on the dock of the deflationary cliff. Where are John Maynard Keynes and Otis Redding when you need them? Fiat -- Sharefin, 18:14:05 02/06/03 Thu Hegemonic Decay The initiation of U.S. hegemonic decline can't be blamed on any single source. Excessive build up of private debt, which in part led to an investment and stock market bubble, has been a primary culprit. Our overvalued dollar and a near historic trade deficit are in the running for the hegemonic Oscar as well. But if all of these be ingredients, there is no doubt that 9/11 was the significant catalyst, despite its coming more than a year after several of these economic and financial trends experienced their peaks. In the aftermath of 9/11 it became apparent to George Bush and the Washington defense establishment that future conflict would perhaps be not only near perpetual, but of a nature quite different from Desert Storm over a decade ago. While the eradication of Iraq from Kuwait was a single purpose conflict, today's potential invasion of Iraq is but one of a multitude of steps that hopefully leads to terrorist containment as opposed to the eradication of Islamic extremism. Bush has in no uncertain terms said that our future struggle will be a never-ending story as opposed to a single shot kill. If so, investors must know that perpetual containment entails costs - not just monetary but those involving potential policy reversals that have formed the backbone of America's economic hegemony for nearly seven decades. That such a hegemony has been based upon (1) America's military domination and (2) America's superior economy as reflected by the dollar's ascension to the top of the pile as the world's reserve currency - is undeniable. All hegemonies including Britannia's (since the fall of Napoleon to the end of WWI), have shared similar characteristics. As current leader of the pack, America has been able to implement policies (free trade, open capital markets, and a strong currency) which have not only reflected its political heritage and philosophy but have added dollars and cents to its citizens' pocket books, as well as SUVs to their driveways. But the U.S., unlike the British Empire rests on a fragile foundation built upon consumer spending and trade deficits as opposed to mercantilism and trade surpluses, which characterized Britannia's rule. These deficits, coming at a time of American military expansion in pursuit of terrorist containment, threaten to reverse our hegemonic benefits and end our economic domination. Our SUVs, as well as our top cat near-monopoly of the good times are at risk.  Our foreign lenders are beginning to make some increasingly urgent phone calls to pay up or else and they are enforcing their demands by selling the dollar and buying almost any other currency that represents the economic philosophy of Ben Franklin as opposed to George Bush. The end to the strong dollar is but the most visible reversal of U.S. hegemonic policies in recent months. Our promotion of free trade and open capital markets is suffering as well. Last year's U.S. steel and lumber tariffs are being supplemented by an embargo of Chinese containers in Hong Kong and Shanghai due to their possible hiding of terrorist weapons and armaments. Mexican trucks are being halted at the Texas border on the age-old allegation of vehicle safety violations. We are becoming a trade repressor as opposed to trade advocate and other countries no doubt will fight back. In addition, our advocacy of open capital markets is falling increasingly by the wayside. Global financial controls are now seen as a bonafide weapon in the war against terrorism. Prominent economists such as Paul Krugman and Joseph Stiglitz are wondering whether or not - in the example of Malaysian Prime Minister Mahathir Mohamad during 1998's Asian crisis - there might not be a stronger case for controlling international capital flows. And if these policy reversals don't sound warning alarms, how about Fed Governor Bernanke threatening to support any asset market decline that threatens to reinforce deflation. Come to think of it, Fed Chairman Greenspan by encouraging the belief in a Greenspan "put" has been interfering in our and other countries' stock markets for several years now. Open markets? The door appears to be closing fast. The reversal of these policies which in the past have promoted U.S. economic hegemony are a natural reaction by foreign creditors and the U.S. debtor nation alike to its future new emphasis on terrorist containment and the costs thereof. Foreigners have and will continue to sell the dollar and U.S. investments in fear of guns and butter bills to come. America will attempt to preserve its hegemony by biasing, and in some cases reversing, free trade and open financial market policies that do not favor the U.S. All of this implies that our peace dividend, not only in the terms of lower defense expenditures, but U.S. domination of (and benefits from) free capital markets and free trade, are nearing an end. We will experience a somewhat vicious cycle of policy reversal instead of the virtuous circle of recent decades, which led to higher profits and lower inflation. In the reversal's wake will come subdued profits, higher inflation, a lower dollar and anemic financial returns. While that may not qualify as a trip to the poor house, I have no doubt that such events signify to at least some Americans a trip to a poorer house. Many of us will have to adjust, either in the form of higher unemployment, an increased price for imported goods, or heavier indirect taxes in the form of higher inflation and interest rates. Investment strategies, both bond and equity, should put these secular reversals at the top of their A list when considering opportunities to make relative and absolute returns. Hegemonic decay will impose costs unimagined just 16 months ago during the innocent hours of September 10th, 2001. War -- Sharefin, 17:26:57 02/06/03 Thu US shrugs off N Korea threat The United States has shrugged off a threat from North Korea that any decision to send more troops to the region might prompt it to make a pre-emptive attack. "Obviously the United States is prepared [with] robust plans for any contingencies," White House spokesman Ari Fleischer said in a briefing on Thursday. "But this type of talk and the type of actions North Korea has engaged in - or says it is engaging in - only hurt North Korea." US officials announced this week that Washington was considering strengthening its military forces in the Pacific Ocean. North Korea responded with a warning that that any US attack on its nuclear facilities at Yongbyon would trigger "full scale war".  Fiat -- Sharefin, 17:22:02 02/06/03 Thu Bush to Replace Head of Fannie, Freddie Watchdog The White House has announced that it will nominate Mark C. Brickell, an expert on financial derivatives, to head the federal agency that oversees Fannie Mae and Freddie Mac, the giants of the secondary mortgage market. Sources familiar with the situation said Armando Falcon Jr., head of the Office of Federal Housing Enterprise Oversight, was asked by administration officials for his resignation Tuesday morning. That was just hours before Falcon released the findings of a "systemic risk" study, which laid out a scenario in which Fannie Mae and Freddie Mac could experience severe financial difficulties that then would cause wide-ranging disruptions in the housing and financial markets. ~~~ Later Tuesday, the White House announced that it wanted to fill the spot with Brickell, chief executive of Blackbird Holdings Inc., an electronic trading system for financial derivatives. Brickell is known as an avid advocate of free markets and deregulation, a philosophy he shares with friends such as former senator Phil Gramm and his wife, Wendy Gramm, a former director of Enron Corp. Brickell used to be managing director of J.P. Morgan & Co. He declined to comment. Falcon's report, which took two years of research, was released in a speech to the Bond Market Association in New York City. The sources said administration officials as well as officials of Fannie Mae and Freddie Mac had expressed displeasure with parts of the report. Critics of Fannie Mae and Freddie Mac, however, said the report didn't go far enough. Sources said that Brickell's nomination has been in the works for a few weeks and that there is growing concern among market regulators and within the White House about the potential risks Fannie Mae and Freddie Mac pose because of their size and concentration in mortgages and related products. But the White House was concerned about the timing of the release of the report, according to sources, because the Bush administration did not want any more bad economic news coming out as it is trying to restore investor confidence. Spokesmen for both Fannie Mae and Freddie Mac denied that there had been any recent conversations involving officials of their institutions and either the regulatory agency or the administration concerning the risk report. The White House didn't return calls seeking comment. Sharon McHale, a Freddie Mac spokeswoman, criticized parts of the report, saying the "doomsday scenario was so speculative, it's just incredible to us." In the study, the agency calls Fannie Mae and Freddie Mac "very strong financial institutions" and says the possibility of either one "failing or contributing to a financial crisis is remote." But the report also presents a scenario in which one of the mortgage giants suffers large losses, which then spiral into a far-reaching financial crisis. An agency spokesman said the study looked at hypothetical situations in an effort to prompt discussion. Fannie Mae and Freddie Mac, government-chartered companies established by Congress, control more than 40 percent of the U.S. mortgage market. The two companies buy mortgages and then package them into securities to sell to investors. From the Far Side -- Sharefin, 17:18:14 02/06/03 Thu gold margin requirements have JUST BEEN RAISED) ID#30456: Copyright © 2002 Praha/Kitco Inc. All rights reserved I forgot to post the snippet... "And, I have been made aware that gold margin requirements have JUST BEEN RAISED by the exchange, and have been raised very sharply. Minimum speculative initial margin requirements will rise from $1350/contract to $2025/per contract, over 50% higher!! The classical interpretation of such a change is that the small speculators, who trade with little reserve capital, who all happen to be on the long side, will be FORCED to exit their positions. More reason to believe that we go lower. " Fiat vs Gold -- Sharefin, 16:49:03 02/06/03 Thu Fuller Money European central banks worry about the euro and sell gold In a significant sign that European central banks are indeed worried about the rise in the EUR is the release from the ECB this morning that reserves have risen EUR2.6 bln in the latest week due to "customer and portfolio" transactions. Reserves have risen to EUR228.5 bln as a result. This follows rumors this morning of more central bank selling on the EUR as well. And, for the tenth week in a row, European central banks have been selling gold into the current rally. Last week"s sales was for two tons worth EUR23 mln. --Rhonda.Staskow@tfn.com My view - The MoF could be expected to make a favourable projection, and yet it forecasts a doubling of Japan's government debt in 12 to 13 years. Will GDP double over the same period? It's just possible, but that would be a major miracle given the track record since 1990 and the deflationary problem. So how will Japan's continued debt explosion be financed? Credit creation, of course. That's money out of thin air. No wonder Japanese investors are buying gold. As for the European Central Bank, hubris aside, it has good reason to be terrified of further euro appreciation. If deflationary pressures are ascendant and Euroland couldn't generate enough growth to write home about when the euro was weak, GDP is likely to tank when the euro is bid higher as "the least ugly currency". Meanwhile, European CBs continue to sell gold, just like central banks in banana republics. How long will it be before the Stability Pact is scrapped? How long before the ECB embraces radical reflation, to fight economic stagnation and even higher unemployment? Gold -- Sharefin, 16:44:13 02/06/03 Thu Snipped From Fuller Money latest commentary Why China may swoop on the world's available gold supply. The PRC is boosting its bullion reserves as pressure to revalue the yuan increases. China's foreign currency reserves are soaring, as it becomes the global manufacturer of last resort. Competition in a difficult economic environment is causing an increasing number of multinational companies to relocate manufacturing to China. Currently, no other country can match China's combined advantages of disciplined workforce, low wages and land costs, plus a steadily improving infrastructure. And China is becoming even more competitive because the yuan is pegged to a weakening US dollar. The PRC's trade surplus is growing between $4 and $5 billion a month. Its foreign currency reserves, which are mostly held in US dollars, were $270 billion last October, according to The Economist. This figure is probably close to $300 billion today. Something has to give; otherwise China's role as global manufacturer of last resort could cause a global depression. With millions of Chinese citizens leaving rural areas, its overmanned agricultural sector and inefficient state industries for better opportunities in the new industrial zones, the PRC won't run out of willing workers anytime soon. This all but inexhaustible source of labour has kept wages low. Meanwhile, the US's rapid credit expansion and growing current account deficit is unlikely to strengthen the dollar. US M3 grew by 1.3 trillion dollars in the 24 months from January 2001 through December 2002 - an 18 percent increase, according to Jeff Fisher. This trend is unlikely to change for some time, as we have already heard from Alan Greenspan and Ben Bernanke. The Fed will pull all monetary levers in its fight to stave off deflation, double-dip recession, and to finance an expensive war against terrorism. As the dollar slides, manufacturing companies in the rest of Asia, Europe and elsewhere are under increasing pressure to move even more of their production to China, in order to compete. The alternative is for their governments and central banks to engage in competitive devaluation. Any of these trends - radical US reflation, the hollowing out of economies due to relocation of manufacturing to China, or competitive devaluation - carried to their logical conclusion, are ultimately ruinous for the global economy. Fortunately, a much more palatable outcome is likely. China will eventually have to make its currency convertible and allow the yuan to float in the world's foreign exchange markets. This would revalue the yuan upwards, removing some of China's overwhelming competitive advantage, resulting from a currency that is clearly undervalued today. There may be an interim stage - revaluing the yuan against the dollar and perhaps pegging it to a basket of currencies. Whatever, with the dollar weakening, which enhances China's competitiveness, it is inconceivable that the yuan will remain pegged to the US currency at its present level of 8.28 per one US dollar over the long term. What is an appropriate dollar/yuan exchange rate? Opinions range from 7 down to 5 yuan per dollar. A problem for China is that revaluation would result in an immediate and enormous loss on its foreign exchange reserves. Consequently China's government officials face a question of some urgency. What is an acceptable level of US dollar reserves, given that eventual revaluation of the yuan is all but inevitable? How about $400 billion, which on the present trend could be reached in a year? Presumably this would be unacceptable, assuming China's monetary authorities understand the extent of US credit creation, which they surely must. Even $100 billion seems high, but how does China reduce its US dollar reserves? It could spend some of it but the rate at which dollars are being accumulated is increasing, and the PRC will understandably want to maintain substantial reserves. It could give some of the money to developing countries, thus gaining influence, but China is not a charitable organisation. It could hedge some of its US dollar exposure in the derivatives market but that is only a temporary solution. It could exchange some dollars for euros, and has certainly done so, but how much can the single currency rise before Euroland panics and increases the supply? For the same reason, China has even less incentive to buy yen. There is no other reserve currency that is sufficiently liquid to absorb more than a tiny proportion of China's reserves. Moreover, in a deflationary environment no country wants its currency to appreciate against those of its trade partners. When they do appreciate, countries weaken their currencies by increasing the supply, as we have seen with the US Federal Reserve in recent years, as we are about to see from the Bank of Japan when the next Governor takes control on 20th March, and as we will no doubt see from the European Central Bank as an appreciating currency increases the risk of recession and deflation. This increase in the supply of fiat currency (paper money) is unofficially remonitizing gold. For anyone with a little knowledge of financial history, gold's appeal as a store of value is both universal and timeless, albeit subject to fashion. A financial Rubicon was crossed on 15th August 1971, when President Nixon announced that foreign central banks could no longer exchange US dollars for gold. From that day onwards, there was no gold-backed paper currency, for the first time ever. Without the discipline of gold, most central banks and not least the US Federal Reserve, increased the supply of fiat currency significantly. Inflation inevitably followed and the price of gold rose from its previously fixed price of $35 an ounce in 1971 to a free market peak of $850 in 1980. The world's central banks had no choice but to fight inflation, which they did by tightening monetary policy, including raising interest rates to punitive levels. This gradually restored confidence in paper currencies and gold commenced a 21-year bear market, helped by central bank sales and hedging by mining companies in the 1990s. However gold bottomed between 1999 and 2001 as investors began to realise that it was historically cheap relative to most other assets, not least stock markets. Moreover, the US Federal Reserve had commenced a massive credit expansion - creating billions of new dollars, which could only weaken the world's main reserve currency. China's obvious choice is to buy more gold while the price is low. Faced with a declining US dollar and an all but certain upward revaluation of the yuan at some future date, China has been buying gold recently. In December, it bought approximately $1 billion of gold, increasing its bullion reserves from 16.08 million ounces at the end of November 2002 to 19.29 million ounces at yearend - see also Comment of the Day for 23rd January 2003 on www.fullermoney.com. Will China buy more gold? Of course, if the country's monetary officials are smart, as I presume. Who wouldn't in their position? Could China swap most of its dollar reserves for gold? No, there isn't enough gold available. How much gold could China buy at a reasonable price? That depends on two factors - what Chinese monetary officials regard as a reasonable price, and how quickly everyone else catches on to the fact that China wants to boost its bullion reserves significantly. Why should China bother to buy gold at all if it can't buy enough to offset its dollar exposure? Because the price of gold is likely to appreciate significantly in terms of all fiat currencies over the next decade or two, even allowing for interest rates. In contrast, the supply of gold increases very slowly. According to the World Gold Council, there are only 145,000 tonnes of gold above ground, worth about $1.7 trillion at today's price. Even if China is buying, will other central banks sell more gold, especially after the European agreement to limit sales expires in 2004? Possibly, but that would not appear to be a smart financial decision, at least until the price of gold is several hundred percent higher. Who else will buy gold? Bullion's advance in the 1970s was fuelled by investors, mainly in the US and Europe. Today, they have only just begun to buy gold, led by a few private individuals and hedge funds. The main private buyers during gold's new secular bull market, which has only just commenced, will come from the US, Asia, especially Japan, and lastly Europe. However the greatest demand for gold over the next 10 to 20 years could come from China and other countries with substantial foreign currency reserves. Gold -- Sharefin, 16:39:01 02/06/03 Thu Snipped From Fuller Money latest commentary Commodities . Downside risk in gold appears limited to a small reaction and consolidation before higher levels are seen. . The big war premium is in oil. . The secular bull market, overlooked by most investors, is in commodities. Investors have only just begun to buy gold. The advance has paused following a recent high at $373.15, in response to a short-term overbought condition. I expect to see a period of ranging, during which recent gains continue to buy, knowing that the next BoJ Governor will weaken the yen. US and European investors hold little gold at present but are a significant source of future demand. Why should they buy? Two reasons - they no longer like the alternatives but everyone loves a bull market. Why buy stocks when the biggest bubble in history burst less than 3 years ago? Why buy bonds when they have already seen a huge bull market; deficits are rising; the supply is increasing, and debt problems persist? In contrast, gold is cheap relative to other investments; its bull market has only just begun and supply is limited. Much has been made of gold's war premium, estimated from $10 to $50. I think this premium is small, but likely to increase if war against Saddam Hussein becomes inevitable. Consequently, we are likely to see a temporary dip in the gold price if/when war commences, in line with whatever the consensus figure on the war premium happens to be. That should be a buying opportunity. I maintain that gold will move to at least $1500 over the next 10 to 15 years. ChartsRus -- Sharefin, 08:15:18 02/06/03 Thu Three new charts series. Barron's Gold Mining Index Barron's GMI - H&H - K-Ratio James Turk Fear Index - US M3/POG Gold -- Sharefin, 03:10:54 02/06/03 Thu Taylor On US Markets & Gold COMMODITIES - At the end of last week, the CRB broke above its up-trend channel, creating an even more bullish picture than we have seen since the start of this bull market run back in April 2002. Likewise the Rogers Raw Materials Index Fund remains on a tear. It is already up over 7% this year. BONDS - All durations of U.S. Treasury instruments remains bullish, defying mainstream experts. We think the continued strength in the Treasury instruments is evidence of deflationary pressures and that bonds will remain strong until a crash in the dollar results in huge amounts of foreign capital leaving the U.S. ~~~ Recently, US Secretary of the US Treasury, Paul H. O'Neil may well have seen the handwriting on the wall and opted out so that he would not have to face the prospects of a skyrocketing gold price and a plunging dollar. Moreover, Mr. O'Neil understood, but was forced to say otherwise early in his tenure as Treasury Secretary, that the dollar was overvalued! All hell broke loose among the banking establishment when he said the dollar was overvalued immediately upon taking office. He knew then and knows now that the dollar is overvalued and that to continue rigging the gold price -even if that were possible - would be a policy detrimental to the U.S. if not the ruling elite corps of bankers who really run America. The pernicious destructive dynamics of an overvalued dollar will not change for the new Treasury Secretary. Is the U.S. running out of golden bullets with which to shoot the gold price down? It may not matter because as Dr. Stephen Roach of Morgan Stanley has been pointing out for quite some time, and my good friend Dr. John Whitney for an even longer period of time, unless the dollar is reversed to a level that reflects actual trade realities, the U.S. economy will continue to perish. It may already be too late for America to reverse its path. A strong dollar has resulted in the rape of American wealth creating industries like mining, agriculture and manufacturing. America's ruling elite - top management of our money center banks may not care if Americans lose their jobs to the Chinese because of an unfair currency advantage to the Chinese, but the American people do care. Soon there will be political hell to be paid unless this situation is remedied. I think the Bush Administration knows that and so it must be, behind the scenes orchestrating a weak dollar policy while officially maintaining a strong dollar policy so as to avoid an outright plunge and panic of the Greenback. And since the tool used to implement a strong dollar policy was never revealed to the American people - the rigging of the gold price to lower levels - all the new Treasury secretary will have to do is quietly behind the scenes, stop suppressing the gold price. The dollar will then naturally decline as the price of gold rises. I suspect the U.S. has shot most of its golden bullets. But even if it has not, it may make no difference because the sins of a gold market rigging are now bearing down on America. We face the greatest deflationary collapse since the 1930's as a result of the most excessive debt money binge in our history so that by this time, even the establishment policy makers know that continuing to rig the gold prices at lower levels in order to strengthen the dollar represents economic suicide for America. Of course, I take the position that no matter what policies are implemented, it is too late to escape the excessive creation of money and debt orchestrated during the current 60 to 70 year Kondratieff cycle that Ian Gordon argues began back in 1949. To defy reality and win votes, the dollar lie was created by suppressing the price of gold. But now, having suppressed gold to its absolute limits, the yellow metal is getting ready to shoot to unfathomable heights like a recoiled spring with enormous pent up energy. Gold is likely in the very earliest stages of the most remarkable bull market ever even for those of us card carrying members of the Gold Bug Society. Gold is Very Strong - The Dollar is Very Weak Gold -- Sharefin, 21:58:55 02/05/03 Wed Save the Bears Andy Smith, ace precious metals analyst at Mitsui & Co., Ltd., recently released his Forecast for gold prices for the coming year. Entitled “2003: Geometry Not Geopolitics,” the Forecast is brilliant, witty and a delight to read, standard fare for the analyst who is probably the smartest and certainly the most entertaining of the gold establishment's house intellectuals. And yet, gold bugs who study Andy's output for insights into what the banks are thinking will note something different about this one: acute implausibility. Indeed, the piece strikes us as so tortured that we construe it as a cry for help. ~~~~ The Forecast's central bank segment prompts two quibbles and a cavil. First, we can't resist pointing out that while it is no doubt true that the Bank of England remains the cynosure among the lesser central banks, perhaps their admiration is tempered today by the realization that the Old Lady of Threadneedle Street picked the absolute bottom of the market to unload 395 tonnes, in the process chalking up a cool $1 billion loss for Her Majesty's hapless taxpayers, calculated at recent prices. See Gethin Chamberlain, “Brown's sale of the century cost Britain $1 bn in lost reserves” (www.thescotsman.co.uk/business.cfm?id=108312003). Second, the spin placed on Governor Bernanke's famous “printing press” speech and Chairman Greenspan's “gold standard” observations is clearly just that, spin. No serious commentary has to our knowledge interpreted either of those remarks to be other than wildly gold bullish. And last time we looked, the United States was not a signatory to DoG I. So why the bold prediction that it won't be a signatory to DoG II? Our cavil is this. We accept that all the factors cited may at the very least tend to provide additional pretexts for further central bank selling. (Bundesbank President Welteke doesn't even need new pretexts; he's been announcing his intention to sell the same reserves for months on end.) The central banks have, after all, shown themselves, on balance, to be singularly inept stewards of their monetary reserves. They loudly proclaim their contempt for gold, they work relentlessly to demonetize it, yet they refuse to relinquish control over the gold market, preferring instead to undermine it, overtly and covertly, in order to protect their competing paper product. But even given all that, we wonder whether their flesh is up to the demands placed on it by their spirit. Take Portugal, which is cited as a “most likely to sell” candidate. Now, we understand the insiders' view was that the 15 tonne sale Portugal announced on January 14 (the day after the Forecast) represented deliveries on options written a few years ago. As noted in Reg Howe's January 27 commentary, a footnote in Portugal's 2001 annual report shows that in fact it has leased out 52 tonnes and swapped out 381 tonnes out of its total 606 tonne reserve, leaving it with a mere 173 tonnes. So won't any further sales by Portugal likely consist merely of journal entries simply acknowledging the fact that their leased/swapped gold is not coming home? And we're supposed to view all this as gold bearish? Indeed, the main problem with the Forecast's central bank analysis is that it rests on two premises that students of the gold market not employed by large shorts increasingly recognize as fallacies. One is the notion that despite the Western central banks' acknowledged disdain for gold, and despite the fact that gold represents the only real challenge to their power and sovereignty under a paper standard, nevertheless they have chosen gold, of all the assets on the planet, as the exclusive beneficiary of a laissez-faire policy, subject to occasional intervention to support the price. Their only interest in gold is the desire to sell as much as they can in as orderly a process as possible because they don't want to own it anymore. The other premise is that of the roughly 32 thousand total tonnes of gold reportedly held by the central banks, only 5 to 7 thousand tonnes have been loaned to bullion banks and resold into the market. The first premise is preposterous on its face, unless one is willing, which we are not, to ascribe utter imbecility to the brotherhood of bankers. The second is more discerning. If it is correct, then the Forecast's focus on the central banks' intentions and the prospects for and terms of a second Washington Agreement makes sense. But if Frank Veneroso's estimate, supported by Reg Howe's recent analysis, that the amounts that have been loaned out and resold are actually in the range of 10,000 to 15,000 tonnes, then a bearish spin is a bit of a stretch. In that case, the notion that the gold price is artificially supported by the banks' agreement to restrain further sales would not be credible, just as even now it is not credible to identify Portugal as a likely “seller” when its own public reports show it is a spent force. In such a world, the central banks would be seen as having shot their bolt, their ability to continue their control of the market would be exposed as a myth, and analysis that supported that myth would be revealed as disinformation. ~~~ Given this long-standing predatory relationship, it comes as no surprise that in the area of market analysis as well, a weak and fragmented industry still defers to the banks. This is what accounts for the residual influence of specious reasoning predicated on bogus assumptions that so often masquerades as gold market analysis: the producers accept it without complaint. This can be seen in the conduct of their existing trade association, the World Gold Council. Organized and still dominated by producers with close ties to the banks, the WGC has pursued as its principal mission the promotion of gold as a non-monetary, non-investment commodity. The WGC's “gold-as-jewelry” approach is expected to become more balanced under the chairmanship of Chris Thompson, a talented executive from a gold miner's gold miner. However, a long awaited gold-as-investment initiative will apparently come at the cost of a complete surrender to the banks in the field of market intelligence and analysis. This is ironic, because it was Chris Thompson who noted in his remarks at the Denver Mining Investment Forum 2001 that the role of the industry's trade association should be: To manage existing and create new markets for gold To develop new products Custodianship and promotion of the image A source of accurate information And it was Chris Thompson who observed, in that same presentation, that GFMS, the orthodox source of information on the gold market, is inadequate and unreliable. Yet under Mr. Thompson's leadership the WGC has abdicated its responsibility to provide a source of accurate information, choosing instead to outsource market analysis to none other than GFMS. What is GFMS, anyway? Its website (www.gfms.co.uk/Company_Profile_History.asp) identifies it as a London-based precious metals consultancy, the “leading source of information on the precious metals markets.” Who owns it? Three individuals, two of whom are the current directors. They completed a management buyout of the firm from Gold Fields (the miners) in August 1998. Who put up the money for the MBO? We don't know. All we really know about GFMS is that it is not owned by producers. In hiring GFMS to do its market analysis, the WGC has compromised its own credibility, strengthened the GFMS monopoly and conferred legitimacy on analyses like the Forecast by enabling them to cite “GFMS/WGC” market statistics. Gold -- Sharefin, 18:19:01 02/05/03 Wed Dollar Loss and Gold Gain Needs to be Addressed by Every Investor in Gold No Matter What the Currency Unit of Your Domicile Gold -- Sharefin, 18:15:44 02/05/03 Wed Dollar Loss and Gold Gain Needs to be Addressed by Every Investor in Gold No Matter What the Currency Unit of Your Domicile Fiat vs Gold -- Sharefin, 18:10:45 02/05/03 Wed Exchange Stabilization Fund (EFS) Runs Gold Community Enraged One More time? It was crystal clear that the rally in the dollar during the Powell presentation at the UN was artificially induced by the Exchange Stabilization Fund, as was the intra-US-night top in the gold market at $390. Have you ever wondered what would happen if the Community just said "NO?" If you stared down this ESF intervention manipulative nonsense as I do and, in fact, sold them their last US dollar, or took both sides of their gold play today to your advantage. I have. Why are you allowing yourselves to be toyed with by such obvious ESF intervention moves? Powell almost convinced Saddam Hussein to invade himself as his presentation was so clear and he is respected as the dove amongst hawks. It even took the talking heads a few minutes to figure out how to explain a stock market rally and dollar rally. They announced the stock market and dollar rally as the product of Powell's presentation to the UN because it "took away uncertainty." Now that has to get the award for spin city speak because in English it means; "Now we are certain the US is going to Iraq, therefore, it is fine to buy equities and the dollar." Huh? I have pointed out to you what they look like when they play and how to play them. Gold is going over $400 and looking back from the other side. Until gold is over $400, it is my opinion that using TA and buying the dips is as safe as gold can ever be. Selling any rise over $10 in one day is simply good sense. Conclusion: Gold is going over $400 on this leg of the long-term gold bull market. Silver -- Sharefin, 18:02:23 02/05/03 Wed High-low silver! It seems the only time we hear about the silver market is when we're already talking about the gold market. Most of us know the Lone Ranger's horse was Silver, and only a silver bullet will kill a werewolf, but there are other unique market factors that put silver in a volatile class by itself. The right combination of them could spark a silver rally-or bring the market crashing down. Of all the metals, silver is the best conductor of electricity (gold is also good, and is more resistant to corrosion). Twenty-eight per cent the world's silver is used in photographic paper and film, including medical and dental X-rays. Twenty-five per cent is used in jewelry and electronics such as connectors, contacts, and batteries. In some cases, silver is used in the water-filtration process because of its ability to kill bacteria cleanly. But the largest portion of the world's supply is in the form of currency, which brings us to its other function-a hedge. ~~~~ Right now, demand is mixed. On the upside, the popularity of cordless power tools has battery manufacturers boosting their silver orders. Because it's the best conductor of electricity, patents are filed every week with the U.S. Patent Office outlining new uses for silver. Any increases in demand, however, could be offset in the age of digital photography. More and more photographers-especially in the retail market-are trashing their film canisters in favour of a more convenient disc that doesn't require silver. Demand for silver has exceeded the mine supply for more than a decade by 100 to 150 million ounces a year. On the supply side, very little silver is actually mined. About 70 per cent of the silver that is mined comes as a byproduct of other mining ventures, including explorations for gold, copper and zinc. In most cases, miners find silver when they're looking for something else, which allows little control over supply. Because it's not the primary resource, producers often sell the silver on the spot market and use the money to fund their primary mining operations. The practice puts downward pressure on silver prices, since producers accept the going price. This supply-side deficit is what makes silver so peculiar. In the silver market, supply is decreasing, demand is increasing, and the long-term price is falling. No other commodity defies the laws of supply and demand like silver. David Morgan, a silver analyst with Silver-investor.com, blames the phenomenon on the huge short positions in the silver market. He says there is more silver on paper than actually exists in the world. "It is a pathetically small market and is dwindling all the time" he says. He adds that if big silver investors like Warren Buffett, George Soros, and Bill Gates decided to double their positions, there would not be enough silver to fill the order-and the market would collapse. He says the threat is compounded as investors start to lose faith in the U.S. dollar and look for hard assets. Most commodity positions, however, never result in the buyer taking delivery, and the jury is still out on exactly how much tangible silver actually exists. Rough estimates have pegged the world supply at between 300 million and a billion ounces. Since silver is a consumable item, that number is expected to be falling. Still, if the facts are right, a spike in demand could lead to mass default. David Morgan says regulators are not taking the threat seriously enough. He suggests regulators step up to the plate and place limits on purchases for buyers not using the silver for manufacturing. So there's plenty to fear in the silver market, and it's more than just werewolves. Fiat -- Sharefin, 06:38:14 02/05/03 Wed A Long Economic Winter Simple arithmetic, knowledge of how the world works, and common sense, are all that are needed to see that a long Real Recession lies ahead. The pillars of the U.S. economy: Business, Real Estate, Financial Markets, the Consumer, and, the Government, are still pointing down. In order to meet demand, businesses still have too many workers, too many plants, and too much capital. The $8 Trillion drop in equity values will force companies to write off at least another Trillion in corporate “Goodwill” from their balance sheets. Companies that acquired other companies for stock during the bubble, clearly overpaid. That “Fiction” was booked as Equity in the form of Goodwill. Now that the “Fictional Equity is vaporizing, it is leaving companies with new problems meeting debt to equity covenants with their banks and bond holders. In addition, the drop in equity values has “ripped up” company pension funds. The S&P 500 pension funds alone are suddenly $280 billion under-funded, and major corporations that keep an assumption of an annual 9 - 10% return on their investments are long past the “Laugh Test” for credibility. Corporate revenues are not “Snapping Back”. Indeed, corporations have far too much debt to service, and corporate credit spreads are at record levels. The junk bond market is rapidly expanding because of “Fallen Angles”, and in the next year or two we will certainly see many “household” names of major firms go bankrupt like United Air, Household, and Ford. United Can't afford to pay its airline pilots up to $300,000 a year; Household can't keep making credit card loans to people who will lose their job; Ford can't fund its pension fund and sell cars to people with bad credit, at no profit and at zero interest. The Federal Reserve has tried adding massive amounts of liquidity, and the credit markets are finally waking up to the reality that liquidity doesn't make “Bad Loans Good”, it makes “Bad Loans Bigger”. Companies can no longer borrow their way to meeting cash-flow needs. Companies are forced to cut new investment and slash employment. If there is any need for new investment, it will certainly be in China, where labor cost 10% of what it does in the U.S. When history is re-written in order to match the actual acts, much of the recent U.S. “Productivity Boom” is nothing more than a strong dollar, importing parts made with “cheap Asian labor”, and final assembly in the U.S. Business is going to continue to be a big negative for the economy and the job market. ~~~ Banks and the GSEs are acting as if housing prices can only go up, and have lent to very marginal borrowers. The good news is that home ownership is at record levels for the population. The bad news is that the records for homeownership will be replaced by new records for housing foreclosures. Look forward to a very long winter for housing and commercial real estate. The financial markets are still signaling “Major Bubbles”. While the stock markets have started to correct, and have wiped out $8 Trillion in the U.S and at least $20 Trillion worldwide, the major bubble in the debt and credit markets is just stating to unwind. The Federal Reserve created the bubbles and has been desperately trying to protect them with massive injections of liquidity, and encouragement of credit creation. However, the credit markets are beginning to catch on: adding liquidity to markets doesn't make “Bad Credits Good”; it makes “Bad Loans Bigger”. Too many credits are already too big. Argentina has defaulted. Brazil will default. Turkey will default. United Airlines and Conseco will file bankruptcy. There is a huge list of companies and countries that cannot pay back what they have already borrowed. Lending them more money will change the date of default and increase the amount. The credit markets are saying that you just can't find anybody that wants to be the “New Lender” to help “Bailout the old Lender.” The problem for the financial markets is that one firm's debt is a financial institution's asset. As loans default, they destroy real equity capital in banks, insurance companies, hedge funds, CDO's, etc. The capital markets and financial institutions depend on leverage. As equity is destroyed, their ability to leverage and lend is destroyed. Downgrades of a bank like JP Morgan Chase make it harder for them to take on risk. They already have over $20 trillion of derivative exposure. If JP Morgan Chase's derivative book for interest rate swaps, credit derivatives, structured equity notes and other market bets were put back on balance sheet, they would make the balance sheet of Long Term Capital look quite conservative. In the financial system there are over $100 Trillion of derivatives. Most of these were booked based on pricing models that assumed that markets do not move more than three standard deviations from long-term trends or averages. We now live in a world where many markets have easily moved four or five standard deviations from the norm. Major financial institutions have tremendous losses that have not jet been realized. The only steady source of earnings for the financial sector is funding long term Treasury notes and mortgage assets with short term CP or Fed Funds. If you think an economy is healthy if it offers a return on a 10-Year Treasury Note of 3.60%, it means you don't think. The “Bond Bubble”, based on low and lower short term interest rates, is a catastrophe waiting for the first time the Fed raises interest rates. If the Fed is true to form, it will cut short term interest rates to make this Bond and Agency Security Bubble as big as possible. The financial markets do not offer a quick fix or a long term solution to our current economic problems. Indeed, the financial markets are the problem. Only “de-levering” the financial markets will restore them to health. However, de-levering means less debt, less borrowing, more saving, and much less spending. Less spending means less economic activity. Will the consumer spend us back to prosperity? The answer is with what? The consumer has been conditioned by the stock market bubble. Since the stock market would take care of his retirement, there was no need to save. Indeed, the consumer could spend every dollar he earned and every dollar he could borrow. This leads us to a world where 1.6 million consumers are now filing for bankruptcy every year. This year the U.S. Treasury will collect $180 billion less in taxes from individuals than last year. That means that $600 billion of income and capital gains has gone missing. This year single family mortgage debt will be up $600 Billion. Borrowing helps keep spending alive. But at some point, decreasing incomes and increased borrowing just don't add up, particularly when pension funds and 401K's have been nuked by the Bear Market. Borrowing to spend means that you are spending other people's money. It's wonderful; it's fun; Unless, of course, you are the lender. With low incomes, no bonus, job loss, no new jobs, record bankruptcies, and record home foreclosures, we are starting to see consumer spending sag, and slowed down lending to people who can't pay. The consumer pull-back will trigger the Long Economic Winter. With Congress approving going to war, you would think that the boost in Federal spending needed for the war effort would boost the economy. The government is not doing enough. While the Federal budget is going into deficit, more of the deficit is coming from a drop in tax revenue than new spending. Moreover, state and local governments are headed for $80 Billion in deficits; except, these governmental entities are not supposed to run deficits. While state and local borrowing is rising, so will taxes and cuts in programs and employment. Because of the November elections, needed fiscal policy will be postponed until next year. Without massive, immediate fiscal stimulus to offset the major negative forces from business, real estate, the consumer, and financial markets, common sense and arithmetic add up to a very Long Economic Winter. Richard Russell -- Sharefin, 05:35:17 02/05/03 Wed Russell on Gold My old friend, Bob Prechter has been saying that what we're in is an upward correction in a basic gold bear market. Bob has a wide following, and he's as smart as they come. Bob has also been saying that gold is now topping (although he concedes that gold over 390 will cause him to revise his thinking). Finally, Bob believes that "the gold bear market" will end with gold selling at around 200. OK, for the sake of argument, let's say Bob is right and gold goes to 200. Bob is also talking about the bear market in stocks taking the Dow to below 1000. If the Dow sinks to below 1000, it will have lost around 87% of its current value. If gold sinks to 200 it will have lost 45% of its current value. In other words, you would still be better off holding gold than common stocks, and we're talking about the Dow, not the general run of stocks that would probably do a lot worse than the Dow. Furthermore, if the Dow were to sink to 1000 the Fed would be on its way to literally destroying the dollar (which they're doing now anyway) in its effort to reinflate. The Fed has already stated that it has a "printing press" and it will use it, if necessary, to fight deflation. Since gold is denominated in dollars, how could gold drop to $200 in the face of a dollar that is being literally wiped out? The answer -- it's impossible -- unless the Fed turned around and embraced deflation. Conclusion -- I don't see any way that gold could sink to $200, and if somehow it did, it would still be the best thing to own. How about other currencies? If the Dollar was destroyed, since most nations own the dollar as reserves, the entire world would be in a state of severe deflation, in which case I would still rather own gold. Right now investors are divided into two camps -- those that believe that inflation is our future, and those who believe that deflation is our future. Those who believe that deflation is our future are buying the "safest" bonds, which are US Treasuries. Thus, the rising 30 year T-bond, which is confounding all the experts (including the Pimco crowd) by pushing close to recent highs. But deflationists are also buying gold on the thesis that if we go into deflation, the huge towers of debt will crush the nation, and in which case the safest place to be would still be gold. As for those who believe our future is Fed-generated inflation, they are obvious buyers of gold on the thesis that the dollar will ultimately go to hell. Thus both inflationists and deflationists can make a case for buying gold. Here's the Russell case for buying and holding gold Each year there is less production of gold, meaning the actual supply/demand equation is favorable for gold. China and Asia are exporting deflation, while the Fed is fighting deflation by inflating the US money supply. The US trade deficit is going through the roof. This is putting increasing pressure on the dollar. The Bush administration will be generating massive deficits as far as the eye can see, at least $1trillion over the next five years. The existence of terrorism will mean that the US is on the path of endless spending for security. The dollar is in a bear market that promises to take the dollar vastly lower over a period, not of months, but of years. US citizens, cities, counties, states, and the federal government are up to their eyeballs in debt. The only financial item around that has no debt against it is gold, the only real money. Third world nations are not honoring their debts, thus faith in debt and paper money is declining rapidly. All the above point to an almost unique situation in favor of real money -- gold. Further comments -- I'm asked how high I think gold can go? My answer is that I don't know, I can only guess. One guess is based on the thesis that I believe we are still in the first phase of the gold bull market. This is the accumulation phase. At this point the public doesn't even know how to buy gold. How do I know this? I know because I receive e-mails every day from younger subscribers who ask me how or where to buy gold. When gold went into it climactic bull market phase during late-1979-1980, gold topped out at 850. To convert 1980 dollar to current dollars multiply by 2.1819. Thus gold at $850 gold converts to gold today at $1,853. Thus if the current gold bull market was to take gold to a comparable 1980 high, gold would rise to above $1,800. But in my opinion, the current situation is far more serious than it was in 1980 -- and far more bullish for gold. This gold bull market is still in its first (psychological) phase. It still most go through its second phase which will see the entrance of the public and the funds. Then in the final phase gold will become highly speculative as in late-1979. How high could the third phase of this gold bull market carry the yellow metal? You make the call. My thought -- based on my own experience with bull markets -- gold will ultimately carry farther than anyone today thinks possible. The problem for my subscribers who own gold and gold shares -- to have the guts and faith to hold their gold coins and shares through all the threats, corrections, rumors, and scares that will materialize all along the way -- until the gold bull market ultimately "blows its top." Lenny's Corner -- Sharefin, 05:32:25 02/05/03 Wed GENERAL COMMENTS: The past trading week saw most of the precious metals markets take a bit of a respite, as prices for gold, silver, and palladium remained rather flat, while platinum rocketed to 17-year highs as major shifts in the fundamental supply/demand characteristics fueled an explosive rally. These markets remain very much a "one way street" with investors and speculators continuing to pile on the long side of the market. The bullish fervor in gold is now unmatched since 1980, with gold's successes being touted by mainstream publications and by the financial news stations. We will see the statistics later on in this commentary, but speculative interests on Comex have now amassed the largest net long position in history, perhaps as much as 13 million ounces as of this date. And, with the drums of war beating loudly, and the imminence of conflict approaching, no one cares much for short positions in gold. This newsletter has been commenting for months and months that this is a "new" gold market, that the price is being determined not by the actions of the users or producers in their purchases/sales of physical product, but by the psychology of the investor/speculator in their purchase/sale of derivatives and futures. Physical product remains completely unloved and lease rates, in gold, remain at virtually zero, while the price of gold screams higher and higher. This is neither good or bad, it is simply the driving feature of the market at this time. But, since investor psychology can turn instantly in response to geopolitical events, it is important to understand that more short-term risk is now more intrinsic in this market than we have seen for decades. Gold is, in my opinion, most certainly in a long-term secular bull market, for ALL the right reasons. As the USD continues to falter, as the equities markets continue their slide, as the paradigm shift from "paper" assets to "hard" assets builds a bit of momentum, as the budget deficits of the USA swell, it becomes apparent that gold must rise in response. But these fundamentals, and others too lengthy to present here, do not convince me that we belong at $365+ in gold, at least not yet. There is most certainly a "war premium" built into the price and a peaceful solution to the Iraqi war, whether it comes as a result of a quick and decisive war or by other means, will turn investor psychology around very quickly and a vicious drop will be seen. Or, on the other hand, if the Iraqi situation becomes worse than the market believes, the gold market will scream higher. All depends on the news at this point. The question now arises as to how big or how small is the "war premium" currently built into the price of gold. Some analysts are claiming that it could be as high as $50 per ounce, while some estimate it as only about $20. There are very few that claim it is non-existent. My view is that it is quite high, and that IF the world reverts to some sort of normalcy (and that is a very big IF), that the price of gold MUST fall low enough to reinvigorate physical demand, which is almost vaporous at present. Actual physical buying of the metal creates a "floor" for the gold price, and brings a reality to the marketplace not evident in the wild swings of hope, fear, and greed engendered by the psychology of the speculative concerns. While it is true that we may see a sharp decline in the gold price if the world straightens out, it is also true that this discussion could be simply academic, as gold may go much higher if the bonfires of fear grow larger. Again, all depends on the news and the headlines. As a trader in this market you are NOT trading a commodity, you are not trading gold as a currency or as a "monetary metal", you are trading the ebb and flow of the news reports and the headlines. And, recently, the news just keeps getting worse and worse and the gold price has continued higher and higher. OK, we have talked about the current psychology of the market, and pardon me for bringing in some fundamental realities, as they seem to be rather unimportant. India, the world's largest demand market, has seen gold demand drop by at least 50% in 2002, to about 267 tons and prospects are strong for another sharp decline in 2003. In 1997, Saudi Arabia demanded about 250 tons of physical gold, while in 2002, this number fell to about 150 tons. Physical gold imports into Japan remain at levels unimaginable given their financial and economic morass. I have heard the gold market being called a "speculative bubble" by some in the Wall Street Crowd, and this characterization is laughable given the irrational exuberances seen in the stock markets over the past 5 years. Gold is up some 10% since the middle of December, and has risen in what could be called a most placid and determined manner, and has rallied for VERY good reasons. We have not seen much irrational exuberance, we have not seen volatilities shoot skyward, and the market has been very well supported on any dips. Yes, there is risk in this market at this point in time, but I would shout that, at worst, it is perhaps 10%-15%, at most. Conservative investors in the gold market, who bought at our recommendations over the past years, should be rather comfortable with such risks balanced against the future probabilities of higher prices. As a short-term trader, which is a very different thing from the classical investor, these are dangerous times. If you are long, use close stops. If you get long the gold market, use tight stops. With this market dramatically overbought, with speculative concerns carrying record long positions, there is the distinct possibility of a gut-wrenching and vicious drop if the headlines turn peaceful and investor psychology reverses. Longer term investors, who are not leveraged to any great degree, should just sit and enjoy the show, and be aware of the risks. Gold -- Sharefin, 05:13:24 02/05/03 Wed As War Worries Dull Dollar, Gold Glitters As harbingers of war gather, investors are pouring into gold, the oldest of all safe haven investments and increasingly selling dollars. ADVERTISEMENT But the yellow metal's bounce - and the dollar's woes - may be more than just a temporary reaction to worries ahead of a potential military conflict, strategists said. The underlying accelerating bid for a range of global assets in addition to gold, including the Swiss franc and a range of higher-yielding non-U.S. sovereign debt, points to longer term factors that are increasingly playing to the dollar's detriment and to gold's advantage, strategists said. "What's driving gold is a basic weakness in the dollar we have been seeing, which is a longer term underpin" for the precious metal, said Thomas Boustead, metals analyst with Refco LLC in New York. Indeed, many analysts believe the unwieldy U.S. current account deficit, a widening trade deficit and a bid by other central banks around the world to artificially depreciate their currencies is increasingly prompting investors to bet on gold. As the dollar sagged to new four-year lows against the Swiss franc - a classic refuge in times of military conflict - gold hit fresh six-year highs Tuesday around $380 per ounce. Stocks meanwhile, clocked up hefty losses in Europe and the U.S. The precious metal was buoyed largely by a surge of buying ahead of U.S. Secretary of State Colin Powell's presentation to the U.N. Security Council on Wednesday. In addition, worries about a potential standoff between the U.S. and North Korea are also bruising the dollar and sending flows into gold and an array of other perceived safer haven assets. Analysts cite the potential for a near term relapse in gold prices and a brief dollar bounce, if Powell's presentation persuades more potential allies to back the U.S. in any conflict. If not, that could send gold climbing through technical resistance levels around $384 and $386, and then above $400 before a war even starts, said David Rinehimer, director of futures research with Salomon Smith Barney in New York. Peaceful Resolution Would Surprise Mkts Financial market investors are by and large becoming skeptical that a peaceful resolution with Iraq will materialize, so any unexpected hope of a diplomatic solution would certainly throw gold for a loop, driving the price down to around $340 per ounce, Rinehimer cautions. Otherwise, the focus will remain firmly "on the geopolitical uncertainties which are creating demand for safe haven assets such as gold and Treasurys and (causing) the move out of the dollar," said Rinehimer. "A war and high energy prices could further weaken U.S. economic growth," he added. As evidence of this flight to quality, crude oil was trading above $33 per barrel Tuesday afternoon in New York, the benchmark 10-year Treasury bond's yield was at 3.95%, down around four basis points on the session. The equivalent German bund, a proxy for European sovereign debt, was at 4.02%, down a steeper seven basis-points. A stronger bid for bunds reflects the steadily firming bid for high quality government bonds outside the U.S. in countries that aren't directly implicated in a potential war with Iraq. Cross border bond market flows roughly quadruple the volume of equities' shifts, so are a key force that may continue wearing down the dollar and indirectly encourage more of a bid for alternative assets including gold. Another even longer term shift that could damage the dollar further, but is less directly beneficial to the yellow metal is central banks' slow but persistent rejigging of the reserve currencies and other assets they hold. Since the dollar embarked on its current decline a year ago, central banks in Russia, China and some other Asian countries have alluded to their efforts to reduce dollar exposure somewhat. With some 75% of global central banks' reserves in dollars and a mere 10% in euro, the single European currency is the chief candidate likely to benefit from this reallocation drive. Gold remains one of the available "undollars" for central banks, holding the attractions of a very liquid asset, especially in times of global turmoil. Gold -- Sharefin, 05:11:26 02/05/03 Wed Sitting on a gold mine, banks chase buyers now MUMBAI: As gold prices touched a seven-year high, select banks find themselves saddled with huge stocks of the yellow metal for which there are no takers. With jewellers - their prime buyers - lapping up recycled gold offloaded by households and small traders, the banks are left high and dry with gold holdings. Stocks with these banks would between 250,000 to 300,000 TT bars, worth close to Rs 200 crore, a senior banker told ET. And, with the Budget weeks away, there is growing fear among banks that they will have to take a hit if the FM announces a cut in the customs duty on gold. These banks took a hit last year, when the customs duty was lowered from Rs 400 to Rs 250 per 10 gms. "The hit could be far worse this year since stocks have not moved since December," said a banker. ~~~~ Again on Tuesday more than 250 kg of gold was dumped in the city market from Kerala, Gujarat (Surat) and local parties. This was in addition to an equal quantity offered on Monday. "One wonders how long will this go on, since there is no demand," said a dealer. Even buyers are jittery. "Waiting indefinitely at a high price is "too risky," admits a jeweller. "Today it may be quoting at a fantastic level due to war fears, but who will take the losses when prices crash?" he asks. The days of gold smuggling seem to be over. Bullion dealers feel that illegal export of gold and scrap may take place if the two-way traffic is not permitted. All these years India was the largest importer of gold (both officially and through smuggling). The government has opened up the imports and reduced import duty to check smuggling. "This is, however, one-way traffic and it is now time to liberalise gold trading further by allowing exports of gold and scrap, before hedge trading can be permitted," said another jeweller. Gold -- Sharefin, 05:09:02 02/05/03 Wed Central Bank: Foreign Currency Reserves to Reach $55Bln in 2003 The Central Bank expects its gold and foreign currency reserves to rise to $55 billion by the end of 2003, but at a slower pace than last year, a senior bank official was quoted by Interfax as saying Monday. Gold and foreign currency reserves soared to $47.8 billion at the start of 2003 from $34.5 billion a year ago, propelled by high oil prices, Russia's key export item. "Apparently there will be no such fast rise [of reserves] as we saw last year. It is clear that influx of hard currency to Russia depends on prices for crude," Central Bank First Deputy Chairman Oleg Vyugin said. "According to our moderate estimates, gold and foreign currency reserves could come to $55 billion by the end of the year." The Central Bank has been mopping up excess petrodollars and carrying them over into its reserves to curb ruble strength, often blamed for reducing competitiveness of local producers against foreign goods. But it had to print rubles to make the dollar purchases, thereby fuelling inflation. Vyugin said gold should account for no less than 10 percent of the Central Bank's gold and foreign currency reserves. "Basically we are satisfied with the amount of gold that we have now," Vyugin said. The Central Bank had gold valued $3.74 billion in its vaults at the start of the year. Last week, the Central Bank said 75 percent of its foreign currency reserves were held in dollars and more than 20 percent were invested in euro-denominated assets at the end of 2002. ---- So the Russian Central Bank is saying that it should hold 10% of it's reserves in gold & currently it has $3.74 bilion in gold & will presumably raise this to $5.5 billion this year. The difference is $1.76 billion or at $380 gold equates to 4.6 million ounces or 144 tonnes of gold yet to be purchased. This equates to approx 5% of global gold production. Gold -- Sharefin, 05:01:09 02/05/03 Wed Gold Of The Atlantic Ocean The mountain of gold, silver and other precious metals in diameter of 16 m was found 2,5 miles from the center of Atlantic. An embankment comparable on the size with the cosmodrome in Houston, Texas, as experts consider, is only a small example of riches, which can be found near the volcanic "gates" on a sea-bottom. The doctor of geology Peter Ron from state university Rutgers, New Jersey, who has made this discovery, has declared: "For creation of these deposits it took nature at least 50 000 years. The embankment substantially consists of various combinations of metals copper, iron, zinc, gold and silver ". The doctor Rhone in magazine Science, said that the ocean bottom abounds precious minerals and biomaterials. Actually, the majority of minerals of the sea were thrown out from depths of the earth's crust covering as well the bottom of the ocean. Cracks in the bark allow water to filter on many miles to hot layers of cloak. Here water is heated up to extreme temperatures and is forced to blow upwards, creating the underwater volcanic gates, known as "black smokers". Gold -- Sharefin, 04:57:32 02/05/03 Wed Gold diggers say Russia's gold output to grow in 2003 The volume of gold production in Russia will increase by 10-15 tons to the level of 190 tons in 2003, Viktor Tarakanovsky, the Chairman of the Russian union of gold diggers, told RosBusinessConsulting today. According to him, the advance in the volume of gold production will be due to the launching of new enterprises and modernization of old facilities in the Irkutsk, Khabarovsk, Chukotsky and Amur regions and in Yakutia. According to the union's estimations, Russia's gold output amounted to 175 tons last year. Gold -- Sharefin, 04:51:43 02/05/03 Wed TOCOM logs record volume as gold turnover surges Japan's biggest commodity futures exchange logged record trading volumes for a third straight day on Wednesday as investors piled into gold and energy contracts ahead of a key speech by U.S. Secretary of State Colin Powell. Turnover of all commodities on the Tokyo Commodity Exchange came to a staggering 1,044,530 lots, well up from Tuesday's 739,006 lots, the previous record. Brokers cited war fears and tensions over North Korea's nuclear ambitions as reasons for the explosion of speculative activity. "I was expecting a lot of volume, but not this much," one broker said. Gold accounted for the lion's share of trade, chalking up an astonishing 524,674 lots, or 525 tonnes, as futures surged to 10 1/2 year peaks ahead of Powell's speech. That compared with a previous record of 340,676 lots in February 7, 2002, when fears of a financial crisis sent Japanese investors scrambling for safe-haven assets. On that day, trade came grinding to a halt as the computer system failed to keep up with the glut of orders. Brokers said a new system installed over New Year prevented problems this time around. Powell, due to address the U.N. Security Council at 1530 GMT, has pledged to provide "sober and compelling proof" that Baghdad is hiding banned weapons of mass destruction from arms inspectors. Fears that his speech could be a harbinger of war in Iraq prompted heavy buying in TOCOM energy futures as speculators pondered the impact of any war on global oil supplies. Gold -- Sharefin, 04:48:07 02/05/03 Wed TOCOM gold storms higher in record-breaking trade Tokyo gold futures rushed to 10-½ year highs in record-breaking trade on Wednesday as nervous investors shoveled money into the traditional safe haven. Hours before a speech by U.S. Secretary of State Colin Powell that many see as a prelude to war in Iraq, the Tokyo Commodity Exchange logged its busiest-ever session as speculators piled into gold and energy futures. Gold turnover was estimated at a staggering 524,674 lots or 524 tonnes, up from Tuesday's 294,510 lots. Turnover for the benchmark December contract alone was a jaw-dropping 397,714 lots. "I was expecting a lot of volume, but not this much," a broker said. "The trading houses really bid up the the market and everybody followed through, including the general speculators. December (JAUZ3) settled up eight yen at 1,469, having risen to 1,489 yen before profit-taking set in. It was the highest level for benchmark gold since August 1992. Other months (0#JAU:) gained between eight and 16 yen. Brokers strained to remember the last time TOCOM was so frantic, with activity dwarfing even the stampede seen last February when fears of a financial meltdown sent Japanese running for the shelter of safe-haven assets. TOCOM's historic gains reflect increasing anxiety over a possible U.S.-led attack on Iraq and jitters over North Korea's nuclear ambitions. Rising oil prices, slumping stocks and a weak dollar have added fire to the recent rally, which on Wednesday propelled spot bullion to levels not seen since September 1996. U.S. Secretary of State Colin Powell has said he will provide "sober and compelling proof" that Baghdad is hiding weapons of mass destruction when he addresses the U.N. Security Council at 1530 GMT. Meanwhile, North Korea said on Wednesday it would take "stronger self-defensive measures" in response to proposals to beef up U.S. forces in the Pacific region as a deterrent to the communist state in the event of war in Iraq. Gold -- Sharefin, 04:36:19 02/05/03 Wed Gold tipped to continue strong run The Australian Gold Council says the yellow metal should continue to rally driven by the threat of war with Iraq, a sliding US dollar and volatile sharemarkets. Council chief executive Tamara Gorrie says "the planets do look to be in alignment". "And all indications are that gold is headed for a bull run after five or six years of particularly bearish conditions," she said. "We are very optimistic regarding the gold price and its implications for the Australian sector." Gold -- Sharefin, 04:33:44 02/05/03 Wed Once Again, Stocks Not as Good as Gold As major stock proxies battled around headline-grabbing levels of Dow 8000 and Nasdaq 1300 Tuesday, gold soared to yet-another new high in its now 2-year-old bull market. ~~~ Metal Madness Gold's latest rise indicates recent purveyors of the "gold is topping" theory were panning in the wrong river. But none of the toppers cited here recently were tossing in the proverbial towel on Tuesday. "Even if the bulls are correct on a larger trend, you'll still get some correction here," said Steve Hochberg, co-editor of The Elliot Wave Financial Forecast. "We're very extended in terms of price and sentiment." On the sentiment front, I can confirm that hard-core "gold bugs" have been proud as peacocks lately and loud as a swarm of locusts. Meanwhile, www.WhisperNumber.com is now including gold sentiment among its offering, another sign of the sector's heightened visibility among momentum types. Finally, several gold producers have accessed the capital markets with secondary offerings and/or planned other financings lately, something few other groups can manage. "This is a typical spike ending to a commodity move," Hochberg said, noting gold is in its fifth wave, which is the final of the Elliott Wave sequence and tends to be dominated by emotions. A longstanding belief that deflationary forces are unfolding and will intensify is the key element to Hochberg's intermediate-term caution on gold. Analysts at Elliott Wave International are "very dogged bulls [on gold] long term because of the fiat money system," he stressed, but believe "the odds for the metal to go down are high" in the near term. Nevertheless, a close above $400 per ounce would negate that view and suggest a bull market that should carry gold to $1,000 per ounce (albeit not directly), Hochberg said. "We're not dogmatic. The markets are going to determine whether to be bullish or bearish." Gold -- Sharefin, 20:18:30 02/04/03 Tue Let's Get Physical The big story today was written in the precious metals market. It was hard to ignore it. The price of gold exploded with prices surpassing a six-year high. Gold bullion closed just shy of $380 an ounce at $379.90 an ounce. In the after markets, gold is up an additional $2.29 an ounce at $382.19. ~~ Gold Returns as MONEY However, there is another element here that isn't discussed as widely in financial circles, and that is gold, once again, is reverting back towards its historical role as real money. In addition, it is also assuming its role as a safe haven and refuge in times of crises. In the last decade whenever a financial crises or geopolitical crises would erupt, investors headed for the dollar. Throughout the 1990s, from the peso crisis in 1994, the Asian crisis in 1997, LTCM and Russia in 1998, Y2K in 1999, to the recession and terrorist attacks of 9-11, the dollar supplanted gold as a refuge of safety providing shelter from the storm. Now the dollar is in a freefall, and this time around investors are putting their money into precious metals, gold, silver, and platinum. The prices of all three precious metals are rising in response to each new financial or political crisis that erupts. It is also not just a freak occurrence here in the US; it is becoming a global phenomenon. Gold is rising against all major currencies around the globe. It started in Asia where after a decade of deflation and multiple recessions, Japanese investors are pulling their money out of banks and buying bullion. It just isn't investors here in the US, or anyone country in particular; it is everywhere from Latin America, North America, Europe, the Middle East and Asia. This can be viewed from the world gold indices taken from our gold site. Gold is becoming money again and silver will shortly follow with a more explosive upside. Gold -- Sharefin, 13:49:31 02/04/03 Tue MEDIA RELEASE New gold investment product Gold Corporation, a statutory authority of the Government of Western Australia and operator of The Perth Mint, today announced its intention to issue a new gold investment product. The Perth Mint Gold Quoted Product ("PMG") would be a gold bullion product tradeable on the Australian Stock Exchange (“ASX”) and aimed at Australians seeking a convenient way to invest in physical gold, the Corporation said. The PMG would be structured as a call warrant under ASX Business Rules. Gold Corporation said it would make an application to the ASX to have the product quoted so investors could purchase PMGs through brokers. The non-leveraged PMG would be fully backed by gold owned by Gold Corporation, and its ASX price is intended to track closely the international spot gold price. The Corporation said a PMG holder would have the right to exercise the PMG and call for physical delivery of the underlying gold at any time before the PMG's expiry. A Product Disclosure Statement will be made available to investors on release of the PMG. Gold Corporation expects The Product Disclosure Statement to be released by 28 February 2003. Interested investors should read the Product Disclosure Statement, which will be available at www.perthmint.com.au on the release date. The Corporation said it would continue to offer The Perth Mint's existing precious metal depository investment products in addition to the new PMG. Further information: Michael Kile, Manager, Business Development, Tel.(08) 9421 7401. The Perth Mint Buildings, 310 Hay Street, East Perth, Western Australia 6004 Postal Address: GPO Box M924, Perth, Western Australia 6001 --- This new trading vechile looks to be a boon to Australian Goldbugs - not only will you be able to trade this vechile via bids on the buy/sell (narrow spreads) but you can also use it for taking delivery. Imagine buying gold as easy as buying a share & you don't have to take delivery but can on-trade it if you wish. You'll also be able to preplace buy/sell bids in the expectation that if the price moves tou your price then you'll get filled. Seems like the ease of fiat with the backing & ownership of physical when desired. And backed by the integrity of the Perth Mint. What more could a goldbug want. Forum archived -- Sharefin, 13:46:53 02/04/03 Tue Yet again the forum has archived all posts. Click here to view all messages |
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