It could be said that wise counsel never grows out-dated, and many of the topics discussed in WCM's Bullion Market Insights are really timeless in scope.  Observations have been made on the Macro-environment in many instances, a perspective that can only change significantly over long periods of time.

                    


September 27, 2003:  The Planets Have Aligned for the Precious Metals.

Don't think twice about the late week correction in the precious metals after gold hit $392, silver hit $5.34, palladium hit $234, and platinum touched $730 per ounce, because it is only the pause that refreshes in a market steadily gaining momentum to the upside.  This is when more investors should be stepping up to the plate with new and additional purchases, but the majority of investors still don't get it.  Watching the new bull market unfold in the precious metals is like a father in the delivery room rejoicing at a new whipper-snapper coming into the world.  Many of us insiders in the bullion industry have been forecasting this day for years now, as many as 5 to 6 years for some of us, and the feeling of self-satisfaction at being right could not be greater.  This is not a smugness that comes from elevated ego, but comes from having done years and years of research and analysis in a very Financial-Asset-Centric World and from having come up with the correct likely outcome.  Investing, as in running a business, is all about probabilities.  The odds were historically against a continuation of the Status Quo New Era of Speculative, Leveraged Investing and toward a rebirth of demand and price gains for Tangible Assets.  And that new bubble of some 3 years now, the Real Estate Bubble, is squarely in the former speculative, leveraged category than in the latter.  While tangible in form, real estate price gains and excessive leveraging will prove as ethereal as the Dot.com bubble of 2000.  There are many signs of an unraveling of this bubble as evidenced in the Affordability Index, months supply in inventory, and firming mortgage rates.  Not a reversal yet, but setting up for one. 

When we fail to study history, we tend to repeat it.  That is, we tend to make the same mistakes over and over again because we fail to see parallels between the here and now and the there and hither.  One of my favorite comparisons with America Today is the Rise and Fall of the Roman Empire.  While I am a modest scholar of this study of human events, I do see several glaring comparisons of the Rome before the Fall with America before the Fall. From my recollection, here are some salient similarities:

1.  Loss of Integrity, Morality, and Civility throughout the populace.

2.  Overt Efforts to Cheapen the Currency of the Realm.

3.  Corruption and Self-Enrichment at all levels of Government.

4.  Over-extension of the military on both a geographic and financial basis without a consistent foreign policy.

5.  Assumption of an air of superiority and omnipotence at the very time the fundamental underpinnings of the country are deteriorating as evident to all who cared to look carefully.

I am sure there are more parallels, like the concentration of immense power in the hands of a few, but these are enough to make the point.  THE BARBARIAN IS AT THE GATE, FELLOW AMERICANS, AND HE IS US.  Our Founding Fathers would be sickened by the America of Today for they were men of the highest of ideals who put theory into practice in the formation of this once great nation.  The road to salvation will not be an easy one.  Many lives will be ruined from both an emotional and financial standpoint.  And the worst is yet to come in the economy, the financial markets, and the governance of this Romana Americana.

Okay, spare me the tomatoes.  I will get off my High Horse or Bloody Pulpit, but this entire environment we have so carelessly created for ourselves is one in which the Precious Metals really shine.  Putting together an investment decision to purchase an asset, especially a non-financial or non-paper one such as Gold, Silver, Palladium, or Platinum, is like putting together the pieces of a fundamental and technical puzzle.  AND WAITING FOR THE PLANETS TO ALIGN.

WELL SPORTS FANS, THE PLANETS HAVE ALIGNED!!!

Once again, for those of you who have had the immense pleasure and ultimate edification at reading my missives for the last 3 years, I apologize for being the proverbial broken record.  But education is a science of repetition until the tenets of knowledge sink into the rather thick, stubborn, and prejudicial cranial region of Homo Sapiens.  Ah, to be right on most counts of prognostication.  And don't forget that Cognac is one of my favorite beverages at Christmas time.

Here are the "PLANETS" lining up like glorious ducks in a row to put us into one of the strongest bull markets in precious metals the world has ever seen because the gravitation pull of the cumulative effects of mass is overpowering:

I.  Debasement of the Currency of the Realm:  With the conscious and excessive creation of Insta-Dollars throughout the globe through Monetary Policy, Fiscal Policy, and Import Mania, the die is cast for the Dollar to begin its next significant downleg.  Already in the span of two weeks, the Dollar has lost 4% of its value against a basket of competing currencies.  The metals become the only viable alternative when investors and businessmen increasingly distrust the Full Faith & Credit postulations of sovereign states.  Especially in an environment of Beggar Thy Neighbor Currency Debasement Wars and the resultant Trade Wars that we are well into.

II.  Historic Risk in the Global Financial System:  No one puts forth the argument in statistical and analytical verse better than Doug Noland at www.prudentbear.com.  He is an astute student of the debt and credit markets and that my friends is the Achilles Heel (can I mix Greek and Roman mythologies?!!) of our entire U.S.-Centric and Dollar-Centric global financial system.  Get a strong cup of coffee cause the numbers barrage will glass your eyes over, but the absolute magnitude and uncontrolled growth of the credit/debt numbers is at historic levels.  We are headed for a massive repudiation of debt at the private, business, and governmental levels in the U.S. and abroad.  There is no other way out of this morass.

III.  Both Inflation and Deflation Causing Historic Price INSTABILITY:  I am sure you have all heard that markets abhor uncertainty.  Well, put consumers, businesses, and governments in that category also.  Do I buy today or do I wait for tomorrow?  What is the cost if I do one action over the other?  Should I sell immediately to convert one asset into another to preserve total wealth?  If I have a heavily leveraged asset (shame on you, you haven't been listening!), then how will I service its debt should my net income stream be eroded by inflation in my cost of living or deflation in personal assets?  We are headed for price increases greater than 5% in certain segments of our economy (energy, insurance, healthcare, taxes, housing) and for price decreases greater than 5% in the remainder (stocks, bonds, real estate, notes receivable, accounts receivable, The Dollar, income, employment).  A virtual squeeze play from both ends of the Joe Sixpack Profit & Loss Statement.  Asset devaluations in a declining income environment with a simultaneous and punitive increase in cost of living.  Inflation or Deflation ..... what does it matter?!!  They both have their deleterious effect on the bottom line or net worth of our subject, US.

IV.  Major Bear Markets in Traditional or Non-Tangible Assets:  Alan Greenspan and Secretary Snow must have been personally making the trades to keep the stock market afloat this long, but the fix is in.  Despite unquestionable efforts to keep confidence bubbling along, the stock market is undeniably rolling over into another sickening death spiral.  And the overstretched bull market in bonds has died a not-so-quiet death and the sinking U.S. Dollar makes higher interest rates in the U.S. and abroad, sick economies or not, a forgone conclusion.  Realtors are telling me that potential buyers not only have sticker shock, but are trying to time any commitment to a grossly overpriced home to hit a dip in the mortgage rate back-up.  Once it is clear to all who know how to read that the economy will not get back off the mat this time cause the punches of excess global capacity, lack of business confidence & investment, and overextended/ leveraged consumerism are just too potent, then the equity market will have forecast the Recession of Spring, 2004 by Christmas, 2003.  George W., hate to say it due to the dearth of political alternatives, but you is in for the race of your political life in 2004.  Get that campaign money machine cranking to buy those votes!

V.  The Trend is Your Friend in Gold, Silver, Palladium, and Platinum:  Any way you cut it, the precious metals are in a strong bull market.  From April, 2001, gold has advanced from a suppressed $260 per ounce to today's modest $380 per ounce price for a ........... DRUM ROLL PLEASE .......... 46% GAIN.  Silver from around $4.50 per ounce to $5.10 for a 13% gain is still beating money markets that may go poof in the night and, silver is just winding up for some real fireworks based on decades of supply deficit and Asian/Middle Eastern accumulation.  Palladium in 2003 alone, after an $1,100 peak over two years ago, has moved strongly from $160 per ounce to $210 in the last 5 months for a interim gain of some 31%.  Platinum seems to be on steroids with a price movement from $380 in October, 1999 to a demand driven level of $700 per ounce today.  Hummm, an 84% gain!!!  Mama Mea!  Take all of the squiggles in between along with over-analyzing the entrails of the chicken, weigh them with the hard facts of outright price appreciation in a short period of time, and you are faced with the stark reality that:  THE PRECIOUS METALS ARE IN A BONAFIDE BULL MARKET!  I can't say it any plainer than that.


I will stop at FIVE planets since my astrological knowledge is limited, your have only 5 fingers and toes on your left or right at one time, and I have to go mow the lawn.  Whether you like or hate the metals, that don't mean nuthin'.  Go where the prices are still relatively cheap, the party has just begun, and the fundamentals and technicals are improving daily.  WHERE ELSE CAN YOU GET THIS MUCH BANG FOR THE BUCK?  WHERE ELSE CAN YOU OBTAIN AN ASSET WHOSE VALUE YOU ARE NOT MISLEAD ABOUT DAILY?  

......... then The Sage of Wexford dons his Australian Bush Hat, straps on his non-Chinese made work boots, and heads off to mow the ever greener pasture of his 1/3 acre suburban lot, CONFIDENT HE HAS DONE A GOOD DEED IN TRYING TO STEER THE MASSES IN THE RIGHT DIRECTION AWAY FROM THE CLIFFS OF THE FINANCIAL ABYSS ...........  AND TOWARD THE MOST PRECIOUS OF METALS.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$DOLLARINFLATION$$$$$$$$$$$$$$


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October 6 , 2003:  Straw Hats Just Went On Sale.

Friday was a very busy day for us bullion dealers as many investors who had missed the bull market in gold and silver came to the realization that MR. BULLION MARKET was giving them another opportunity to take an initial physical position at cheaper prices.  Frankly, $370 gold and $4.85 silver look like bargains to many after they had just visited the $390 and $5.32 per ounce levels, respectively.  Commodities are volatile.  Realize it, and act accordingly by going easy on the caffeine.  They are not for the faint of heart, but how could a stock market be either when it surges on a piddling 57,000 addition to employee headcount, if you are gullible enough to believe any government statistic in the first place, in an economy that has lost some 2,000,000 jobs in the last several years.  A blip on the radar screen.  And in the long-term horizon that stretches to 2010 in the Bullion Investment Timeline, any 5% pullbacks should be viewed as a hiccup to much higher prices.  AND AN OPPORTUNITY TO ADD TO POSITIONS OR TAKE NEW POSITIONS AS SOME OF THE FROTH IS TAKEN OUT OF THE MARKET.  NOW SAY AFTER ME, "NO MARKET GOES UP IN A STRAIGHT LINE".

One should also note that Platinum set new 20-year highs this week and Palladium held as fast as a politician covering his or her butt in an election year, so this independent subset of the Precious Metals Family should be viewed as a tangible asset diversification play in itself.  Certified fancy colored diamonds, which are flying off our shelves at WCM, are also another diversification play that you can put in your pocket and board a steamer for New Zealand without creating a bulge in your pant's pocket.

For over a month now, bullion analysts have been warning of the potential for a sharp pullback in gold in particular due to historic levels of Speculative Longs on the Comex.  Just as in the currency markets, these are the hot-money players who head for the exits the minute (or nanosecond) that it appears that an asset is stalling near a key resistance level.  When gold could not convincingly take out the prior high of $392 and the Dollar saw some very short-term short-covering, all of the lemmings headed for the exits at the same time, as expected.  This short horizon bunch of hedge funds, investment banks, and just dyed-in-the-wool speculators are more interested in taking short-term gains than in playing the overwhelmingly bullish long-term trend in both gold and silver.  THEY MAKE THE BULLION MARKETS MORE VOLATILE FOR YOU AND I, BUT THEY ALSO GIVE US GREAT BUYING OPPORTUNITIES.  Most successful investors put their chips on the table when their knees are still knocking after doing so.

This is hardly a reversal in trend.  We are in a topping action in the global equity markets, global bond markets, global real estate markets, and not in the precious metals markets.  I expect to do bullion sales on Saturday more and more as we head toward the end of the year, because increasingly investors are waking up to the glaring fact that Something is Rotten in Denmark.  We will blame Shakespeare for that phrase, since I personally like Denmark as a respite from the excesses of the U.S., but we are ending our 3rd year of Historic Magnitude Market Intervention (HMMI or Hummmmmeye) by the Fed, Treasury, and Uncle Sam, in general, to keep the inevitable reversion to mean of massive Debt Repudiation from occurring.  Shame on them.  History will not be kind to those who should have known better, were well paid to be on top of their game, and who even lied to U.S. investors and consumers repeated for many years as to the True State of Affairs (TSA).

Here is my advise to you:  Sell assets such as stocks, bonds, and real estate, even successful businesses that are recession prone, that you have a profit in today because you will not have a profit in them a year from now.  This rubber band we call an economy, financial system, and financial markets is stretched to the limit, because even the most respected credit and market analysts such as Bill Gross, Doug Noland, and Richard Russell are totally shocked that we have not had a systemic collapse as of yet.  Just because we have dodged the bullet to date does not mean that that bullet is not just around the corner.  And if you have seen the Matrix, you know that bullets can do 90 degree turns around a corner.  That .25 caliber missile from Year 2000 is now a .306 in Year 2003!  And could be a Scud Missile in 2004!!!

BUY STRAW HATS IN WINTER WHEN EVERYONE ELSE IS BUYING THE LINE THAT THE GOOD TIMES WILL BE RIGHT BACK IN THE FINANCIAL MARKETS AND ECONOMY.

USE THIS OPPORTUNITY TO BUY ADDITIONAL OR INITIAL POSITIONS IN GOLD AND SILVER.  CONSIDER DIVERSIFYING INTO PALLADIUM AND PLATINUM AS WELL SINCE THEY ARE ECONOMICALLY SENSITIVE, AND IF YOU BUY WALL STREET'S FORECAST FOR A STRONGER ECONOMY, THEN THESE TWO METALS ARE TOTALLY CONSISTENT WITH YOUR ASSUMPTIONS.

Global demand for physical gold and silver and palladium and platinum are growing, despite the efforts by financial and governmental insiders to have you believe otherwise.  And as the Currency of the Realm sinks lower and lower in value, buying less and less of global goods and services, you will be glad you have an asset or assets that have true tangible, intrinsic value that can be traded easily any place in the world almost 24 hours a day.  In essence, Assets Without Borders.

Have a relaxing weekend after you do your homework.

MEMO:  OCTOBER 10, 2003/  DOLLAR COLLAPSE WELL UNDERWAY.

From a global purchasing power basis, like you versus the Asian Block, for example, what is happening to the net value of your assets denominated in U.S. Dollars and, hence, your net worth?  You are losing out versus the rest of the world as the Dollar enters a multi-year collapse.  Global assets like precious metals and colored diamonds are not dependent on finding a U.S. buyer who will pay you in increasingly worthless Dollars as established or market value.  It doesn't matter what color our paper money is, it is printed with vanishing ink when it comes to Purchasing Power.  TRICK OR TREAT?!!!



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October 30 , 2003:  More Daily B.S. (Blatant Subterfuge).

If I remember my early Anglican biblical teachings, one of the Ten Commandments, cast in eternal granite not just in Alabama, is:  "Thou Shalt Not Lie".  Now I am not climbing up on my bully pulpit once again, but what is ambiguous or difficult to grasp about this timeless Life Guideline?  Certainly, we all tell the Little White Lie on occasion to spare someone's feelings, but the constant propagation of knowingly false information by any person or entity can only be labeled as, "Lies, Lies, and More Lies".  Just as a combat soldier eventually becomes shell-shocked after being under constant artillery fire, an investing public becomes increasingly distrustful of information generators once they discover repeated instances of inaccuracies, perceived as intentional or unwitting (we will leave discussions of nit-wits out of this for now).  Over a sufficient span of time and with a sufficient history of transgressions, the public not only becomes distrustful of the guilty parties, but generally cynical and distrustful of non-offenders as well.  This cynicism in itself tears at the increasingly fragile fabric of a society built on mutual trust such that general harmony becomes much more difficult to maintain in most other aspects of societal life.  An elevated level of distrust has been reached, and citizens adopt unconventional avenues to avoid being further victimized, like discounting all official pronouncements as being politically motivated and self-serving.

I can only think that those among us who take for Absolute Certainty even 70% of the periodic government releases of economic data, corporate "earnings" (or should we say, "yearnings"!) data, and revelations of renewed economic stability from officialdom must possibly just be too lazy to delve more deeply into available research on the "facts".  There is no dearth of contrary opinions to the Blatant Subterfuge or B.S. passing as actionable investment information from the primary media streams today, but herd psychology goes a long way toward explaining why more investors do not seek these sources out.  The wildebeest safety in numbers scenario.  Furthermore, as Freud's understudy, I feel that this is not atypical behavior on another plane for a populace struggling to meet all of the time demands of their harried lives.  These lives, the American Way, i.e., self-inflicted, where we attempt to accumulate the maximum material possessions on a per capita basis the world has never known AND experience the maximum number of life-nurturing events, a.k.a., social events.  As a populace and nation, we have set goals and possibly standards for ourselves that are not only impossible to achieve under the best of conditions, but actually serve to ruin the overall quality of our lives by causing us to NEVER BE TOTALLY HAPPY FOR OVER 3 NANOSECONDS.  It seems that once our constantly self-challenged beings overcome one problem or issue, we immediately switch gears onto the next, seldom adequately reveling in the success of the moment.  This tendency to seldom be completely relaxed and to always feel that we must be doing something constructive at all times (Puritan Work Ethic?) leads to self-imposed stress that could be avoided with greater perspective into the relative importance of "things".  Don't get me wrong.  I like things as much as the next guy, but runaway consumption and acquisition of non-productive assets using debt to do so will prove one of the major undoings of our once great nation.

This 5-minute psycho-analysis will cost you $165 sans couch, but please only send Swiss Francs or New Zealand Dollars.

So a generally stressed existence leads us to do cursory analysis of the constant stream of data this is spewing our way, and we tend to take the easy way out by accepting most "official" economic and financial information as accurate enough to base investment decisions upon.  We take this easier way out to save precious time and hopefully reduce some of the stress we have heaped upon ourselves to attain the often elusive "American Dream".  This is my best explanation why the majority of investors have fallen for the 2003 Super Bear Trap Rally in stocks and flung every last cent available, both cash and borrowed dollars.  No analysis performed; just go with the flow and what worked so well from August, 1982 to March, 2000 has just got to work after two decades of runaway stock prices.  At least initially, it is less stressful to invest with the crowd, but all indications are that this is very hot money this stock mania time-around, and when the ticker starts going negative probably about 5% from the recent top, these now skittish "investors" (who lost their shirts in 2000, 2001, and 2002!) will sell with both hands creating the true Waterfall Decline. 

I was right about gold and silver bouncing back quickly from their recent precipitous pullbacks.  Let's see how I fare with this Stock Market Bubble, Act II call.

I purposely try to minimize the amount of statistical data that I utilize in this bullion ezine because, for one reason, I don't have a clue if what I am going to present to my valued readers is truly accurate within 5% of reality.  In the world of accounting, a realm sadly misused today to the benefit of corporate executives and at the expensive of trusting shareholders, the 5% Rule has been the old standard for whether a revenue or expense item is material for reporting purposes within financial statements.  Along these lines, I think the best approach for a seafaring investor cast upon the boiling seas of New Millennium Information is to look at RELATIVITY much like Einstein did.  "It Is All Relative" is a famous catchphrase in our vernacular, and I implore more and more investors to deal in the "relatives" versus vainly in the "absolutes".  It is the "absolutes" such as S&P 500 Operating Earnings, Year-to-Year Earnings Changes, GDP Growth, and the Unemployment Rate for starters that are going to get you into investing trouble going forward.  We all need to do more macro-analysis, viewing the financial and economic world from the Big Picture perspective.  Micro-analysis is highly dependent upon having accurate and consistently reliable data as input to our efforts, and I fear more and more data has fallen under the hands of manipulation to further the issuers' agendas.  And the Macro-World or Big Picture is not a pretty picture, I don't care what numbers you care to use.

As evidence, I present these irrefutable facts, of sufficient magnitude by historical standards, to avoid misinterpretation by any measure and virtually any conscious observer:

o  We have record debt at all levels of our society, Consumer, Corporate, and Government.  As to our ability to repay this debt, it is less of a question of potential net income streams, but our current propensity AND ABILITY IN A GLOBAL ENVIRONMENT AS THE WORLD'S CURRENT RESERVE CURRENCY to re-liquefy these mounting obligations through cheap and readily available credit and money creation/Dollar expansion.

o  We have a jobless "economic recovery" as traditionally defined having started in November, 2001, that has managed 3% to 4% GDP growth with a net loss in total employment.  The Unemployment Rate has only managed to stay level, not improve, due to discouraged job seekers falling out of the statistical ranks.  The ranks of the Underemployed have surged.

I guess the above graph is accurate, but even if it is off by 20%, YOU GET THE PICTURE.  CORPORATIONS HAVE NO INTENTION OF HIRING NEW EMPLOYEES BECAUSE THEY HAVE NO CONFIDENCE WE HAVE STARTED A LASTING RECOVERY.  Also, why are insider stock sales at record levels??!!

o  The economic recovery we are currently experiencing has been supported primarily by recent tax refunds and stimulus packages, not to mention record low interest rates from the Fed, and does not have the necessary ingredients of planned business capital expenditures and rebuilt consumer balance sheets so essential for sustained growth.  A significant portion of 3rd Quarter GDP growth is attributed to inventory building, especially in the semiconductor and technology areas where recent demand forecasting failures have been catastrophic in causing wide production swings.

o  We have valuations in stocks, marginally creditworthy debt to include high-yield and emerging market debt, and residential real estate that can be safely deemed overvalued and at historic extremes by any traditional measure.  Whether one is capable of labeling any of these asset areas as potential bubbles is a moot point given the recent history of crashing prices of stocks and sub-prime debt; real estate's past bubble was back in the late 1980's versus recent bubbles within the last decade for the former two asset areas.

o  We have a mindset from information providers that national security (as well as self-interest) can be used as a rationale to distort financial and economic data in such as manner that users of this data are mislead as to trends in key statistics.  Investors in key markets are convinced to stay invested while valuations and fundamentals actually deteriorate, while the picture painted is one of significant AND SUSTAINABLE IMPROVEMENT.  For the "Good of the Nation", a misleading picture is presented in sound bites, news releases, and official reports to propagate an impression of All Is Well.

o  We have entered a new bear market for the U.S. Dollar defined as a 20% decline in value that appears destined to continue for years and years based upon Excessively Lax Monetary & Credit Policy, our massive Trade and Current Account Deficits, American consumers' appetites for imported goods, record Federal Deficits, military campaigns around the globe, Nation Building, and depression-era interest rates vis a vis competing currencies.  A Dollar Collapse or loss of reserve currency status cannot be ruled out due to the historic extremes to which all of the above elements of Devaluation currently exist.  No numbers necessary, because those published show a trend reaching historic levels.

o  A commodity boom brought on by recycled Dollars in exporting nations that are experiencing growth well above trend and well above the marginal growth rates of developed countries that consume their goods and services.  The shift in global engines of growth from the U.S., Europe, and Southeast Asia to heavily populated India and China is causing commodity prices to rally in such a manner that economic recoveries in developed nations are adversely affected while "localized" inflation cannot be ignored indefinitely by monetary authorities determined to Beggar Thy Neighbor with currency devaluation.

o  We live in a world of re-emerging nationalism, protectionism, and regionalism (must be a word cause the spell checker didn't flag it) with opposing internal goals and politics that keep global frictions constantly at the forefront.  Failures at fiscal discipline, socialism, and full employment are masked over by diversions toward perceived economic enemies and adversaries to an extent that global trade and travel are greatly affected.  The Global Economy is coming unglued due to lack of cooperation on many levels.

o  We as a nation have new priorities and diversions such as the War on Terrorism and the stabilization of Afghanistan and Iraq that are siphoning off scarce resources at a time when deficit spending has already reached historic levels.  Competition for Federal and State dollars for health and human services versus the ballooning requirements for Homeland Security are causing rifts within political parties and adding to an atmosphere of unrest and constant bickering & backstabbing.  Reform of Medicare and Medicaid will eventually become a political hot potato as the aging population uses its political clout to shift priorities, a looming drain on future resources.

o  Gold, silver, palladium, and platinum are firmly in bull markets with all of the precious metals hitting multi-year highs ($390, $5.18, $214, & $761 as I type!).  Other alternative, tangible or hard-assets investment classes outside of real estate are receiving new media coverage as investment dollars shift with increasing magnitude from traditional financial assets.  Rare coin dealers and colored diamond brokers are experiencing one of their strongest sales years in over a decade.  These observations are not from published data, of which there is also a dearth of reliable centralized information, but from many conversations with recognized leaders in the trade.

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I could continue in this vein, but you get the Big Picture.  Regardless of any specific number, percentage, or statistic that one assigns to the overall economic and financial landscape today, it is one of many negative influences and resultant deteriorating trends.  It is not an environment of stability or solid financial or economic health.  Just as bear market rallies can be very spectacular and put most of the skeptics at awe, economies can fluctuate in a manner that suggests full recovery is imminent.  It is during these counter-trend moves that many investors bet badly, getting caught up in the flow, and end up deeper in the hole than before.  The rapidity of price movements, as seen recently in both gold and silver, seem to increase at major turning points, and I will not be surprised if we see the S&P 500 at 750 by April of 2004.  I will also not be surprised to see gold at $425 and silver at $5.75 before then.  I underestimated the strength and longevity of this current Bear Rally in stocks, but I doubt if I am overestimating the end result.  Prices in the precious metals, except for maybe platinum, are still at levels deemed as bargains by historical standards.  There are few assets can can share this distinction.  There are few assets that have no Blatant Subterfuge or B.S. attached to them.

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November 22 , 2003:  Batten The Hatches, Me Maties.


I almost feel like Edgar Allen Poe sometimes when I write these commentaries, I seem to be so steeped in the dark side of things.  I would like to see more of the bright side of the world around us today, but as long as I have correctable 20/20 vision, I have to call 'em like I see 'em.  What good would this epistle be if what I put forth as the gospel according to Wexford was distorted purely to convince more investors to buy bullion?  Not an unheard of phenomenon in today's world of false advertising a la the mutual fund industry, but what is so unbelievable as a bullion dealer today is that things are so distorted around us that I don't have to distort one sentence to make my case.  Like light bending backward on itself.  The era in which we find ourselves will go down truly as an historic turning point in the annals of man (I hope I got that word correct).  Pretty dramatic stuff, you say, but time will prove that we have passed the crossroads, and as Frost would have said, we took the path MOST TRAVELED.  When I say "we", I am referring to our society as guided to its destination by those currently in power, not you and I individually.  I would hope that those clear-thinking enough to read these irreverent rantings are not of the collective "we" genre, poised to float over the impending waterfall of economic and financial ruin.

There I go again, dwelling on the dark side.  But more and more of the ingredients that I have forecast that would be part of the primordial stew of economic depression are dropping one by one into the cauldron.

Let's try to put the real threat of terrorism around the globe, against American interests overseas, and inevitably in our own backyard again, into its proper prospective.  There is no American institution that I can readily blame for the emergence of diabolical Muslim terrorists.  This is a separate and parallel series of events occurring to additionally reduce the quality of our lives, not to mention our safety, but the cause of these barbaric acts of violence against non-combatant citizens regardless of ethnicity or politics is the conditions under which they live in their native lands in the Middle East.  Granted, as Americans, we may have increased the alienation of these nothing-to-lose desperados through our foreign policy actions taking one ethnic side against another, but we as a people and nation have not kept these individuals in poverty, ignorance, and without opportunity for hundreds of years.  Their own rulers and governments have done that; might we suggest they turn inward before attempting to blow up the civilized world.  We are just a convenient outlet for their anger that is fortified by the memories of the Crusades with Christian against Muslim.  Maybe oversimplified, but these kinds of murderous acts and rage can only be generated against a highly visible and worthy opponent in order to elevate mass homicide in the minds of the perpetrators to martyrdom status.

So terrorism is an element in our lives going forward that we must be ever cognizant of and prepared for.  It has and will carry a heavy cost in human lives and in scarce economic resources.  It creates an extremely high level of uncertainty in the normal course of our lives and the lives of our allies and trading partners.  The old saw goes that markets abhor uncertainty, so both gold's and silver's inability to be sold off the last several weeks is testament to the safehaven status of precious metals coming firmly back to the fore.  Gradually, domestically and internationally, the United States government will be viewed as increasingly incapable of preventing destruction of property and lives, and this loss of confidence will filter down into the assets backed by this super power, US.  When you are at the top of the pyramid, as the world's only super power AND the keeper of the Reserve Currency of the World, you are perched at any time for a fall much more often than for a rise to greater heights.  Undoubtedly, we have greased the pinnacle with our own greed and avarice, but the natural flow of history is for great powers to come and go.  I think we are in the gradual "go" phase.

We are in a guerilla war in Iraq as I predicted when "major combat" ended, whatever that latter phrase really means!  I am now convinced that the Joint Chiefs of Staff were politically muscled to come up with the nod to invade a country the size of California with 25 million people and with unsecured borders, two of which adjoin top terrorist sponsors, Syria and Iran.  Maybe it was envisioned that more of the enemy would be destroyed while still in uniform, but it should have been abundantly clear that when the Iraqi Army melted back into the populace, we were faced with a guerrilla war of occupation.  Once again, as we did in Vietnam, we are underplaying the severity of the situation at the expense of American, Iraqi, and international aid workers' lives.  We are playing politics with the lives of our men and women in uniform.  President Bush, we need more boots on the ground, not fewer for appearance or re-election purposes, to secure this expansive area for greater safety for all in-theater, including the Iraqi people.  We will see if Bush goes the way of Lyndon Johnson in politicizing the execution of a military campaign.  We may be attempting to rebuild Iraq almost from scratch, but without security you cannot have normal lives for the indigenous citizens.  A quick exit strategy will not be forthcoming, since the lessons that should be learned from the Taliban's re-emergence in Afghanistan are not being heeded in our policies and strategies in Iraq.  Once you commit at nation building, you had better be prepared for a long and bloody campaign that applies all available resources as expeditiously as possible; we cannot poor boy this effort, even though we are broke as a nation.  Unfortunately, domestic U.S. politics are going to greatly compromise our chances of success in the Middle East.

Sorry about the political observations, but politics is thick and heavy right now, and history has shown that politicians make fatal mistakes when re-election is their utmost concern.  Things are very nasty in Washington today.  And at a time when national unity is required to present a united front to the world that we so ardently attempt to mold in our image.  This nasty squabbling at home gives more ammunition to our enemies, but I see no prospect for it to subside as we head into the 2004 elections.  Now the CongressPeople are scrambling over one another to protect jobs, also spelled "v-o-t-e-s", by adding protectionist trade legislation on an almost daily basis.  As the Raven of Wexford cried out months ago about the inevitability of trade wars in a world of overcapacity, THE TRADE WARS HAVE BEGUN IN EARNEST.  The WTO is ready to fine the U.S. for its illegal steel tariffs and the practice of favorable tax treatment for select U.S. export businesses.  The European Union has jumped into the fray with both feet, not pleased with American Foreign Policy to begin with, and the issues are spreading like a nuclear cloud.  Who the Sam Hill came up with the moronic attempt to save what is left of our grossly non-competitive textile industry by suggesting a 27% tariff on Chinese textile imports??!!  As usual, when these elected idiots get on a roll, you and I, the actual consumers of these real goods get the privilege to pay more per item at the checkout counter so these rascals can get re-elected.  Ah, the price of freedom.

Mankind does not learn from history.  Protectionism is one of the conditions that exacerbated and prolonged the Great Depression.  Know of a condensed paperback on this painful era that we can send the perpetrators?

So the precious metals have so many people and incidents working in their favor today.  The purchase of U.S. Treasuries by Europeans was just noted to have declined precipitously in the latest reporting period.  The Dollar is no longer the first and only choice for recycling export receipts overseas.  GOLD AND SILVER AND OTHER "THINGS" SUCH AS ROADS, BRIDGES, AND INFRASTRUCTURE IN CHINA PRESENT MORE LASTING VALUES.  As also predicted by this dark fellow at Wexford, the Chinese will increasingly recycle those excess Dollars into tangible assets, like the precious metals for currency reserve purposes, that have a much better chance of not depreciating like the Reserve Currency of the World.  Thankful that I am not traveling overseas any time soon, I watch the Dollar get whacked over 1% on an every-other-day basis.  I guess I might as well predict that the Dollar Decline could go into a waterfall descent at any moment, since I am not one to cower in the bushes and the odds favor such a prediction.  When someone or some event calls "fire" in the Dollar crowded currency markets, the exit will shrink to the size of a cat door.  

Here I go with a self-serving statement (maybe I will run for office some day!), but wouldn't you rather be holding ounces of gold, silver, palladium, and platinum than ounces of paper currency such as the Dollar in the months and years ahead?!!  Anything but a promise to pay a certain amount at a time in the future AND which "amount" may be very much less than "promised".

Now I will admit that Freddie Mac and Fannie Mae have not imploded due to an abrupt rise in interest rates (yet) that could implode their humongous interest rate derivative positions in the $Trillions.  Interest rates are currently benefiting, in a misguided fashion, from additional "flights to safety" in U.S. Bonds, but an interest rate upset is in our future.  You can't be the Borrower of First Resort in the world, have a sinking, if not "stinking" currency, and not have to pay a higher tariff to get people to lend you money.  Just don't work that way.  And when I saw that the accountants, who still have the heel marks from the executives at Fannie Mae on their Brooks Brothers Backs, missed a measly $5 BILLION DOLLARS IN UNREPORTED PROFITS, I wondered if there would be any late penalties in the $Million due the I.R.S. and whether I could adopt their FASB accounting principles for my business.  FASB must now stand for Fannie's Atrocious Sand Bagging, since I learned from my corporate financial analyst years that "sand bagging" a few thousand in present profits into the future was prudent corporate governance.  BUT A WHOOPING $5,000,000,000!  Really guys.  Think of all of the bonus money that you left on the table in those prior years!!!  Gosh, what if these stalwart corporate citizens request retroactive bonus adjustments for those prior years?!!  I ain't surprised at nuthin' these days.

HERE IS WHERE THE BRITISH MILITARY BAND STARTS PLAYING "THE WORLD TURNED UPSIDE DOWN" like at Yorktown.  Can you trust the guys at the mutual fund companies any longer?  Can you trust the corporate governors to accurately represent the underlying fundamentals to that stock you own?  Can you trust the Dollar in your wallet or purse?  Can you still trust your instincts as to what made you money in the past?

People on occasion ask me about alternative methods of owning precious metals.  Hoping that I am such a nice Edgar Allan Poe that I will willingly give free investment advice.  Oh, I hear about mining equities, warehouse certificates, ETF's, options/futures, and you name it.  And my standard reply is:  DO YOU HAVE A PAID INSIDER WHO IS GOING TO MONITOR THIS PAPER ASSET FOR YOU, SINCE A PIECE OF PAPER IS JUST A PROMISSORY NOTE, AND HUMAN NATURE HAS NOT BEEN VERY TRUSTWORTHY IN THE NEW MILLENNIUM.

TODAY, IF I CAN'T KICK, TOSS, OR HOLD AN ASSET, I AM REALLY NOT INTERESTED IN INVESTING MY HARD-EARNED MONEY IN IT.  Are you?


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December 13 , 2003:  Smart Money Buying the Metals.


As I sit before my trusty computer on this wintry December morn, waiting for the next Eastern snowstorm to hit, I take some joy in the fact that I get to expound to an ever increasing audience about the problems and opportunities that lay before us.  Just as the Titanic was too big of a vessel to turn on a dime to avoid a colossal iceberg, investor sentiment is gradually turning to recognize that all is not as advertised on the economy and the financial markets.  I think in one of my many prognostications, most of which have been "close enough" except for the bear in stocks reasserting itself this year, was that $50,000 to multiple $100,000 orders in gold and silver were going to become more commonplace for stellar bullion brokers like myself.  And this has truly occurred.  This is not to imply that WCM is getting elitist in what size orders it appreciates, because a $5,000 order minimum is more than my first automobile, but a volume-oriented business does best when the volumes are as large as possible.  Well, it has been hog heaven this Yuletide Season, and I want to thank all of my clients for making 2003 a banner year.  And it is not like I sold investors a bag of goods like the slick salesmen on Wall Street and Pennsylvania Avenue have been doing for decades now, but I sold them investment products that actually went up in value this year and should do so for years to come.  I make it quite clear in discussions with prospective investors that there are no guarantees in investing and in investing in precious metals in particular, but all of the technical and, more importantly, fundamental signs are pointing to much higher gold and silver prices in the years ahead.

The increasing presence of big money investors in my emails and on the telephone tell me that we are just at the beginning of a surge in purchasing volumes for gold and silver.  Remember that gold had already breached the $325 level when the year 2003 began, so a sprint to $409 at the close this week for a 17.9% YEAR-TO-DATE GAIN is all the more impressive.  We can't count our chickens until the bell tolls on December 31st, but all signs from this grizzled observer's viewpoint are that prices will hold and move modestly higher from here toward year-end.  Silver, that poor step-child of gold, a misnomer if there ever was one, has put on almost a buck in price from year-end 2002 to today's $5.63 close.  That annual gain, year-to-date, is an even more respectable 20.6% which ain't hay for an investing world looking at 1.2% money market returns.  Okay, jump up and down about your technology stock gains of 30% to 40% in 2003 (after a post-1999 loss of close to 70% in many cases prior to 2003, you are still under water big time BEAR MARKET-TO-DATE!), but I hope your luck holds in stocks and you have the presence of mind to take chips off the table before the table collapses.  Ask yourself if all of the fudging corporate exec's and accountants have been fired and replaced with Born Again Realists.  I think, as the only Sage of Wexford that I know of, that silver is going to break loose of the Comex trading pits' futures-dominated shackles in early 2004 (the jig is already pretty much up in the gold pits), and really give us some daily excitement like the days of yore in the late 70's and in the recovery rallies in the early 80's.  Of course, the insiders in the Comex will try to protect their revenue generating clients, the silver short-sellers affiliated with silver users such as Fuji Film and Kodak, when up-limit days occur with frequency, but we are living in a world of expanding transparency due to all of the bodies now floating to the surface in the mutual fund management graveyard.  First it was Corporate Governance in the revelation that the BOOKS ARE COOKED FOR CORPORATE AMERICA, then it was the largest institutions on Wall Street FINED $100 MILLIONS for issuing misleading and false analytical reports, and now all of the unfortunate equity investors are coming to the conclusion that the keepers of their money in the mutual fund industry are lining their own pockets at their customer's expense.  So what is new in America??!!!  Knowing these mushrooming facts, a fool and his or her money are soon parted.

You would have to have been from Venus or Mars not to have suspected as much prior to and during the ROARING 90's.  When we have a Rhodes Scholar as President who is unsure of the definition of the word "is", one can only extrapolate to other arenas on the moral and ethical fiber of our once great nation.  But like the Titanic, public sentiment is slow to turn, and even though some are once again getting sucked into the vortex of THE NEW ECONOMIC RECOVERY AND THE NEW BULL MARKET IN STOCKS, they are putting some money at the same time into a little insurance policy.  And that insurance policy, should they be wrong for the nth time on the two events being waved in front of their puzzled faces as a sure thing, IS TO BUY GOLD AND SILVER WITH ONE, IF NOT BOTH HANDS.  When investors begin to hedge their bets as they are now regarding being fully and only invested in stocks, it means that the money currently invested in stocks is really HOT MONEY.  And, as in any market were the majority of investors are constantly nervous about the sustainability of their gains, especially after 3 prior years of devastating losses, this money can leave in mass at the first sign of trouble.  Take your pick what that probable Sign of Trouble may be:  major financial institution failure, another financial intermediary scandal, surprise spurt in interest rates, sunk Dollar, domestic terrorism, energy crisis, or free-fall in consumer demand.  Just ask Dollar Holders domestically and overseas how confident they are in this reserve currency holding its purchasing value over the next minute, much less year.  Stocks are headed for the dumpster once again, because the conditions for a new bull market in stocks never were meet by a bullish investing public that never capitulated by reducing their overall stock holdings or expectations of heady gains.  Just like consumer borrowing not turning to necessary savings to provide the fuel for a sustainable economic recovery in 2003 and beyond, equity investors have remained overwhelmingly bullish during the last 4 years.  Never in history, which is seldom rewritten when it comes to human behavior since Darwinian evolution is slower than history itself, have conditions like today's led to a lasting recovery period in the economy and financial markets.  JUST AIN'T GOING TO HAPPEN BECAUSE THE ODDS ARE SO GREATLY AGAINST IT.  And investing is all about playing the odds.

Time will tell as we enter 2004, but already the economic data coming out of Washington, as painful as it may be to re-election hopefuls, is showing a slowing in retail sales and industrial production.  And factory jobs in America continue to head for China, Korea, and Taiwan, and service jobs are now heading en masse to India.  A jobless recovery is certainly not a lasting one.  We just went through a debt-induced spurt of activity in the 3rd Quarter, 2003, SPENDING ON STEROIDS, that was created primarily by profligate tax refunds, waning mortgage refinancings, and drunken installment debt assumption.  Nothing new.  Nothing mysterious.  Nothing, certainly, sustainable.  The last hurrah, so to speak, for the biggest debtor nation in the history of the world with a Medium of Exchange, the Dollar, that will gradually lose status as the preferred international payment medium and whose citizenry will pay the price for living well beyond its means.  Just as bear market rallies in stocks can show impressive gains as high as 60% from the Japanese experience, economies can show 8% interim growth prior to heading sharply down.  These are not normal times in which we live.  We should not be taking normal courses of action to deal with today's environment either.

Since it is the holiday season, I want to conclude on a positive note.  I would like to end this briefer-than-usual epistle with a word of thanks to the men and women in harm's way that make it possible for us Monday Morning Quarterbacks to sit safely at home and postulate on what's right and wrong with the world.  We have the easy task.  We have the safe task.  We are certainly not putting our lives on the line to establish democracy and better living conditions in the far reaches of this planet.  But we do have a responsibility.  As more and more of our men and women fall victim in their efforts, it is our responsibility Stateside to attempt to change the nation for the better that these dedicated individuals will be eventually returning home to.  We owe it to them.  We owe it to ourselves.  We owe it to generations yet to come.  America is no longer on a rising path.  Greed, avarice, and dishonesty have infested Our Republic like the plague of the Middle Ages.  Money and power are the cast idols we now worship.  Military glory is fleeting as we have seen in the much more difficult task of gluing a disparate nation of peoples together toward common goals.  In our daily lives, we as a people need to aspire to higher goals of morality, honesty, and integrity; the change in our path will emerge once we re-embrace these qualities of life.  As the foundation for one of the greatest civilizations the world had ever seen, the citizens of Rome never saw IT coming.  Hopefully, we will not repeat their history.

HAPPY HOLIDAYS.  MERRY CHRISTMAS.  GOD SPEED TO OUR ARMED FORCES.


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January 10, 2004:  Tangible Assets Are Mediums of Exchange.

It is tough to provide the essence of a commentary in a few brief words for a title.  And of course, like a misguided or unguided missive, I have been known to stray from the purported "theme" of one of my rantings.  And one of my New Year's resolutions is to try not to preach to investors in an ecclesiastical tone, but it is very frustrating when one sees Joe and Josephine Citizen put their hard-earned money on the line in a manner that makes Las Vegas gambling look like C.D. investing.  And more moderate commentators, who may still be attempting to sell financial asset products in one form or the other, could place the Sage of Wexford in the category of Apocalyptic Doomsayers, but I think those that flavor their advise in 2004 A.D. for palpability do their readers a disservice in the end.  I was wrong on the economy in 2003, and certainly on the Bubble #2 Stock Market, since I tend to be rather naive in understanding what extremes those in power will stoop to in order to stay where they are.  Sir Alan are you listening?

I have made no resolutions regarding Sir Alan Greenspan, except to ignore his proclamations on U.S. productivity (fewer workers scared about losing their jobs during a downturn always work harder!) and the efficiency of the credit and financial markets in avoiding collapse (only To Date, Sir Alan!).  According to this over-exposed and certainly overpaid central banker, we can thank the proliferation of financial instruments and the liquidity provided thereof for getting us through the Post-1999 Bubble without a depression.  And don't forget the above-board and transparent operation of our financial markets that serve you and I so well as fee-payers and tax-payers.  And don't forget the Proclivity of Americans to Spend every last dime they don't have for keeping us out of the dumpster over the last 3 years.  And don't forget to thank the Federal Reserve for providing you with short-term interest rates that don't begin to pay you for the absolute risk you take in placing money with a financial intermediary in this Age of Creative Accounting.  Ever take the time to study the financial "reports" of the financial institution that holds x% of your net worth?  I will guess that no less than 20% of all mortgage originations for New or Existing Homes in 2003 and beyond will be belly up within the next 3 years.  Extending a real estate cycle that started in 1993, over a decade ago, with blatantly lax lending standards (0% down and low-income subsidies) and ridiculously low mortgage rates that suggest homes are an asset that one can turn into cash in 3 hours or less, only serves to provide housing increasingly for the very marginal risk, a.k.a., Happy New Homeowner, Bubble #2.

Pity the poor retirees that have had to return to capital gains investing during a time in their lives when bond yields were supposed to see them safely through.  I can safely assume that some of them contributed to the 24% plus gains seen in the various equity averages in 2003, since momentum investing has to be the only rationale for returning to stocks that still sold at a P/E of 20 plus at the March, 2003 Interim Bottom.  Sir Alan has yet to take credit for freeing up units at retirement communities as the gains chasing re-converts, now only in semi-retirement since they have to work their portfolios again, keel over from watching the Nasdaq 100 tape action.  Had our lauded Keeper of Monetary Policy wrung the excesses of debt assumption and runaway credit creation out of the private section in 1998 when he had the opportunity to do so during the Russian Ruble or Long Term Capital episodes, we would not be in the fix we are in today.  But how are you going to get knighthood if you cause a whooper of an adjustment period that could cost more voters jobs than the current job-loss economic uptick???  When cheap, cheap credit for the last 5 years and bubblicious equity floatations have financed more global production capacity than the world could absorb in a decade, companies paying for unused capacity are hardly disposed to add human headcount to the overage.  I think everyone of you reading these exquisite words will admit that debt levels in relation to GDP and income have never been higher in U.S. history than they are today as we enter 2004.  Thanks again, Sir Alan.  You could take a page from Pete Rose's life book, and finally come clean, but Sir Alan Reliquifer Greenspan will never be nominated into the Central Bankers Hall of Fame.  Instead, Sir Alan is my candidate for the Financial Hall of Shame.  Trying to save one's reputation and revising history at a time when the patient is near demise due to faulty diagnose and prescription is as low as a public servant can go.

Keeping within the Public Sector for this barrage, I want to know what President Bush is eating for breakfast that he proclaims the economy is right on track.  George W. (and I am writing myself onto the ballot in November, so I can be disrespectful!) had better stay clear of the communities where some of the 2 Million jobseekers reside that have totally capitulated in looking for work since his election.  Oh, and let's make every Illegal Alien "amnesty legal" so we can get the South of the Border vote to give us FOUR MORE YEARS OF SPENDING LIKE DEMOCRATS UNDER A REPUBLICAN ADMINISTRATION.  How many troops does Mexico have in Iraq?  George W. is starting to make Democrats look like the more fiscally responsible choice in that gang of thieves, also known as Congress.  And I know every father and mother who are struggling to put food on the table in 2004 just can't wait to get a video tape of our next manned landing on the Moon or Mars.  Maybe there was life on Mars, and now it is sitting in the Oval Office!!!  Hey, I have voted Republican more times than not, but I got to tell you ..... WE HAVE BEEN TAKEN OVER BY ALIENS, with and without antennae.  And keep poor-boying the troop strength and resources in Iraq, non-combat veteran George W., cause as an Army Brat, I can assure you that your name is becoming as profane as Billy Boy Clinton's around the Military Family dinner table.  As second-class citizens, some of which are on food stamps and live in substandard housing, we military families raise youngsters solely to serve politicians' re-election efforts.  Enough said.  I can't eat dinner and watch the nightly news any more without indigestion as I see these disingenuous twits make statements that would make a prostitute blush!

Okay, with Rose's baseball bat aimed at my pumpkin of a head to get back on track, lets see if we can make some sense out of all the senselessness in Investment Land.  I am going to make this very simple for you Believers, Semi-Believers and Skeptics.  Sell every asset you own, especially stocks and real estate, and put them into something that is highly liquid, does not require third-party valuations, is still cheap from an historical viewpoint, and can be traded anywhere in the world.  Darn, now I forgot what that was!  Of course, we are talking about tangible assets, such as the precious metals, but think of what the future value of any asset that you hold in U.S. dollars is going to be worth in the next 10 or even 3 years.  Let's say the Dollar stabilizes from the 30% shellacking that it has taken over the past 2 years, and "only" declines an average of 5% per year for the next 3 years.  Not my forecast, but let's just entertain the notion.  Well, even if you have been listening to Uncle Wexford since 2000 and have placed a healthy percentage of your investable funds into gold and silver (with some rare coins and colored diamonds also available to jump on a freighter at a moment's notice when Uncle Sam comes to shake you down), our mutual conundrum is what do we do with those 60 cents on the dollar we will get when we finally decide to sell these tangible assets.  I mean, inflation of financial and real estate assets of THANK-YOU-SIR-ALAN style in Greenspan Bubble #2 have ignited commodities like the metals on a rocket ride, but what will they really buy for us in 2006?  Of course, based on my track record on the 2003 stock market (but I was famously right in 1999, 2000, 2001, and 2002!), my crystal ball has some inclusions in it like an SI2 Fancy Intense Yellow Diamond.  I think the situation developing with the Reserve Currency of the World, the Dollar, will be so ruinous to Americans in the decades ahead that one has to think outside the box ..... TODAY. 

I think in the next 3 to 10 years we are going to have more and more of a barter-based black market for exchanging assets.  Why in one's right mind (or left lobe, whichever) would one of us investment geniuses who saw the writing on the wall well ahead of the masses convert an appreciated, hard money asset for a fiat currency that will be eventually spit upon by the world's trading partners.  The only reason the Dollar has not collapsed more than it has at this point is that so many suckers are currently holding them in their overseas bank accounts and central bank accounts.  Kind of like holding Holland Tulips in days of yore.  Personally, I can see myself selling some of my precious metals holdings in the next 5 to 10 years, wiring the money overseas in the next nanosecond to avoid currency depreciation, and putting it immediately into vineyard or mountainside property in New Zealand, as an example.  I also like Norway, but I had better adopt a translator whose uncle makes fur coats.  By that time, most of the speculative excesses in global real estate will have been rung out as one over-leveraged player after the other will have become illiquid due to income and financial asset devaluations.  I would be exchanging an appreciated asset for a relatively undervalued asset, an asset without anyone's Full Faith and Credit.  Now there is nothing to say that I couldn't have done a direct exchange without involving any currency translations should the currency markets get really volatile, but the buyer would have to be satisfied with holding the precious metals in the U.S. in exchange for his land in New Zealand.  Now, if I had a pocket full of colored diamonds, I would be able to jump on a airplane, fly to New Zealand, and never have to smell a stinky old Dollar in the acquisition of my new digs in the Pacific.  At that point in time, the expanded investment demand for colored diamonds would make that alternative investment look much more appealing to the Kiwi land-seller than sitting on a depreciated asset that he or she is endlessly paying taxes on.  It is all relative when it comes to perspective.

I know this may sound extreme, but why are 90% Junk Silver bags so popular with investors besides their very low premiums over melt value?  Investors see these pre-1964 coins as a Barter Medium that could be exchanged at then current melt value in an economy where the purchasing power of the domestic currency has gone into the toilet, is debased, and not worth the paper it is printed on.  Remember the expression, "Not worth a Colonial".  Well, we have had periods in U.S. history with extreme currency devaluation and we will have them again.  As I am convinced the U.S. economy has no staying power in its current upswing due to massive debt loads at every level of our society (Friday's lack-of-employment numbers are the first shot across the bow!), I am also convinced that the Dollar is headed for much lower levels on the world market.  Mathematically, what do we care if our dollar investment in tangible assets goes up by 100% to 300% and our currency goes down on the world stage by 40%?!!  We are still way ahead of the game by some 180% on a purchasing power basis, and have hopefully avoided financial ruin by not making stupid mistakes in other areas.  But one of the supreme advantages of tangible assets is their general portability and universal demand so that we can avoid the inevitable and in-progress currency debasement and acquire real assets, not currency, at the end of the yellow gold-brick road.  I think that this is the answer to, "What do I do with those Dollars when I go to sell?"  You quickly exchange them for a foreign or even domestic real asset that you can kick and one that is not a promissory note in disguise.

Don't forget to read the news report that I published on Monday, January 5th below.  It is almost devoid of political comments, and helps to explain why silver is currently on fire.  HAPPY NEW YEAR!

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February 6,  2004:  No Problems Until After The Election, You Say?!!

We shall henceforth label 2004 as the Year of the Glider.  Since our economy through technologically-induced productivity due to fewer workers employed Stateside, our financial system through never-imagined-before creativity in reporting and leveraged instrumentation, and our political system through unmitigated prevarication have simultaneously reached soaring heights, then all we have to do in 2004 is put the joystick in auto-pilot mode with a bungee cord and circle blissfully to a happy landing.  When all of the parameters that measure health in these and other critical areas of our lives ARE REPORTED TO BE IN TIP-TOP SHAPE, why should any of us mortals spend one parsec of our finite time trying to find a tear in these billowing clouds of bliss?  To further expand the logic, IF THE SYSTEM HASN'T COLLAPSED AFTER FOURS YEARS WHEN IT REALLY SHOULD HAVE, WHY SHOULD IT COLLAPSE NOW?!  My answer would be the same as that to the speculator playing Russian Roulette (many of these ill-fated are seen daily on Wall & Broad Streets).  We all know that the gun is loaded in at least one chamber, just as we know that we have at least one problem that could be very serious to our financial health in the environs around us circa 2004 (consumer spending, the Dollar, interest rates come to mind).  The fact that the last pull of the trigger has not resulted in our noggin ending up in the next county has nothing to do with the probability that we will survive the next trigger pull?  On the contrary, a statistician, probably the most dismal of all sciences, economists move over, would say that your odds of your noggin ending up in the next county have just gone up with that prior pull of chance.  It would be my supposition, since my noggin dislodged from it mount many moons ago, that risk is not linear with time as we progress through 2004, but is as exponential as a new biotech stock's first day of trading.

The fundamental reason for an accelerating level of risk, economically, financially, and politically, as 2004 progresses is that the problems, the single bullet(s) lodged in a chamber, are continuing to expand in magnitude, not finding an equilibrium or stasis point as the nightly cheerleaders would have you believe.  Since no one sent me a bottle of Cognac for being so right about the precious metals in 2003 and prior, I am sure a case is winging its way to my doorstep with the Mother of All Predictions for 2004:  THE ECONOMY IS GOING TO FIZZLE BY SPRINGTIME.  Since every blooming economic and financial market forecast capable of prime time airing is predicated on an economic recovery gathering steam in 2004, I say, head in hand, that it just ain't so .... Joe.  The economy is not a perpetual motion machine, that can magically keep going after an initial thrust.  We just had the Mother of All Economic Thrusts with 3rd Quarter, 2003, Fiscal Engineering called the Bush II Tax Cuts, Round 2 or 3, I have lost count.  George W. is making Lyndon Johnson look like Silas Marner.  The employment, or more appropriately dubbed UnEmployment Report, just crossed the wire and, drum roll please, it was a major disappointment on the additions to payrolls which is what an economic recovery so badly needs to be sustainable in a consumer-led economy.   Businesses just don't have the order book, capacity constraints, or sanguine forecasts for 2004 that our slimy politicians have, so they are not opening their doors to new hires in any appreciable manner.  The Dollar is down over one point on the U.S. Dollar Index, so foreigners are voting early this election year and are gradually reducing their exposure to a sputtering Debtor Nation Par Excellence.  I have taken the liberty, once again since these guys are one of my favorite analysts, from The Contrary Investor website, www.contraryinvestor.com , to post below a chart that should send a chill down the back of any sober citizen who has correctable vision:

For anyone to assume, just as in the Russian Roulette analogy, that cheap money is going to continue to allow American consumers to easily service their existing debt AND continue to assume new debt to spur the economy in 2004, is to once again make the assumption that an empty chamber is again going to line up in the barrel.  Contrary Investor goes on to point out that the prior peak in this bullet of a stat in 1933 was not due to a surge in credit market debt but to a 30% decline in GDP as the Great Depression progressed.  During the post-2000 period when we exceeded the 260% depression high in the Debt to GDP ratio, the economy grew at anemic, but positive, rates for the 4-year time span.  So debt creation and assumption have gone off the charts in a manner that is clearly not sustainable.  With record low interest rates across the borrowing spectrum of home mortgages, corporate loans, and consumer installment credit, it is unlikely that either personal income growth and growth in corporate profits will be strong enough in 2004 to allow overall credit market debt to expand at prior year rates.  The cost of money is very unlikely to decline any further in 2004, and, in fact, it is one of my astute predictions for 2004 that we will see a firming in interest rates, even prior to the vaulted election.  It will likely be a move by the Fed to put some sort of floor under the Dollar, a vain attempt it will be for a fundamentally flawed liability, which is headed into crisis mode.  As to the availability of money, I think that the Fed will also realize in a public way that issuers of credit such as Fannie Mae and Freddie Mac need to be reined in from blowing up the Mortgage Bubble any bigger than it already exists.  Fed Heads say they don't know how to recognize a bubble until after the fact, but only a campaign manager would buy that line of bull.

In fact, the Fed has just announced, according to Reuter's:

"The Federal Reserve said on Thursday it planned to stop making interest or redemption payments for groups such as Freddie Mac and Fannie Mae unless they already had the money in their reserve bank accounts.

The Fed, which acts as an agent for government sponsored enterprises (GSEs), currently has reserve banks make payments on behalf of these groups at 9:15 a.m. Eastern Time even if the funds are not already in the Fed accounts.

That is the same time it makes interest and redemption payments for U.S. Treasury securities.

"However, the rising level of intraday credit in recent years has prompted a reassessment of this practice, which is inconsistent with that of private issuing and paying agents for their customers' securities," The Fed said in a statement."

It is the last sentence that implies to me that the Fed knows that it can no longer control the total creation of credit in the U.S. economy, especially when such Government Sponsored or Favored Enterprises (GFE's) have ballooned their balance sheets by providing mortgage securitization at a level never before seen in the history of mankind.  In addition to the Fed finally waking up from its long bubble-induced slumber, the political firestorm will strengthen thanks to the persistent efforts of honest politicians such as Ron Paul and John McCain who will lead the charge to pull costly preferential treatments, i.e., explicit government subsidies and even implicit government guarantees, from highly profitable enterprises that operate primarily outside of most government regulations regarding lending standards, balance sheet liquidity, and liquid asset to outstanding liability coverages.  As the Sage of Wexford has said many times in the past, a high percentage of home borrowers in 2003 and 2004 will default on their mortgages in the years ahead since they were very marginal financial risks to begin with and lending standards have been grossly lax for the last 5 years.  Just wait until that reality hits the fan, and it may be sooner than most think, especially if we get into a Dollar Crisis that seems more possible by every downtick in the index.  A pop in short-term interest rates BEFORE THE ELECTION is not impossible due to increasing turmoil in the currency and credit markets, and any variable rate debt, such as credit card debt and variable rate mortgages, that these marginal risks are swimming in is going to weigh heavily on their abilities to stay afloat.  This is not the common wisdom, but I am an uncommon sort of fellow.  This election year is going to be super nasty with respect to candidates' and politicians' Slings & Arrows, so don't be surprised if some of the biggest spenders start looking under every nook and cranny for ways to trim the out-of-control Fiscal Deficit a la Bush.  It indeed is political silly season, but Bush is exposed as a big spender outside of the National Security Spending Shield.  The Democrats have a better than 50% chance of regaining the White House in 2004 due primarily to ineptitude on the part of Republicans, so the Blue Collar Party will go after the privileged GSE's like a congressperson after pork.  The GSE's have all of the characteristics of Big Business in 2004 anyway.

As regards those most precious of metals, I have a few observations to make about these hard assets and the investors who strive to own them in volume.
DON'T TRY TO PICK A PRICE POINT TO PURCHASE PRECIOUS METALS; you will be left at the station in a commodity bull market.  I still think about the day-trader in New York who was going to buy $250,000 of gold when the price got back to $347; gold was trading at $359 at the time, having just come off of the interim $390 high.  It never got there, and I haven't heard from him since.  Probably bought from a higher priced dealer, too embarrassed to come back to me.  Like all asset markets, commodity markets have 10% to 15% corrections on a regular basis; some futures traders use a 61% retracement rule from the most current upward advance of a commodity for a re-entry point.  Yes, a very fleeting bounce in the Dollar sparked the initiation for the most recent corrections in both gold and silver, but the two metals have already retraced 10% or more from their recent highs, and I would not bet the farm on gold below $400 or silver below $6 for any period of time or in any meaningful amount.  As an example of how quickly commodities bounce back in a strong physical demand market as we have developing day by day, silver came off of $6.70 to almost $6.00, but today is back up to $6.29 at the Comex close.  I would say since a 10% retracement may not be hit or last a nanosecond, pull the trigger when you hit an 8% pullback BUTTTTT ONLY IF YOU ARE DETERMINED TO BE A MARKET TIMER.  OR BETTER YET, AND WITH PROBABLY BETTER LONG-TERM RESULTS, JUST BUY WHEN YOU HAVE THE DOUGH.  My phone rings off the hook during pullbacks, so be advised that the money and inclinations are present in 2004's bullion markets to make pullbacks rather short lived.  I know an excellent place where investors can take over-priced chips off the table, and redeploy them in under-priced assets such as the precious metals.  Any come to mind in your opinion?!!!  Here's a hint:  Starts with an "s" and ends with a "k".  Equity Bubble II will burst by April 17th, 2004 at 3:27:54 p.m. (or thereabouts).

And, as a parting shot across the bow, my revelation about a $10 silver price by March FROM AN INDUSTRY INSIDER was just that ..... a reporting of a conversation, NOT A PREDICTION THAT YOU SHOULD MORTGAGE THE HOUSE OR THE KIDS ON.  If I knew with certainty what any precious metals market was going to do in the next 60 days, do you think I would tell the world and increase my cost of taking a position?!!!  Hey, you cheapskates out there won't even send me a bottle of Cognac for Christmas!

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March 5,  2004:  Complacency Is The Bane of All Investors.

I know I have been derelict in my duty to provide timely and cogent free ezines on these pages, but it is Tax Time, and I have enlisted the services of a Cray Supercomputer to figure out what I owe the Spendthrift Government.  I gave up years ago spending hours trying to decipher the instructions contained in the IRS Publications, and now rely on TurboTax to accompany me to tax court should the need arise.  I just hope they are still in business should that time come.  But the U.S. Tax Code is such the biggest piece of unintelligible gibberish that one would think it had been written by and for the members of the central banking community, especially the U.S Federal Reserve multiple spokespersons.  And as a bullion broker, any gains that I personally make on gold or silver transactions held for investment are treated as part of business revenue devoid of any preferential capital gains treatment for long-term holding.  Not that I am a trader of the precious metals, because I do not own a freight company, but, on occasion, I have been known to take profits in one metal and re-deploy it into another.  Frankly, I have always done the best from a total return standpoint by lengthening my holding periods for investments and certainly not the opposite.  It is much easier on the nerves also, not feeling inclined to have to be correct at a multitude of decision points.  The more decision points one feels obligated to address the higher the blood pressure reading, in my experience.  Buying on pullbacks is still allowed under the Wexford Philosophy of Investing and even encouraged, but incremental investment funds should often come from incremental income instead of one being forced to sell another well-performing asset elsewhere at a suboptimal time for that asset just to be constantly in the game of trading.

I chuckle quietly when I get asked if the bull markets in the metals is in its final throes.  Gosh, we have a bunch of impatient citizens out there.  No, we are still firmly in a bull market for the precious metals.  Case in point:  HAVE YOU SEEN SILVER LATELY?!!!  We are going to break the hallowed $7 per ounce level probably before I publish this newsletter.  If you have watched various asset markets that post intra-day prices as much as I have over the last 30 years, you will realize, without getting into a bunch of technical mumbo-jumbo, that the price action in silver is outstanding.  In fact, it is so outstanding that we may hit the $10 mark as the Sage of Wexford has predicted in these pixels, not necessarily by April, but let's say by August.  A totally out-of-the-hat projection, but Boys and Girls, this silvery metal is getting ready to run.  Remember, there are a boatload of insider-privileged Silver Users represented by inside traders on the exchanges that are short millions of ounces of silver, as I type, so the Mother of All Short Squeezes, as predicted by such straight-shooters as David Morgan and Ted Butler is developing right before your eyes.  We investors can even use barometric pressure to attempt to foresee the future price of silver, but the best guide is, "WHAT HAVE YOU DONE FOR ME LATELY".  Don't worry about buying silver at the $7.00 plus level, because if you think like I do that we are headed for the all-time high of $50 plus per ounce at some point in the future, then silver is still dirt cheap today.

Now silver's partner, GOLD, is just taking a much deserved rest from the heady price gains since the $255 low ($430 divided by $255 equals 69% OFF THE LOW!)  So put those Pig Snouts back in the Washington Redskins pouch and SAY AFTER ME:  NO MARKET GOES STRAIGHT UP.  UNLESS IT IS THE MARKET FOR U.S. TOTAL DEBT!  There probably still are some Central Bankers out there that will feel that this is a good time to convert the Barbaric Relic into "safe", low-yielding financial paper to possibly get their place next to Greenspan in the Hall of Shame, so don't be surprised to see unexpected sales of the golden metal throughout the year as fraternity brothers of Sir Alan don't want to be left out of the Pat Yourself on the Back Love Fest that he has started in his recent Congressional testimony (or testament!).  Maybe not enough has been written or said about Sir Alan's recent self-congratulations on a Federal Reserve job well-done on getting us out of the 2000 Bubble (NOT!).  But I am going to leave this oblique weasel alone today, because history will be a much crueler judge of the man than I could ever be in these electronic pages.  If one dissects his recent Congressional testaments and compares Sir Alan's pronouncements of the State of the System (also known today as S.O.S.) to generally accepted facts (GAF's), one would aim more than a poison pen at the bureaucrat that has now brought us Bubble Number Two and maybe even Number Three.  Some rather astute analysts (yes, there are some out there in addition to myself!) are even forecasting that Sir Alan is getting ready to jump overboard into the financial blue seas just after telling the crew and the passengers that there is nary an iceberg in the Atlantic.  He has built a very leaky lifeboat of self-congratulatory falsehoods that he hopes to row into the seldom quiet seas of central banking legacies.  Do you think his probably grossly over-generous pension is inversely tied to the number of bankruptcies the first 5 years after his tenure?!!!  No, make that a parallel correlation with total system debt the first 5 seconds after his tenure!  Since only an idiot with a recent lobotomy would profess to the world that, A) The Federal Reserve has done an outstanding job of avoiding systemic collapse over the last 5 years, AND B) The economy and the financial system are on the path to solid recovery. 

Please forgive the Sage for getting off track with his typical tirades but these bleatings may be the only vote that I cast this year.  SILVER IS GOING MUCH HIGHER, SO SELL THE BEACH HOUSE, THE NANNY, OR THE LEXUS AND GET ON BOARD.  Just as part of an overall commodities bull market (thank you China and Southeast Asia!), this industrial metal which is increasingly being deployed in new technological and medical applications, the pressure is on the upside, Sports Fans, not the opposite.

Here is another tidbit I would like to pass on:  I am not George Soros.  I am better looking, but don't have his purchasing power.  Of course, those of you who regularly read these dewdrops of wisdom may find that hard to believe, but I am not an accomplished short-term trader.  And most people, by far, who say they are ....... are liars.  SO PLEASE DON'T ASK ME WHERE ANY OF THE METALS ARE GOING TO END UP FOR THE DAY, THE WEEK, OR THE MONTH.  My official reply to queries for price forecasts is now:  HIGHER or THEY ARE GOING TO FLUCTUATE!  Get this short-term mentality out of your head, because unless you are trying to meet the mortgage with this month's gains in the metals, you really have the luxury of sitting back and just enjoying the ride.  And as we Hard Asset Bulls (HABbits, an Upper Earth descendent of the Trilogy's Hobbits) become greater and greater in number as the evidence flows like wine that we are collectively not Dorothy on the yellow brick road to Oz as a nation as The Chairman, Sir Alan, would have you believe, then higher prices become a foregone conclusion in tangible assets.  In free markets, supply and demand work beautifully, and in manipulated markets, surging demand will eventually overwhelm a limited supply of any asset, manipulation or not.  It has solidly happened for gold.  It is unfolding before your peepers in silver.  If you have spent any time watching price activity in commodities, when a raw material such as silver starts to surge as I feel it is doing now, it can go through multiple whole dollar levels in a matter of weeks.  Get some packing crates ready for my Christmas Cognac now!

As the Sage so correctly called it (a Greenspanesque pat), the economy fails to display that key ingredient necessary for sustainability in recovery, that 4 letter word for George Bush, JOBS.  As corporate officers start sourcing secretarial help in Zimbabwe to cut costs and increase their own bonuses, how can there be an incentive to increase domestic employment at a time when the average Yankee head costs base salary plus 40%?!  That barely-making-the-Lexus-payment $60,000 per year employee really costs a whopping $84,000 big ones per year with benefits, so even if one gets broken English or the King's English with a Hindu accent with outsourcing, hey, at least the Michael Eisners of the corporate world will still be vacationing in the Hamptons this summer!  

And even though stock investors of the last decade have been as thick skulled as a deer crossing on a superhighway, the bells are ringing for this genre of investors to quit playing in traffic.  My wee gee board is saying that we are currently putting in another top in stocks, a top that will not be seen again for many a year, but one would never sense the lurking danger based upon the Billions of dollars flowing into equity mutual funds.  I would venture that the magnitude of inflows is not much less than that seen in April, 2000.  Now I know Sir Alan told us Baby Boomers the obvious that Social Security won't be worth a plug nickel when we ask for some of our money back, but that is no reason to throw caution to the wind.  Observe the distinct possibility of a triple-top in the S&P 500 even while the bulls label this pattern as a mere consolidation.  Viewing a representative sample of individual stock charts that cannot be "painted" through the use of index options and futures, there is an abundance of technical deterioration as prices begin to roll over and daily volume wanes.  Add in a virtual currency crisis in the making to give the bond market something it should be worried about as domestic currencies can only be defended in the intermediate term with more attractive, higher domestic interest rates.  Throw in $2.00 to $2.50 gasoline for a little spice and you have one volatile mix that can blow things up, not propel them to greater and greater heights.  I think the term in the 1970's was Cost Push Inflation.  Expect another energy crisis this summer as either demand or some knucklehead tripping over a cord at a power station will darken the lights across a major segment of the country, AGAIN.  Still debating whether to get that generator run solely by politicians on a giant hamster wheel chasing that last campaign contribution.

I have taken two days to complete this update since I have just built my 4th computer system and had to run it parallel to my old dinosaur of 3 years vintage for a period of two weeks to assure continuity.  Technology, in hardware at least, is advancing at breakneck speed, but if you use one of these little monsters on a regular basis (truly a Love-Hate relationship!), you know all too well of the downtime associated with hardware and software problems.  I would venture that I lose about 5 to 7 full business days per year on computer related problems, so the Productivity that our government hacks rave about is a two-edged sword and not the hardware advancement quotient so often used as THE indicator.  Changing employees' attitudes are much more difficult in the work environment, so plunking a new hire in front of a screaming high-end system does not necessarily lead to stellar productivity.  The machine in front of them may save them hours and hours over a week's time in performing a sundry list of day-to-day tasks, but if dissatisfaction with pay, benefits, office politics, office furniture, you name it, exists, then the net production level for an office worker is not that impressive.  I mention this issue because there is no doubt that American workers are faced with a monumental adjustment in the years ahead, especially as seen in manufacturing, where new technologies and methods allow virtually every company to produce more product with fewer employees on a consistent, year-to-year basis.  This is another reason that employment trends in the United States will be generally unfavorable for many classes of skilled labor, white-collar or blue-collar, in the years ahead, and a debt laden society such as ours is ill-equipped to generate new services and products that can be afforded by the populace, number one, and by the stable companies that would have to borrow money to bring them online, number two.  When as much uncertainty exists in the business world as it does today in the United States, successful business people err on the side of caution and avoid assuming additional risk, no matter how minor.

This is another facet of our troubled economy where today's investor in junk bonds, emerging market debt, "speculative" residential real estate, and, of course, common stocks is not looking at the big picture in evaluating the underlying strength or weakness of current U.S. economic growth and financial system integrity.  As the Sage of Wexford predicted just a few short months ago, the economy is showing all the tell-tale signs of rapidly losing strength as we head into Spring.  The spurt is behind us, and there is little fuel left to maintain a steady head of steam.  Globally we are in an evolutionary phase of the redistribution of wealth and hence employment from the Western World to the East; the magnitude and rapidity of this change is historic in every sense and there will be no going back to the economic and societal structure of the last 50 years.  With the current strains of massive debt and systemic frailty on the American system, it is quite likely that the period of history we are currently in will be revolutionary in many respects as well.  Revolution suggests upheaval, hopefully of a non-violent nature, but that is the scene in which we are emersed.  Those who go about their lives without recognition of this evolution/revolution are going to come up short, certainly financially.

In closing, since I have some miles of hiking to put in before sunset, we are witnessing one of the most complacent investing populaces in American history.  We are selling bullion and hard asset products with both hands here at WCM, but we are just scratching the surface of the billions of dollars that will eventually flee most financial markets and real estate  for the certitude of physical asset investing, the most liquid variety.  This change in perception of investment alternatives is an evolutionary process as well, but we all know that evolution tends to accelerate with time due to pure mathematics.  Two rabbits beget four rabbits which beget four more rabbits each, you get the picture, that's 22 from 2 in no time.  So breeds the word of pending malaise and the alternative steps to higher ground.  If the acceptance of alternative investments is an exponential, not a linear event as I expect and see day-to-day in business, then existing and potential investors in the precious metals, rare coins, and colored diamonds can expect prices to behave exponentially as well.  If this type of price action has been okay for financial assets for the last 22 years, it can certainly occur in the realm of tangible assets.  AND REMEMBER.  Tangible assets in virtually all cases have a finite supply on this planet.  There is no finite supply of financial or paper assets, even residential real estate! which can be AND HAVE BEEN created out of thin air at the whim of the issuer.  Combine exponential demand with a dwindling finite supply and what do you have?  BABY, YOU AIN'T SEEN NOTHING YET!!!

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April 1,  2004:  Accident Insurance Sorely Needed.

The best analogy that I can make at this time about the U.S. economy and financial system is that of an accident waiting to happen.  A rationale person does not drive his or her automobile around without insurance nor do they drive with the lug nuts half on.  We won't discuss how well any of these rationale persons operate the vehicle, because we all know from direct experience that that department leaves a lot to be desired.  I am referring to the sound financial practice of taking steps to assure that a sudden and unexpected event, like a gaping pothole in the road that wasn't there yesterday, does not cost unrecoverable property or bodily damage to the operator.  Since the average vehicle today is upward of $30,000 and the average hospital stay can easily exceed $10,000 for only 3 days, not paying hundreds of dollars per year to avoid having to go further into debt to pay these much larger sums makes no economic sense.  I have no statistics on how many uninsured motorists are out there playing vehicular Russian roulette, but I am sure in most parts of the country, as times get tighter, the numbers will shock and awe the more responsible of us.  Penny wise and pound foolish, comes to mind, but I think there is lots of company for this daring-do crowd.  We find them in the stock market, the bond market, commercial money markets, and in real estate of all genre.

There are few safety-nets in place in the overall American economic and financial system.  If one takes comfort in the insured bank account he or she has so conservatively utilized partially because of FDIC insurance, one should also know that the insurance reserves existing today could not begin to cover the outstanding liabilities in the FDIC system should even a small percentage of the insured banks fail, let's say 5%.  Don't ask me what those numbers are because I don't believe any Government statistic in the first place.  You still have garbage when you analyze garbage.  The $100,000 limit per customer per bank requires that many depositors have to open numerous accounts to have every dollar supposedly covered, but this practice also complicates the process of determining which banks are the safest to begin with by increasing the analytical time and effort.  Few of us have the skills or the time to expend this cranial effort in the first place, and God knows that the banking community lies about reported financials probably no less the the general corporate community.  We all make the potentially erroneous assumption that the Full, Faith, & Credit of the U.S. stands behind the under-funded FDIC insurance pool, but take a hard look at the Insurer of Last Resort in this case.  Just as you hopefully shop for insurance from a Best rated A- to A+ insurer, you must look closely at the party currently backing up the preservation of your principal, no matter where it is parked.  This whole series of assumptions is akin to a quasi-pyramid scheme where one governmental organization layered on top of another takes a public posture of protecting the citizens' assets, yet the ability, not political willingness, of these layers is increasingly suspect.  Is it logical to assume that the United States Government can continue to print massive amounts of new money in whatever form to cover mushrooming or limitless liabilities at a time when that practice over the last 30 years has placed its financial position at its worst in history?  Me thinks not.  There is nothing to say that should bank failures occur in the not-so-distant future in a magnitude commensurate to the credit quality of borrowers today that you will not get your hard-earned cash back but a Government I.O.U. in the form of a freshly printed Treasury Note.  Talk about a liquidity squeeze.  And when the stream of interest income over the next 25 years at 4% per annum equals your original principal loss, the Government will declare that the debt is paid in full FOR THE GOOD OF THE NATION AND NATIONAL SECURITY!

Now this scenario sets up the perfect example of a failing system beset by both deflation and inflation at the same time.  As assets, let's say the business production equipment that is faced with massive competitive capacity around the globe and global economic stagnation loses more and more resale value, then the collateral behind the bank's commercial loan on same is declining faster than normal depreciation would suggest.  More directly, the underlying business that owns this leveraged equipment is finding it harder to compete and still be profitable, so the payment on the loan eventually comes into question.  The banking community can restructure loans until the cows come home, but just ask the Japanese Banking Community what this has done to economic growth in Japan over the last 15 years.  No one is in a position to borrow due to insufficient overall demand and consumer confidence, and no financial institution is in a position to lend because the stinkers were never written off, just reclassified.  The banks capital ratios under international standards for over a decade now have not been adequate from any stretch of the imagination to allow the extension of new credit in a meaningful way to really spur economic growth in Japan.  The Japanese Government has printed money with abandon to re-liquefy the system, but few have been willing to take this money, even at virtually zero-percent interest rates, and attempt to add to production capacity.  The business model that the bank used to make the loan is no longer valid, but the asset has not been discounted to reflect this new reality.  So as the commercial loans on the bank's books, not to mention those consumer loans for autos, home improvements, and vacations, go increasingly into default, the assets available to repay depositors when their CD's come due are shrinking in lock step.

Personal bankruptcies, delinquent mortgage payments, and delinquent installment debt have all grown over the last 3 years, at a time when we purportedly had adequate or emerging economic growth.  There is no indication that the American consumer has yet to wake up from this debt binge and pare back spending enough to buoy the personal savings rate.  Furthermore, the failure to repay debt is likely going to reach epic proportions in the years ahead partially because the principal outstanding has reached epic proportions, certainly in the United States.  Even at 1% interest rates in the American system, the principal repayment that has to occur in the next several years is being shown to be in excess of all rationale forecasts of sustained income growth.  Since a consumer has a balance sheet and income statement just like a corporation, at least categorically, no reserve or insurance pool has been created to weather the inevitable financial or economic storm.  Debt is being assumed to service older debt in the classic Ponzi scheme; the American debt addict is assuming more debt to maintain his current standard of living, borrowing against assets whose market value today may not be that of tomorrow.  No buffer or insurance policy has been taken out by the borrower to assure that any temporary interruption in monthly income will not put he or she into delinquency or eventual default.  It is the Wild, Wild West of borrow and spend.

HE OR SHE HAS BEEN LULLED INTO THE FALSE BELIEF THAT A TREND IN PLACE WILL REMAIN INDEFINITELY.  THAT LOW INTEREST RATES ARE A GOD-GIVEN RIGHT FOR SPENDTHRIFT AMERICANS.

The reality check has just crossed the wire with the UnderEmployment Report.  Now a return of striking grocery workers and a blip in construction workers for the month due to drier than normal conditions around the country does not have me running for my Schwab number, but let those who wish to be disillusioned remain so.  IT DID HOWEVER HAVE THE EFFECT OF FIRING A SHOT HEARD AROUND THE WORLD.  Observe the cratering of the bond market where the 10-year Treasury Note, THE benchmark for establishing mortgage rates, dipped a solid 1 26/32 on the open.  This pushes the yield from 3.9% to 4.1% in a heartbeat, and we have just begun to see the rationalization of U.S. yields to deteriorating credit risk, surging prices at the producer levels, and excessive Treasury supply as far as the eye can see.  There are more increases in rates coming to a credit market near you.  If you buy that the Consumer Price Inflation is less than 3%, you don't have to buy any good or service each month.  Raw material prices are going through the roof, partially because China is buying up every freighter of raw materials that it can get its hands on in order to feed its export and domestic markets.  To even the uninformed observer, commodities and precious metals are in an undeniable bull market.  Summer vacationers are going to have to bring sandwiches for their trip, since gas at the pump is likely to exceed $2.00 per gallon before the tulips bloom and possibly $2.50 before the leaves fall.  The squeeze play is on, with living costs hardly staying calm at a time when discretionary cashflow at all levels is virtually non-existent.  A mini-bear market in bonds, with prices moving inversely to their yields, is unfolding before our very eyes.  And remember that this is an economy addicted to low interest rates.  How high they will go I am not sure.  If the 10-year is currently at 4.1%, a 5.0% 10-year Treasury Note is certainly not out of the realm of possibilities prior to November 3rd.  Sir Alan can control the short end of the yield curve, but he is virtually helpless (AND hopeless!) to effect the longer dated maturities.  The steeping of the yield curve has always depicted heightened inflationary expectations going forward, and history will repeat itself here; an already very steep yield curve is about to get steeper.  This will force the Fed's hand more than any other event, especially as the evidence mounts, Governmental or private, that we are at the beginning of cost-push inflation.

Aside from the traditional victims of higher interest rates, the stock market, the housing market, the bankruptcy market, there is that looming Albatross hovering overhead that could create the Big Bang all over again.  INTEREST RATE SWAP DERIVATIVES.

Don't think for one minute that Fannie Mae or Freddie Mac are not about to cough up another multi-Billion Dollar hairball to reported earnings (once again a failure to take out adequate insurance via accounting reserves that reduce reported earnings and executive bonuses) as the bets on stable, low interest rates go bad.  We are not talking about one-to-one leverage here in these hedged positions, but easily 10 to 1 leverage which creates a margin call from who knows who in this case in a wink of an eye.  Capital adequacy was suspect for these credit machines long before today, but watch some awake-at-the-switch bureaucrat or politician seize upon the Election Year Feeding Frenzy and point out that George W. and Crew were asleep at the switch to allow a Government Sponsored Enterprise to get this leveraged in one direction.  Once these behemoths have to pull in the reins to Balance Sheet Exploding (BSE's), the mortgage market is going on its ear and the housing market with it.  There is little value in the cracker boxes that builders are throwing together today, and to add 25% annual price increases is to add insult to injury.  Plus, who the heck is left to buy a home besides the hobo living in the cardboard box who just got a 125% loan approved with zero down on a $350,000 McMansion located in a tornado alley?!!!  This Derivative Implosion at the GSE's is just one catalyst to the bursting of the Real Estate Bubble, Sir Alan Take Three, not the only ingredient to its necessary 20% to 40% retracement in price.  I know that I have been saying real estate would crash for 3 years now, but eventually even a monkey types a word on a typewriter. 

Add in the major center banks, the credit card issuers, the sub-prime lenders, and all of the sundry financial intermediaries that have their collective butts hanging out the Interest Rate Swap Door and FOLKS ... WE GOT TROUBLE IN RIVER CITY.  If George Soros has been predicting this event for over 2 years now, and the Sage of Wexford has been shouting from the rooftops for almost 5 years, do you really want to bet against this dynamic duo?!  In taking out insurance, an individual or organization attempts to predict the potential loss that conservative, prudent analysis would calculate in the more severe of circumstances.  Usually, the cost of insurance precludes covering the most dire of circumstances, but one attempts to find a middle ground to the cost-benefit quotient.  Conversely, it does no good to have insurance and be underinsured for the average consequence.  The damage is still devastating, just not total as for the uninsured participant.  Given the magnitude of the Trillion of Dollars of Interest Rate Swaps in existence just in the United States, no rationale person would assume that attendant capital is available collectively or individually by the holders to adequately cover even the outcome of average severity.  WE ARE ABOUT TO FIND OUT HOW LACKING OUR ACCIDENT INSURANCE IS.  He who plays on the railroad tracks is eventually going to be badly bruised indeed.


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April 21,  2004:  View Pullback As A Gift.

I am going to start out this snippet of a commentary, not a full-blown discourse, by saying, "I told you so".   On April 1 I expounded that we were at a watershed event in the turning of interest rates from the artificially multi-decade lows forced by the Fed's loose hand to higher levels to reflect stronger economic growth and significantly higher inflation.  Although Easy Al is trying to backpedal today that he is not in any hurry to raise rates due to inflationary pressures, which are as real as the reflection of camera lights on his exposed head, the game is being taken out of his irresponsible court and is being played in the court of public opinion, i.e., by the long absent bond market vigilantes.  Sir Alan can pontificate until the Mad Cow cows come home, but markets will do what the fundamentals dictate.  That dictate, and we are getting a temporary reprieve in the price level of the Badly Flawed Dollar, is to more fully compensate lenders of money for the risk that what they are going to get back in Year 5, Year 10, and Year 20 is going to have a whole lot less purchasing power than the money they are receiving today.  Inflation is good for borrowers, but bad for lenders who can only attempt to compensate themselves for this higher risk of devalued repayment flows by upping the cost of money.  So, even while the availability of money continues to flow like wine from the printing presses of sovereign states (and the GSE's!), the cost of money is headed higher.  Great call O' Sage of Wexford!

Now, before anyone gets too worked up over the current Dollar Rally and how it could be (fat chance!) the end of the bull market in the precious metals with cash paper becoming the asset of choice, just observe with a calming libation how the Dollar is merely attempting to recover lost ground.  The 200-Day moving average should provide some stiff resistance for the currency traders and even if we get to 95 on the index, this current Counter-Trend rally is nothing more than that, a rally from an oversold condition to a level that will attempt to shake out as many Dollar Bears as possible.  My, my.  Doesn't this chart look a lot like the S&P 500 in March, 2003?!!!  If we go to 100 on the index, and I think the probability is much lower for this recovery level since our nation is beset with financial, economic, and political structural sinkholes, then we have more of a parallel to the S&P 500 in March, 2004.  Bear market rallies are spectacular and serve to winnow out the strong hands from the weak, and this Dollar bear market rally will be true to form.  Have the discipline to dollar-cost average into your metals positions.  You are being given a gift in wolf's clothing.

Now, as my hot little fingers go flying across the keyboard this morning, Silver had hit $6.32 and Gold was around $392, both before recovering nicely (well, silver closed at $6.16 so there can't be too many more lemmings left to go over the cliff!).  Don't ever forget that these shiny assets are COMMODITIES, and can fall victim to the whims of futures traders at the drop of a hat.  Volatility is the name of the game in the precious metals markets, and if you do not have a long term view of 5 to 10 years in holding a position, you may want to get a prescription for a tranquilizer.  Clients are asking me to advise them on when to buy and sell the metals to attempt to take advantage of these price swings, but I am not in that business of trading anything and recommend the boring, but often quite fruitful practice of:  BUY & HOLD.  Now let's look at the entrails of the chicken to discern what has happened here.

The real sage Richard Russell, who I disagree with solely on the issue of silver not being a monetary metal (plenty of history to suggest otherwise), brings up an interesting supposition that debt holders laden with adjustable rate mortgages, variable installment debt, and variable credit card debt are selling any asset that they can to obtain liquidity to pay the higher cost of carry for their debt burdens as rates rise.  So it is nothing personal against the precious metals that they are being sold along with bonds, stocks, Euros, Swiss Francs, etc., but any asset that will generate cash is falling victim to the lack of liquidity in debt service cash.  Now the U.S. Dollar is not my first choice in liquid assets, but currently that is the only asset being used for making debt payments of interest and principal.  We will see more of this rush for cash in the months ahead, and when more people are chasing an asset, unless it is governed by the CFTC and the Comex, the price of the asset will go up.  In this case it is via a rise in interest rates. 

Now, none of us Tangible Asset Bulls (TAB's) should be discouraged in this corrective environment, but be grateful that the leveraged speculators on the Comex created a hot money situation for silver by jetting it from $6 to $8 in the shake of a lamb's tail.  Yes, I have not nominated myself to run for President, but more physical silver will be purchased at these levels in a shorter period of time than if silver had stayed about $8.  There was sticker shock at that level, and as the fundamentals continue to crumble in virtually every other market, investors will hedge with physical silver that is now bargain priced.  While this almost predictable pullback episode may be unsettling for the weak hands that think silver is a NASDAQ tech stock that can be held for 60 days for a 50% profit, the true investors amongst us know that fundamentally nothing has changed in the rationale for holding silver and/or gold.  In fact, with the turn in interest rates forecast by the Sage of Wexford, the fundamentals for financial assets, real estate, and the economy in general are going to deteriorate much quicker than expected.  Since the Fed and the Government have run out of stimulative power at this late stage of Bubble Number Three (Stocks, then Debt, then Real Estate), the staying power for any economic recovery in 2004 was in question well before rates headed back up.  The pin has burst the bubble even if the hole is currently only causing a slow leak.  Remember that the commercials have never been long silver in the last 10 plus years, a situation that has never existed in any other U.S. traded commodity.  They still have the ear of the Comex since the fees they generate pay exchange salaries, but this may be the last time they will be able to slap the silver market back down with impunity.

The Sage of Wexford goes on the record herein that the nature of silver holdings is gradually and steadily changing to one of physical possession instead of speculative, paper longs.  I see it in my business sales of silver bullion and other high volume bullion brokers can verify the same.  This "strong hands silver" is not coming back onto the market anytime soon since many investors and many of my clients have bad backs and aren't going to be lugging thousands of ounces of Ag to the Post Office on a regular basis to try to catch every wiggle in the market.  This is a fundamental change that will propel the metal higher and higher in the years ahead as the game of chicken in shorting silver 10 times over available physical supply to cover comes to a crashing end.  The District Attorney of New York may pay a visit to the CFTC and Comex in the not too distant future.  My clients are buying during this correction; the world has hardly become a kinder and gentler place in the last two weeks.  This may well be the final hoorah for the commercial silver shorts in attempting to close out contracts at lower, more favorable silver prices with respect to their bulging short positions.  Scrutiny of conspiratorial regulators is just as commonplace in election years as scrutiny of market participants.  Remember too, that many of the hedge funds that piled into commodities and into silver since the beginning of the year are short term traders and highly leveraged.  They operate in many markets at once, and with most markets declining over the past two weeks, they have been a major source of selling that has exacerbated the recent decline in silver as they have been hit from all sides.

The dust will clear.  The sun will come out in the morning (hopefully in the East), and those investors who know that our financial system is corrupt and leveraged just like a hedge fund will still seek the safety of physical assets that have held value in the worst of conditions like silver and gold.  The perpetual shorting of paper silver contracts by the commercials on the Comex is closer to ending than continuing indefinitely.  Politics will see to that.  THE OPERATION OF THE PHYSICAL SILVER MARKET WILL SEE TO IT AS SUPPLIES DWINDLE DAY BY DAY AND THE IMBALANCE EXISTING WITH MASSIVE SHORT POSITIONS WILL BE UNSUSTAINABLE DUE TO RISK ASSUMPTION IF NOTHING ELSE.

KEEP BUYING SILVER AND GOLD AT ALL PRICE LEVELS BELOW THE OLD HIGHS, AND I THINK RICHARD RUSSELL MAY SOME DAY ASK YOU OUT TO LUNCH.  PUT THE SILVER SHORTS OUT OF BUSINESS.

Strapped to the mast and sailing forward in turbulent seas, but with a good compass and clear mind, the Sage of Wexford stays the course.  

Watch millions of dollars come out of stocks, bonds, real estate, and even currencies in the months and quarters ahead AND FIND A HOME IN THE PRECIOUS METALS AND TANGIBLE ASSETS.  The tide has turned.  The jig is basically up.


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