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Fiat -- Sharefin, 19:56:34 02/11/03 Tue

Kurt Richebächer - DOLLAR APOCALYPSE

Entering the New Year, the dollar's fate is definitely the single most important question for the world economy and world investors. It is really the greatest wild card in the world economic outlook. After a very slow start, the dollar's decline has been gaining momentum. But where will it end? Could last year's dollar retreat turn into a dollar crash, possibly with disastrous implications for the U.S. financial markets if not for the whole financial system?

On Dec. 31, 2002, the euro traded against the dollar at $1.05, up from $.8915 at year-end 2001, reflecting a gain of 17.8%. Compared to its earlier peak of less than $86, the U.S. currency has lost altogether 22%. For European investors, these currency losses are adding hugely to their heavy losses on U.S. stocks.

The dollar index topped out a year ago. Starting very hesitantly and gradually, its fall has distinctly gathered momentum in recent months. Considering the resistance of the trade deficit and the worsening economic situation in the United States, it is plainly time to ponder a protracted decline of the dollar and its broader implications. What could stop the dollar's slide? And what could happen in financial markets if the dollar's slide proves unstoppable?

As for the first question, it is established experience that trade balances respond to changes in the exchange rate with enormous sluggishness, if at all. During 1985-87, the deficit continued to soar, even though the dollar virtually collapsed. In essence, such a deficit reflects an equal excess of domestic spending over domestic output. But currency depreciation, by itself, affects neither of the two. To reduce its trade deficit, the United States would need to lower consumer spending. But that is precisely what the government and Federal Reserve are desperately trying to prevent, as it implies recession and rising unemployment.

While sharply slower U.S. economic growth in 2003 may moderately improve the trade deficit, the worsening economic news would frighten foreign investors even more. It is, in actual fact, one of our key assumptions concerning the dollar that an unexpectedly poor performance of the U.S. economy and its stock market in the current year will act as the catalyst that will finally break the illusions about the U.S. economy and the dollar.

While the indulgence of foreigners to invest in the United States is incredible, sharply lower capital inflows are effectively depressing the dollar. With this in mind, the second question becomes paramount. What will happen if the dollar continues its irresistible decline?

Up till now, the dollar's decline has been orderly, for an obvious reason. Inertia rules - there remains a fixed, very negative image of the European economy and its currency versus a fixed, very positive image of a dynamic American economy trumping the trade deficit with a superior growth performance. The result is a still-predominating view in the markets that the euro's rally is narrowly limited, while the dollar's next recovery is only a question of time.

Yet this faith in the dollar's impending rebound must be fading. Its decline is ominously gaining speed. The usual explanation is the war in Iraq. In the past, though, the dollar used to enjoy safe-haven status. In actual fact, there are plenty of other reasonable explanations for a weak dollar. Most of them are not new. But what is new is the proliferating bad news about the U.S. economy, putting its expected recovery into question. In short, confidence in the U.S. economy's growth prospects is cracking.

Could the dollar's orderly decline turn into a chaotic decline, capsizing the financial markets? Look back to 1987, a year in which American and foreign investors did lose their nerve about the falling dollar. For several months, this loss of confidence spelled disaster for U.S. stocks and bonds. Yet it proved a brief crash, which ended in a soft landing for the dollar and the markets. As such, it seems a comforting experience.

On closer look, it is not. Today's economic and financial conditions in the United States are incomparably worse than they were in 1987-89. Economic growth is much slower today, the trade deficit is much higher and interest rates are much lower.

But there is yet another factor that makes a great difference: unprecedented exposure to the risk of a falling dollar. Both foreign holders of dollar assets and American holders of euro- denominated assets have much at stake. The important point is that both groups have principally abstained from covering their exchange risk. Strong expectations to gain from a strong dollar or from a weak euro prohibited any hedging. When will foreign investors and American borrowers finally give up on the strong dollar?

There is a widespread assumption that there exists a "normal" level of the dollar against other currencies, from which it will not diverge too far or for too long.

But no such level exists. The dollar is effectively out of control. There is no way to predict where it may bottom. This is a measure of the macroeconomic costs of allowing an external disequilibrium to become so large and to accumulate for years. The dollar's fate no longer lies in the hands of central banks or private banks, but in the hands of many millions of fickle private investors.

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Gold -- Sharefin, 19:49:38 02/11/03 Tue

IAMGOLD GOLD MONEY POLICY

In January 2002, IAMGOLD established a
corporate GOLD MONEY POLICY whereby it would hold
the bulk of its corporate discretionary funds in gold bullion.

WHY DID IAMGOLD EMBARK ON SUCH A POLICY?
Notwithstanding current industry initiatives, such as the jewellery marketing campaign to promote demand for gold, IAMGOLD believes that gold is first and foremost a true store of value. Furthermore, gold is the only form of money that is no one else's liability and hence the only independent measure and store of value. Unless those in the gold industry who believe that gold is money actually use it as money, then the industry cannot expect others to treat gold as money.

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Gold -- Sharefin, 17:30:01 02/11/03 Tue

What does gold stock weakness foretell?

The price of gold has been as much as 17% higher than where it ended last year, yet gold equities have been struggling with every subset except small caps underperforming the metal, and even they have lately swooned. As of yesterday, gold was still showing a 13% gain for the year-to-date, yet unhedged gold stocks are off 15%.

Since precious metal equities are expected to lead rather than follow their underlying products, does this signal a potential end to the rally?

The primary cause for concern is that this is the longest period since the market got geed up in late 2001 that unhedged gold stocks have been so feeble. The most comparable period was the retracement from late May to late July, but that was punctuated by several spikes and the gold price advance had stalled.

There is simply no question that equities are leaning heavily against the wind.

Unhedged stocks are preparing to test a key support line on the second chart. There is a fairly neat base line that runs from the left bottom corner of the chart to touch the bottom of each low for the past year. Similarly, the hedged stocks are getting close to an intersection with the indexed gold price, which has occurred three times in the past year.

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Gold -- Sharefin, 02:32:56 02/11/03 Tue

Important Announcement

I would appreciate if you would review with me the "ONLY" Gold share index in the entire advisory of the Gold community worth your time. Both the XAU and HUI have, in my opinion, outlived their usefulness.
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Only one index is credible as a constituent for decision as to what the gold shares are doing in reference to gold and that is the Schultz Gold Index: An Index of Pure Gold Shares
Devoid of Corporate Noise.
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Cyberspace Is Filled With Hot Air

Now let's look at the inadvertent next development - that is the Cyberspace Internet-based gold investor community. Three years ago there were a few investment sites that had views divergent from the mainstream. They were bearish on equities. Slowly they began to grow. They all have something attached to their sites that are their own personal business, which there is nothing wrong with. They sell memberships, request voluntary membership payments, seek clients dealing in gold, or are small boutique brokerage and money management shops. That is all fine.

As the interest in gold grew, which has a fraternal relationship with bear markets, these Internet sites began to gain "hits" from those seeking information on gold. Few of these sites have real credentials in the gold market. Most of the people running these sites were not even in business of any kind in the 1960s when it all began. Few if any have distinguished themselves in open competition in trading gold successfully in huge numbers. Few, if any, have distinguished themselves in currency trading. Few, if any, of these sites have ever constructed or traded a derivative beyond a listed gold future or gold put and call. Precious few, if any, of these Internet sites that are so powerful in influencing the gold community have even one small credential qualifying them for the power they exercise with such naïve convictions.

One sight run by a war hero tells me I know nothing about derivatives and that he does. He refuses to publish anything I write on derivatives because he feels I am being overly influenced by another site he is at war with. Another site posted an article calling those that feel there is a conspiracy in gold "Trailer Trash." Yet these supposed "trailer trash" people actually sued the Bank for International Settlements and personalities in the Fed. In my opinion, they were not hoping to win but rather to expose the damning anomalies in gold trading. What courage William, Regional, and Christopher had to expose themselves at significant financial and reputation risk to make a point to those that would listen. Trailer trash? Okay, I am not a conspiratorialist but I certainly know what a conspiracy of common interest looks like in the market.

There is a popular Internet site that is publishing wonderful real-time market information but have you ever seen one article of mine on it? No you haven't. Yet, I have submitted every one that I felt of significance to them, a total now of 32 articles rejected for publication. Why would they reject 32 articles of merit since my credentials to speak on gold are orders of magnitude greater than those they hold? Have you ever asked where they derive their incomes from?

The result of all this is that gold sites are applying their own spin to the news just like many anti-gold sites have done in the past and continue to do in the present. In the end, what we are seeing here is news that is largely based on personal objectives.

Other gold sites are being used because of their lack of in-depth knowledge of gold which is a direct result of their lack of real experience in gold. These are the glibly naive websites that give platforms to defrocked equity market predictors of "disaster scare tactic book sellers" with non-functional systems and others that seek PR by badmouthing gold in hopes of being right by serendipitous timing and then selling more subscriptions to worthless services. One such glaring example took place right at the beginning of February when a well-meaning site invited a bookseller to opine on gold.
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Now to the Matter at Hand

I am no longer going to post my articles on any popular websites. I have asked that those that manage websites that post my material on a regular basis to delete me from their current pages and list of contributors. I am no longer going to give technical instructions or answer questions from website viewers on any popular websites. I will re-start my activities on a website specific to this service to the gold community and re-start all my activities there. All are welcome (except nasty people).

I am splitting the "Chairman's Corner" off from the www.tanrange.com web site THEREBY ESTABLISHING my own web site: www.JSMineset.com. This is where I will post all my articles and opinions. All news posted will have my commentary. Around the world, prices will be available on this site. I intend to have this site set up so changes in gold, like the $390 during the US non-trading hours, can be analyzed for those that want that type of information as and when they happen. It is here that you will find discussions with the world's best technician, in my opinion, Kenny Adams, and from time to time I hope Harry Schultz has something to post. I don't give a hoot about hits. I will not promote my public company. I don't even want my site as part of my public company website.

Be assured that when I believe this bull market is going to end, I will tell you just like I did in early 1980.

Now that only those with a strong cup of coffee among the real gold gang is still reading this posting, the others having been thoroughly tired out, here is the hidden message: Thanks to the badmouthing of gold by two or three PR seekers, getting undeserved publicity on the Internet, thereby scaring the hell out of many of the new non-committed members of the gold community, gold will blow out the first leg of the gold bull market, in my opinion, at between $409 and $418 in the coming weeks. Gold will react back down, but much less than expected, and start the second leg of the long-term gold bull market from prices higher than expected, in a shorter time than expected. Gold shares in the pure gold category will get a long play to new highs, in my opinion, into the top ($408 - $418) of the first leg. Traders reduce by 33 1/3%. Investors take delivery of certificates of core positions and stop watching at $409. Come back when I give a heads up call. I will guide you from the new location only at www.JSMineset.com. Do not buy into what you feel is a sure $420 at $408. I don't think it will be. DO NOT post this anywhere as I will not repeat it until it occurs. Just read it and delete it.

Your watchman, Jim Sinclair

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Gee it really worries me when gurus claim that noone should listen to anyone else.(:-)))
And also when they say that the only gold index to watch is one which is private to a group who charges to see it.
Seems like some interent marketing going on here.

Sorry to be critical but when I read the above I just have to wonder why.
Balanced & varied opinions are what makes the markets.
Not gurus jumping up & down on their soapboxes.
No offence intended but all I can say is be cautious.

All goldbugs have varing understandings & opinions & that doesn't make them right or wrong.

To jump up & down and slander the rest of the gold market & insist that your view is the only right ones makes me wonder where this is all coming from & going to.

I could read volumes more into it but don't want to .
Enough that a few should watch out & wonder why.

Watch your fiat watch your butt & sleep well on physical....

Viva la gold bull.

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Gold -- Sharefin, 02:20:38 02/11/03 Tue

No Free Drinks At The Gold Boom Party In Perth

The gold boom is official. Well, ahhh actually, it’s as official as a crowd of 70 loud Australian “diggers and dealers” can make it when gathered on a hot Friday evening at Perth’s Celtic Club. Whether anyone ever recognises the event as the certified starting point of the 2003 gold boom could not dull the enthusiasm of the crowd when Ron Manners, founder of Croesus Mining and aspirant to the title of grand-old-man (GOM) of Australian gold, stood on a chair to wave a hand, hush the audience, and declare “there is no question, this is a gold boom”.

Manners, and a few mates, organised the ceremony to coincide with regulation first-Friday-of-the-month drinks at the West Perth club. Normally a more mundane affair, 6pm on Friday, February 7, may well be recorded as the time when someone had the nerve to publicly declare the death of gold’s bear market, and the re-birth of the golden bull.

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Gold -- Sharefin, 02:08:10 02/11/03 Tue

World Business Review

In World Business Review Martin Webber looks at the boom in gold and platinum, two precious metals which have proven far safer investments than volatile stockmarkets in recent months.

When investors get nervous they traditionally rush to buy gold. The past week was no exception, as tension mounted over Iraq and North Korea.

The price of the ultimate safe haven rose strongly, with Gold hitting 390 dollars an ounce at one point - that's a rise of 40 per cent in the past two years.

It's all rather embarrassing for one man - Britain's chief finance minister, Gordon Brown, who sold off a huge chunk of Britain's gold when it had just hit its low point three years ago.

According to some analysts that mistake has cost Britain more than a billion dollars.

Mr Brown certainly seems to have been outwitted by millions of people in India who've done the opposite of Mr Brown and cleverly bought gold when it was cheap and
are selling it now that its gone up.
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But is this just a temporary gain for the gold price, will the metal plunge in price again when international tension abates?

Not according to Bobby Godsell - who's the Chief executive of AngloGold - the world's second largest gold producer.

BOBBY GODSELL
"The world has discovered that we aren't at the end of economic cycles, you know three years ago the view was that US equities were going to go up forever, people were talking about the Dow at 26,000. They're not doing that anymore.

"People realise that every wealth asset has its cycle, property, equities, bonds have cycles and gold has a cycle that is often counter-cyclical to, for example, equities and bonds, so it is much easier to interest investors.

"Now these are long-term factors, these are not Iraq war driven. This is a secular change and I think the prospects for investment in gold are much better now than they have been for the last two decades."
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ROSS NORMAN
"We've had a continuing collapse in the equity markets and we've got the war on terrorism. Specifically we've got on the agenda Iraq, but of course there is a fear that the canvas could be broadened to encapsulate North Korea, there are questions about Iran, Algeria and so on. And all this is served to undermine investors' confidence in other investment vehicles and gold has benefited.

MARTIN WEBBER
But these are all sort of more negatives for other things, rather than specifically positives for gold and we have heard quite a lot of reports of people in India, which is the key source of actual demand for gold, and they're all selling because they seem to think that gold at $400 an ounce is an unsustainable price and now is the time to get out. Do you think they're right?

ROSS NORMAN
"I don't think that's altogether the case, gold has got some fantastic fundamentals in its own right. I mean South African production is at its lowest since 1953, below 400 tonnes. Mining exploration spend, the curve is so steep you wouldn't frankly want to ski down in it."

MARTIN WEBBER
There's a collapse in spending basically

ROSS NORMAN
"Absolutely the case. Touching on India, funny enough we were speaking to some Indian banks this morning and they corroborate your sentiment there about queues of people looking to sell gold.

"Bear in mind in Indian rupee terms gold is at an all-time-high and in the South and an Agrarian society like that there's a huge temptation to want to take profit at those levels. Conversely in Japan and in China people are also queuing but to buy gold.

"China, last month, liberalised its gold market, and like the Indians the Chinese have a strong cultural affinity for gold, so there is strong physical buying out of China and indeed in Japan.

"The Japanese have the same concerns that we do in the West about the investment world. In addition to which they've got the concerns over the banking. The government provided guarantees against deposits held by banks. That is being withdrawn. Consequently there's been extremely strong buying out of Japan."

MARTIN WEBBER
All those people in India are getting it wrong then, you think that prices could go even higher?

ROSS NORMAN
"My concern is that the Indians stop selling and there's a reasonable chance of them doing so if they believe the market could rally significantly higher. You could see a self-fuelling momentum being created whereby buying leads to higher prices, leads to greater buying. And that could lead the gold market significantly higher.

"The gold producers have stopped killing former rallies in the gold market because they believe the market could rally. If the Indians held back from selling then the gold market could shoot higher and that would not be constructive for gold in the long-term."
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"The other interesting aspect about this is that roughly 75% of central banks reserve assets is the US dollar. There is a sense that the US is becoming both politically and economically more isolated as a result of its war on terrorism and there is a sense that some central banks may be less inclined to hold US assets, whether it's dollars or indeed US equities, and for that reason we've seen the collapse in those currencies.

"There is a move at the same time by a group of Islamic countries to create a gold-backed Islamic dinar and that would be the basis of trade between those nations and of course significant amounts of trade goes through those countries in oil. So I think that this indicates several central bankers unease with the US policy, politically and economically."

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Gold -- Sharefin, 02:03:14 02/11/03 Tue

PS
Note the volume in the Yen-Gold chart - this equated to approx 540 tonne of gold - almost twice higher then the prior records.

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ChartsRus -- Sharefin, 02:00:58 02/11/03 Tue

Gold in major currencies

Gold in global currencies

Another reason why gold was trashed by the Powell speech.

Have a look at gold in all the global currencies.
Gold has broken out in most all currencies.
The last ones to break out are the Euro - Swiss - German etc.
In other words Europe is the last quarter where gold hasn't broken out to new highs.

Now we're all seeing the anti-European sentiment towards the war.
I am sure that the last thinkg the American Empire wants is for major European selling of the US Dollar to go and start buying gold as it breaks out.

Now if you don't think that this would happen just feast your eye's on what happened to gold in Japan once it broke out.

America is manipulating the global markets more now than ever before.
The level playing fields of global markets are tilting away from the US Dollar & towards gold so what does the ESF do?
Stage a stage show - just like JS & RR have commented on.



Also not the Silver chart in Yen

Exciting you think - wait till the dow is passing down through 6000 - 5000 - 4000 etc

This gold game has just begun......

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Lenny's Corner -- Sharefin, 01:46:16 02/11/03 Tue

GENERAL COMMENTS:

It was a wild and volatile week in the precious metals, as those precious metals that are currently wearing the mantle of "industrial metals" came under severe selling pressure as the market now judges that any global economic recovery is not as likely as previously thought. Consequently, silver plunged 21 cents per ounce.

(Musings from the side fence - What Lenny fails to mention is the market movers jumping all over silver with their fiat paper - they had little choice but to dump on silver or let it break out. Lenny being a paper man must surely recognise this yet fails to include this most important aspect in his report.
Why isn't the news discussed that the US Dollar was bought - gold & silver were dumped all within minutes of Powell's speech.
I guess when you only play the paper markets you don't want to admit to the levels of manipulation present. I wonder what Lenny's clients will say when the paper metals markets lock up & they don't collect or he doesn't have a business - yikes?)



Gold: The gold market is suffering a major disconnect from its fundamental supply/demand conditions at present. With gold being the first and safest refuge for investment capital in times of geopolitical and economic tension, investors and speculators have piled into this market to virtually historic records, and have rocketed prices in the last month. On the other hand, the physical market is simply awful, with the ACTUAL product unloved and unwanted. All of the action is in the futures and derivatives marketplaces and the psychology of investors and speculators, and their actions derived there from, are now establishing the global gold price.

(Duh - more paper speculations - Russia & China have already said they'll take care of 350 off tons - 15% of production - miners are still removing hedges & sales of physical bullion & coins is soaring around the globe, yet Lenny claim's it's only the paper market moving gold. I guess I have a physical bias but Lenny sounds here like he's speaking with a forked tounge. Now I wonder how much of that 540 odd tonnes traded on the TOCOM will go to delivery?)

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Gold, unlike its characteristics in years past, is now behaving like a monetary instrument, a currency, a barometer that seems to accurately quantify the level of fear and tension inherent in these unstable times.

(Wasn't gold in the last decade behaving like a barometer in that it was saying that the financial system was going fine?)
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This is neither good nor bad, neither bullish nor bearish. It is just what is occurring at present. And, as such, it makes the gold market quite difficult to forecast as the emerging news and headlines are difficult to forecast. Careful and thoughtful examination of the underlying supply and demand fundamentals of the gold market is almost totally useless at present as such investigations may only yield some information as to how far gold can go down until actual physical demand reemerges and prices stop declining. From a fundamental perspective, gold is drastically overbought. But from a monetary perspective, it could be dramatically undervalued dependent upon your view of the coming events in the coming weeks. Fundamentals are easily quantified, global tension and investor psychology is much less easily pinpointed. To reiterate a continuing theme, ALL DEPENDS ON THE NEWS.

If fundamental analysis has little value at this time, then technical analysis now reigns. The charts seem to be the only way to quantify the gold market. Technical support and resistance levels, careful analysis of other technical indicators such as moving averages, stochastics, and relative strength studies, are now the only tool to "objectify" the market. Investors and speculators must now pay very careful attention. Again, as volatility and uncertainty has reached new higher levels in the precious metals markets, it is recommended that traders both cut back on the size of their positions and use rather tight stop-loss orders. There is very considerable risk being long or short. Investors, on the other hand, can rest a bit easier knowing that while gold may have a sharp decline if "peace" breaks out in the world, that gold is in a secular bull market and that time will eventually see significantly higher prices than present values.

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(My final comments are beware of paper sellers & what is coming down the pipeline - gold per se being the ultimate financial barometer is only going so high if these markets are going so low & if fiat paper is going down then so to will many paper precious metal derivative. Caveat Emptor)

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Gold -- Sharefin, 01:30:01 02/11/03 Tue

The Internet Gold Sites Pounce on Gold

You talk about shooting yourself in the foot! These guys just shot themselves and all gold investors in the foot with a Heat Round from a recoilless Field Cannon.

The huge selling that stone-walled gold at the top of the recent rally when gold hit $390 was a combination of:

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Gee - someone's going over the deep end....

A little correction & the sky is falling.

Gold is 10% along the way from A to Z & has far to go.
That some people get so feisty about a few dollars of movements or an article or two speaks volumes.

Sit back sit on your gold & let the worry worts fight their ghosts as gold rises ever higher.

Ya gotta worry about the guru's who start dancing on their soapbox.
IMHO

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Gold -- Sharefin, 01:24:02 02/11/03 Tue

Gold geezers say, 'Go'

A wild week for gold -- but it's not over yet, say the gold geezers.

Gold surged to $390 an ounce Thursday, fell back to the $360s and is currently trending back above $370.
~~~
What about gold? Several letters focusing on gold were around at the time of the Great Gold Spike in 1980, which took gold above $800. Contrary to the gold bug image, at least some of them thereafter bailed out.

The gold geezers:
The Dines Letter (James Dines)
Dow Theory Letters (Richard Russell)
Elliott Wave Theorist (Robert Prechter)
Growth Fund Guide (Walter Rouleau)
Harry Schultz Letter (the eponymous Harry Schultz)
Investors Intelligence (Michael Burke)

All of them are bullish on gold right now -- except for Prechter.

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Gold -- Sharefin, 01:16:34 02/11/03 Tue

Uncle Harry on GOLD

Gold is the sleeping giant that has awakened. Gold rose to multi-yr highs as the US$ crashed to multi-yr lows. Watch the $ as your guidedog to gold direction. Both are destined for strong moves in 2003, in opposite directions! Gold is overbought, say most indicators, but momentum still OK. $ very oversold; Mkt Vane reported only 8% bulls on 1/24. So a $-rally-gold-correction is somewhere ahead. ••Bullion has been outpacing the shares for a change. That’s not unheard of, just not frequent. In late 1979, gold shot to $800 with shares far behind. But on a smaller gold rise in the 2nd half of 1980, shares reached spectacularly higher highs. I suspect gold will go sideways soon as gold shares catch up & outpace bullion. ••Excuse this philosophic blurting: What goes around comes around. They took away the gold-backed $ standard & replaced it with an unbacked (fiat) paper $. They got away with fiat for many years, with people accepting air-backed paper. But now reality is setting in. People are selling the fiat & buying gold. End of blurt!

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Fiat vs Gold -- Sharefin, 07:41:09 02/10/03 Mon

PIECES of EIGHT

Pieces of Eight, by FAME Foundation Scholar Edwin Vieira, may be one of the
most important books of the century. Because it lays the legal groundwork
to reform our monetary system, it has the potential to have a major impact
on the reordering of our society. Beautifully written and impeccably
researched, Pieces of Eight is accessible by both laymen and scholars.

Edwin Vieira has performed a magnificent and heroic service in researching
and creating this book, laying bare the rank hypocrisy and mendacity of
those who have illegally corrupted our money, to the detriment of ordinary
people everywhere. The creation of fiat money, i.e., money created out of
thin air, affects every person on the planet in a fundamental way: it puts
their savings and the efficacy of their pensions at risk and, in effect,
puts their very lives at risk.

The history and legal background about how our nation lost its patrimony of
sound money is essential if the U.S. is going to reform its monetary system
as envisioned by our Founders, and as cast into law in the Constitution.
Edwin Vieira has earned the gratitude of everyone for his splendid
achievement.

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Fiat -- Sharefin, 05:10:42 02/10/03 Mon

The Dollar, the Euro and War in Iraq

The dollar is the world reserve currency. This gives a huge subsidy to the US economy because if a country wants to hold lots of dollars in reserve they must supply the US with goods and services in return for those dollars. In return the US just prints a few notes. The more dollars there are circulating outside the US, the more goods and services the US has imported virtually for free. This is how the US manages to run a huge trade deficit year after year without apparently any major economic consequences. No other country can run such a large trade deficit with impunity. It is in effect getting a massive interest-free loan from the rest of the world.

One of the primary objectives, if not the primary objective, of setting up the Euro was to try and get some of this free lunch for Europe. If the Euro became a major reserve currency, or better still replaced the dollar as the major reserve currency, then Europe too could get something for nothing.

This would be a disaster for the US. Not only would they lose their subsidy, which has been increasing in size and in importance to American economic well being as the years have gone by, but countries switching to Euro reserves from dollar reserves would start spending their dollars in the US. In other words the US would have to start paying its debts to other countries. As countries converted their dollar assets into Euro assets the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble as it is currently openly considering doing,

There is, however, one major obstacle to this happening: OIL! Oil is of course by far the most important commodity traded internationally, and if you want to buy oil on the international markets you usually have to have dollars.

Until recently all OPEC countries agreed to sell their oil for dollars only. This meant that oil importing countries, like Japan, needed to hold dollar reserves in order to be able to buy oil. So long as this remained the case, the Euro was unlikely to become the major reserve currency: there is not a lot of point to stockpiling Euros if every time you need to buy oil you have to change them into dollars. But in November 2000 Iraq switched to the euro, with potentially perilous consequences for the US. Only one country has the right to print dollars: the US! If OPEC were to decide to accept euros only for its oil, then American economic dominance would be over. Not only would Europe not need dollars anymore, but Japan which imports over 80% of its oil from the Middle East would have to convert most of its dollar assets to Euro assets (Japan is of course the major subsidiser of the US). The US on the other hand, being the world's largest oil importer would have to acquire Euro reserves, i.e. it would have to run a trade surplus. The conversion from trade deficit to trade surplus would have to be done at a time when its property and stock market prices were collapsing and its own oil supplies were contracting. It would be a very painful conversion.

The purely economic argument for OPEC converting to the Euro, at least for a while, seem very strong. The Eurozone does not run a huge trade deficit like the US, nor is it heavily indebted to the rest of the world like the US. Nearly everything you can buy for dollars you can also buy for Euros. Furthermore, if OPEC were to convert their dollar assets to Euro assets and then require payment for oil in euros, their assets would immediately increase in value. Also, since oil importing countries would be forced to convert their reserves into euros, whose price would therefore be driven up. OPEC could then at some later date back some other currency, maybe the dollar again, and again make huge profits. This would offer a virtually inexhaustible source of profit for OPEC.

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Fiat -- Sharefin, 05:08:31 02/10/03 Mon

War clouds obscure fiscal crisis

Some strategists see Iraq talk as smokescreen

Middle East war talk is distracting many investors from accepting the reality of an overpriced American stock market and flagging U.S. dollar.

"For weeks, we had been hearing that the dollar's bleak performance is because of fear of war in Iraq," notes Donald G. Coxe, a U.S. portfolio strategist with Nesbitt Burns in Chicago. "For weeks, we had been hearing that the run-up in gold prices is because of fear of war in Iraq."

So what happens? The dollar surges and gold loses $18 an ounce after Colin Powell makes a strong case for almost immediate action against Iraq, with backing from allies that include the British.

"War is nearer than ever," says the strategist, one of several who see Iraq as just a smokescreen for a deflating American economy and depressed interest rates. "Iraq may well be the distraction that is keeping the dollar from breaking down decisively, and thereby sending gold through $400."
~~~
Some economists, led by Morgan Stanley's Stephen Roach, contend the $31 trillion or so of U.S. paper debt swishing around the globe, along with low interest rates that give eurodollar holders and others with American "cash" a mere 1 percent return, will continue to sink the dollar, regardless of war.

In the best analysis, war is a trick mirror, a blinding flash in the face of a circus economy. Fix the economy, and you fix the dollar.

"Businesses are already ratcheting down Wall Street's optimistic growth forecasts for 2003," says Frank Giustra, chairman of Endeavour Financial, a Canadian merchant bank. "And we're only in February. Erroneously, most economists -- and as of last week, Alan Greenspan -- seem to be citing concerns about a pending war with Iraq for everything from the lack of improved retail sales to the dearth of capital spending by corporations."

At Nesbitt Burns, Coxe told me Friday, "Until the dollar has established a secure trading range, gold will be a superior asset. For the dollar to establish a secure trading range without some violent market activity is as probable as Saddam ceasing to be a threat without some violent activity."

James Turk, the newsletter writer and gold researcher whose dollar and bullion forecasts have been on the mark for more than a year, says war, to have a lasting influence on the value of a financial market, must have a monetary consequence. Turk sees the dollar continuing its swoon, and gold's price rising to $430 or so an ounce by month's end from its current $370.

---

Periodic Ponzi Update PPU -- $hifty, 21:16:21 02/09/03 Sun

Preiodic Ponzi
Update PPU

Periodic Ponzi Update PPU

Nasdaq 1,282.47 + Dow 7,864.23 = 9,146.70 divide by 2 = 4,573.35 Ponzi

Down 114.01 from last week.

Thanks for the link RossL !

Go GATA !

Go GOLD !

$hifty

---

Fiat -- Sharefin, 20:19:01 02/09/03 Sun

Rich world prepares economy for war

The Group of Seven leading industrialised countries are drafting a plan to prepare the global economy for the effects of a war against Iraq, according to media reports.
The plan is believed to be based on a coordinated surge in government spending, financed by heavy borrowing, in an effort to stimulate economic growth.

If true, the proposal would be a significant expansion of efforts taken since Septermber 11, 2001, which have mainly involved repeated cuts in interest rates.

Ministers from the G7 - which comprises Canada, France, Germany, Italy, Japan, the UK and the US - is likely to discuss the plan in greater detail at a Paris meeting later this month.

---

Richard Russell -- Sharefin, 20:15:00 02/09/03 Sun

No link.
--------------
Every period or stretch in the stock market has its own unique
characteristics. Every once in a while I'll ask myself, "Five years
from now as I look back at this period, what will I be saying about
it?"

OK, I'll ask myself that question now. What about the current
period? If I had to characterize it in one simple way, I'd
say, "What was remarkable about the years 2002 and 2003 was
investors' stubborn, almost surreal, optimism. Nothing, it seemed,
no turn of events, no ridiculously high price/earnings ratios, no
dearth of dividends, no micro-dividend yields, no parade of
accounting frauds, no stream of phony "pro forma" earnings, no
deterioration in bond ratings, no impending war -- nothing, it
seemed could turn investors bearish.

Back to the present -- even now with the Dow down four weeks in a
row and with much of the rally off the October 9 lows wiped out,
advisors remains bullish by a ratio of almost two-to-one over bears.

Why the relentless bullishness, why the stubborn optimism? It
doesn't matter "why." What does matter is the fact -- bullishness
and optimism reign. And the question -- can this continue?
Obviously, I can't predict moods and sentiment. I can only guess.

My guess, based on the deterioration that I see in the stock market,
is that somewhere ahead, today's ingrained bullishness is going to
turn to panic. How will this come about? I think it will materialize
if or when the major averages break below their October 9 lows.

Wait a second Russell, you're saying that you think the major stock
averages will break below their October 9 lows? What do you base
that on?

I base it on my technical reading of the market. I've been telling
subscribers that my Big Money Breadth Index has broken to new bear
market lows (below the October lows). My Most Active Stock Index
broke below its October low last week. We've seen a number
of "distribution" days, days in which it is obvious that
institutional money is leaving the market. We've seen the
deterioration in the Lowry's statistics.

What is obvious is that there's a buyers strike on. Nobody, it
seems, wants to buy stocks. And I turn to that old stock market
adage, "It takes real buying to move stocks up -- but in the absence
of buying, stocks will fall of their own weight."

All of the above suggests to me that the market, in its own good
time, is going to break below the October lows. One of the beliefs
of the bulls runs like this -- "OK, a lot of stocks have been hurt.
And January turned out to be a rotten month for stocks. Furthermore,
February has not been much better. But with it all, the market is
now oversold, and the major stock averages are still well above
their October lows. Thus, it's clear that October 9 was THE LOW for
the market. The market has been declining week after week, the bad
news is out, and still we're holding above the October lows. How can
you be bearish about that performance?"

And there's a logic to the above. And the logic may hold as long as
the major averages remain above the October lows. But -- what if the
averages break below the October lows? If that happens, I believe
the current bullishness and optimism could turn to panic literally
overnight.

So here's what I think we could see ahead. First, a break below the
October lows. Then near-panic or outright panic as months of
optimism turn to FEAR. The fear will be expressed by a series of 90%
downside days as identified by the Lowry's studies. These 90%
downside days are days when down-volume is 90% of up + down volume
and down points is 90% of up + down points. Points are changes in
the price of stocks. Each day Lowry's adds up all the accumulated
points of stocks that were higher (NYSE), and all the accumulated
points of stocks that were lower.

I can make the calculations for volume but I depend on Lowry's to
calculate the points and announce whether we've seen a 90% downside
day or not.

Consider this -- we haven't had a single 90% downside day since
April 3, 2001, despite all that has happened.

At any rate, this is what I expect in the months ahead. A breaking
of the October lows. A series of declines characterized by 90%
downside days. And finally -- at last, an important bottom -- a
bottom in which I will urge subscribers to buy stocks for maybe the
first great upside correction in this bear market.

If all the above comes to pass, how will we know that this long-
awaited "final bottom" won't be the end of the bear market?

I don't know whether it will or not. I'll be guided most by
valuations. But one thing at a time. First let's see if the October
lows are violated. Then let's see if we get those 90% downside days.
If this scenario develops, we'll take it from there. In other words,
one thing at a time.

The Dow is down 5.72% for the year so far, S&P is down 5.70%. Nasdaq
is down 3.97%. Wilshire 5000 is down 5.63%. Investor's Business
Daily's Mutual Fund Index is down 4.99%. Few people have been making
money so far in this fourth down-year of the bear market. And a lot
of people have been sustaining losses.

Here are the figures for the real (all common stocks) advance-
decline ratio (minus closed end bond funds, ADRs and preferreds) --
Feb. 3 minus 2.83; Feb. 4 minus 3.03; Feb. 5 minus 3.22; Feb. 6
minus 3.53; Feb. 7 minus 3.94.

The week ended with the S&P selling at 27.82 times trailing reported
earnings while providing a dividend yield of 1.95%. These are hardly
bear market bottom figures, but maybe this time it's different.

The bond market tends to zero in on credit quality, and the bond
market is a lot less emotional than the stock market. The Confidence
Index (I seem to be only guy on the planet who still follows this
statistic) dropped from last week's low 72.0 to this week's still
lower low of 71.1. This is the lowest CI figure since the 69.0
figure of November 1, 2002.

For traders -- the stock market, based on the McClellan Oscillator
and on Lowry's short-term index, is in heavily oversold territory,
which in a bear market means that the market is in a territory where
ANYTHING can happen. My advice -- don't try to trade this market,
it's in an area where it can "take your head off."

That, I believe, does it for today. But be sure to read John
Mauldin's latest epistle on www.2000wave.com As usual, it's a beaut.

More recently, Argentina went into a major slump owing massive
amounts of money to foreigners. What was the result?

Yesterday's press reports brought news that the Argentine peso lost
70% of its value last year...with domestic inflation running at
about 40% per year. The Argentine economy collapsed another 12% last
year.

Are we in America headed towards the pampas? Or the land of the
sinking sun? We don't know. For all we know, we have a 'round-the-
world ticket, with stops in all the world's troubled economies.


So we buy gold...and prepare to enjoy the trip...

---

Gold -- Sharefin, 19:54:23 02/09/03 Sun

Return to an old standard?

The current ascent of gold has been driven by geopolitical worries. But this year will see a whole new source of demand open up, and a partial return to the Gold Standard.

An audacious plan, pushed by Malaysia, seeks to reassert the role of the precious metal in the international trading system through the minting of 'gold dinars'.
For Malaysia, and its Prime Minister, Mahathir Mohamad, below, it marks a strike back, of sorts, against the inequities of the global financial system. Malaysia, despite having a prudent approach to economics, was unceremoniously dumped by world markets. Mahathir eschewed the International Monetary Fund's medicine and instituted capital controls and a currency peg.

Most world trade is settled using international currencies, predominantly the dollar, followed by the pound, yen and euro. Malaysia says that the Middle Eastern and Asian countries are acutely vulnerable to the exchange rate with these major currencies. 'The gold dinar could be an important facilitating mechanism to help the smaller countries of the world move away from an inherently unstable and ultimately unjust global monetary system,' Mahathir told a conference recently.

The scheme, which is set to be launched in the next few months, has been coolly received by some central bankers, who point out that the gold price has its own supply and demand dynamics. But at least part of the motivation for this mainly Muslim scheme is political - to provide an alternative to use of the US dollar. Mahathir believes that the scheme will provide fertile conditions for stronger economic development in the underperforming Muslim world.

But the dollar's current descent and the prospect of endless growing budget deficits has served up an economic rationale for an alternative unit of account. Morocco, Bahrain, Iran and Saudi Arabia have entered bilateral discussions with Malaysia. There is a real possibility that the oil markets could propel usage of the new coin. And there is a British connection too.

The Bank of England holds the gold reserves of many Middle Eastern nations. Member countries would settle dinar trade balances every quarter by transferring gold held at the Bank.

But this move is only part of a generally more positive attitude towards gold emerging in the East. The Bank of China has increased its reserves by 205 tonnes over the past two years. Mongolia, the Philippines and Kazakhstan have also upped gold reserves.

Some analysts believe new anti-money laundering laws have encouraged investors to shift assets from dollars into gold.

But there may be a simpler explanation. In this time of uncertainty, people are turning to the one asset that has symbolised a globally recognised store of wealth since the Pharoahs.

The three decades since President Nixon took the dollar off the Gold Standard is still the anomaly in three millennia of monetary history.

---

Gold -- Sharefin, 19:47:06 02/09/03 Sun

Stock-take sparks the new gold rush

Is there a bubble building in the international gold market? That question is doubtless on the minds of speculators who have driven up the price of the metal by 35 per cent to nearly $400 an ounce in little more than a year.

United States, European and Japanese hedge funds have been buying aggressively, and it is easy to understand why. There is still a lot of money swilling around, held by both wealthy individuals and institutional investors. They have seen three consecutive years of negative returns from the stock market, but they have to put their cash somewhere, and if equities are still going down, they will look elsewhere.
~~~
Michael Temple, of Gold Investments, points out that the performance of gold is linked to the decline of the dollar. The greenback has been hit by fears of conflict in the Middle East, doubts about the underlying strength of the US economy and fears over America's yawning current account deficit. 'The dollar/gold connection should not be underestimated,' says Temple.

He adds: 'Gold should be treated as a safe-haven currency, and one that comes to the fore when the dollar is under siege, as it is now. The euro may have strengthened as a result of the greenback's woes, but much less so than gold.'

And with fears spreading about the stability of the global financial system, investors with a jumpy disposition are taking delivery of gold bullion for the first time since the Gulf War. 'We are holding gold in our vaults for a number of clients,' says Temple.

'What is happening in the UK and US has already happened in Japan, where the banks have hinted that they may not be able to meet all their commitments to depositors, and that has led to people buying in gold. But we are nowhere near a Japan-situation here,' he adds.

Hugh Hendry at Odey Asset Management says: 'The rise of gold has nothing to do with Iraq. It has more to do with the policy mistakes of the US Federal Reserve; lowering interest rates in the face of sharp market falls in 1987 and 1998 propped up share prices and then inflated them to an unsustainable level. In other words, easy credit helped to cause the biggest stock market bubble in history.'

---

Gold -- Sharefin, 19:37:34 02/09/03 Sun

More invest in gold despite price rise

Despite the gold price notching a seven-year peak, it has only encouraged more businessmen to invest in the “safe-haven” metal, increasing speculation that the price of gold will go up further.

Over the last three weeks, goldsmiths in the Jalan Tengku Kelana Indian business enclave have found that the price increase has not dampened gold buying in the community.

Federal Territory and Selangor Indian Goldsmiths and Jewellery Business Owners Association adviser N.P. Raman said nervous businessmen in Klang and Selangor were investing in gold as it was a safe cache for their money.

---

Gold -- Sharefin, 19:30:16 02/09/03 Sun

Investors on a gold rush

Gold is the pessimist's investment of choice: It rises when the dollar slides, the stock market sinks, the economy slumps and the world descends into war.

No wonder it just hit a six-year high.

---

Gold -- Sharefin, 19:23:43 02/09/03 Sun

Gold war: bullion-market proponents and detractors exchange views

Why gold? It has intrinsic value, which most owners of jewelry will confirm, and it traditionally has been a haven in times of uncertainly.

"We are into a fear cycle right now," McEwen says. "People are not looking for capital gains. They are looking to preserve wealth."

Others don't share his enthusiasm.

The rush to gold is "the continuation of the speculative frenzy that surrounds anything that is going up when other assets are dropping," scoffs Gary Schatsky, a financial planner in New York.

"The same people who threw money at technology stocks are now looking at gold. And they're also looking at real estate," he adds, urging a diversified portfolio of stocks, bonds and cash.

---

Gold -- Sharefin, 19:20:11 02/09/03 Sun

Safe-haven gold receives support from Europeans

Safe-haven gold found support from European investors who saw looming war clouds over Iraq and tension in North Korea as good enough reasons to keep their grip on the precious metal on Friday.

---

Gold -- Sharefin, 19:16:18 02/09/03 Sun

Gold Prices Likely to Level Off as Rally Ends, Analysts Say

Gold prices may have peaked for now and may fall after rising for 10 straight weeks as the U.S. prepares for a possible attack on Iraq, according to analysts who rely on technical charts to judge price trends.

----
Maybe - maybe not.

---

Gold -- Sharefin, 18:54:51 02/09/03 Sun

India's Love of Gold - Part 1 - The History of the Passion

India's Love of Gold - Part 2 - The Macro view of India's Gold
Consumption

India's Love of Gold - Part 3 - The Micro view of India's Gold
Consumption

---

War -- Sharefin, 18:47:14 02/09/03 Sun

Bush threatens military action against North Korea

With tensions rapidly spiralling out of control on the Korean peninsula, US President Bush added further fuel to the fire yesterday by bluntly warning North Korea that, while the US was seeking a diplomatic solution, “all options are on the table, of course.” Bush previously insisted that Washington had no plans to attack or invade North Korea. Now a military strike is firmly on the agenda.

---

Fiat -- Sharefin, 18:33:56 02/09/03 Sun

The Real Reasons for the Upcoming War With Iraq:

A Macroeconomic and Geostrategic Analysis of the Unspoken Truth

Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking -- it is an oil currency war. The real reason for this upcoming war is this administration's goal of preventing further Organization of the Petroleum Exporting Countries (OPEC) momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. This lengthy essay will discuss the macroeconomics of the `petro-dollar' and the unpublicized but real threat to U.S. economic hegemony from the euro as an alternative oil transaction currency.

---

ChartsRus -- Sharefin, 08:02:34 02/09/03 Sun

Charts updated

---

Fiat -- Sharefin, 07:58:33 02/09/03 Sun

Credit Bubble Bulletin, by Doug Noland - Scenario #3

This is the link to the prior post.

---

Fiat -- Sharefin, 07:56:48 02/09/03 Sun



OFHEO’s report should be taken very seriously and accomplishes much more than simply addressing “quite remote” hypothetical scenarios. Indeed, Mr. Falcon should be strongly commended for courageously formulating the first examination of the GSEs and their critical role in fomenting heightened systemic risk. The 118 page report is comprehensive, thoughtful, independent, formative, and extraordinarily timely. It is by far the most relevant and important “policy research” I have read.
~~~~
It would not take a wild imagination to create Scenario #4, with “Big Three” GSE debt and securitization markets dislocating, the dollar in free-fall, the ABS market closed for business, derivatives markets “seized up,” the leverage speculating community in chaos, and financial markets faltering in systemic liquidity crisis. But putting disastrous scenarios aside, it is rather clear to us that the entire U.S. financial sector has evolved into one massive, unmanageable leveraged speculation; the dollar one historic confidence game. And the GSEs have developed into the epicenter of systemic liquidity with a Mortgage Finance Bubble running the financial and economic show.

---

Silver -- Sharefin, 06:44:28 02/09/03 Sun

BERKSHIRE HATHAWAY Silver - 1998

The company owns 129,710,000 ounces of silver. Its first purchase was made on July 25, 1997 and its most recent purchase was made on January 12, 1998.



During 1998, Berkshire has accepted delivery of 87,510,000 ounces in accordance with the terms of the purchase contracts and the remaining contracts for 42,200,000 ounces call for delivery at varied dates until March 6, 1998. To date, all deliveries have been made on schedule. If any seller should have trouble making timely delivery, Berkshire is willing to defer delivery for a reasonable period upon payment of a modest fee.



Over 30 years ago, Warren Buffett, CEO of Berkshire Hathaway, made his first purchase of silver in anticipation of the metal's demonetization by the U.S. Government. Since that time he has followed silver's fundamentals but no entity he manages has owned it. In recent years, widely-published reports have shown that bullion inventories have fallen very materially, because of an excess of user-demand over mine production and reclamation. Therefore, last summer Mr. Buffett and Mr. Munger, Vice Chairman of Berkshire, concluded that equilibrium between supply and demand was only likely to be established by a somewhat higher price.

---

Gold -- Sharefin, 04:36:20 02/08/03 Sat

JP Morgan, Enron & Gold

I have today mailed the following letter to the Enforcement Division of the Securities & Exchange Commission. It's about time that we learn the truth regarding JP Morgan Chase's activity in the gold market, the full extent of its gold exposure, and whether it used gold loans to fund the so-called "disguised loans" that it arranged for Enron. Perhaps the SEC will help us learn the truth by investigating these matters and reporting the results.

Dear Sir/Madam:

I am writing in regard to recent statements made by the management of JP Morgan Chase ("JPM") relating to its activity in the gold market. This is to ask for your determination whether their statements are false or misleading.

On January 2nd JPM announced that it had reached an out-of-court settlement with several insurance companies regarding JPM's involvement with Enron. You will recall that these insurance companies had initiated this litigation, alleging in their lawsuit brought in New York federal court that certain trading transactions between JPM and Enron were shams, thereby negating the insurance contracts covering these transactions.

In a press conference subsequent to their January 2nd announcement, JPM management commented on rumors relating to its activity in the gold market. I refer to the following CBS.MarketWatch.com report by Luisa Beltran and Greg Morcroft published on January 2, 2003:

"...[JP Morgan Chase] executives said that, despite persistent rumors to the contrary, it has no exposure to the recent run-up in gold prices. "We don't have any real exposure to gold. I don't know where that rumor keeps coming from, but it's not true," CEO Harrison said. "We have seen this rumor pop up again and again," added chief counsel McDavid, "and we have asked the SEC to look into it."

I have no specific knowledge about these rumors, other than what I have learned from the media. But I am very pleased to hear that the SEC has been asked to investigate them. In this regard, I am writing to bring the following matters to your attention.

Given that these so-called rumors "pop up again and again" as Mr. McDavid states, perhaps they have some basis in fact. It is a well-established truth that 'buzz' about a company will often circulate before an event.

For example, rumors about derivative problems in Long Term Capital Management circulated well before that company's collapse. More recently, word of potential problems in Enron circulated freely, much of which was reported in the media. The protracted drop in Enron's share price for several months before the resignation of its CEO, which itself occurred three months before that company's bankruptcy, was an indication that the market believed (as evidenced by that company's declining share price) the rumors about Enron's problems had some basis in fact.

In both of these instances, company management denied that there was any substance to the so-called 'rumors' that were circulating, as JPM management has now also similarly done. I also bring to your attention the decline in JPM's share price that occurred last year while these rumors about its gold exposure circulated.

Thus, your investigation into the rumors about JPM's activity in the gold market is timely, but the focus of your investigation should not be, as JPM management implies, how these so-called "rumors" started. Rather, your investigation should determine whether these rumors have any basis in fact. If they do, then this is to also ask for your determination whether the statements above by Messrs. Harrison and McDavid are false or misleading.

To assist you, I would like to bring the following matters to your attention:

1) The Wall Street Journal published an insightful article about JPM and Enron on January 25, 2002 ("Insurers Balk at Paying Bank Up to $1 Billion in Claims On Complex Transactions"). That article provides an overview about the financing provided by JPM to Enron, through Mahonia Ltd., a company Chase Manhattan (one of JPM's predecessor companies) established in the Channel Islands. The article states: "Prepaying for future delivery of a commodity is known as a "gold trade," because it is the way gold bullion has been trading for centuries. In recent years, trading companies, whether from Houston or Wall Street, have been making more use of this structure to buy and sell oil, natural gas and other commodities. Some commercial banks, including Chase Manhattan…had to set up part of these trades overseas because their banking charters wouldn't allow them to take delivery of commodities." The article describes what is generally known as a commodity swap, and gold is frequently used in one side of the transaction. As an ex-banker (1969 to 1980), I have some knowledge about how these transactions work, as banks are a facilitator for them. When gold is used to finance a commodity swap, bullion is borrowed from a central bank, and sold to raise dollars, which are then used to purchase the commodity on the other side of the transaction (oil and gas in the case of Enron). It is noteworthy that the WSJ article specifically mentions a "gold trade"; given this remark, anyone knowledgeable about commodity swaps might naturally assume that JPM/Mahonia was arranging gold-for-energy swaps for Enron. Thus, this WSJ article may be the original source of the so-called "rumors" referred to by JPM management. But importantly, this WSJ article also suggests that these rumors may have some basis in fact. The article did not specifically state from where Mahonia was obtaining the funding needed to purchase the commodity contracts it acquired from Enron (the so-called "disguised loans" which the insurance companies contended were shams). Nor did a WSJ article published August 13, 2002 ("Enron Probe Shines Harsh Light on Financiers") disclose the nature or the original source of the funding needed to complete these commodity swaps, but this later article does provide more information about potential gold activities by JPM in its dealings with Enron: "In the world of commodities, particularly gold trading, the 50-year-old Mr. Mehta [Chase's and then JPM's head gold trader] was well known. His successful marketing of derivatives, and his enthusiasm for the use of these instruments, helped the gold-hedging business take off in the 1990s. Mr. Mehta and his team executed…[deals which]…allowed Enron to use an offshore vehicle known as Mahonia to raise hundreds of millions of dollars from J.P. Morgan." Taken together, there are enough facts disclosed in these two WSJ articles to suggest that gold loans could be one possible source of funding for Mahonia's commodity swaps with Enron, and if so, these gold loans could lead to the "gold exposure" denied by JPM management.

2) An article about Enron in The New York Times published on February 17, 2002, was important for the following statement [note the emphasis added by me]: "Partly because of the way the loans [by JPM/Mahonia to Enron] were accounted for, the company [i.e., Enron] reported a surge in its hedging activity, accomplished using financial contracts called derivatives, during its last few years. When pressed about the increase by skeptical analysts, Enron officials said the numbers reflected hedges for commodity trades, not new financing, the analysts said." The key point here is the "surge" in derivative contracts entered into by Enron "during its last few years". Each derivative has two-parties to the contract. It has not been disclosed to my knowledge who took the other side of the Enron contracts, but the following information from the Office of the Comptroller of the Currency offers one possible answer. According to its website, the OCC "charters, regulates, and supervises national banks to ensure a safe, sound, and competitive banking system that supports the citizens, communities, and economy of the United States." As part of this responsibility it collects derivative exposure of the nation's banks. The disclosure by Chase Manhattan Bank (before its merger with Morgan Bank) is telling. In three years from December 31, 1997 to December 31, 2000, there was a surge in Chase's gold derivative contracts from $11.8 billion to $29.8 billion. Because of the merger, it is not possible to determine from the OCC reports Chase's derivative activity for 2001. But looking at the derivative exposure of JPM on a combined basis subsequent to its merger, it is noteworthy that after the Enron bankruptcy at the end of 2001, the gold derivative activity of JPM was unchanged at $41.0 billion reported at December 31, 2001 and $41.0 billion as of September 30, 2002, the latest reporting period available. Thus, Chase's derivative contracts in gold surged while Enron's derivative contracts surged, and then remained unchanged after Enron collapsed. This pattern suggests that it is possible Chase (and JPM as its successor) was the counter-party to Enron's derivative contracts. Further, this growth in gold derivative contracts provides further evidence to the possibility I note above that gold was used by Mahonia to fund the commodity swaps (the so-called "disguised loans") that it entered into with Enron. The August 13, 2002 Wall Street Journal article states: "Mr. Mehta has had other high-profile scrapes with controversy while at the bank. For instance, Mr. Mehta came under fire for the bank's earlier arrangements with Sumitomo Corp., the Japanese trading company and the employer of a copper rogue trader named Yasuo Hamanaka who lost $2.6 billion in copper trades. Mr. Mehta's team structured a number of derivatives transactions that allowed Mr. Hamanaka to raise money that didn't appear to senior Sumitomo executives as debt, said people familiar with the deals."

Thus, perhaps the rumors circulating about JPM's gold exposure have some basis in fact. In any case, the above material does highlight the importance of your investigation.

I note again Mr. Harrison's statement: "We don't have any real exposure to gold." Perhaps in your investigation you can ask him to define the term "real". That JPM has exposure to gold is undeniable from the OCC reports. There are different kinds of exposure from derivatives - price risk and counter-party risk.

It may be that through its derivative contracts, JPM believes that it does not have any price exposure to gold. However, while the gold market has been generally quiescent and its price relatively stable the past few years, gold has in recent weeks become very active. As we have learned from the collapse of Long Term Capital Management, volatility undermines what otherwise may appear to be a safe derivatives position. So we will see in the weeks and months ahead whether JPM's derivative exposure to the gold price is indeed under control. Given the size of its position, it may be difficult for JPM to keep its price risk controlled. JPM's gold derivative exposure of $41 billion of notional value represents 117 million ounces of gold - a number that is nearly 50% greater than all the gold produced worldwide in a year. Thus, it seems likely that the gold market may not be able to provide the liquidity JPM will need to keep its gold derivative position in balance in a period of increased gold price volatility, which is a result that would clearly negate Mr. Harrison's contention that JPM does not have "any real exposure to gold."

Then there is counter-party risk, which is always present because the financial position of companies changes. Counter-parties deemed creditworthy when JPM entered into derivative contracts may no longer be financially as strong as before. Further, if in fact the simultaneous surge in Enron's and JPM's derivative contracts was not just coincidental and that they were counter-parties to each other, one has to wonder whether JPM has any ongoing exposure to Enron in these derivative contracts. It is noteworthy that JPM's most recent 10-Q shows that derivative receivables rose $16.4 billion, or 23.0%, in the nine months from December 31, 2001 to $87.5 billion as of September 30, 2002. The net change is actually 25.0% when adjusting derivative receivables as of December 31, 2001 to reclassify to Other Assets the Enron-related surety receivables from the insurance companies in the case now settled. Does this glaring (and potentially alarming) surge in derivative receivables reported by JPM reflect an inability of JPM's counter-parties to deliver under their derivative contract commitments? And perhaps more importantly to help evaluate the accuracy and therefore reliability of Mr. Harrison's statement, what portion of this derivative receivable relates to gold?

The point is that certain aspects of JPM's derivative disclosure appear to be inadequate. Thus, this is to ask that you make a determination in your investigation whether JPM's disclosure about its gold derivatives has been sufficient, and indeed, whether the statements by its management about JPM's gold exposure are not false or misleading.

Lastly, your website states: "The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves if a company's securities are a good investment." To achieve this objective, the SEC must investigate JPM in order to determine whether it is providing the investing public with sufficient disclosure on its gold exposure, which from the OCC reports is undeniable. Further, the SEC must determine whether the statements above by JPM management are false or misleading. I look forward to reading and learning the results of your investigation.

For the sake of disclosure, I do not have any position in the stock of JPM.

Yours truly,
James Turk

---

Gold -- Sharefin, 19:52:24 02/07/03 Fri

British Gamblers Bet on Gold as War Signals Get Louder

City bookmakers are attracting bets as large as UKpound 950,000 on the gold price as war fever makes the yellow metal the latest speculative mania for British private investors.
Gold's spectacular advance, from $278 a troy ounce a year ago to $316 by early December and then $388 at one stage yesterday, has caught the imagination of traders starved of bullish stock markets for the past three years.

The main vehicle for this latest craze is spread betting, which enables speculators to take long or short positions of almost any size without having to worry about paying capital gains tax on profits.

Unofficial estimates are that between 1000 and 2000 clients of spread bookmakers such as IG Index, CMC/deal4free and City Index are betting on gold at present. Most of these trades are up-bets, aimed at taking advantage of further rises in the metal's price but also vulnerable to any sharp setback.

A few of these positions are believed to be very large, at up to UKpound 2500 a dollar -- equivalent to an exposure of UKpound 950,000 to the bullion price.

One City punter is understood to have pocketed a UKpound 600,000 profit after betting just three weeks ago on a surge in the price of gold. The unnamed man placed a buy order with City Index when the price stood at $350. Each $1 rise in the price of bullion netted him a profit of UKpound 20,000.

Stacey Ash at IG Index said: "Volumes in gold are vastly higher than they were this time last year. People who only traded stock indices and shares in the past have started to move across to gold, and also to silver, platinum and oil."

Bookmakers' spreads on gold reflect the underlying price of the metal in the spot and futures markets. So for instance, late yesterday, IG was quoting 382.2-384.2 (dollars) for the US April gold future, while CMC/deal4free was quoting 380.1-380.6 for rolling cash, or spot, gold. For ultra-sophisticates, it is also possible to make a spread bet on an option on the gold price.

One punter active in both gold and silver said: "The crises over Iraq and North Korea, and the weakness of the dollar, are forcing gold up.

"When you tell friends that you have gone long of gold, they are more impressed than when you tell them you are long of Vodafone or the Footsie."

---

Gold -- Sharefin, 19:41:38 02/07/03 Fri

Gold and Gold Shares

GOLD and GOLD shares are early in a long term bull market and are
busy corroborating technical and fundamental and cyclical upward
trend potential. The next phase of the upside breakout confirmed as
the $Gold price today penetrated $372, trading at $382 as I write.
Some resistance at $396, but really very little until $417, perhaps
before end March.

$Gold is in the rare super trend I have been talking about, which
accelerates despite the hope and expectation of would- be buyers
that they can buy lower when a dip comes. But the dip does not come,
because too many people are hoping for a dip.

That is one of the reasons why gold shares are not yet performing.
Both sceptics and gold bulls hope to have an opportunity to buy
lower down.

In South Africa, the Rand strengthens as the Gold price runs -- but
when the Rand meets resistance -- or the $Gold price doesn't pause
at $400 -- the fireworks will start. Our behavioural counts show
scope for $Gold at $491 and above in the next 18 months and many of
the shares 30% -40% + higher in under year.

Short positions on golds are already being forced to cover and close
[buy back shares shorted or buy back physical gold shorted through
futures or leases or swaps]. But again, I don't think the real panic
will start until those who are happily waiting for the $Gold price
to dip -- begin to realise that it won' t. The belief is still
prevalent that the stronger $Gold prices are mainly due to currency
factors and war fears. The belief is that after the US goes into
Iraq -- the Gold price will collapse and the US$ will recover.
Sorry, the war is not the most important issue.

I've talked about this at length before -- but the bottom line is
that central bankers and bullion dealers and some large gold mines
have for years been assuming that the price of gold will stay
stagnant or go lower and that the US$ and other paper investments
such as Wall Street and US Treasury Bonds will outperform. Those
bankers, dealers and mines have shorted gold, leased it out, swapped
it and have sold it through derivatives for more gearing -- and now
they have a problem -- because the mines cannot increase output
quickly -- and central bank sellers are now central bank buyers.

All assumptions about a strong US$ and Wall Street are having to be
reassessed -- and traders are beginning to realise the squeeze that
will happen to the Gold price, not only to $417 resistance, but to
well above $500 in the next year or so -- if the US$, US bonds and
Wall Street are dumped any faster than is already happening. Demand
exceeds supply and demand will increase as a combination of US$
weakness and asset shifts accelerate. It is as simple and
fundamental as that.

The US is particularly vulnerable right now -- private, corporate
and public debt at record levels -- anti- American feeling is high --
and much of the Muslim world and Asia must be keen to disinvest to
the extent they have not already done so. The average American is a
consumer, not a producer of hard goods. In the last few days, Japan
has been a huge net buyer of physical gold, gold futures and gold
shares -- traders say as a hedge against a weaker US$.

Whatever is driving this push, watch the Gold Rush that is
developing. Private investors, fund managers, institutions will be
scrabbling over each other to avoid missing the boat -- or at least
to avoid being criticised for completely missing the boat. They will
only wake up somewhere near $400.

---

Gold -- Sharefin, 19:34:07 02/07/03 Fri

After the gold rush

Prices touched a six-year high this week and times have never been better for the precious metal, but investors have failed to catch the bug. Brian Robins reports.


With the gold price hitting six-year highs this week, the disconnect could not be more pronounced, since shares in leading goldminers have barely moved.

Take Newcrest, the biggest of the local miners.

Its share price has gained barely 20 per cent over the past few months as investors have reacted coolly to the ascendant gold price.

The surge in the gold price has triggered optimism that gold should be able to hold well clear of the $US350 an ounce level for some months yet. And the impact on the bottom line for goldminers will be acute.

Yet investors have been slow off the mark. And when they have taken their lead from the stronger gold price and put money into miners, most of the buying has come from offshore, with local investors keeping their hands firmly in their pockets. The last time the gold price spiked like it has in recent months was more than 20 years ago, when shares in goldminers took their cue directly from surging bullion prices.
~~~~


After the gold rush
February 8 2003




Investors have failed to react to the ascendant gold price.


Prices touched a six-year high this week and times have never been better for the precious metal, but investors have failed to catch the bug. Brian Robins reports.


With the gold price hitting six-year highs this week, the disconnect could not be more pronounced, since shares in leading goldminers have barely moved.

Take Newcrest, the biggest of the local miners.

Its share price has gained barely 20 per cent over the past few months as investors have reacted coolly to the ascendant gold price.

The surge in the gold price has triggered optimism that gold should be able to hold well clear of the $US350 an ounce level for some months yet. And the impact on the bottom line for goldminers will be acute.

Yet investors have been slow off the mark. And when they have taken their lead from the stronger gold price and put money into miners, most of the buying has come from offshore, with local investors keeping their hands firmly in their pockets. The last time the gold price spiked like it has in recent months was more than 20 years ago, when shares in goldminers took their cue directly from surging bullion prices.



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Gold has been on the nose for years, with the patience of many worn thin by the late 1990s - towards the end of the bear market for the precious metal.

So much so that when the big international mining houses came shopping, taking advantage of the super-cheap Australian dollar to buy control of some of the best goldmine properties going for a song, investors were only too willing to take the cash and run.

Gold bulls were last sighted in financial markets during the Gulf War a decade ago. But it was more than 10 years before this that they were last in the ascendant, when the price of gold soared to $US850 an ounce at the start of 1980. It held at the $US600 to $US700 an ounce level for most of that year, and averaging around $US500 an ounce for the first half of the 1980s, which helped to kick-start Australia's goldmining industry.

At the time, the main issue in major industrialised economies was "stagflation" - defined as weak growth against the backdrop of rising inflation - as governments battled ballooning deficits. And once again, concerns about stagflation are on the rise.

Aiding gold's advance over the past few months has been a "war premium", as investors factor in concerns over the fallout from the US attacking Iraq.

But even if this premium is removed, gold would still be trading at around $US350 to $US360 an ounce, traders argue, with the prospect that it could top $US400 an ounce in coming weeks.

The weak greenback and anaemic economic growth in the US are propelling gold higher. This is set against the backdrop of renewed economic uncertainty, especially with interest rates in both the US and Japan at record low levels, with little evidence of any success in rekindling growth as China has progressively cornered much of the world's low-end manufacturing industry, exporting deflation in the process.

Gold's renewed lustre comes as the "cult of equities" of the 1990s is finally at an end.

Globally, funds have been fleeing equities for some time, as investors withdraw funds from mutual funds. This shift of money has been most notable in North America.
~~~
As the "cult of equities" has dissipated, the cost of money raised through the sharemarket has surged. For companies issuing convertible notes and the like, a yield of upwards of 10 per cent is not uncommon - a punishing real rate of interest at a time when inflation remains remarkably subdued.

Gold always prospers at times of economic uncertainty and this time round is no different. The other driver has been the fall in the US dollar, as it reverses its gains of the late 1990s.

And, as is usually the case with gold, the gains have been overlaid with a series of global economic concerns, such as the rising tide of government deficits and the anaemic economic outlook as the excesses of the late 1990s are worked out of the system.

"The plunge in the value of the dollar relative to gold is the biggest monetary policy story of the past two decades," argues Ken Landon of Deutsche Bank. "The Greenspan era of stable and falling rates of inflation is over."

Landon argues that the gold price surge is signalling a new era of stagflation in the US.

However, it may be too early to make this call, since inflation in most big economies is muted, as they grapple with the deflationary pressures exported by China.

But if one factor in the renaissance of the gold price is fears of rising inflation, this would spell the death knell for equities.
~~~~
Those analysts who have been around the gold sector for some time say the lack of any share-market reaction is reminiscent of 1979-80, the last time the gold price was in full flight.

"At that time, the gold price rose, but gold shares didn't," said Keith Goode of Eagle Research. "They waited for the correction, and ran on the second leg.

"I don't think it is too late," Goode says when asked whether the best has now passed the gold miners.

"The shares aren't reacting to the gold price because they don't believe it. The Philadelphia Gold and Silver index was at 75.91 on January 3, when the gold price was at $US345 on February 4, with the gold price at $372 an ounce, it was at 79.64 points.

"We've seen this kind of thing before. In 1979-80, the gold price ran from $US500 to $US850 an ounce and back to $US500, and the market didn't blink at it.

---

Fiat -- Sharefin, 19:23:41 02/07/03 Fri

The coming collapse

Technology companies better watch out--China's economic miracle is just another Internet bubble.

China's economic miracle is comparable in many ways to the Internet bubble. Such bubbles keep inflating and fulfilling expectations of extravagant growth--as long as investors believe in a pyramid of dreams. But, as in the boom of the late '90s, economic fundamentals in China simply are not solid enough to assure long-term, sustained growth. And should investors ever lose that giddy but unrealistic sense of the inevitability of China as a great and profitable market, the collapse of confidence and the flight of capital could be frighteningly rapid and devastatingly destructive.

---

Gold -- Sharefin, 19:13:26 02/07/03 Fri

Golden Bull Buy Signals

What a fantastic year for gold thus far! The Ancient Metal of Kings continues to gallop higher after utterly obliterating the $325 Maginot Line fortifications and leaving their still smoldering hulks far behind over the horizon.



For the hardcore contrarian investors who have been long this awesome gold bull since the beginning, it is a wonderful blessing to see gold actually within spitting distance of the fabled $400 levels! Less than two years ago the noble metal had been beaten way down to near $250 and the mainstream investment world considered it to be officially dead.



It is fantastic to see gold make fools of the naysayers and vindicate the contrarians! If you were investing in gold and gold stocks a couple years ago near the bottoms, you certainly remember the endless scorn heaped upon us by the mainstream. Gold and gold stock investors, who look like geniuses today two years later, were treated as untouchable outcasts and infectious lepers, utterly shunned near the bottoms. Back then believing in gold was the kiss of death in financial social circles.
~~~
They will assume the gold bull is dead because the Iraq war is on, but they will almost certainly be wrong. Primary bull markets in gold this powerful run for many years or even a decade historically, not just a couple. This gold bull has nothing to do with wars and everything to do with fundamental underlying structural economic factors.

---

Gold -- Sharefin, 19:06:34 02/07/03 Fri

Ross Norman At The Bulliondesk.com Is Determined To Simplify Purchases Of Physical Gold By Investors.

Fed up with the equity market, insurance plans, endowments and pension schemes a lot of private investors have started to wake up to the fact that gold is on the trot. They would have woken up much earlier if financial commentators on leading newspapers and their own brokers had done their duty, but that is another argument. What they want now is a bit of advice on how to buy a bar of physical gold as do our cousins over the water in France. A first port of call might be the website of the World Gold Council, but it would be a disappointment. The big effort is towards sales of jewellery and coins. Investors are perfectly aware that such products are priced at a substantial premium to the underlying gold value, and what they want is pure 9999 bars at a minimal mark-up.

Try to track down the sale of bars on the WGC website and you end up with a list of four shops.. Two of the shops, ATS Bullion and Gold Investments are in London but ATS did not even have a website as of last October and if it has one now the WGC has not caught up with it. Baird and Co are in Stratford and Chard (1964) Ltd are in Blackpool. That is your option, take it or leave it and the WGC inserts the usual caveat that it carries no responsibility for any problems encountered when trading with these companies. In addition, of course, the WGC site offers gold accounts, gold certificates, gold accumulation plans, gold linked notes, gold future and option and gold oriented funds all of which cost investors dear in terms of commission or front end loading. But physical gold, pure and simple. No sirree.

Even less helpful is the Goldavenue website. Early in 2000 the South African gold producer AngloGold announced that it was developing a monster website to be called goldavenue.com which would provide information on, promote and sell all things gold. As an indication of its ambitions for this site a budget of US$20 million was split three ways between AngloGold and its two partners partners in this e-gold venture - US banker JP Morgan which has a very strong presence in South Africa and the big Swiss gold refiner PAMP ( Produits Artistiques de Metaux Precieux).
~~~
The wind of change is blowing through the gold industry, but strangely neither the World Gold Council or Goldavenue.com seem to have scented the appeal to the mass of investors that bars of pure gold can have.

---

War -- Sharefin, 19:04:28 02/07/03 Fri

War 'would mean biggest oil shock ever'


The world will suffer a bigger oil crisis than that during the Arab-Israeli conflict of 1973 if the US declares war on Iraq, according to leading US investment bank Goldman Sachs.

'The combined effect of Venezuelan and Iraqi disruptions has the potential to be the biggest shock in oil market history, even allowing for offsetting supply increases by other players,' says Gold man's respected analyst Jim O'Neill.

Crude oil prices of $31.10 per barrel - a two-year high - do not include any war premium, says the team. It argues that tight supply conditions, small inventories, and severe capacity constraints will see the price soar.

'A war could drive crude oil prices up by an additional $10-$15, or 30 to 50 per cent [to $46],' says Goldman's report, 'More Perfect Storm than Desert Storm'.

---

Fiat -- Sharefin, 18:31:26 02/07/03 Fri

Japan's desperate market move

The country's economy minister has called on his cabinet colleagues, including the Prime Minister, to start buying shares in a desperate bid to prop up the Japanese stock market,
Heizo Takenaka said he would invest in tracker funds and "will definitely make money".

"I want us to take the lead," he said.

Japan's economy has been lingering near recession and the Tokyo Stock Exchange's Nikkei index of leading shares has been at near 19-year lows since last year.

Mr Takenaka expects Prime Minister Junichiro Koizumi to follow his lead.

---

War -- Sharefin, 20:09:39 02/06/03 Thu

The article that follows was commissioned by Resurgence magazine but, in
view of its urgency and potential importance, the editor, Satish Kumar, has
decided that its publication cannot wait until the next available issue
appears. It is therefore being placed on the Resurgence website,
http://resurgence.gn.apc.org/ and distributed on several Internet lists. It
may be reproduced freely provided Resurgence is mentioned. Comments to the
author are welcome.


How to stop the war Richard Douthwaite


So far, the main actions open to people keen to stop the United States and
Britain invading Iraq have been limited to street protests, writing letters
to editors, signing petitions on the Internet or voting on a BBC website.
None of these seem likely to achieve very much but there's another avenue
to make one's views felt which, if enough people took it up, could be very
effective indeed.

The precedent is certainly promising. In 1956, after bombing Egyptian
airfields and destroying its airforce, British and French forces began
landing at Port Said and Port Fuad on November 4th in an attempt to seize
the Suez Canal which the Egyptian leader, Colonel Nasser, had nationalised
earlier in the year. The troops were making good progress moving south down
the waterway, occupying both banks, and were only two or three days from
reaching their objective, Port Suez on the Red Sea, when, all of a sudden
on November 6th, they were ordered to halt. Less than four weeks later they
began to withdraw and by December 22nd, they were all gone.

So what happened? How was the invasion stopped so quickly? The answer is
that the Americans pulled the monetary plug - a technique that can now be
used on them.

Britain in 1956 was in a much healthier financial state than the US is
today when you consider that its exports exceeded its imports whereas
America's imports now exceed its exports by a massive 50%. Nevertheless,
the Bank of England was having to fight off currency speculators the
famous Gnomes of Zurich who were borrowing pounds and using them to buy
dollars. Their aim was to run down the country's dollar reserves to such an
extent that sterling would have to be devalued from its fixed rate of $2.80
to the pound.

Such a devaluation would have been highly profitable for the Gnomes because
afterwards they could have used some of the dollars they had bought to
purchase enough of the now-cheaper pounds to repay their loans and pocketed
the difference. Even if the Bank of England was able to resist their
attack, they would not lose much because, thanks to the fixed exchange
rate, they could always buy sterling to repay their pound debts at the
price they had received for those they had sold apart, that is, from the
currency dealers' commission. So the most they could lose was the
commission plus the difference between the interest rates they had to pay
on their sterling loans and the rate they had earned on their dollar
deposits. They were taking an almost riskless bet.

The Bank of England reckoned it could fight off the Gnomes' speculative
attacks if it had at least $2bn.in foreign exchange in its war chest. By
September 1956, however, as a result of the speculation its dollar holdings
were slipping uncomfortably close to the danger level. The speculators knew
this, of course, which caused them to redouble their efforts. Accordingly,
the British Chancellor of the Exchequer, Harold Macmillan, decided that the
country had to borrow a sum so large that it was bound to cause the Gnomes
to back off. He asked the IMF for a $1.3bn. loan.

US approval was needed, however, as it would be the biggest loan the IMF
had ever made and far above Britain's automatic entitlement. But when the
attack on Egypt brought matters to a head by increasing the speculative
attack with the result that the reserves fell sharply, the US Treasury
Secretary, George Humphrey, made it clear he would not give his approval
unless Britain not only obeyed a UN resolution calling for a cease fire but
pulled its troops out as well.

The British Cabinet regarded giving in to the speculators and devaluing the
pound as a worse fate than losing the Suez Canal, so the Prime Minister,
Sir Anthony Eden, felt he had no option but order the invasion to stop. On
December 3rd, the British told the Americans that all the troops would be
withdrawn by December 22nd and the full $1.3bn loan was approved the same
day. The crisis was over and the pound was saved.

So how can this technique be used to stop the Americans in their tracks?
The first thing to recognise is that the reason the US, a country with 283
million people, is a superpower, able to spend more on arms than the next
20 biggest arms spenders put together, because it has been getting a
massive subsidy for many years from the rest of the world. The counties
that it outspends have a total population of over 3 billion people and
include Russia, China, India, Iran, Israel, Britain, France, and Germany.

The subsidy has come about because the rest of the world has allowed the US
to import very much more than it has exported since 1982. In that period,
countries receiving dollars for the goods and services they have supplied
have only spent a proportion of them on imports from the US. Most of the
remainder has been loaned back to America, typically by being used for the
purchase of US Treasury bills or shares in companies quoted on the US stock
exchange. $2,500 bn, roughly half the rest of the world's total savings,
have been invested and lent in this way.

Amazingly, this huge inflow of funds has cost America nothing - so far.
True, interest has been paid on the loans and dividends on the shares but
both payments have been in dollars that have simply been added to the
outstanding debt. The US has not had to supply anything that cost it real
resources to make for the use of this massive amount of capital. Moreover,
the bigger its trade deficit has been, the more dollars foreigners have had
to invest and the higher they have pushed Treasury Bond prices and the Dow
Jones share price index, making investment in America seem very attractive.
Even more foreigners have consequently been keen to get hold of dollars to
put their savings there.

Last year, the US spent. $379bn., almost exactly the amount of its trade
deficit the previous year, on its armed forces. In other words, all the
resources required to run the US military machine can be considered to be
coming from the rest of the world rather than America itself. Some
commentators realise this. In a revealing article published by the U.S.
Naval Institute in January 2002, Professor Thomas Barnett of the US Naval
War College, wrote: "We trade little pieces of paper (our currency, in the
form of a trade deficit) for Asia's amazing array of products and services.
We are smart enough to know this is a patently unfair deal unless we offer
something of great value along with those little pieces of paper. That
product is a strong US Pacific Fleet, which squares the transaction nicely."

At the moment, the US trade deficit is running at much higher levels and
America is having to borrow around $1.25bn every single day. So the way to
stop George Bush's war machine in its tracks is not only to refuse to lend
it its daily bread but for everyone with savings invested in the US to take
their money back. Very few of us have direct investments in America, of
course, but anyone who does should sell them immediately and repatriate the
proceeds. If they fail to do so they will be complicit in whatever happens.

People saving for their retirement through a life assurance company or some
other financial institution will almost certainly have indirect investments
in the US. The problem is to get them out. All they can do is to write to
the company urging it to rapidly reduce the share that transatlantic
investments make up in its portfolio because international outrage over
Iraq is likely to cause a sharp fall in the value of those investments and
of the dollar itself. The fact that they are personally against a war and
don't want to be invested in it will cut little ice.

They could add, however, that several American commentators expect the
value of the dollar to fall by at least 25% when the market makes its
inevitable adjustment to correct the present trade gap. For example, as
long ago as 1999, Catherine L. Mann, a professor at Vanderbilt University,
investigated current account corrections in industrialised countries in the
previous two decades. She concluded that a current account deficit of over
4.2% of the Gross Domestic Product (GDP) was unsustainable and that a large
and rapid fall in the value of the US currency was likely within two or
three years.

"The US cannot live beyond its long-term means forever, nor will US
assets always be so favored by global investors" she wrote in an article
'Is the US Current Account Deficit Sustainable?' published by the IMF in
March 2000. "When a change in investor sentiment comes, it could be
dramatic. What would happen if the dollar depreciated by a significant
amount, say 25 percent?"

Caroline Freund of the Federal Reserve researched the same ground as Mann
and also found that the US deficit was unsustainable except that she
reckoned that the markets normally bring these corrections about when the
deficit rises above 5% of GDP rather than 4.2%. It is now at the 5% level.

The timing might therefore be right to try to prevent the war by using a
financial strategy almost exactly the same as that used by the Gnomes of
Zurich half a century ago. Go to your bank and tell them that you want to
sell $5,000 (or $10,000 or as much as you can afford) in three or six
months' time and that you would like fix the exchange rate now. The bank
will quote you the rate at which it will purchase those dollars from you
and give you a contract to that effect. This is a perfectly standard
banking arrangement. Businesses expecting payments in foreign currency do
it all the time. If your credit record is good, you won't have to pay
anything at all.

Should the bank be unable to match your sale of dollars in three months'
time with an order for dollars from somebody wanting to buy them then, it
will borrow the dollars you intend to sell from a bank with which it has
links in the US and sell them now. It will then lend out the proceeds of
the sale until it has to pay them over to you in exchange for your dollars,
which it will use to pay off its American loan. In other words, through the
agency of your bank you will be doing exactly what the Gnomes did in 1956 -
borrowing dollars in the US, selling them, and hoping to repay the loan at
a profit if the dollar falls in value.

You get the dollars you need to hand over to the bank in three month's time
by buying them from the bank at whatever rate is ruling on the day the
contract falls due. If thousands upon thousands of ordinary people join you
in protesting in this way, the value of the dollar will be forced down over
the next few weeks as banks borrow dollars in the US and sell them on
behalf of their customers. So, when the three months are up, the chances
are that you will be able to buy the dollars you need for less than the
price you agreed with the bank for selling them. In other words, if this
form of direct action becomes wildly popular or the dollar falls for other
reasons you should end up with a small profit. Of course, if the dollar
stays where it is you will show a small loss and in the unlikely event that
it rises, a rather bigger one. Your assessment of how much of a loss you
can risk having to shoulder will obviously determine how many dollars you
can sell.

In 1956, two big battalions stopped the British - the US government and
professional speculators employed by the Swiss banks. This time, if the
strategy I've outlined above is taken up, it will be more of a guerrilla
action and the outcome will depend largely on the numbers of people who get
involved. But we may just find that we have powerful allies fighting beside
us. For example, in order to minimise their dependence on the dollar a
group of Islamic countries led by Malaysia is introducing the Islamic gold
dinar later this year for trading amongst themselves. Moreover, several
OPEC countries are considering quoting the price of oil in euros rather
than dollars. And as long ago as last August, the Financial Times reported
that the Saudis had sold an estimated $200bn. of their US assets. The
Kuwaitis have also withdrawn hundreds of millions of dollars from America
having decided that, despite the threat of a war next door spilling over
the border, it is better to invest at home.

Within the past few months the dollar has already lost 26% of the maximum
value it held against the euro in 2001 and a smaller amount against the
pound. Our small gestures coupled with the actions of much bigger players
could continue this fall which, almost certainly, still has some way to go.
The Economist magazine believes that a further 20% drop against the euro is
'not unthinkable'. Moreover, just as there was a virtuous circle on the
way up, with the increasing US trade deficit providing foreign investors
with extra funds to push the dollar and Wall Street higher and higher,
there will be a similar effect on the way down. Falling stock markets and a
depreciating dollar caused by investors moving out will panic others into
getting out too, thus accelerating both markets' decline.

Consequently. the more people you can persuade to join you in becoming a
Gnome for Peace, the better the chance there is of weakening the dollar and
the American economy by enough to prevent or limit a war. That's the real
profit. Of course, if investor sentiment does really change - helped in
part by your actions - virtue would not have to make do with merely being
its own reward. Besides peace, it would bring something of a financial
bonus too.


Richard Douthwaite, Cloona, Westport, Ireland. richard@douthwaite.net



Richard Douthwaite is an economist living in Ireland. He is the author of
The Growth Illusion: How Economic Growth has Enriched the Few, Impoverished
the Many and Endangered the Planet, The Ecology of Money, and Short
Circuit: Strengthening Local Economies for Security in an Unstable World.

---

Fiat vs Gold -- Sharefin, 19:47:07 02/06/03 Thu

NYMEX upping COMEX gold margins at close Thursday

New York
Mercantile Exchange will raise the amount of
collateral required to trade gold futures
contracts at its COMEX Division as of the
close of business Thursday.

Margins on COMEX gold futures will be
increased to $1,500 from $1,000 for members,
member firms, and hedgers; and to $2,025 from
$1,350 for speculative customers, the
exchange said in a release issued late
Wednesday.

* * *

The gold war is on in full fury. The "Comex
division" is loaded with members of various
bullion dealers, who are the big shorts. A
number of these folks have been part of the
Gold Cartel all these years. From the
Commitment of Traders Report, they know gold
is filled with small speculators who are very
leveraged. So Comex waited to raise the
margin requirement when it would do the
shorts the most good.

Gold reversed yesterday after reaching $390
in the futures contracts. The open interest
had increased to 245,682 on Wednesday. That
is the highest since January 13, 1981. It
went up 4521 contracts on the big spike
yesterday.

A 50 percent margin increase is a hefty one.
They did not raise it sharply as gold went
up, but as gold reversed sharply to the
downside, making the specs vulnerable to such
a significant margin increase.

The Gold War is heating up. The good news for
us is that all crooked cabal types are doing
is buying time. They are finished. That does
not mean we could not get a doozy of a swift,
sharp correction. Because the spec position
is so large, it could even be dramatic. My
thinking is that no matter what happens, the
drop will be a quick one and gold will shoot
right back up. There is too much power behind
the move and too much physical market demand
for gold to stay down for very long. Besides,
the massive, trapped shorts will have to
cover when they can. This may be their last
chance to do so before the inevitable gold-
buying panic kicks in.

----
Note also the hammering silver has taken - da boyz know they mustn't let it break & take care to hammer it hard at the appropriate time.

---

Gold -- Sharefin, 19:29:46 02/06/03 Thu

Fair Weather Gold Analysts

Have you noticed that when the gold price posts good gains all the gold orientated websites are awash with a constant procession of gold price forecasts, many of which run into several thousand dollars an ounce? Most of these superlative prognostications come from analysts who were conspicuous by their silence for the past three years as bullion and the shares forced their way into investment contention.

There is nothing like a strong gold price to bring all the fair weather analysts out of the woodwork. But when bullion or the shares have a retraction in value these commentators are suddenly absent from the analytical fray.

One can judge the over bought or oversold nature of bullion by the number of popular website postings on the gold price. A rising gold price enhances the psychological confidence for the average analyst to expound the latest theory, whilst a contracting market apparently diminishes the desire to be read. The greater the number of positive gold postings the more overbought becomes the gold market, conversely the more silent the chat pages the closer one is to a buying area.

Bullion's break above the critical $330 level prompted a sudden out pouring of extremely bullish analysis with upside forecasts ranging from a conservative $600 to an outlandish $35 000.

---

Richard Russell -- Sharefin, 19:26:59 02/06/03 Thu

There's no fever like gold fever

"There's no fever like gold fever."

Is this phrase about to be revived? It's too early to tell, but it does seem that the gold choo-choo train is slowly
emerging from that long dark tunnel and is now chug-chug chugging down the track.

The smart boys are telling us that gold is rising because of declining gold production. Bull shit -- we old timers
know better. Gold moves when people get the fever.

Steel and copper and sugar and oats move on production numbers. Gold mover on human emotions. And
believe me, there's no fever like gold fever. I'm not saying that the fever is here yet, but I'll tell you something
-- I'm getting little hints that the fever might not be far off.

Gold was up on a stilt and needed correcting. And it got 'correcting.' Today's action was just another way for
gold to warn the public -- "Hey suckers, you see how dangerous it is to buy and to hold this useless yellow relic
of a bygone era."

---

Gold -- Sharefin, 19:17:03 02/06/03 Thu

Picking Winning Gold Companies

My main focus is on companies involved in precious metals, and in particular gold. Before talking about companies, I need to say a few words about the economy and the gold market, because it is important to have a broad outlook from which to evaluate a particular company.
I'm involved in a lot of conferences, and I hear a wide range of opinions. Over the past few months, I've heard an extraordinary range of opinions on the economic outlook. For example, at the big New Orleans investment conference last November, famed newsletter writer Richard Russell predicted that the Dow and the gold price would cross ... probably around 3,000.

Since then, actions in the broad markets and gold seem to be giving that prediction some credibility.

Personally, I believe that extreme view is very unlikely to come about.
Certainly, the extraordinary volatility and uncertainty that we've experienced over the past couple of years is likely to continue for a while. Some companies may not recover for some time yet, if at all. On the other hand, some areas of the economy and some companies are already well on the road to recovery.

With such a cloudy economic outlook, gold looks particularly attractive. Gold has always provided stability in times of turbulence. It has performed that role admirably over the past couple of years. The technology sector and most other investments have tanked, yet the gold price is up more than 40% from its low point, and many gold equities have performed even better.

In other words, it's worth owning gold even if for no other reason than the stabilizing effect that it provides in a portfolio over time.

At $370, gold is now at the highest level in over 6 years. Will the gold price continue to move higher from this level?

Over time, the answer is YES. In fact, I believe that gold will move substantially higher in the not too distant future.

However, the path from here to that higher gold price may not be a straight line.

We have all heard a lot about gold recently. We've heard about the government manipulation of the gold market. We also heard about the enormous derivatives position that has been built up around the gold market -- a multi-trillion dollar house of cards that could collapse very quickly and accelerate the upward movement in the gold price.

I prefer to view the gold market more from a fundamental perspective. In essence, the world uses nearly 120 million ounces of gold every year, mostly in the form of jewelry. Yet, mines only produce about 80 million ounces. The balance -- about 40 million ounces per year, nearly a third of the total market -- has been coming out of the vaults of central banks.

Even if those central banks elected to let go of all of their gold -- which is incredibly unlikely -- the central banks can not go on filling the supply deficit indefinitely.

The most important mechanism for the central bank gold to get into the market has been through producer hedging. This whole area gets very complicated. Anybody that wants can get a copy of my June 2001 issue which discussed this area in some detail.

In essence, the gold mining companies borrow gold from banks, which in turn borrow the gold from the central banks. The producers sell that gold into the market for dollars to run their businesses. They repay the gold loans from future production.

In that June 2001 article, I noted that investors were getting turned off hedging. Since then, the hedge position has been steadily declining. The resulting decline in the supply of gold has contributed to the upward move in the gold price.

We can add to this analysis the fact that gold production is in the third year of decline. That isn't likely to change soon, because the mining industry has been replacing only about one-quarter of the amount of gold that is being mined each year with new deposits.

Another important factor is that the Shanghai Gold Exchange has just begun to operate. Currently, India is by far the world's largest consumer of gold. The Chinese have a similar attitude toward ownership of gold. And now for the first time in decades, a system is being put in place that makes it practical for the 1 1/4 billion Chinese to buy gold.

There is also a lot of nervousness about the U.S. dollar, which is leading some investors, and even some central banks, to convert some dollar holdings into gold.

---

Fiat -- Sharefin, 18:16:25 02/06/03 Thu

Sitting On The Dock Of The Cliff

Is the Fed Willing To Go Unconventional Preemptively?
That's a mouthful of a question, but a key one, I think. Last November, in the testimony before Congress,5 Fed Chairman Greenspan trumpeted the unused powers of the Fed to address deflationary risk, even if the Fed funds rate were to hit the lower zero limit: the Fed could bring down long term rates by lengthening the duration of its holdings.

A couple weeks later, in a speech before the National Economists Club,6 Fed Governor Bernanke saw Mr. Greenspan's ante and upped him: the Fed not only has the power to address deflationary risk, hopefully preventing it, but also the power to cure deflation reality, if preventative efforts fail. Mr. Bernanke quite logically argued that the "best way to get out of (deflationary) trouble is not to get into it in the first place." It was, in his own words, a "commonsense injunction."

And he offered three conventional preventative steps. Again in his own words:

"First, the Fed should try to preserve a buffer zone for the inflation rate, that is, during normal times it should not try to push inflation all the way down to zero.
Second, the Fed should take most seriously - as of course it does - its responsibility to ensure financial stability in the economy.
Third, as suggested by a number of studies, when inflation is already low and the fundamentals of the economy suddenly deteriorate, the central bank should act more preemptively and aggressively than usual in cutting rates."

But what if this three-prong preventive program were to fail? In the finest example of p