Email this topic to a friend Printer-friendly version of this topic		Previous Topic | Next Topic
Conferences Current Daily Commentary (2005) (Public)
Messages in this topic

Duncan	15-Apr-06, 09:17 AM (GMT)
"Jim Rogers"
PETER SCHIFF INTERVIEWS JIMMY ROGERS by Peter Schiff Euro Pacific Capital April 14, 2006 Last month I had the pleasure of sitting down to an exclusive interview with famed investor and best-selling author, Jimmy Rogers. Among the topics we discussed were China, commodities, the U.S. dollar, and Gold. The forty-five minute, extremely candid and highly provocative interview consisted of my asking and Jim answering ten questions, as well as follow-up questions and discussions between the two of us. I then condensed the interview into a sixteen-page special report, an excerpt from which is reproduced below. Peter Schiff: Which brings me to my next question: your outlook on gold? You've always viewed gold differently from other commodities. Why? Jim Rogers: The supply and demand dynamics for gold have been different from other commodities for two or three decades. I own some gold, but I’ve always tried to explain to people that they would make more money in other commodities than they would in gold, because of the supply and demand dynamics. Now that has been true for the last decade or so. For lead, in fact, you would have made a lot more money over the past thirty years, the past twenty years, the past ten years, than you would have in gold. But if you own gold, I still don’t expect to make as much in gold as I would in things like corn and soy beans. But I own it. However, if I were looking at commodities these days, I would look at things like agriculture, because agriculture, for the most part, has moved up less than metals or anything. You know, cotton is still 50% below its all time high. Soy beans are something like 60% from the all time high. There are fundamental changes taking place. The amount of acres devoted to wheat around the world has been declining for 30 years. The world has consumed more corn than it has produced for five years in a row. That’s never happened in recorded history. The worldwide inventories are low, on a historic basis. And that’s without a drought. We haven’t had a major drought anywhere in the world for some time. We used to have them all the time. Will we never have a drought again? I doubt it. And, by the way, increasing agricultural production is not as simple as just planting as few seeds. Take coffee, for instance. It takes five years for a coffee tree to mature. If you and decided to go into the coffee business today, it would take our plantation a long time to come on stream and mature. . You don’t snap your finger, and magically fruit tress cotton plants, soy bean bushes appear. And in the meantime, the price of everything those farmers use is skyrocketing: natural gas, diesel fuel, labor, insurance, etc. Everything they use to produce their products it is also going up in price. So it takes a high price for them to start bringing on marginal land to produce new and more products. Peter Schiff: Let’s talk specifically about commodities and energy. To what extant can technology and alternative fuels rescue us from the commodity and energy shortage? I’m thinking about nanotechnology, nuclear power, gas hydrogenation to provide clean-burning coal, solar energy, etc. Jim Rogers Yes, technology can help, of course. But all these new innovations take enormous amounts of time to be developed and enter the marketplace. Eventually this commodity bull market (which includes energy) will come to an end, Peter. If history is any guide, some time between 2014 and 2022, the bull market in commodities will come to an end. That’s based on history, that is not a prediction. The average commodity bull market has lasted about eighteen years. Something eventually causes it to come to an end. Let’s look at alternative energy sources, for example. If we all decided today we wanted to have wind power, we couldn’t. You can’t get windmills. You can’t change the world that quickly. And solar is not competitive right now. Eventually it might be. But if we all decided today, Peter, to have solar panels on our roofs, you can’t get them. You can’t change that quickly. Nuclear of course, is making a come-back. But it takes years to build a nuclear power plant. And remember in the mean time the old plants are all becoming obsolete. The power plants in America are thirty to forty years old. So by the time a new one comes on stream, those plants will be forty or fifty years old. There has been massive underinvestment in things like mining, oil exploration and agricultural development. Agricultural land is left fallow. Plantations give way to real estate development. Renewing commodity infrastructure, finding new sources of commodities, new oil fields, developing new plantations takes lots of time…years in many cases. Only one new lead mine opened in the world in twenty-five years! Technological changes are coming, of course. But it just takes a long, long time. We don’t reverse these things quickly. Almost every oil country in the world has got declining reserves. All the major oil companies are quite open about the fact that they are not replacing their reserves, not by discoveries anyway or development. Maybe they’re buying other oil companies. But that’s not increasing the amount of oil in the world. There’s going to be something to cause this bull market to come to an end, someday, but the emphasis should be on someday, because someday is a long way, away. © 2006 Peter Schiff Editorial Archive To learn more about investing in internationally based commodity oriented stocks, download my free report The Powerful Case for Investing in Foreign Equities available at https://www.europac.net/report/index.asp?s=euroweb And subscribe to my free online newsletter at http://www.europac.net/newsletter/newsletter.asp To discover the best way to buy gold visit www.goldyoucanfold.com CONTACT INFORMATION Peter Schiff Euro Pacific Capital Darien, CT USA Email l Website
Alert	Edit | Reply | Reply With Quote | Top

Duncan	15-Apr-06, 09:47 AM (GMT)
1. "making money requires a plan, self-discipline, and desire."
Weekly Column - 04.14.2006 The Real Mexican Revolution by J. R. Nyquist In the Winter 2005/06 Edition of The National Interest, in an article titled “Mexico’s Wasted Chance,” Fredo Arias-King laments the failure of Mexican President Vicente Fox. Why did Fox fail? Why did he compromise his reforms? The key may be found in Fox’s appointment of Jorge Castaneda as Mexico’s foreign minister. This is the same Jorge Castaneda who assisted communists like Fidel Castro and Daniel Ortega in the 1980s. This is the same Jorge Castaneda who called for the destabilization of the U.S. economy through a debt moratorium, who also called for legal measures against Americans in Mexico. It is no wonder that Foreign Minister Castaneda abrogated Mexico’s mutual defense pact with the United States and, according to Arias-King, “flew with Fox to Nicaragua to publicly embrace Ortega, who was attempting to return to power.” The linkages between Fox and Ortega and Castro are suggestive. More recently, the frontrunner in Mexico’s upcoming presidential election has been publicly accused of accepting secret financial support from Venezuelan President Hugo Chavez (i.e., a rising communist dictator). One might admit, with regard to Mexican succession, that there is a pattern. And this pattern takes on greater importance in light of America’s illegal immigration crisis, especially since the illegal immigrants are being politically organized. A Nationwide General Immigrant Strike has been scheduled for May Day. The Immigrant Solidarity Network has laid out its plan: “We are calling No Work, No School, No Sales, and No Buying, and also to have rallies around symbols of economic trade in your areas May 1st to protest the anti-immigrant bill.” What is the ultimate objective of the strike? “We will settle for nothing less than full amnesty and dignity for the millions of undocumented workers presently in the U.S.” And what happens if the protestors succeed? When all immigrants are to be amnestied as citizens with full rights to social services, the United States will be transformed into a socialist republic. Once enfranchised, the newly minted immigrant voters will undoubtedly favor a transfer of wealth from the American middle class to a dominant underclass. Donations for this outcome are to be sent (where else?) to “The Peace Center/ActionLA,” 8124 West 3rd Street in Los Angeles. In other words, the immigrant strike is being organized by the socialists of the anti-war movement; by the Worker’s World Party and ANSWER, described as “anti-American, anti-war, anti-capitalism, pro-Saddam, pro-North Korea….” On May 5, 1984, when the global struggle between communism and capitalism was in the spotlight, Mexican publisher and journalist Maneul Moreno Rivas offered his thoughts to the Arizona Southern District of Rotary International. He spoke of sinister “parades and demonstrations that were organized simultaneously in almost all the cities of the United States.” He spoke of revolutionary warfare and “the tremendous economic crisis” that was destroying Mexico. “In spite of the fact that you have immediate and lengthy information … there is a tremendous confusion, a lack of complete and truthful understanding in the mind of the citizens of the United States as to what is really going on….” Manuel Moreno Rivas was speaking at a time when communism was in the open, backed by the power of the Soviet Union. Now this power is hidden. And it has done surprising things, gaining momentum since 1991. Cuba is a fortress of Communism, he explained. “In the course of the last 25 years, Cuba was converted into the largest arsenal of Latin America.” The Cubans have been trained to spread terror and revolution. But, he said, “The advance of communism in Mexico is an altogether different story. The tactics and methods utilized by the Kremlin to make of Mexico a communist country, have been more subtle, more intelligent, more prolonged….” Immediately following the Bolshevik Revolution in 1917, Moscow sent agents into Mexico. These agents, according to Rivas, took an “active and important part in every significant issue of Mexican politics.” Hundreds of operatives penetrated the main political organizations and movements of the country. Among Moscow’s agents, said Rivas, “you will find high ranking government heads, bright and educated financiers….” The Russians, he explained, “know the psychology of the Mexicans and how they react to different incentives and pressures. They make, through their complete and well-informed dossiers, specific personal studies of the men in power and of those important men who wish to ascend…. Once in power, those native politicians take the role of puppets whose strings are pulled efficiently from the desks of the Russian embassy.” One may question whether such a thing is possible. But we know, as a matter of record, that other nations have succumbed to this type of infiltration. Manuel Moreno Rivas tells us that the “Russians knew, when they began their work in Mexico, that the most effective weapon to attain their ends was the power to educate. Since the middle 1930s they were able to place in the highest posts … the most convinced and able Marxists….” Teacher education was the strategic high ground, and it was taken without resistance. “Thus,” said Rivas, “for generations, the children of Mexico have received a biased education. They have been taught to hate the imperialist Americans as the source of all evil and to worship communistic heroes.” Mexican textbooks give favorable mention to Karl Marx, Lenin, Stalin, Mao, Fidel Castro and Che Guevara. According to Rivas, “Most of the teachers in Mexico belong to the Communist Party.” All teachers need not be communists, of course, since any deviation from the revolutionary curriculum “is punished by immediate destitution.” When Manuel Moreno Rivas was speaking before the Rotary International, Mexico’s Minister of Education was Augustin Reyes Heroles, an open communist militant. In many ways, of course, Mexico has been a communist regime in practice (if not in theory). The Mexican state has owned the country’s railroads, airlines, power grid, telephone company, fishing, mining and sugar industries, iron and steel foundries, the oil industry, etc. Mexico is a country in which land has been seized for the creation of collective farms. “You are well aware of the results of such practices,” said Rivas to his American listeners. “The peasants abandon the land and become braceros, illegally crossing the border of the United States in an effort to work and send money so that their families may survive.” According to Rivas, Mexico’s presidents have been KGB agents since the days of Luis Echeverria and his successor, Jose Lopez Portillo. In accordance with Russia’s long-range plan, the main policy of Mexico’s corrupt presidents has been to keep Mexico destitute. This, in turn, forces millions of Mexicans across the border into the U.S. “The big giant is sick,” said Echeverria in a 1984 speech. “he enormous idol that holds the capitalistic structure has clay feet…. The cancer cells that we have injected in his bloodstream are working steadily and efficiently in an organism that is already corroded….” As we watch illegal aliens take to the streets, as we witness the paralysis of American institutions in the face of foreign intimidation and socialist propaganda, we should recall Manuel Moreno Rivas’s final question: “How far have Russian agents advanced in the penetration and infiltration of your schools and universities, of your churches, of your labor unions, of your political parties, of your media and of your civic organizations?” No one today would dare to make an answer. Rivas further warned, “When you see civic and religious and racist conglomerates unite under a single command and stage parades and demonstrations on the same day and the same hour in every important town and city in the United States … you can appraise the magnificent organization that it takes to launch such a campaign….” Welcome to the real Mexican Revolution. © 2006 Jeffrey R. Nyquist Email l Website l FSO Archives /////// http://www.financialsense.com/editorials/swenlin/2006/0414.html How can the fund's price advance if money is not pushing the move? ///// Shadow Statistics by Chris Mayer Contributor, The Daily Reckoning April 14 2006 The Daily Reckoning PRESENTS We all know to take what politicians have to say with a grain of salt - but do you really know how trumped up the “official government statistics” really are? Chris Mayer explores... “Listen,” I interrupted, “what nationality are you?” “I’m English,” she replied. “That is, I was born in Poland, but my father is Irish. “That makes you English?” “Yes,” she said... - Henry Miller, Tropic of Cancer Ben Bernanke, Fed chairman, recently delivered an upbeat view of the U.S. economy. It was cheerful, optimistic...and delusional. The official government statistics hide many warts on the face of the U.S economy. Like makeup dabbed on an aging film star, they are an attempt to cover the wrinkles and present a veneer of youth. To most people, this is no revelation. Like plastic surgery and tummy tucks, it is what stars do to keep up appearances. However, few know the extent of the deceit. What if you learned that inflation were closer to 7% than to the official 3%? What if unemployment were closer to 12%, rather than the official 5%? What if the economy were actually contracting, as opposed to growing? What follows is a partial peek at the economy - sans makeup. And, more importantly, what it means for you and your hard-earned dough. It was the genius of writer George Orwell that he chose to build his dystopia on the foundations of language and information - how it is used to deceive, manipulate and control. His chilling novel 1984 stands out precisely because it is only a distortion of things that are happening now and that have always happened. Orwell’s dystopia is a mirror in a funhouse, as you see enough of your own world in this disturbing reflection. Thankfully, there are still some people doing the important work of getting at the truth behind the official statistics - piercing the veil of Newspeak, sweeping away the cobwebs of sham. John Williams is an economist dedicated to doing just that. His Shadow Government Statistics reveals the extensive rot under the floorboards of the U.S. economy. Let’s take the official inflation rate, tracked using the consumer price index, or CPI. The idea behind the CPI is to have a fixed basket of goods and track how the prices of these things change from year to year. It only gained prominence after World War II, as a way to adjust autoworkers’ labor contracts, a practice that soon spread. Over time, its importance grew and more people looked to it as a gauge of general price inflation - and, hence, to get a feel for the health of the economy. The thing is, the way the CPI is calculated changed dramatically over the years. Politicians have figured out that these statistics are useful in winning elections. Ergo, nearly every administration has altered the calculation. And always, the changes made the CPI lower. Every effort to change the CPI, by design, aims to make the economy look “better” than it looked before the changes. The accumulation of these changes creates a huge difference over time. It’s like making a series of small changes to a ship’s course in the midst of a long voyage. Soon, you wind up way off course, miles and miles from where you think you are. The chart below is from William’s Web page. It shows the extent of the difference, which is just massive. The rate of inflation using only the pre-Clinton era CPI is closer to 7%! The “Experimental C-CPI-U” is another innovation, introduced by the Bush administration to lower the CPI yet again, once again to paint a kinder portrait of the old hag known as the U.S. economy. But it’s about more than just making the economy look better. For example, since increases in Social Security payments link to the CPI, a lower CPI also saves the government money. According to Williams, if you used the CPI when Jimmy Carter was president, you’d get Social Security checks 70% higher than today’s levels. Yes, 70% higher. The government also duped all those people who thought it was such a great idea to buy TIPS (Treasury inflation-protected securities). Changes in the CPI determine the interest paid on these bonds. The higher the CPI, the more interest paid to bondholders. Some people loved the idea, figuring here was a bond that would keep pace with inflation. Given the government manipulates the CPI, you can be sure the interest rate paid will not keep pace with inflation - nor has it ever. The manipulation of the CPI explains the great disconnect between what the man in the street feels when he pays his bills and what the confident, well-dressed Fed chiefs and politicians try to tell him. The cost of living is rising a lot more than they want you to believe. At a 7% annual rate of inflation, the cost of living would double in about 10 years. Looked at differently, the purchasing power of your dollar will fall in half. What about unemployment? The government, since the time of the Kennedy administration, has been changing the definition of “unemployed.” Again, many small changes over time lead to dramatic end results. According to Williams, if you back out the changes, you get an unemployment number closer to 12%! Let’s look at the federal deficit - basically, the amount of money the government is losing every year. The official deficit for 2005 was $319 billion. However, this excludes unfunded Social Security and Medicare obligations. Throw them into the mix and calculate the deficit the way a business does in its financial statements - and you get an annual deficit around $3.5 trillion. That’s more than 10 times the so-called “official” deficit. By Williams’ calculations, you could raise the tax rate to 100% - dump everyone’s salaries into the U.S. Treasury - and still have a deficit. Years of such deficits have created a mountain of obligations for the U.S. government. As Williams says, “The fiscal 2005 statement shows that total federal obligations at the end of September were $51 trillion; over four times the level of GDP.” These debts are unsustainable. The bills must go unpaid. If the U.S. government were a private corporation, its bankruptcy would be beyond dispute. This is why Social Security and Medicare are not going to exist in the not-too-distant future. As Williams says, “There is no way the government can pay the Social Security or Medicare it has committed to.” Williams believes GDP is contracting now. The government reported only a 1.1% increase in the fourth quarter. Even in an election year, and despite the government’s best efforts to paint a pretty face, all it could muster was a measly 1.1%. More likely, the economy actually contracted 2% in the fourth quarter. This means we are in a recession NOW. This is not conspiracy-theory stuff. As Williams points out, it’s all disclosed in the footnotes in the government’s reports. All he is doing is backing out many of the changes to more realistically compare these numbers with the numbers of the past. The great H.L. Mencken, a scathing attack dog of idiocy in all its forms, wrote about “damning politicians up hill and down dale for many years as rogues and vagabonds, frauds and scoundrels.” We need more Menckens. In the meantime, we’ll have to make do with Williams and his cogent analysis of government skulduggery. Oddly enough, these insights do not change our approach here in the pages of Capital & Crisis. In fact, Williams’ work reinforces several things we’ve already covered in past letters. To wit: Yields on real estate investment trusts (REITs) and utilities - to say nothing about the bond market - appear even more pathetic against an inflation rate of 7%. The yield for risks taken is simply not adequate. If the slumbering bond market awoke to the reality of a 7% inflation rate, there would be a sell-off the likes of which this country has never seen. Interest rates would bolt upward like a frightened cat. And the U.S. dollar is a doomed currency over the long haul. Bernanke, the self-professed student of the Great Depression, accepts the mainstream view that the Fed’s great mistake then was not to flood the system with dollars. He won’t make that “mistake” again. Expect the printing presses to run day and night at full capacity when the trouble starts. Trying to pin down the economy in precise numbers is futile anyway. It’s too big, too complex. All macro statistics are severely flawed. This is why I seldom write about them. Investing using macro statistics is like trying to find the nearest post office with a globe. They are so vague as to be useless. The basic idea I want to leave you with is this: The economy is far weaker than generally portrayed. Most investors ignore the rat’s nest of risks and invest indiscriminately in stocks - without proper due diligence. As investors, we need to stick to our fundamentals more carefully than ever. Regards, Chris Mayer for The Daily Reckoning P.S. In C&C, our focus is on understanding the individual investments we are in and getting them on the cheap. Even so, this doesn’t mean we have to stick our heads in the sand and whistle out of our rear ends. Our battle plan is largely unchanged: to invest in sturdy businesses with valuable assets, lots of resources and proven capabilities, able to survive and even prosper in difficult environments. It also helps to have smart people at the helm. Do all this at good prices and you’ll make a lot of money, even in a soft economic environment, even in a flat market. Our track record proves it. We had a great 2005, even though the market went nowhere. Find out for yourself...and check out the company who’s advanced technology reduces oil consumption and see why it could bring you a profit of 50% or more within the next year: The End of America’s Oil Addiction © 2006 Chris Mayer The Daily Reckoning Archives www.dailyreckoning.com Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons). In Bonner and Wiggin's follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount - just click on the link below: "Now Perhaps Someone Will Listen!" http://www.isecureonline.com/Reports/RCKN/E_O_D/ You can sign up for a free subscription to the Daily Reckoning here: http://www.dailyreckoning.com. This essay was originally published in The Daily Reckoning. /////// April 14, 2006 The Holy Grail by Doug Noland Higher rates are beginning to weigh on global equities - finally. For the week, the Dow increased 0.2%, while the S&P500 dipped 0.5%. The Transports and Utilities each declined about 1%. The Morgan Stanley Cyclical index added 0.2%, and the Morgan Stanley Consumer index gained 0.8%. The broader market was weaker. The small cap Russell 2000 fell 0.7%, and the S&P400 Mid-cap index declined 1%. The NASDAQ100 dipped 0.6%, and the Morgan Stanley High Tech index declined 0.8%. The Semiconductors were hit for 1.4%. The Street.com Internet Index fell 1.1%, and the high-flying NASDAQ Telecommunications index was down 0.3%. The Biotechs added 0.4%. The Broker/Dealers were down 1%, while the Banks were unchanged. With bullion gaining $13.75 to $603, the HUI Gold index was up 1%. For the week, two-year Treasury yields rose 5 bps to 4.95%, and five-year yields gained 6 bps to 4.97%. Bellwether 10-year yields jumped 7 bps to 5.05%, the first time about 5% since June 2002. Long-bond yields increased 6 bps to 5.115%. The 2yr/10yr spread increased 2 bps, ending the week at a positive 10 bps. Benchmark Fannie Mae MBS yields increased 5.5 bps to 6.155%, this week slightly outperforming Treasuries. The spread on Fannie's 4 5/8% 2014 note narrowed one to 29, while the spread on Freddie's 5% 2014 note narrowed slightly to 31.5. The 10-year dollar swap spread declined 0.25 to 54.75. Investment grade and junk bond spreads were little changed this week. The implied yield on 3-month December '06 Eurodollars rose 4.5 bps to 5.345%. Investment grade issuers included Residential Capital $3.5 billion, Goldman Sachs $1.5 billion, American International Group $1.0 billion, DR Horton $750 million, Yum Brands $300 million, Toyota Motors Credit $280 million, and Navigators Group $125 million. Junk issuers included Avis Budget $1.0 billion, Williams Scotsman $450 million, Burlington Coat $400 million, Nutro Products $315 million, Stora Enso $300 million, Packaging Dynamics $150 million, Brigham Exploration $125 million, and Tango Finance $100 million. Convert issuers included Medtronic $4.0 billion and Rentech $50 million. April 12 - Financial Times (Richard Beales): "The rapidly growing global market for collateralised debt obligations is now bigger than the high-yield bond market, underscoring its increasing importance to capital markets around the world. CDOs are pools of the debt of dozens of different borrowers, repackaged into slices with different levels of risk... Global CDO issuance jumped almost 60 per cent last year to more than $250bn (ﾣ143bn), according to data published yesterday by the Bond Market Association. Less than $200bn-worth of high-yield bonds were issued globally last year, according to Dealogic." Foreign dollar debt issuers included KFW $3.0 billion, Societe Generale $1.0 billion, and Urbi Desarrollos $150 million. April 11 - Bloomberg (Steve Rothwell and Jennifer Ryan): "Porsche AG, the world's most profitable automaker, is so convinced the European Central Bank is driving borrowing costs higher that it sold about $2.5 billion of euro-denominated bonds in January -- almost 18 months before it needed the money... Thirty-five companies sold $29 billion so far in 2006, the most in five years. Sales jumped 28 percent from last year..." Japanese 10-year JGB yields jumped 8 bps this week to 1.96%, the highest level since September 2002. The Nikkei 225 index declined 1.9% (up 7.0% y-t-d). German 10-year bund yields rose 6 bps to 3.95%. Emerging debt and equity markets were generally under moderate selling pressure. Brazil's benchmark dollar bond yields were little changed at 6.88%. Brazil's Bovespa equity index dropped 2.2%, reducing 2006 gains to 13.8%. The Mexican Bolsa dipped 0.8 %, with y-t-d gains reduced to 8.5%. Mexican 10-year $ yields jumped 10 bps to 6.19% this week. Russian 10-year dollar Eurobond yields gained 6 bps to 6.69%. The Russian RTS equities index gained 2.2%, increasing 2006 gains to 38%. India's Sensex equities index fell 3%, reducing y-t-d gains to 19.6%. Freddie Mac posted 30-year fixed mortgage rates rose 6 bps to 6.49%, up 52 basis points from one year ago. Fifteen-year fixed mortgage rates gained 4 bps to 6.14%, up 64 bps in a year to the highest level since June 2002. One-year adjustable rates increased 4 bps to 5.61%, an increase of 127 bps over the past year. The Mortgage Bankers Association Purchase Applications Index declined 4.7% last week. Purchase Applications were down 11.9% from one year ago, with dollar volume down 8.0%. Refi applications fell 6.6% last week. The average new Purchase mortgage rose to $237,600, while the average ARM declined to $353,000. Bank Credit gained $5.8 billion last week to a record $7.729 Trillion, with a y-t-d gain of $223 billion, or 11.0% annualized. Over the past year, Bank Credit inflated $693 billion, or 9.8%. For the week, Securities Credit jumped $12.1 billion. Loans & Leases declined $6.3 billion for the week, with a y-t-d gain of $151 billion (10.3% annualized). Commercial & Industrial (C&I) Loans have expanded at a 15.7% rate y-t-d and 13.8% over the past year. For the week, C&I loans rose $9.8 billion, while Real Estate loans dipped $1.8 billion. Real Estate loans have expanded at a 10.6% rate y-t-d and were up 12.1% during the past 52 weeks. For the week, Consumer loans declined $1.4 billion, and Securities loans fell $7.3 billion. Other loans dropped $5.5 billion. On the liability side, (previous M3 component) Large Time Deposits jumped $14.5 billion. M2 money supply jumped $23 billion to $6.798 Trillion (week of April 3). Year-to-date, M2 has expanded $85 billion, or 4.7% annualized. Over 52 weeks, M2 inflated $320 billion, or 4.9%. For the week, Currency added $0.1 billion. Demand & Checkable Deposits surged $34.8 billion. Savings Deposits fell $15.5 billion, while Small Denominated Deposits gained $3.0 billion. Retail Money Fund deposits added $0.9 billion. Total Money Market Fund Assets, as reported by the Investment Company Institute, declined $4.5 billion last week (week ended April 12) to $2.057 Trillion. Money Fund Assets are about unchanged y-t-d, with a one-year gain of $156 billion (8.2%). Total Commercial Paper dipped $1.7 billion last week to $1.680 Trillion. Total CP is up $31.1 billion y-t-d (15wks), or 6.5% annualized, while having expanded $211 billion over the past 52 weeks, or 14.4%. Asset-backed Securities (ABS) issuance was a slow $6.0 billion. Year-to-date total ABS issuance of $198 billion (tallied by JPMorgan) is 7% ahead of 2005's record pace, with y-t-d Home Equity Loan ABS issuance of $146 billion running 20% above last year. Fed Foreign Holdings of Treasury, Agency Debt ("US marketable securities held by the NY Fed in custody for foreign official and international accounts") dipped $1.5 billion to $1.592 Trillion for the week ended April 12. "Custody" holdings are up $73.3 billion y-t-d, or 16.7% annualized, and $203 billion (14.6%) over the past 52 weeks. Federal Reserve Credit declined $2.6 billion last week to $817.9 billion. Fed Credit has declined $8.5 billion y-t-d, or 3.6% annualized. Fed Credit expanded 4.7% ($36.5bn) during the past year. April 14 - Bloomberg (Nerys Avery): "China's foreign exchange reserves, which overtook Japan as the world's largest in February, rose 32.8 percent from a year earlier to $875.1 billion at the end of March, the People's Bank of China said." April 13 - Bloomberg (Garfield Reynolds): "Russia's foreign currency and gold reserves, the world's fifth-biggest, rose for a 20th consecutive week, reaching a record $208.1 billion... The reserves added $2.2 billion in the week to April 7..." April 14 - Bloomberg (Archana Chaudhary): "India's foreign-exchange reserves, comprising overseas currencies, gold and special drawing rights with the International Monetary Fund, rose $2.59 billion to $154.21 billion in the week ended April 7..." Currency Watch: The dollar index was little changed for the week. On the upside, the New Zealand dollar jumped 1.7%, the Polish zloty 1.3%, the Peruvian new sol 1.1%, and the Colombian peso 1.1%. On the downside, the Iceland krona fell 4%, the Indian rupee 1.0%, the New Turkish lira 0.8%, and the South Korean won 0.5%. Commodities Watch: April 12 - Bloomberg (Mathew Carr): "The International Energy Agency, an adviser to 26 oil-consuming nations, said demand for crude in the past two years was greater than previously estimated, underpinning higher prices. Demand in 2004 and 2005 was revised higher by 300,000 barrels a day, driven by the Middle East and Asia, excluding China..." Copper rose to another record, gold traded above $600, and silver touched $13. For the week, May crude jumped $2.06 to $69.45. May Unleaded Gasoline jumped 6.6%, and May Natural Gas rose 6.5%. For the week, the CRB index rose 1.5% (y-t-d up 3.2%). The Goldman Sachs Commodities Index (GSCI) surged 4.9%. The GSCI is up 8.7% y-t-d, with a 52-week gain of 30.0%. Japan Watch: April 13 - Merrill Lynch Research: "Japan is back as a provider of global risk capital. Evidence of this comes in the form of a sharp increase in outward-bound M&A activity. As corporate balance sheets are healthy and profits are high, Japanese corporate management is back at buying the world to increase market share and, hopefully, build more profitable global platforms." April 12 - Bloomberg (Lily Nonomiya): "Lending by Japan's banks accelerated, adding fuel to the central bank's case that interest rates will need to rise as the economy expands. Loans climbed 0.4 percent in March, only the second gain since the central bank started keeping records in 2001..." April 13 - Bloomberg (Mayumi Otsuma): "Japan's producer prices rose in March, extending two years of gains, as fuel and commodity prices increased. An index of prices that companies pay for energy and raw materials climbed 2.7 percent from a year earlier..." April 13 - Bloomberg (Kathleen Chu and Reika Kamimura): "Office vacancies in Tokyo fell last month to the lowest since September 2001, as demand for commercial space remained strong... The vacancy rate in Tokyo's five main business districts...declined for the ninth straight month to 3.41 percent..." China Watch: April 11 - Bloomberg (Nerys Avery): "China's trade surplus widened to $11.2 billion in March, the second-highest on record... The surplus widened from $2.43 billion in February and was double the $5.7 billion median estimate... Exports jumped 28.3 percent from a year earlier, the highest gain since October..." April 13 - Bloomberg (Nerys Avery): "China's economy grew about 8.5 percent in the first quarter, slowing from 9.5 percent in the previous year, the China Securities Journal reported..." April 12 - Bloomberg (Wing-Gar Cheng): "China's oil imports rose 25 percent in the first quarter of 2006 from a year earlier as energy demand increased in the world's fastest-growing major economy. Crude imports climbed to 37.1 million metric tons (272 million barrels) in January through March... The nation's oil import bill jumped 75 percent to $16 billion in the first quarter..." April 11 - Bloomberg (Yanping Li): "China should use more of its record foreign-exchange reserves to buy strategic resources such as machinery, raw materials and energy, Xia Bin, head of a research group linked to China's cabinet, wrote in the Securities Times." April 14 - Bloomberg (Nerys Avery): "China's money supply growth topped the central bank's target for a 10th straight month in March as the trade surplus widened and efforts by the central bank to limit currency gains pumped more money into the economy. M2, which includes cash and all deposits, rose 18.8 percent from a year earlier to 31.1 trillion yuan ($3.9 trillion)..." Asia Boom Watch: April 10 - Bloomberg (Rich Miller): "Asia's export-driven economy has a new engine of growth: its own people. With unemployment low and wages rising, Asian consumers are spurning the thrifty ways of their parents and turning out to buy. In Japan, spending rose the fastest in nine years in 2005. In South Korea, consumer confidence climbed near a four-year high in the first quarter. Even China expects domestic demand to contribute more to growth this year after cutting income taxes and raising minimum wages to pump up consumption. The rise of the Asian consumer helped prompt the International Monetary Fund to increase forecasts for economic growth for the region and worldwide this year..." April 12 - Bloomberg (Cherian Thomas and Kartik Goyal): "India's industrial production in February expanded more than economists expected... Production at factories, utilities and mines rose 8.8 percent from a year earlier..." April 14 - Bloomberg (Archana Chaudhary): "India needs to attract $550 billion in investments in the next five years to meet growth targets, Business Standard said, citing a government panel's report." April 14 - Bloomberg (Seyoon Kim and Bernard Lo): "South Korea's economy will grow more than 5 percent this year even as oil prices rise, Vice Finance Minister Kwon Tae Shin said." Unbalanced Global Economy Watch: April 11 - Reuters: "Global private equity-backed merger and acquisition volume hit $128.3 billion from 621 deals in the first-quarter, a 20 percent increase from the year ago period, financial data provider Dealogic said... Fund-raising levels also rose, reaching $81 billion in the first quarter, a 56 percent increase from the year-ago period, according to Private Equity Intelligence, an information service for the buyout market." April 11 - Bloomberg (Greg Quinn): "Canadian new-home prices rose 7 percent in February from a year earlier, the biggest increase since 1990, led by cities in Alberta where energy companies are luring thousands of new workers to expand production." April 11 - Bloomberg (Craig Stirling): "Britain's trade deficit was unchanged at a record level in February, a sign exports may be insufficient to help fuel an economic rebound this year... The gap in trade of goods remained at 6.5 billion pounds ($11.3 billion)..." April 12 - Bloomberg (Laura Humble): "The number of Britons claiming unemployment benefit rose in March to the highest in almost three years, casting doubt on forecasts that economic growth is accelerating." April 12 - Bloomberg (Ben Sills): "Underlying inflation in Spain, Europe's fifth-largest economy, accelerated in March to its fastest pace in three years... Consumer prices excluding energy products and fresh food rose 3.1 percent from a year earlier..." April 11 - Bloomberg (Jonas Bergman): "Swedish unemployment in March fell for a second month as companies sought more workers to meet rising demand... The non-seasonally adjusted jobless rate fell to 4.8 percent from 5.2 percent the month before..." April 10 - Bloomberg (Tracy Withers): "New Zealand house prices rose 14.8 percent in March from a year earlier, the slowest annual pace in seven months..." Latin America Watch: April 12 - Bloomberg (Patrick Harrington): "Mexico's industrial production rose more than 5 percent for a second month in February as declining interest rates spurred homebuilding and quickening U.S. economic growth fueled demand for Mexican-made cars. Industrial output rose 5.4 percent from a year earlier..." Bubble Economy Watch: With half of the fiscal year in the history books, federal spending is running 8.7% ahead of 2005 levels, with Receipts 10.5% above (see below). March Retail Sales were up 7.6% from March 2005, with Sales Ex-Autos up 8.8%. Furniture sales were up 10.8% y-o-y, Building Materials 17.4%, Gasoline Stations 14.4% and Eating, Drinking Establishments 9.2%, taking note of the strongest sectors. The February Trade Deficit was reported at $65.7 billion. Goods Imports were up 11% to $150.5 billion, and Goods Exports were up 14% to $80.5 billion. March Industrial Production was up 3.6% from March of last year. April 10 - The Wall Street Journal (Jonathan Karp): "The Pentagon said the costs for 36 big weapons systems -- including marquee warplane, submarine and ground-vehicle programs -- have jumped by at least 30% and some by more than 50%... The Pentagon found that 25 programs had grown by at least 50% over original costs, while 11 programs were between 30% and 50% more expensive." April 11 - Bloomberg (Guy Collins): "Wines from the new 2005 Bordeaux vintage may fetch between 10 and 30 percent more than 2004s, with top growths challenging records set by the landmark 2000s, according to buyers attending vineyard tastings this month." April 9 - San Francisco Chronicle (Kathleen Pender): "In another sign that the real estate market is cooling -- but not collapsing -- the inventory of unsold homes in California is roughly double what it was a year ago... Statewide, the inventory of unsold single-family homes in February was 6.7 months, up from 3.2 months in February of last year." Mortgage Finance Bubble Watch: April 10 - Bloomberg (Kathleen M. Howley): "U.S. sales of new and existing homes will fall 8 percent this year as rising prices squeeze more people out of the real estate market, according to a forecast by Freddie Mac. Sales will decline to 6.9 million from 7.5 million last year... It would be the first year since 2003 that sales were below 7 million. Rising prices and higher mortgage rates are putting homes out of the reach of more families, Frank Nothaft, Freddie Mac's chief economist said..." April 14 - The Wall Street Journal (Danielle Reed): "As home-price appreciation has tapered off and mortgage rates have risen, foreclosures have started to pick up, with the Midwest region hit hardest... Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68% from the same month a year earlier, according to Irvine, Calif., online foreclosure-data service RealtyTrac. Delinquencies are up as well." Energy and Crude Liquidity Watch: April 14 - ABC News.com: "Soaring gas prices are squeezing most Americans at the pump, but at least one man isn't complaining. Last year, Exxon made the biggest profit of any company ever, $36 billion, and its retiring chairman appears to be reaping the benefits. Exxon is giving Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks, such as a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes." April 14 - Bloomberg (Maria Ermakova): "The Russian government may invest some of the country's $60.5 billion stabilization fund, set up with windfall oil revenue, in stocks, said Oleg Vyugin, head of the Federal Financial Markets Service." Fiscal Deficit Watch: The federal government ran a record $85.5 billion deficit during March, with spending up 14% from March 2005 and Receipts up 11%. Fiscal year-to-date (6 months), Total Receipts are running 10.5% ahead of the year ago level. Year-to-date Individual Income Tax Receipts are 8.5% above comparable 2005, and Corporate Tax Receipts are 30.5% ahead. Total Spending is running 8.7% above comparable 2005, with Defense spending up 8.9%, Medicare 15.5%, Social Security 5.7%, and Interest Expense 25.2%. April 12 - Market News International (John Shaw): "In a trip last month, David Walker, the comptroller general of the United States, found a very receptive audience to absorb his message about the perils of the present path of American fiscal policy. That was the good news. The bad news was that the audience was in the 'wrong' country: the United Kingdom. In a speech to the London School of Economics, Walker said he is deeply concerned about the U.S.'s 'deteriorating financial condition and worsening long-term fiscal outlook.'" Walker noted that the federal budget deficit for fiscal year 2005 was $319 billion, but added that far more troubling is the fact that the government's liabilities and unfunded commitments reached $46 trillion that year, up from about $20 billion just five years ago. 'As a certified public accountant and the federal official who signs the audit report on the U.S. government's financial statements, I'm here to tell you that America's finances are far worse than advertised.'" Speculator Watch: April 10 - Bloomberg (Harris Rubinroit and Alex Armitage): "Billionaire investor George Soros and partner Steven Mnuchin are seeking $745 million in loans to help buy Viacom Inc.'s DreamWorks LLC film library... Dresdner Kleinwort Wasserstein is arranging a $595 million five-year term loan with an interest margin of 1.375 percentage points over the London interbank offered rate..." April 14 - Bloomberg (Alex Armitage and Dana Cimilluca): "Michael Jackson, struggling to stave off bankruptcy, agreed to a debt refinancing that may lead to him forfeiting a share of a music catalog that includes more than 200 Beatles songs. Jackson refinanced loans with hedge fund Fortress Investment Group LLC, the singer said..." The "Holy Grail": Fed chairman Bernanke has proffered that "to understand the Great Depression is the Holy Grail of macro-economics." Regrettably, that prolonged quest has proved a colossal misadventure. There is, however, an opportunity for redemption. In the end, mastery of the current Global Credit Bubble and inevitable bust offers the (long-delayed) bounty of macro-economic "salvation." Reading the analyses of today's Depression experience authorities (notably Dr. Bernanke and Univ. of California's Dr. Barry Eichengreen) leaves one with the sense that they are oblivious to the essence of the inevitable repercussions from the preceding boom's gross excesses and distortions. There remains a curious disregard for the fundamental role played by Credit and speculation in fostering the fateful Bubble, this despite centuries of financial history illuminating their central responsibility. Rather, the inclination is to point blame at the Federal Reserve for not aggressively inflating the money supply after the stock market crash, as well as the deflationary forces supposedly imposed by the gold standard global monetary regime. It all may be politically correct, exactly what the economic community and policy-makers are eager to hear, and exceptionally career constructive, but that doesn't elevate it to sound analysis. I am compelled to expand on the superb analysis highlighted last week from "Banking and the Business Cycle" published in 1937. For starters, I definitely give contemporaneous analysis credence, knowing that views developed some decades later will be adulterated by misconceptions, personal and ideological biases, historical revisionism, and by whatever economic fad that is all the rage at the time. The authors' focus on boom-time money and Credit excesses as a leading cause of the Depression was exceptional and quite credible. Nonetheless, the boom had unique circumstances that proved to be major distracting factors for the purposes of developing a more general and long-standing theory of business cycles. The Federal Reserve System was in its infancy during the "Roaring Twenties" boom, so its operations and influence were understandably an analytical focal point for contemporaries and future economists alike. Discerning contemporary analysts of that period focused on the Fed's prominent role in fostering and repeatedly bolstering the boom-time monetary expansion, while today's Depression "experts" fault the incompetent Fed for its failure to orchestrate post-Bubble reflationary measures. This irresoluble debate certainly detracts from a clearer understanding of and appreciation for the paramount role of boom-time Credit and speculative excesses. One can actually examine today's environment and ascertain a much more analytical "pure-play" with respect to Credit, speculation and the course of financial and economic Bubbles. I certainly have no intention of dismissing the Fed's role. Yet when it comes to the actual expansion of Credit, the Federal Reserve's balance sheet is for this cycle hardly a factor. For example, Fed assets expanded only about $37 billion during 2005, compared to bank Credit's $680 billion, ABS's $645 billion, the Broker/Dealers' $300 billion, and "Funding Corps'" $200 billion. Total mortgage borrowings expanded last year by about 38 times the amount of Fed growth. Bank reserve requirements are today a Credit non-issue, after muddying the Twenties' Credit expansion analytical waters. Non-banks have become an instrumental source of "money" & Credit creation and financial intermediation, liberating Credit analysis from the traditional ambiguities of fractional reserve banking and the Fed's role in creating system reserves to be "multiplied." Financial innovation - especially when it comes to new Credit instruments, avenues of financial intermediation and mechanisms facilitating speculative leveraging - is a paramount issue today as it was during the Twenties, although hopefully the analysis will be more fruitful now that "financial innovation" is not intermingled with issues associated with a neophyte central bank system. Not dissimilar to the "Roaring Twenties," the Federal Reserve's role in nurturing an overindulgent backdrop and accommodating the private-sector "money" and Credit "printing presses" is the most fertile analytical perspective. Momentous developments in technological advancement and production capabilities also confused the analysis of money and Credit during the Twenties, as it invariably does during any extended boom. The extraordinary gains in industrial productivity and its influence on the general price level garnered significant interest from the economic community back then. A reasonably strong case was made in "Banking and the Business Cycle" that the Fed's effort to stabilize the price level (when it should have been declining along the lines of productivity advances) provided a major impetus to the inflationary Bubble. One is, nevertheless, left unclear as to what extent the Credit boom and its interplay with the real economy were bolstering both production increases ("Investment Inflation") and the flurry of technological advancements, which were then exerting downward pressure on goods prices. Many economists today hold the view that productivity gains and globalization provide a favorable backdrop conducive to outsized economic growth, quiescent inflation, and permissive monetary conditions, along with accompanying rising asset prices and surging financial wealth. I propose that the issue this cycle for the U.S. economy is not its productivity gains or industrial capabilities but the capacity for the economic system to expand salable "output" - goods and services to meet the inflated demand from Credit creation-induced purchasing power. In a services-based (certainly including the healthcare, media, communications, and computer/electronic/digital output) economic system, the causal link between Credit growth and "output" expansion may arguably be more discernable. Whether it is or isn't, the capacity for (contemporary) output to easily accommodate inflating purchasing power (more healthcare, more higher-priced services generally, more downloads, more upper-end and luxury products/services, more media, more electronic gadgets, more imports, etc.) must now become a focal point of Credit Bubble analysis. The danger of hyper-elastic output rests with its capacity to readily accommodate progressive Credit expansion and attendant excesses without an alarming increase in output prices. Mistakenly perceived a virtue, the problematic upshot of this circumstance is a ballooning Financial Sphere and a cumulating pool of (global) liquidity available to inflate asset market Bubbles, stoke self-reinforcing speculation, and impart myriad unchecked financial and economic imbalances. Even today, we are subject to the bullish propaganda that the "efficiency" by which the U.S. economy now uses energy ensures that surging crude oil prices exert only a minimal restraining influence on GDP. But this dynamic has little if anything to do with actual efficiency. Rather, it is indicative of a major transformation in the nature of economic output, as well as an Economic Sphere commanded by the Inflating Financial Sphere. Surging energy prices today neither stymie output nor elicit tightening from the monetary authority - but they are efficiently "monetized." Energy inflation is a consequence of and additional stimulus to Credit inflation, with Credit excess begetting higher oil prices, begetting only more Credit and higher prices. From a Credit Bubble prospective, the economic system's pricing mechanisms now largely operate without adjustment or self-correction. Virtually unlimited "output" readily expands to meet demand, rather than the market force of rising prices working to crimp demand. It is the unstable financial boom dictating an inflated and highly imbalanced level of economic output. In a replay of the Twenties, an atypical economic backstop warranting determined policy restraint is misinterpreted as one permitting of monetary looseness. Alan Greenspan and others' efforts to blame the current global currency regime ("pegged" Asian currencies, in particular) for mounting imbalances recalls analysis that pinned late-'20s instabilities and the depth of the Depression on the vagaries and then breakdown of the global gold standard. Again, the focus must be first and foremost on underlying Credit systems and conditions. Greenspan, of course, is keen to point fingers at foreign governments and their "pegged" currencies, when the impetus for the Great Credit Bubble can be traced back to "pegged" U.S. interest-rates, in conjunction with Fed assurances of abundant marketplace liquidity and a persistent inflationary bias. Such an unparalleled financial backdrop beckoned for reckless excess. No currency system or monetary apparatus can be expected to function stably in the face of rampant underlying Credit expansion and resulting cumulative speculative financial flows. The Twenties' financial profligacy doomed the gold standard, and it is simply inconceivable how a stable global currency regime could today be maintained in the face of the unprecedented dollar-based Credit inflation and the ensuing massive pool of global speculative finance. The 1920s/'30s gold standard debate is lost in time. But great effort must be made to ensure that underlying Credit systems and speculative dynamics (the U.S.'s in particular), along with resulting U.S. and global economic maladjustments - are the focal point with respect to the analysis of any future systemic dislocation - and not the global currency system, as hopelessly flawed as it is. Ballooning foreign central bank reserve holdings are not THE global imbalance, but are instead indicative of deep underlying Credit system and economic maladjustment. Ditto the unknown Trillions of assets being accumulated by the global leveraged speculating community. There will be more than ample blame to spread around when this historic boom gives way to bust. Learning the correct lessons from this experience will demand the acceptance of responsibility for our own financial and economic misdeeds, of which there have been many. The "Holy Grail" of macro-economic understanding is an unattainable goal, yet we are presented with an exciting opportunity to get economic analysis and theory at least back on the right track. The first step will require the recognition and acceptance that unrestrained Credit and unchecked leveraged speculation are inconsistent with the stability of Capitalistic systems. Talk Back Doug Noland The Credit Bubble Bulletin PrudentBear.com ///// April 14, 2006 Richard Russell's Wisdom by John Mauldin It is Good Friday, and I am going to take the writing day off. Next week we will delve further into the rich mines we began to explore last week on complexity theory and fingers of instability. But I am going to give you something better than my poor missives. Today we look at the chapter by Richard Russell from my book Just One Thing. To find out more about the book, you can click on the book cover nearby or go to www.amazon.com/justonething. What can one say about my friend Richard Russell without using a lot of superlatives? Richard has been writing and publishing the Dow Theory Letters since 1958, and never has he missed an issue! It is the longest newsletter service continuously published by one person in the investment business. Richard is now 80 years old, and writes an extremely popular daily e-letter, full of commentary on the markets and whatever interests him that day. He gets up at 3 am or so and starts his daily (massive) reading and finishes the letter just after the markets close. He is my business hero. He was the first writer to recommend gold stocks in 1960. He called the top of the 1949-66 bull market, and called the bottom of the bear market in 1974 almost to the day, predicting a new bull market. (Think how tough it was to call for a bull market in late 1974, when things looked really miserable!) He was a bombardier in WWII, lived through the Depression, wars, and bull and bear markets. I would say that Russell is one of those true innate market geniuses that have simply forgotten more than most of us will ever know, except I am not certain he has forgotten anything. His daily letter is loaded with references and wisdom from the past and gives us a guide to the future. (You can learn more - and subscribe! - at www.dowtheoryletters.com.) When I asked Richard to contribute an article, I wanted his wisdom more than his actual market theory, and that is what he has given us. You (and your kids!) should read this again and again! Richard lives in La Jolla with his wife Faye. Rich Man, Poor Man By Richard Russell Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline, and desire. I say "for the great majority of people," because if you're a Steven Spielberg or a Bill Gates you don't have to know about the Dow or the markets or about yields or price/earnings ratios. You're a phenomenon in your own field, and you're going to make big money as a by-product of your talent and ability. But this kind of genius is rare. For the average investor, you and me, we're not geniuses so we have to have a financial plan. In view of this, I offer below a few rules and a few thoughts on investing that we must be aware of if we are serious about making money. I. The Power of Compounding Rule 1: Compounding. One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money. When I taught my kids about money, the first thing I taught them was the use of the "money bible." What's the money bible? Simple, it's a volume of the compounding interest tables. Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. You need knowledge of the mathematical tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time. But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating! In order to emphasize the power of compounding, I am including the following extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor B opens an IRA at age 19. For seven consecutive periods he puts $2,000 into his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions -- he's finished. A second investor, A, makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he's 65 (at the same theoretical 10% rate). Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A's 33 additional contributions. This is a study that I suggest you show to your kids. It's a study I've lived by, and I can tell you, "It works." You can work your compounding with muni-bonds, with a good money market fund, with T-bills, or say with five-year T-notes. Rule 2: Don't Lose Money. This may sound naive, but believe me it isn't. If you want to be wealthy, you must not lose money; or I should say, you must not lose BIG money. Absurd rule, silly rule? Maybe, but MOST PEOPLE LOSE MONEY in disastrous investments, gambling, rotten business deals, greed, poor timing. Yes, after almost five decades of investing and talking to investors, I can tell you that most people definitely DO lose money, lose big-time -- in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own businesses. Rule 3: Rich Man, Poor Man. In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur, and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money. The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money-market funds, stocks, and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market. The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "giveaway" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are. And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience). But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course). And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn't understand values, so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money. He's never heard the adage, "He who understands interest, earns it. He who doesn't understand interest, pays it." The little guy is the typical American, and he's deeply in debt. The little guy is in hock up to his ears. As a result, he's always sweating -- sweating to make payments on his house, his refrigerator, his car, or his lawn mower. He's impatient, and he feels perpetually put upon. He tells himself that he has to make money -- fast. And he dreams of those "big, juicy mega-bucks." In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this "money-nerd" spends his life dashing up the financial down escalator. But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser. Rule 4: Values. The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value. I judge an investment to be a great value when it offers (a) safety, (b) an attractive return, and (c) a good chance of appreciating in price. At all other times, the compounding route is safer and probably a lot more profitable, at least in the long run. II. Time TIME: Here's something they won't tell you at your local brokerage office or in the "How to Beat the Market" books. All investing and speculation is basically an exercise in attempting to beat time. "Russell, what are you talking about?" Just what I said -- when you try to pick the winning stock or when you try to sell out near the top of a bull market or when you try in-and-out trading, you may not realize it but what you're doing is trying to beat time. Time is the single most valuable asset you can ever have in your investment arsenal. The problem is that none of us has enough of it. But let's indulge in a bit of fantasy. Let's say you have 200 years to live, 200 years in which to invest. Here's what you could do. You could buy $20,000 worth of municipal bonds yielding, say, 5.5%. At 5.5% money doubles in 13 years. So here's your plan: each time your money doubles you add another $10,000. So at the end of 13 years you have $40,000 plus the $10,000 you've added, meaning that at the end of 13 years you have $50,000. At the end of the next 13 years you have $100,000, you add $10,000, and then you have $110,000. You reinvest it all in 5.5% munis, and at the end of the next 13 years you have $220,000 and you add $10,000, making it $230,000. At the end of the next 13 years you have $460,000 and you add $10,000, making it $470,000. In 200 years there are 15.3 doubles. You do the math. By the end of the 200th year you wouldn't know what to do with all your money. It would be coming out of your ears. And all with minimum risk. So with enough time, you would be rich -- guaranteed. You wouldn't have to waste any time picking the right stock or the right group or the right mutual fund. You would just compound your way to riches, using your greatest asset: time. There's only one problem: in the real world you're not going to live 200 years. But if you start young enough or if you start your kids early, you or they might have anywhere from 30 to 60 years of time ahead of you. Because most people have run out of time, they spend endless hours and nervous energy trying to beat time, which, by the way, is really what investing is all about. Pick a stock that advances from 3 to 100, and if you've put enough money in that stock you'll have beaten time. Or join a company that gives you a million options, and your option moves up from 3 to 25 and again you've beaten time. How about this real example of beating time. John Walter joined AT&T, but after nine short months he was out of a job. The complaint was that Walter "lacked intellectual leadership." Walter got $26 million for that little stint in a severance package. That's what you call really beating time. Of course, a few of us might have another word for it -- and for AT&T. III. Hope HOPE: It's human nature to be optimistic. It's human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment, and depression. After all, if the world is a negative place, what's the point of living in it? To be negative is to be anti-life. Ironically, it doesn't work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock you bought is a real value, and you bought it right, you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping. So in the case of this stock, you have value on your side -- and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn't play any part in this process. You don't need hope, because you bought the stock when it was a great value, and you bought it at the right time. Any time you find yourself hoping in this business, the odds are that you are on the wrong path -- or that you did something stupid that should be corrected. Unfortunately, hope is a money-loser in the investment business. This is counterintuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and, instead, allow that small loss to develop into a large loss. In the stock market hope gets in the way of reality, hope gets in the way of common sense. One of the first rules in investing is "don't take the big loss." In order to do that, you've got to be willing to take a small loss. If the stock market turns bearish, and you're staying put with your whole position, and you're HOPING that what you see is not really happening -- then welcome to poverty city. In this situation, all your hoping isn't going to save you or make you a penny. In fact, in this situation hope is the devil that bids you to sit -- while your portfolio of stocks goes down the drain. In the investing business my suggestion is that you avoid hope. Forget the siren, hope; instead, embrace cold, clear reality. IV. Acting ACTING: A few days ago a young subscriber asked me, "Russell, you've been dealing with the markets since the late 1940s. This is a strange question, but what is the most important lesson you've learned in all that time?" I didn't have to think too long. I told him, "The most important lesson I've learned comes from something Freud said. He said, 'Thinking is rehearsing.' What Freud meant was that thinking is no substitute for acting. In this world, in investing, in any field, there is no substitute for taking action." This brings up another story which illustrates the same theme. J.P. Morgan was "Master of the Universe" back in the 1920s. One day a young man came up to Morgan and said, "Mr. Morgan, I'm sorry to bother you, but I own some stocks that have been acting poorly, and I'm very anxious about these stocks. In fact worrying about those stocks is starting to ruin my health. Yet, I still like the stocks. It's a terrible dilemma. What do you think I should do, sir?" Without hesitating Morgan said, "Young man, sell to the sleeping point." The lesson is the same. There's no substitute for acting. In the business of investing or the business of life, thinking is not going to do it for you. Thinking is just rehearsing. You must learn to act. That's the single most important lesson that I've learned in this business. Again, and I've written about this episode before, a very wealthy and successful investor once said to me, "Russell, do you know why stockbrokers never become rich in this business?" I confessed that I didn't know. He explained, "They don't get rich because they never believe their own bullshit." Again, it's the same lesson. If you want to make money (or get rich) in a bull market, thinking and talking isn't going to do it. You've got to buy stocks. Brokers never do that. Do you know one broker who has? A painful lesson: Back in 1991 when we had a perfect opportunity, we could have ended Saddam Hussein's career, and we could have done it with ease. But those in command, for political reasons, didn't want to face the adverse publicity of taking additional US casualties. So we stopped short, and Saddam was home free. We were afraid to act. And now we're dealing with that failure to act with another and messier war. In my own life many of the mistakes I've made have come because I forgot or ignored the "acting lesson." Thinking is rehearsing, and I was rehearsing instead of acting. Bad marriages, bad investments, lost opportunities, bad business decisions -- all made worse because we fail for any number of reasons to act. The reasons to act are almost always better than the reasons you can think up not to act. If you, my dear readers, can understand the meaning of what is expressed in this one sentence, then believe me, you've learned a most valuable lesson. It's a lesson that has saved my life many times. And I mean literally, it's a lesson that has saved my life. Memphis, Montreal, Orlando, Las Vegas, New York, La Jolla I have been enjoying the last few months of not traveling, although that is going to come to an end soon. As noted in the headline, I will be in Memphis, Montreal, Orlando, Las Vegas, New York, and La Jolla in May and June. And I am trying to keep up with my research and writing for my book project. I am really having as much fun as I have ever had on a project. I hope I can translate that enthusiasm into the book! This is a time when we celebrate transformation and renewal. When what is wrong can be changed. When we can learn where true value really lies.. The weather is great in Texas. Seems like the time for a really long walk outside. So I think I will hit the send button and leave the office behind for a few days! Have a happy Easter. Enjoy your friends and family. Your really enjoying life analyst, Talk Back John Mauldin Frontlinethoughts.com Note: John Mauldin is president of Millennium Wave Advisors, LLC, (MWA) a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273. MWA is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Funds recommended by Mauldin may pay a portion of their fees to Altegris Investments who will share 1/3 of those fees with MWS and thus to Mauldin. For more information please see "How does it work" at www.accreditedinvestor.ws. This website and any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement or inducement to invest with any CTA, fund or program mentioned. Before seeking any advisors services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Please read the information under the tab "Hedge Funds: Risks" for further risks associated with hedge funds. If you would like to reproduce any of John Mauldin's E-Letters you must include the source of your quote and an email address (John@FrontlineThoughts.com) Please write to info@FrontlineThoughts.com and inform us of any reproductions. Please include where and when the copy will be reproduced. John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Copyright © 2005-2006 John Mauldin. All Rights Reserved //////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	15-Apr-06, 09:56 AM (GMT)
2. "confirming confusing compounding"
http://www.safehaven.com/article-4974.htm Conclusion We are nearer to an intermediate term correction in the precious metals and related stocks then to the beginning of a new intermediate term leg up. Several markets are presently at key pivot points: gold, silver, precious metal stocks, commodities, energy, interest rates, and the overall stock market. That all these markets are sitting at such crucial junctures is an amazing coincidence. Interest rates APPEAR to be breaking out. The Fed is going to take at least one last stand to stave off the onslaught of gold and silver. It remains to be seen if the Fed can pull it off. To do so will delay a further rise in long term interest rates - for the short term - if they still have the power. In the not too distant future, the precious metal stocks will be much cheaper than they presently are. A bit further down the road all major markets: U.S. bond, stock, currency, real estate, and interest rates will all be aligned and headed down. Gold and silver will be the only asset rising. The saber rattling on the news is meant to be an affect that makes an effect of large proportions. The Fed is painting itself into a corner but as wild animals behave in such situations, it seems to be preparing to launch a last offensive. The Fed and all may well be trying to lure market players into untenable positions that cannot remain supported from such pivotal levels. Once the illusionary support is withdrawn - the markets thus set up - will fall hard. Natural gas is a perfect example. As we quoted the Governor of the Bank of England in Gold Wars: Gibson's Paradox & The Gold Standard: "We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake." "Therefore, at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded." It appears da boyz still play with their little toys - not fully cognescient of the power and responsibility of their actions. The gold and silver bull markets are alive and well. They will remain so. Intermediate term corrections actually make them stronger. Positions move from weak hands to stronger hands. Higher lows form and build a stronger base from which the next assault to new highs occurs. In a gold bull market, the higher lows are more important than the higher highs. As long as higher lows remain in place - higher highs will naturally follow. Back in November of 2005, we wrote The Charts Are Talking. Who's Listening? At that time, we showed a bevy of cup and handle formations that appeared to be indicating that a breakout in the gold and silver stocks was most probable. The XAU was at 110 the HUI at 231. On February 2, 2006, we penned another paper titled: The Charts Are Talking: Is Anyone Listening? At that time the HUI was at 340 - today it is at 348. We stated that the markets were just beginning to get a bit frothy and warranted the awareness of such. "That is what disciplined traders do during rallies in bull markets: they sell into strength, and buy during weakness. This is how one prospers in a gold war. If further upside action occurs, we will continue to do the same with a minimum of one third, and a maximum of two thirds, of our trading portfolio. That does not mean that a correction is going to start tomorrow, as once again, no one can predict the future. What it does mean is that to stay disciplined and focused, by selling into strength, and buying on weakness - that is what matters: money management and asset allocation." Our position remains the same. We have repeatedly sold into new highs and near new highs As of now we are sitting on the sidelines waiting for a much better entry point that we believe will be coming for the gold and silver stocks. Since we place booked trading profits into accumulating physical gold and silver we are quite content, especially as we said months ago - it looked like silver was poised to outperform gold and we favored silver. Silver cooperated nicely. Lastly, we agree with Michael Bolser - this is a Gold War. They have once confiscated all personal gold holdings, and at another time reneged on paying their contractual obligations to foreign nations to settle their account balances with gold bullion as they had pledged. This was Nixon's contribution to world betterment. Gold is strong and gold will win this war, but remember all great warriors learn to retreat during certain battles - to regroup and become stronger to return another day - to win the war. Even Shaka Zulu used the deadly effectiveness of this ploy. Caveat Emptor. Expect the unexpected and be prepared. ///// compound on /// the real deal is to know where the asset class place is on the plot
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	15-Apr-06, 12:06 PM (GMT)
3. "gene us"
Confiscation By: Jason Hommel, Silver Stock Report Government confiscation fears were one of the biggest concerns that investors asked me about while I was speaking recently in Toronto and Chicago. But the silver market is several orders of magnitude too small for the government to even be concerned about! It is impossible that they could confiscate enough silver bullion to even make a difference to the annual budget! The total silver bullion available in the entire world is down to about 60 to 600 million ounces. At $7.50/oz., that's worth $450 million to $4.5 billion, yet government budgets are around $2300 billion, and the deficit alone is about $500 billion. How could .5 billion dollars even help in the slightest to help fund a budget deficit of 500 billion, nearly 1000 times as large??? Thus, there is no need to be remotely concerned about confiscation until well after silver bullion rises in price by at least a factor of 1000! And even then, the silver in the U.S., about 100 million ounces, at the COMEX, would be worth $7500/oz., for a total of a mere $750 billion, which is, again, a mere drop in the bucket when considering the dollar amount of government expenditures, which are over $2300 billion! Confiscation fears are understandable. Although silver that you own is default free, and cannot go to zero value... there is only one remaining problem: it can be stolen by thieves, or government. This is the age-old problem of being wealthy, you have to protect your wealth. Realistically, government confiscation is impractical given the relative values. The real confiscation takes place through inflation! The dollar has lost 30% of its value in the last 2-3 years, and is about to lose another 20-30% in the next 6-12 months! Those who scorn bullion often fear theft of the physical bullion. The "selling point" of the so-called cashless society that the Fed is trying to foist upon us is that it would eliminate theft. Except it would not eliminate the theft of the inflation of the currency! By the time the entire world returns to using only silver and gold bullion coins for all of commerce, it would be inconceivable that 30% of all the bullion would be stolen within one year or two. At most, I could hardly conceive that 1% or less would be stolen, physically, in a year! And yet, the near equivalent of 15% per year has been stolen in the last two years given the devaluation of the paper and electronic currency of the dollar--that only exists, ostensibly, to prevent theft! Yet where is the outcry about the theft of 30% of the value of the dollar??? Could you imagine the societal uproar that would happen if 100% of the assets of 1 person in 7 were totally stolen each year by thieves? And yet, that is the societal equivalent of a 15% currency devaluation for two years in a row!!! If you are going to fear confiscation, then fear inflation, for that is the real confiscation. In fact, fear paper money, for paper money was created to deceive the holders of the physical gold and silver in the first place. And also, fear the entire concept of banks, for banks are also a mechanism of confiscation! Fear also, insurance, social security, annuities, inflation-indexed bonds, futures contracts, and options. All are merely "promises to pay", and are all paper instruments designed to confiscate your real gold and silver. This last week I was presented with an investment opportunity that I could not realistically turn down. Unfortunately, I had to sell silver bullion to raise the money to participate in this private placement. In the process of needing to sell silver quickly, I learned even more about the silver bullion market. The silver market is extremely tiny. The world of dealers is small. Silver investors are currently motivated by both greed and fear. To participate in the private placement, I had to raise money within one week. To sell silver for this, it was too slow to wait a week for my bullion to be shipped, wait another week for a check to arrive, and wait a third week for the check to clear my bank. So, I had to use a new bullion dealer that I had not used before who was able to wire funds on the day I delivered the bullion. I drove a hard bargain on the price--I talked up the price 3 times! Yet I still received a mere $7.48/oz. on Friday at 3PM pacific time for my 100 oz. bars, even though the price of bullion closed at $7.59 on Friday afternoon. I thought I would at least receive the spot price! The dealer's excuse was that he only received 4 cents on the deal, as he had to "lock" in the price that same day--with a larger dealer--one that I know--but is slower in making pay! It's funny. This dealer is a well-known bullion advocate, yet was "afraid" to hold bullion! Thus, he was motivated by fear. And yet, there is a world of silver buyers, who buy only paper, the futures contracts or options, who buy at spot or higher in the futures, and who buy not physical, to whom I could not sell my silver, because they are motivated by greed!! Both greed and fear operating at once! I wished I could have sold my silver to my readers, but the speed at which I needed the funds prevented such. I wish I could have given this bullion dealer free advertising regarding the silver I sold him, to sell it to you, my readers, at spot, or at 5 cents over spot or something, but he re-sold the silver within hours! Last week, I presented my case for why I expect silver to rise in value by about 300 times or more by the time the world returns to using silver and gold as money, and the fraud of paper dollars is destroyed. For the new readers, my argument was as follows: Here's the reasoning in a nutshell: Paper money is fraud. All frauds fail. All paper money has failed. Silver, when it was plentiful, and used as money, was valued as a silver dime for a day's wage. Today, given that silver is scarce (consumed by industrial use), and the supply and demand fundamentals are what they are: 900 mil oz. consumed annually, 600 mil oz. produced annually, then when paper money fails completely as it must, then silver will rise higher in value than the historic value. Today, a day's wage is about $150/day. Today, that will buy silver at 5.4 times face value. $150 / 5.4 - 27.77 face value of silver dimes. That's 278 silver dimes for a day's wage today!!! That proves silver is undervalued by a factor of 278 OR MORE!!! I received only one intellectual rebuttal to my argument, which follows in the next 7 paragraphs: Jason, You have made the provocative claim that silver is undervalued by a factor of "at least" 278, because "silver, when it was plentiful, was a silver dime for a day's wage." You claim that this is "CONSERVATIVE, and RATIONAL, and IRREFUTABLE." You implore Jim Sinclair to "give a rational response!" I don't know whether he will, but I will. When labor was compensated at a silver dime for each day, that was because a laborer at that time, working all day, might come up with enough silver to make one dime. Standard mining tools were a pickaxe, a shovel, and a shotgun (so that you could keep what you found). Compare that to the sophisticated equipment and technology used today, starting with 55-ton trucks. A mine producing a million ounces of gold each year, plus byproducts, might employ a couple of hundred people. Each of those laborers is producing about $10,000 of minerals each day. How could they possibly be compensated by a dime? It is true that the Government's printing press has created many, many dollars since a silver dime was worth a dime. It is also true, however, that advances in technology, productivity and organization have radically reduced the amount of labor needed dig a dime's worth of silver out of the ground. Therefore, in "real" terms like the price of a day's labor, the price of silver has dropped through the floor -- as has the price of every other commodity, including oil. Today, your laborer working for $150 a day makes enough to buy three barrels of oil. When he was making a silver dime, could he have bought three barrels of oil with that dime? No. Over the long term, with competition, the price of anything is what it costs to make it. For instance, the price of gold is around $425 an ounce now because it costs "swing" producers in South Africa, like Durban Deep, around $425 an ounce (in rand) to pull it out of the ground. The same thing is true of silver. If gold goes to $1000 an ounce, there will be a ***flood*** of higher production from existing and new mines three or four years later, which will push the price back down to marginal cost. (Just as has happened with oil several times since the embargo.) The only way that gold can go to $1000 an ounce, and stay there, is if the real cost of getting gold out of the ground goes to $1000 an ounce, and stays there. We're nowhere close to that. Temporary imbalances in supply and demand can drive prices higher or lower for a couple of years, but that's it. The only way that silver is going to $3000 an ounce is if dollars become worth less than toilet paper. That kind of quick destruction of a currency has happened basically once -- in Weimar Germany. There is no reason to think that it will happen here and now. Even the obliteration of the Argentine economy in 2002 led to only a four-fold increase in the local price of silver, in peso terms. So -- silver is not undervalued by a factor of 278. It costs no more than $7 to pull an ounce of silver from the ground. If you look at actual production costs for the producers that you cover, you will have to agree. Unless their costs increase by a factor of 278, neither will the price of silver. Your company coverage is very thorough, and often insightful. Your model of silver prices is just wrong. My rebuttal: The center of this man's argument is the following: "Over the long term, with competition, the price of anything is what it costs to make it." And that is absolutely an untrue assumption. The price of everything must EXCEED the cost to make it, otherwise it will NOT be produced. The excess is the profit incentive, which, if it did not exist, there would be no production. This man's assumption is the assumption of a pure communistic state, where nobody made any profit from anything, which is utterly absurd! Furthermore, why does this man not apply his assumption to the production of paper money??? If the man were consistent with his argument, then paper money must also return to its cost of production, which is 3 cents per piece of paper!!! And this would have an enormous impact on silver prices--as silver would be demanded as money! Also, it is ridiculous to suggest that there should be no profits from mining gold and silver, especially given the numerous expenses and risks inherent to the industry! In fact, if history is any guide, and it surely is a guide, then gold and silver mining ought to be among the most profitable of all industries that exist, since they are in the business of producing money, or "making money", that must compensate for costly and risky exploration, drilling, feasibility studies, tunneling, mining, milling, refining, minting, and so on. History shows that silver mining should be among the most profitable industry known to mankind, as the following quote shows: As the New York Times, January 11, 1859, page 2 said--- "It is well known that the most colossal fortunes the world ever saw have been based on silver mines..." --quote found by Charles Savoie Furthermore, it is ridiculous to suggest that there should be no profits for mining silver given the fact that the profits of silver mining vary so wildly! For example, when silver is produced as a by-product of profitable copper mining, then the cost to produce the silver is ZERO! Does that mean silver should be valued at zero? Of course not! If only 10 million ounces of silver are produced at a cost of zero each year, and if society demands 900 million ounces of silver each year for industry, then the price will far exceed zero value! That should be self-evident! I have excess trees on my property. I could cut one down for free. But does this mean that all forms of wood in the entire world should be free, or close to the cost of my production costs? The notion is utterly preposterous. Therefore, the value of silver is dependent upon supply and demand, like every other commodity. Today, monetary demand and investment demand are near zero, despite the incredibly favorable supply and demand fundamentals--that very few market participants seem to be aware of. Thus, when investor demand returns to the silver market, as it must, and when monetary demand returns, as it must, then the price will rise, in proportion to that demand. The man also assumes that mankind's progress which has created increased production capacity should drive down only the price of silver, and not also every other commodity. In actual fact, and according to history, under a gold and silver standard, gold and silver will buy more things and be valued even more as societal production capacity increases! If man can produce 10 times as much silver through technological advances in productive capacity, and if he can also produce ten times as much oil, textiles, cars, computers, and so on--then that will keep the value of silver the same! History has shown that the amount of gold in the world has remained remarkably constant at 7/10ths of an ounce of gold, per person. New gold production is about 2500 tonnes per year, which is about a 2% increase, given the 135,000 tonnes of gold that exists, and population growth is about the same, 2% per year! In fact, mankind's advances in productive capacity have masked the terrible effects of the twin confiscations of inflation and taxation that come with paper money. Modern man is better off today, even with the evil of paper money. Therefore, imagine how much more mankind would have prospered, and will prosper, if not afflicted by these thefts! On another topic, did you know that if you buy a vehicle or car that weighs over 6000 pounds, you can deduct the entire cost from your taxes, if it is used "by the business, for business reasons"??? I just learned that this weekend, and it astounded me. I remember a Fed governor announcing that we should all just go out and buy an SUV and the economy would all be ok... but this is ridiculous! Did you also know that this tax incentive has existed for the past five years??? Unreal! By January 1, 2005, the tax exemption drops to $30,000! Better buy that Hummer or Suburban soon! This is an indirect subsidy of Ford and GM! Did you know that the auto makers make the most money on their largest and most expensive cars like SUVs? Did you know that Ford has $180 billion of debt? Did you know that GM has $280 billion of debt? Think about it. Without this tax subsidy, Ford and GM may have already gone bankrupt! If that happened, it would crush the bond market, as $280 billion and/or $180 billion worth of bonds would be defaulted on, and become nearly worthless. And yet, the U.S. government now has $500 billion of bonds to sell, given the annual budget deficit, and yet, the last two bond auctions in the last 3-4 months showed that they could not even sell $10 billion in bonds!!! Thus, a default or bankruptcy by GM or Ford could cause a cascade of declining bond values, and higher interest rates. It is unbelievable the extent to which the government has gone to prop up this economy. I believe Ford and GM are doomed, even with this economic subsidy. I don't think these auto makers can avoid bankruptcy even if the government paid them to make cars! For if that happened, surely their workers would go on strike to be paid some of the subsidy!!! My point is that the government, through the tax incentive for buying SUVs, is propping up the bond market by helping to delay the bankruptcy of Ford and GM! How desperate must they be?! I honestly believe that a $30,000 SUV will be a horrible investment. Within 10 years or less, China will probably be able to produce and sell comparable or better cars for the equivalent of $5000 or less! Let's think about China for a moment. Workers in China recieve about 1/100th of our wage. There is no way we can compete. And yet, the dollar is about 80 times overvalued, if you divide M3, which is the money in the banks, by the official U.S. gold hoard. $9.3 trillion / 261 million oz. gold = $35,632/oz. That, divided by $439/oz. = 81. Thus, the dollar is 81 times overvalued. That number used to be about 100 times overvalued when the gold price was about $250-300/oz. Although we cannot compete with China at current currency values, it is not the fault of free trade. Free trade is the truth that is poking holes in, and exposing the fraud of, the overvalued dollar. If Americans were paid in gold and silver and if silver were valued about 300 times more than it is, then we would be working for lower wages than the Chinese, and we would be quite competitive. Honest money, and honest weights and measures, is the only economic salvation. In the meantime, however, Americans greatly benefit from the trade situation. It could not be better than if we conquered the Chinese in war, and made them all our slaves. For if the Chinese were our slaves, they would surely receive much more in wages than they do today (at least $5.00 per hour instead of $.50/day), and the cost of an occupation would surely exceed the trade advantage that we now have. Yes, we have the trade advantage, not them. We send them worthless paper that costs us nearly nothing to print, and they send us goods that we buy with that paper. It's quite a scam we have going. If you want a good deal, then buy silver, or buy "made in China". Both are good deals, and neither will last. It is said that the Chinese are a proud people, and that they would rather die than be shamed. Perhaps we gold and silver advocates should shame the Chinese into buying gold and silver? How stupid can the Chinese be to both send us goods, and ship us silver as well? It's like sending us goods and sending us money at the same time! Ridiculous and stupid in the extreme! Note, I'm encouraging both the Chinese, and us, to buy gold and silver, and to use honest weights and measures, as doing so will be better for both of our nations! I read that the new saying among the Chinese is that "To get rich is glorious". Well, sending your trade partner (the U.S.) both goods and money (silver) is no way to get rich. Idiots. China, I read, holds over $300 billion in U.S. bonds. Idiots. At $440/oz. for gold, that's $300,000,000,000/$440/oz. = 682 million ounces / 32152 oz/tonne = 21,206 tonnes. Chinese idiots! The annual gold demand is a mere 4000 to 5000 tonnes! By the time they try to convert their worthless paper money into real gold, they will lose perhaps 75% of the value of their paper money, as gold prices rise by more than a factor of 4 to well over $2000/oz.! Speaking of idiots, the real idiots are the American people, who still yet do not recognize the enormous value of scarce gold and even more scarce silver bullion. Also idiots are most economists and gold market commentators. They speak as if they FEAR that the Chinese will sell their bonds for gold. No way! I would applaud it! Please, I beg the Chinese, please sell your U.S. bonds! Save us from our tyranical and evil government that is foisting these evil and fraudulent dollars upon both us and you. Please refuse to be our slaves and please refuse to work for less than nothing as you continue to send us both real goods and real silver. Shame on China. Shame on U.S. bondholders. This explains why the Chinese have allowed their people to own gold. Perhaps they recognize that it is impossible to trade their $300 billion in bonds for gold, and perhaps they recognize that it will be best to let their people buy gold on the world markets. Imagine the benefits to you, who recognize the truth. If you invest in silver now, and it rises in value by 10 times in the next few years, and if the things you buy are increasingly made in China, you will soon be living like a King. I pity the fools who sell their silver stocks to lock in their gains to buy a $30,000 SUV today. It's like throwing money away. Put $30,000 into silver or silver stocks, and watch it grow to $300,000, and then buy a Chinese SUV for $5000 years from now, or buy 60 of them, and open your own car dealership! Confiscation? Confiscate all the silver you can at these prices, and confiscate cheap Chinese goods while you are at it. The real irony is that banks were created to get you to deposit your gold and silver with them. Today, the banks can only stay in business by selling gold and silver at cheap prices to prop up their fraudulent and failing currencies. Recognize these opportunities as "once in history" opportunities, and take advantage of them in any way you can. Two last examples of the potential and historical value of silver bullion: The book of Judges tells stories of the Israelites during a 400 year time period, after they crossed the Red Sea and escaped from the Egyptians, but before the time of the kings such as David and Solomon. In Judges 9:4, we see that Abimilech used 70 shekels of silver to hire men to kill his 70 brothers, to make sure he would be king instead of any of them. A shekel is about 1/2 of an ounce of silver. This happened after the righteous judge, Gideon, died, because Abimilech and his 70 brothers were all the sons of Gideon. Thus, under righteous rule, fraud must have ended, and the value of silver must have been recognized. Imagine, by the time the value of silver is recognized, if you could hire a hit-man for a mere 1/2 an ounce of silver! That should tell you something of the value of silver. Later, in Judges 17:10, we see that a priest, a Levite (a Jewish priest) was hired for 10 shekels (about 5 ounces) of silver per year, (plus food and one suit) to be the equivalent of a hired, live-in servant. Imagine telling a highly skilled lawyer today, "Live with me, and be my personal advisor, always at my beck and call for any legal advice I may need, and I'll give you all the food you can eat, one suit, plus 5 ounces of silver per year." That's the potential value of silver. People have asked me, "Is there a book on silver I could buy?" YES, there is! Franklin Sanders (The Moneychanger) has written a book on silver and here's his ad: WHY SILVER WILL OUTPERFORM GOLD 400% & THE PROFESSIONAL TRADING SECRETS THAT WILL MAKE THE MOST OF YOUR SILVER & GOLD INVESTMENTS It is finally ready, the silver trading manual I've been working on so long. What does it cover? * Arbitrage, the secret to greater profits. * Paper silver or physical? * Should I trade, or buy and hold? * Why silver will outperform gold. * Raging silver bulls. * Refuting the croakers. * Red herrings across silver's tracks. * Silver to silver arbitrage. * Silver coins or bars? * Bimetallism -- not so stupid after all. * Trading the gold/silver ratio, how and why. I've tried to explain every opportunity you have to trade silver for silver and silver for gold while you are holding metals through a bull market. My goal is to double whatever profits you might make by simply buying and holding, although obviously I can't guarantee that. I've kept it as simple as possible, and have included twenty-nine (29) charts. At retail, this manual is priced at $199, but ____________ subscribers can order it through December 31, 2004 for just $49 plus $8.95 postage and shipping ($15 overseas), a $161 discount. You can send us a check and order by mail from Post Office Box 178, Westpoint, Tennessee 38486, or you can call toll free (888) 218-9226 and charge it to a Visa or Mastercard. You can talk to anyone who answers the phone. Just say you want 'Why Silver Will Outperform Gold 400%." The Moneychanger P.O. Box 178 Westpoint, Tennessee 38486 www.the-moneychanger.com moneychanger@compuserve.com (888) 218-9226; (931) 766-6066 Fax (931) 766-1128 Sincerely, Jason Hommel -- Posted 14 April, 2006 ////// Pilate Error By: Bill Bonner & Chuck Butler, The Daily Reckoning London, England Friday, April 14, 2006 --------------------- *** One of life's few certainties...the numbers are getting redder all the time... *** Money leaves home a servant...and comes back a master...debt can't rise forever... *** Home sales are hitting the skids...welcome to housing hell...and more! --- Advertisement --- The End of America’s "Oil Addiction" Begins Here This Company’s Oil-Saving Product Could Help You Make 50% or More One product is reshaping America’s energy policy - reducing oil usage by 68% and cutting the transportation industry’s operating costs by $4 billion a year. Now a recent Executive Order requires every government vehicle to be outfitted with it. We’ve uncovered the company at the heart of this revolution - and you have a limited time to get in while it’s still cheap. This could be BIG. Don’t wait… discover all the details here. http://www1.youreletters.com/t/353155/4459110/786789/0/ --------------------- America is going broke...in style. We say that not to alarm you. It's just one of those certainties in life that you should point out to your children, such as "the dollar will be worthless" and "we're all gonna die." There's not even any great shame in it. Going bust is what every great empire does sooner or later. Besides, it may not happen for another quarter of a century - or maybe sooner. Last month, ominously, the U.S. government registered a record deficit of $85.47 billion. That is, for every dollar the feds sucked in, they managed to burn through a $1.50. But, why run up such hefty losses now? After all, the nation revels in "full employment," does it not? The economy is going like gangbusters, is it not? And, housing and stocks have soared to near all-time highs. If the government can't break even now, when will it ever break even? If you have to ask the question, you must be out of step with the times. Every policy wonk, number abuser, and budgetary contortionist in Washington knows the U.S. government will never run a genuine un-manipulated surplus. Every Beltway buffoon in a suit is counting on it. Every parasitic politician knows that the positive numbers touted during the Clinton years were a ripe fraud, achieved only by pretending that Social Security was not a government program. Now, even that larcenous legerdemain won't change the ink color; the numbers are red from top to bottom, and getting redder all the time. Among the seven wonders of the modern world is that lenders and merchants world over are still not only willing to accept U.S. paper, but they are positively craving it. Last year, China alone racked up more than $200 billion in its trade surplus with the United States, and what did they do with all that money? "China is on a buying spree in U.S.," says a headline in the Houston Chronicle. "See," we can almost hear gorgeous George Gilder whisper in our ear, "the money comes back to us. What's the worry?" No worry...just an observation. The money leaves home a servant; it comes back a master. The dollars are spent on consumer items. In other words, Americans use paper to buy junk while the Chinese hold on to it as capital and use it to pocket U.S. debt, U.S. factories, and U.S. assets. Americans used to be able to say what they wanted to the Chinese. Now they must say, "Yes sir." And it wouldn't hurt to learn to kowtow; the Chinese like that sort of thing. Another observation: the dollar is losing ground against the things that aren't junk. The price of oil edged up to nearly $70, yesterday. A headline in the Financial Times tells us, "Gold could reach $850." That is the top price the metal reached in the last bull market, when Jimmy Carter was still president. Well, duh. More news from our currency counselor... -------------- Chuck Butler, reporting from the EverBank trading desk in St. Louis: "Check this out: if you calculated the trade deficit on a 'daily deficit,' (or Double D!) you will find that January's 'daily deficit' was $2.2129 billion per day and the 'daily deficit' for February was $2.3464 billion." For the rest of this story, and for more insights into today's markets, see The Daily Pfenning http://www.dailyreckoning.com/Writers/Butler/Articles/0411406.html -------------- Bill Bonner, back in London with more views... *** The office in London is as quiet as a Quaker's grave. Today is a holiday in England. Outside, the streets are almost empty...it is as if they had been abandoned to the rain. We are still here...still keeping a close watch on housing, reading the news, chuckling to ourselves, and wondering how it will all turn out. "American borrowers' rush into debt has been accelerating," writes colleague James Ferguson in this week's MoneyWeek. "It took more than 30 years to raise the debt-to-income ration 30 percentage points, from 40% to 70%. It then took only 15 years to raise it the next 30 percentage points to 100%. But is has taken just five years since the end of 2000 to jump the most recent 30 percentage points, to a new all-time high of 129%. This has surely been one of the most remarkable debt-financed spending sprees in the world, ever." This debt, says Ferguson, is largely concentrated on a single sector - and a single consumer asset: housing. It is debt that has made house prices rise - not new families or higher incomes. But, debt cannot rise forever. Ferguson thinks he sees the end of it: "Now there are signs of a concerted, possibly even coordinated, monetary tightening by the world's central banks..." whose consequences are already apparent. "The data of new family houses in the U.S. in February was shocking. U.S. new homes sales fell 3.4%. In the economically vital Western U.S., new home sales in February plummeted 29% compared with the same period last year. "According to David Rosenberg...in the last 309 years there have been eight such double-digit drops in new home sales. Six times, these drops signaled recession the next year and one drop led to GDP growth halving from 4% to 2%." And here, from the Contra Costa Times, comes more bad news: "The housing market in California has fallen into a visible slump, and the downturn could erode economic expansion in fast-growing regions such as the East Bay, economists warned Wednesday. "Existing home sales have skidded, houses now languish on the market for longer periods, and the rate of home building has slowed, according to the report issued by Wells Fargo Bank." Richard Benson offers further thoughts on why housing is about to go to Hell: "Consumer debt is up to $2 trillion (not including $440 billion of revolving home equity loans and $600 billion of second mortgages). Not only do consumers owe a whopping $9 trillion in mortgage debt, but home equity extraction has reached $600 billion annually. Homeowners have basically received, and spent, in excess of $2 trillion that they never earned (Just take a look at the increase in total mortgage debt in the Federal Reserve's Flow of Funds Data since 2000). "Home prices are under horrible pressure. There are probably a few million property owners, including speculators, flippers, and second-home buyers, who are in way over their heads. We've all heard stories about second-home buyers who really couldn't afford the luxury and high expense of a second-home priced at $200,000, yet they purchased one for $250,000 and rationalized its affordability because 'the value would only go up to $300,000 or more.' Besides, they naively believed 'it could always be sold quickly in a bidding war for a profit.' In resort areas - given the number of days people actually use their second home - staying at the Ritz for $500 a night could be a much better deal. Do the math; it's not pretty. "So, welcome to Housing Hell. Now that buyers are willing to wait one or more years before buying, there are more sellers than buyers. Interest rates, in the meantime, continue going up. Let's also not forget the Existential Equity Extraction. With $700 billion of sub-prime mortgages written (of which 10 percent could default), $2 trillion of ARMs set to reset, and mortgage delinquencies near five percent, equity to extract is vanishing. "As the refinancing game ends and borrowing costs increase, a significant rise in foreclosures could put a few million more homes back on the already-saturated market! When these foreclosures come, many of the homes for sale will have no equity and the seller will want a quick sale. Buyers will still be choosey, unless there is a real deal and the prices are marked down big time. The entire structure of housing prices will move lower with these forced sales. With mortgage foreclosures mounting up, it could get unbearably hot in Housing Hell. "Our estimate is it will take about six months for sellers - particularly speculators who never intended to live in their properties but whose sole intention was to "flip" them for a profit - to realize they are toast. "Based on the logic of history, those who rent for a few years, rather than buy, will be rewarded the most (even though rents should increase with general inflation). Yes, the day will come again when it will, indeed, cost less to buy than it does to rent. When that day comes, it will signify the return, once again, of Housing Heaven." Automatic Investments http://www1.youreletters.com/t/353155/4459110/784619/0/ *** There's a property boom in India, too. "Real estate prices are soaring," begins a story in Business Today, of New Delhi. "Consumers are stretching themselves to buy the second and third apartment, and never projects are popping up every day. Everyone agrees the price increases are unsustainable. So when is the crash coming?" Around Delhi, prices have shot up 200% in the last 3 years. We'll report prices to you, as soon as we figure out what a Crore is. --- Advertisement --- In November, a tiny $0.38 company from California joined the ranks of IBM, Apple, Sony and Toyota by winning the 2005 World Technology Award. Its stock hit $1.50 in February, over $2.00 in March, and is about to soar even higher when its products first hit the market next month. But there's still a chance for you to capitalize on this rare opportunity before the general public even knows about it - and rack up over 1,000% in the next three months. http://www1.youreletters.com/t/353155/4459110/786790/0/ --------------------- The Daily Reckoning PRESENTS: "Past performance is no guide to future performance," is the idiom heard throughout our nation...but how true is that? Don't we learn from our mistakes of the past? Apparently not... PILATE ERROR by Bill Bonner "I have but one lamp by which my feet are guided, and that is the lamp of experience. I know no way of judging of the future but by the past." - Edward Gibbon As a member of parliament, Gibbon was an ignominious failure, but as a historian of the Roman Empire, he told the story so vividly that generations of readers have taken it for gospel, even though it was full of the author's prejudices, half-truths, and misapprehensions. What history isn't? Today, our office is silent because of something that happened under imperial Rome. A Jew was brought before the Roman governor of Judaea, accused of disturbing the peace. Upon looking into the matter, the governor concluded that the accusers erred. The accused had made an admission in public: "To this end was I born, and for this cause came I into the world, that I should bear witness unto the world." But, so what? The Roman, Pontius Pilate, saw nothing in what Jesus was saying that posed a threat to the empire, or even to Roman rule in Judea. "I find no fault in him at all," he concluded. That wasn't good enough for the local authorities. Jesus may have been no menace to Rome, but he was a troublemaker in the Levant. The elders wanted to get rid of him. The mob wanted his blood. "Crucify him. Crucify him," they yelled. So be it, said Pilate, but the blood won't be on my hands. "Take ye him and crucify him, for I find no fault in him." This history has been retold every year for the last two millennia. Like any history, we have no way of knowing what part of it is humbug and what part is true, but like the Jesting Pilate, whom Francis Bacon invented, when the question is posed, we don't wait for an answer. Whether history or not, the story itself is a masterpiece. We pay attention to it as we pay attention to all masterpieces - to all art, tradition, and culture. We pay attention to everything that comes to us bearing the solemn freight of history. We fear that if we do not, we might miss learning something... even if we are not quite sure what. But the financial authorities in England and America have a different idea. "Past performance is no guide to future performance," they say. You can argue about the meaning, relevance or accuracy of this pronouncement. On both sides of the Atlantic, such a statement is required by law, usually affixed to an ad for a mutual fund, partnership, or - in England - even an investment analysis. What you can't do is argue with those who pronounce it - the financial regulators themselves. The regulators won't give an inch; the past is not indicative of the future, they say, no matter what. This Good Friday, we pose the question to ourselves. Is history indeed useful? Does it bear on the present? We want to know. Or, is it simply a legal dead letter that says nothing about future performance? You, on the other hand, may want to know if this perambulation is worth reading. Where does it lead? We will tell you right now - it tells us that the regulators are Pharisees. Of course, the bureaucrats, regulators, world-improvers and Pilates think they are doing the public a favor. They are delivering us from evil. The SEC, for example, believes investors need reminding that the future is a chancy and perfidious thing. Even though a mutual fund registered 20 solid years of above-market gains, this doesn't mean it will do it in the 21st year. Maybe it just got lucky. It is also true that history can be deceptive, misleading and coy. So can life, but the average investor - like the average voter - is much more likely to be deceived by too little history than by too much. What does history show? It shows that things don't stand still. They go up and down...back and forth. What goes around, comes around. There are short cycles and long ones - circadian and imperial. Rome rose for 500 and fell for 500. As near as we can guess, property prices rose in central Baltimore from its founding in the 18th century until 1929. Then, they went down at least until the end of the century. They seem to be rising now...we won't know until later if this is a genuine interruption of the trend. Farmland in Western Kansas experienced a real bubble in the 1880s. One hundred and twenty-five years later, it is still not as expensive as it was then But, who looks that far back? Major cycles in the stock market seem to last about 30 to 40 years, peak to peak or trough to trough. Stocks hit a high point in 1929 and then collapsed - bouncing around for a while but not recovering until the 1950s, in nominal terms. Stocks hit a new high in the late '60s, then it was down for another spell, until 1975 or 1982, depending on how you look at it, until a new bull market took over - bringing prices to another cyclical high in 2000...34 years after the last one. If history is not helpful, then we are completely lost. The only events we have any knowledge of are those in the past. Those in the future are as unfamiliar, unknowable and unsavory to us as local cheese. "Those who do not study history are doomed to repeat it," say earnest history teachers and terminal optimists. But, it's not that easy. Studying history is a little like learning a foreign language; until you really get the hang of it, there are likely to be some misunderstandings. They come, as you might expect, in the compound tenses and subtle, subjunctive moods. The casual reader understands the major verbs, but misses the veiled meaning. He is like a Hudson River hustler trying to do business in Hyderabad - or a man trying to reason with his wife. The words will be deceptively familiar; but he'll miss the real sense of the conversation completely. On the other hand, cut off from history, the lumpeninvestor is encouraged to not even try. He's supposed to believe that every new day is as detached from the last as Mars is from Jupiter. He is not supposed to notice that they both revolve around the same star, and repeat the same cycles over and over until the crack of doom. Taking the regulators at their word, he sees the planets in heaven and has no reason to think they will ever be anywhere other than where they are right now. The lumpeninvestor looks at the prices on Wall Street, or those of houses in his neighborhood. Those too must be permanent, he reckons. He has no frame of reference, no theory to tell him otherwise, and no way to make a reasonable guess about where they will be tomorrow. He is as misled as a voter, but he's not the complete moron the authorities make him out to be. Warning an investor not to trust history is like a warning sailor not to go near brothels when he is on shore leave. He'll probably end up there anyway. Today, the typical stock market investor probably feels as old as Metushélach. He entered the market in the mid-90s. He thinks he's seen it all. The market went up and then went down, didn't it? It should be ready to go up again. He can't help but notice that stock prices have gone up in the last five years, but he's discouraged by the authorities from looking any further. It's not worth the trouble, they tell him. Past performance is no indication of future performance. The past doesn't count. Forget it. The little bit of recent history he picks up without trying, cheats him. It is as though he had noticed Mars zipping through space, without realizing it is merely retracing its steps from millions of years ago. He hasn't enough history. He has never heard of Copernicus. He thinks Pontius Pilate led a peasant revolt in Mexico. And so, he draws conclusions that are both erroneous and preposterous. Whatever he sees, he can only imagine that nothing like it has ever happened before. History has come to a dead stop. This really is a New Era on Wall Street. He sees Mars heading out into space. And, he imagines himself going where no man has ever gone before...when, actually, he never left home. Bill Bonner The Daily Reckoning Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons). In Bonner and Wiggin's follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount - just click on the link below: "Now Perhaps Someone Will Listen!" http://dailyreckoning.com/EmpireDebt.html -- Posted Friday, 14 April 2006 ////// http://bigpicture.typepad.com/comments/ Do We Have Inflation? in Data Analysis | Federal Reserve | Inflation Barron's jumps on the "We Have Inflation" bandwagon this week, with two editorials acknowledging what Big Picture readers have long known: Inflation, undermeasured by the BLS, is robust and widespread throughout the economy. Mike Santoli (subbing for Alan Abelson) addresses the subject in the front of the weekly: "THE COST OF AMERICA'S PASTIMES KEEPS RISING. This is not just a reference to the persistent escalation of prices for Major League Baseball tickets this season, which are up 5.4% on average from 2005, a rate of increase well ahead of that reflected in government-sanctioned inflation data. The trend in baseball tickets, incidentally, follows a broader pattern in today's economy. Namely, the things that we need -- gasoline, coal, health insurance, tickets for the Red Sox and Yankees -- are high and getting more expensive, while things we could easily do without -- a third flat-screen TV, another Chevy Tahoe to replace the one GM gave us in '04, fast-food burgers, box seats to a Royals game -- are relatively cheap or dropping in price. No, other pastimes are feeling the cost squeeze as well. A Nascar race car gets around four to six miles per gallon, about the same as the Class A RVs that so many race fans pilot to follow the circuit around the country all summer. With gasoline prices at retail up 18% from a year earlier and climbing toward the $3-a-gallon level reached last fall, this is becoming an increasingly pricey hobby. Note, not coincidentally, that nationwide registrations of motor homes fell 26% in January from a year earlier. Perhaps it's only a matter of time before the rocketing prices of aluminum (up 40% since September to an 18-year high) and titanium (which quadrupled in price last year) make it much more expensive for weekend warriors on baseball fields and golf courses to buy a new weapon to swing. Arguably the most broadly pursued pastime in the country that's becoming pricier is borrowing money, specifically borrowing to buy houses. With the bearish turn in the Treasury market driving the 10-year note yield above 5% last week, near a four-year high, Freddie Mac's benchmark 30-year fixed-mortgage rate rose to just below 6.5%." (emphasis added) Weighing in from the paper's end pages: Thomas Donlan (Do We Have Inflation?), who admonishes investors to be "keenly aware of inflation, and of the various methods for calculating it." That means understanding the oddities and permutations that go into the perenial under-measurement of inflation: "The mathematicians at the federal Bureau of Labor Statistics seemed to confirm the homeowners' intuition: The index most used to measure the rise of consumer prices (Consumer Price Index for All Urban Consumers) was up 3.4% in 2005, and the price of shelter, whether rented or incorporated in the price of a home, was up 2.6%. The appreciation of homes as investment assets was over 20% in some places. But investment isn't consumption, and so investment assets aren't recognized in the CPI. The statisticians confirmed that homeowners were wealthier, but only by definition. Even within the realm of consumer goods and services, prices often respond to supply and demand more strongly than to the price of money. Gasoline was another hot topic last year. The price was up 50% between September 2004 and September 2005. Since gasoline is a commodity that almost every American buys every week at a price that's clearly advertised in front of every gas station, many Americans use it as a simple proxy for the cost of living. Such people had the feeling last year that inflation was rising fast." We've discussed all too many times that CPI fails to adequately capture the perniciousness of rising prices as they are experienced by consumer and corporations alike. Donlan observes "Like it or not, we are stuck with measuring inflation by measuring prices. But we must understand that the measurements are made with a rubber yardstick." Ironic. Just as inflation -- and the absurdity of the CPI -- is finally get the ink it deserves, the acceleration in inflation has begun cooling off. Oh, we still have inflation, only its not getting worse at a faster clip anymore. > Sources: Cheapening Luxuries MICHAEL SANTOLI Barron's, April 17, 2006 http://online.barrons.com/article/SB114506023545326674.html Do We Have Inflation? THOMAS G. DONLAN Barron's, April 17, 2006 http://online.barrons.com/article/SB114505995362126644.html Saturday, April 15, 2006 | 07:40 AM | Permalink | Comments (0) | TrackBack (0) Are future retirees overly optimistic? in Economy Yes. That's the conclusion of a study by the Employee Benefit Research Institute. EBRI determined that more than half of workers saving for retirement have less than $50,000 put away; Other employees are counting on employer-provided benefits in retirement that are increasingly unavailable. Here's the WSJ's overview: "Despite recent moves by large companies to freeze pensions and chip away at retiree-health benefits, Americans remain confident -- if dangerously naïve -- about their retirement prospects, according to new research. Many workers are counting on traditional pension plans to pay their bills in retirement, even though such plans are fast disappearing. Only 40% of working couples currently are covered by pension plans, but nearly two-thirds of surveyed workers -- 61% -- expect to get income from such a plan in retirement, according to the Retirement Confidence Survey, scheduled for release today by the Employee Benefit Research Institute, a Washington nonprofit, and others. The responses in the survey, conducted annually for the past 16 years, reflect few worries about the spreading curtailment of pension plans. Twenty-four percent of the survey's participants said that they are very confident that they will have enough money to live comfortably in retirement -- virtually the same number as last year -- and 44% of those surveyed said they are somewhat confident about their financial prospects in later life, an increase of four percentage points from last year." See table below for more details . . . Source: Workers' Views On Retirement May Be Too Rosy KELLY GREENE WSJ, April 4, 2006; Page D2 http://online.wsj.com/article/SB114411194874516024.html Continue reading "Are future retirees overly optimistic?" Friday, April 14, 2006 | 08:30 AM | ////// More Britons have DNA held by police than rest of world By Nigel Morris, Home Affairs Correspondent Published: 14 April 2006 Police in Britain hold vastly more DNA samples than any other country in the Western world, and many are from people who have never committed a crime. More than three million samples have been added to the national DNA database - more than 5 per cent of the population. With new figures showing just 1 per cent of Americans have their genetic information on record, and an average of 0.3 per cent in other European Union countries, ministers were last night accused of attempting to build a national DNA database by stealth. The last Tory government established the database, the first in the world, when Michael Howard was home secretary but the principle has been enthusiastically pursued by Labour. Three years ago, police were given the right to obtain and retain DNA samples from anyone arrested, regardless of whether they are eventually convicted. The genetic information remains on file for a person's life and is almost impossible to remove. The legislation received very little publicity at the time because it was announced on the second day of the Iraq war. Since then, police have doubled the size of the database to 3.1 million. The database is predicted to grow by at least another million by 2008. Norman Baker, the Liberal Democrat MP for Lewes, who obtained the figures, said: "This is a constitutional outrage - the Government seems to be seeking to create a national DNA database by stealth as a way of catching criminals. If they want to do that, they should come clean and say that is the case. "This, once again, demonstrates they are illiberal and take a very cavalier approach to civil liberties." The database is thought to include the majority of the criminal population in Britain. But answers to Parliamentary questions show that nearly 125,000 people on the database have neither been charged nor cautioned for any offence. Questions about discrimination were also raised yesterday after figures showed that nearly a quarter of those neither charged or convicted were from an ethnic minority. Overall, 24 per cent of people on the database are non-white, even though the black and Asian population of the UK as a whole is less than 8 per cent. Some estimates have even suggested that that more than a one-third of young black men have had samples taken. It has already emerged that the DNA profiles of about 24,000 children and young people aged 10 to 18 are stored on the database despite them never having been cautioned, charged or convicted of an offence. The Home Office argues that serious offences have been solved using the database, and says names will only be taken off in "exceptional circumstances". Philippa Jones, a Birmingham teacher accused of hitting a pupil with a ruler but never prosecuted, fought a long legal battle to have her DNA sample removed. GeneWatch UK, an independent genetic research group, last night called for ministers to order the destruction of DNA samples of innocent people. Helen Wallace, its deputy director, said: "Once this data is kept, it's really only one or two steps from being made available to a wide range of people." The biggest databases Population/Total(%)/Proportion United Kingdom 59.8m/3,130,429/5.23 Austria 8.1m/84,379/1.04 United States 298.4m/2,941,206/0.99 Switzerland 7.4m/69,019/0.94 Finland 5.2m/32,805/0.63 Estonia 1.5m/7,414/0.49 Germany 82.4m/366,249/0.44 Slovenia 2m/5,782/0.29 Hungary 10.2m/28,278/0.28 Canada 32.3m/75,138/0.23 Croatia 4.6m/10,744/0.23 France 59.3m/119,612/0.20 Norway 4.5m/6,745/0.15 Netherlands 16.1m/14,747/0.09 Belgium 10.4m/4,583/0.04 Sweden 9m/6,115/0.07 Denmark 5.5m/4,084/0.07 Spain 40.4m/2,656/0.01 Portugal 10.3m/0/0.00 Source: Home Office © 2006 Independent News and Media Limited /////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	15-Apr-06, 07:00 PM (GMT)
4. "repos up"
http://www.safehaven.com/article-4977.htm ////// http://www.safehaven.com/article-4978.htm //// http://bigpicture.typepad.com/comments/ Mortgages, Foreclosures & the Fed in Federal Reserve | Fixed Income | Inflation | Real Estate The WSJ discusses one of the nasty side effects on Mortgages and Real Estate of rising rates and slowing real estate: Delinquencies and foreclosures: "As home-price appreciation has tapered off and mortgage rates have risen, foreclosures have started to pick up, with the Midwest region hit hardest. The rate of foreclosure -- the process by which banks can ultimately take back the properties that secure mortgages -- is a key indicator that real-estate analysts and investors use as a signal of market distress. In the past several years, foreclosures across the U.S. have been hovering around historically low levels, as home prices have risen nearly 50% in five years. This appreciation enabled borrowers to sell their homes relatively easily to resolve mortgage difficulties. Now, a survey of the latest data confirms, that is starting to change, with an uptick across the U.S. in foreclosure rates and mortgage delinquencies (or late mortgage payments). But even the new higher rates of foreclosure and delinquencies are still low in historic terms. Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68% from the same month a year earlier, according to Irvine, Calif., online foreclosure-data service RealtyTrac. Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, reported that 3% of the most vulnerable loans -- those made to borrowers with less than a stellar credit history -- were 90 days delinquent in February. That is up from 2.84% in February 2005. Meanwhile, 90-day delinquencies for loans made to borrowers with better credit were up to 0.76% in February, from 0.67% a year earlier." (emphasis added) Getting the blame for the uptick in delinquencies is the "greater prevalence of riskier adjustable-rate and subprime mortgages, as well as higher interest rates and energy costs." Surprisingly, the Midwest is the region with highest rates of loan foreclosures and delinquencies: the big three are Indiana, Ohio and Michigan. One must suspect the fallout from GM is to blame in part. Then, there is the uptick in treasury yields. Higher rates are not a blessing in disguise --despite what you may have read by Charles "Whoopee-higher-rates-are-here-again" Biderman. Sources: Foreclosures Pick Up With Midwest Hardest Hit By DANIELLE REED April 14, 2006; Page A8 http://online.wsj.com/article/SB114497212609125668.html See also Mortgage-Bond Market Stays Strong DANIELLE REED WSJ, April 14, 2006; Page B5 http://online.wsj.com/article/SB114382261113913610.html As Markets Bet on Rate Increases, Fed Officials Seem Less Committed GREG IP April 14, 2006; Page A1 http://online.wsj.com/article/SB114494788008025280.html Saturday, April 15, 2006 | 11:25 AM | //////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	16-Apr-06, 06:20 AM (GMT)
5. "red bull turned 100k into 4 mill since 98 in russia index"
On 15 Apr 2006, at 15:47, Mike Burk , wrote: I expect the major indices to be lower on Friday April 21 than they were on Thursday April 13. d i run with that stance http://www.shortorlong.com/ From: Duncan Robertson ///// The decline and fall of Europe – and that includes Great Britain 16 April 2006 IN Decline and Fall of the Roman Empire, Edward Gibbon famously chronicled the slow and tragic collapse of a great civilisation. After Italy’s vote for paralysis last week and France’s abject surrender to striking students over a modest attempt at economic liberalisation, it must be merely a matter of time before Europe will require a new Gibbon to pen the story of its own gradual demise towards economic, military and cultural obscurity. Europe’s decline and fall is entirely of its own making. Deeply hostile attitudes to the market economy among both voters and governing elites, as well as defective political institutions that favour weak coalition governments easily frightened by street protesters, have destroyed Europe’s reform agenda. Together with Chancellor Angela Merkel’s continuing inability to push through serious reform in Germany (hardly surprising given that she leads a left-right Grand Coalition at loggerheads with itself), the renewed push by the European elites for the fundamentally flawed European Constitution and a dangerous return to protectionism and economic nationalism across the continent, these depressing developments only confirm what this newspaper has long argued: the core euro-zone powers will continue with their failing social-democratic policies, condemning their people to high unemployment, low levels of growth and relative economic, social, cultural and geopolitical decline. The euro zone’s new Achilles’ heel is Italy, the region’s worst-performing economy over the past five years. The Italian economy grew by a miserable 0.9% in 2004, 0.1% in 2005 and is expected to struggle to make 1.3% this year and 1% next year, according to Commerzbank. The budget deficit and the national debt are surging, threatening further downgrades to the country’s credit ratings and a major financial crisis a few years down the road which spells trouble for the euro. After a hostile court ruling on Friday, it seems this weekend that Silvio Berlusconi, Italy’s outgoing prime minister, has little chance of over-turning the official results of last week’s election, which gave former European Commission president Romano Prodi’s centre-left government a wafer-thin majority. Given the deep disagreements within Mr Prodi’s coalition, any government he is able to put together is unlikely to survive for more than a year. Italy is likely to be ungovernable for the foreseeable future, a tragedy after five wasted years under Mr Berlusconi, who talked the free market talk but failed to walk the reformist walk. The situation in France is barely better, even though its economy has performed less badly than Italy’s. Having last week capitulated to mass protests, the French government confirmed on Thursday that it had scrapped the ill-fated Contrat Première Embauche (CPE), which (in its original incarnation) would have allowed companies to fire young workers during a two-year period after they had been hired without incurring the costly penalties that are usual in France. It was a modest reform, intended to help tackle France’s shocking 23% youth unemployment by making employment of younger workers a less scary and expensive prospect for employers. But the measure was greeted with outrage by France’s middle-class students and has now been replaced by the traditional and failed French policy of the government providing financial incentives for employers to take on young workers. The result of the CPE fiasco is that France too is now paralysed, encumbered by a lame duck president, Jacques Chirac, and his discredited Prime Minister, Dominique de Villepin. Nicolas Sarkozy, the interior minister and France’s only hope for any kind of reform, has damaged his credibility by his naked opportunism in opposing the reform to undermine Mr de Villepin, a potential rival in next year’s presidential election. Although Mr Sarkozy claims to be the candidate for “rupture” and to support a Big Bang approach to liberalisation which would go hugely further than the ill-fated CPE, his behaviour has undermined the cause of reform and emboldened the Left. Mr Sarkozy’s biggest rival and the current front-runner in the opinion polls, Ségolène Royal, is a traditional socialist who would make matters even worse. Italy, Germany and France are divided straight down the middle between Left and Right, making radical reform difficult. In France, everybody expects the election results to be extraordinarily close; in Italy, the 49.8% to 49.7% split of the vote was astonishingly close; in Germany Mrs Merkel did barely better than Gerhard Schröder, her predecessor as Chancellor. But the even split of voters into Right and Left is not the fatal roadblock to reform. Far more important is the fact that a large majority everywhere opposes the sort of radical medicine required to rejuvenate their economies and societies. There is very little support in Europe’s major economies for the kinds of reforms undertaken by Ireland, Iceland, Slovakia or Estonia over the past 10 years, which have transformed themselves by slashing taxes, privatising their retirement systems, deregulating their economies and privatising their industries. Even Mr Sarkozy, by contrast, supports economic nationalism and Mr Berlusconi’s ministers openly appealed to the protectionist proclivities of Italians in the run-up to the election. In Germany, Mrs Merkel’s Grand Coalition is so centrist that it supports a swingeing increase in value added tax next year which could easily tip the country back into recession. The sad but realistic truth is that the voters of Germany, France and Italy, whose economies account for more than two-thirds of the euro zone’s gross domestic product (GDP) and over half of the EU’s, prefer the comfortable stagnation of the social-democratic status quo to the creative destruction but rising living standards of the market economy. Ideas really do have consequences – and most Europeans have the wrong ideas, especially in France, where polls show that only 37% of the population believe that the market economy is the best economic system, against 50% who disagree, which explains why, in the voting booths, they implicitly endorse destructive ideologies such as communism, socialism, fascism or extreme environmentalism in such huge numbers. False economic nostrums now pervade the population to such an extent that Thierry Breton, the French finance minister, has officially deemed France to be economically illiterate. The rot starts in French schools, where a bizarre mix of Marxist sociology, left-wing journalism and 1970s sub-Keynesian economics is taught to students under the guise of a core subject called “social and economic sciences”. A study of the main textbooks reveals choice quotes, such as the claim that “one must analyse the salary as purchasing power that you could not cut without sparking a deflationary spiral and thus higher unemployment”, implying that the answer to France’s problems is to increase salaries because this would lead to more spending. Another textbook argues that the state should subsidise jobs in the public sector as the solution to the jobless crisis: “We can seriously envisage this because our economy allows us already to support a large number of unemployed people.” Mr Breton plans to set up a 15-member Council for the Teaching of Economics to remedy this; one think-tank is sponsoring economics teachers to do work experience in private companies to learn how private enterprise actually works. These are worthy endeavours but unlikely to have any real impact. Economies inevitably change, as industries decline and others rise, and as technological change makes some jobs redundant while creating new ones. But the failing economic model of the Big Three euro-zone countries makes it much harder for people who lose their jobs to find new ones, unlike the more deregulated American model, which makes it easy. In America there were 54m new hires in 2004 and 51m job changes in a labour force of 147m. Over half of job moves were voluntary – people leaving because of better opportunities. In Europe, by contrast, people are less likely to voluntarily change jobs for fear of becoming unemployed. In the US, younger baby boomers, born between 1957 and 1964, held an average of 9.6 jobs from age 18 to 36. That is the sort of statistic to fill the young demonstrators on the streets of France with horror; their ambition is still a job for life, subsidised by the state if need be; polls show that a French mother’s highest aspiration for her child is that he or she becomes a civil servant, with job security, regular pay and (in France) high social status. Such attitudes do not make for flexible labour markets and it is the most vulnerable who are paying the cost. Long-term unemployment in the euro zone is now six times higher than in America, where only 13% of unemployed workers are unable to find work within 12 months, compared with 21% in Great Britain, 42% in France, 52% in Germany and 50% in Italy. Just as Europe’s long-term unemployed face the future without hope, the productivity of those in work is lagging. Workers in America have produced a stunning 31% increase in productivity over the past decade, thanks to more flexible capital and labour, lighter regulation and taxes, better management techniques and a payback from huge investments in information technology. By contrast, workers in the euro zone have seen their productivity grow by just 11% during the same period. One of the golden rules of economics is that living standards closely follow productivity over time, which helps to explain why America is again becoming attractive for ambitious Europeans, or at least those who prefer financial rewards to longer holidays and leisure time. Wherever you look in Europe’s major economies, the situation is grim; the recent optimism about their improved growth prospects has been misplaced. Attitudes remain deeply hostile to reform. The Left remains attached to a failed status quo. The Right lacks the guts to force through radical reform and, in any case, has its own attachments to the status quo. The British see themselves above this continental drift; in fact, the British economy is now part of it. It has been the peculiar achievement of Gordon Brown’s eight years as Chancellor to take a dynamic British economy and place it firmly into the mainstream of European tax-and-spend levels, with consequent sclerotic levels of European-style growth. When it comes to tax, spending, regulation and even labour flexibility, Britain looks increasingly part of the failed European social-democratic consensus. At the same time David Cameron is turning the Conservative party into a centrist affair that is also tied to the status quo – a sort of British version of European Christian Democracy, without the religious overtones. The decline and fall of Europe is continuing apace – and Great Britain has joined it. ////// Global economic growth best since the 1970s By Allister Heath 16 April 2006 THE world economy is set for its best performance since the early 1970s, leading economists said ahead of this week’s International Monetary Fund (IMF) meeting in Washington. Countries around the world have shrugged off surging oil prices, mounting geopolitical tensions and higher long-term interest rates but growth in Europe continues to lag all other regions. Richard Berner, economist at Morgan Stanley, said: “Global growth has improved significantly in the past few months, and the step-up appears to be sustainable.” Lehman Brothers said: “Global growth remains buoyant.” Barclays Capital this weekend hiked its world growth forecasts to 4.8% this year, following 4.6% in 2005 and 5.2% in 2004. Other forecasters will this week make similar predictions. Official confirmation that the world is undergoing a global economic boom will come next weekend when the IMF will raise its global growth forecast to 4.8% for 2006. It would be the first time since the early 1970s that the world economy has grown at more than 4% for four years in a row and the strongest three-year period of global economic growth since 1972-74. Asian gross domestic product (GDP) is expected to grow by 6.7% and Latin America by 4.4%. But the euro zone and the UK will continue to miss out on most of the action, economists are warning. They will expand at a relatively modest rate compared with virtually every other economy in the world. European companies, which are increasingly international in their outlook, are expected to continue doing well. Michael Dicks, economist at Lehman Brothers, said many US-based forecasters were getting overly excited about Europe’s prospects. Dicks said: “The limited predictability of US short-term growth may be affecting how Americans see Europe – leading them to assume that the region is doing better than it really is.” The euro zone is expected to grow by 2% this year and 1.8% next year, a poll of economists from MJ Economics reveals this weekend. Michael Sykes, director of MJ Economics, said: “The consensus continues to suggest that growth will slow slightly in 2007, largely in response to monetary tightening by the European Central Bank and a fairly substantial deceleration in activity in Germany.” The UK economy is expected to grow by 2.2% this year and 2.3% next year, according to a poll of City bankers by the Treasury. The US economy is generating growing amounts of cash for consumers. Buoyant job creation and rising wages are more than compensating for sky-high petrol prices, with total economy-wide wages after spending on energy hitting an annualised rate of growth of 5.1% in the past 6 months, according to Morgan Stanley. This is supporting consumer spending and has reduced fears that the US housing market was about to pop. But many risks remain. Berner said: “The ongoing rise in gasoline prices could take prices even beyond their post-Katrina surge, hurting consumer discretionary income. An overshoot in long-term yields could depress housing by even more than we expect, and could also spell trouble for US equity markets. And lurking protectionism could make global investors more wary of US financial markets”. The good news on growth means that central banks may also push up rates more than the markets are pricing in. Have your say e-mail: letters@thebusiness.press.net //// The $527bn basket cases By Richard Orange 16 April 2006 Richard Orange on the world’s worst M&A disasters “WE are both winners,” Sir Christopher Gent, then Vodafone’s chief executive, gleamed as he stood in triumph at a podium in Düsseldorf six years ago last month. After a three and half month battle, involving tortuous negotiations with shareholder groups from Hong Kong to Paris, Vodafone had pulled off the biggest telecoms deal in history, the $150bn (E124bn, £86bn) acquisition of German rival Mannesmann. Gent would have been less ebullient if he had known that he had perpetrated the worst deal of all time. Within two years, the acquisition had wiped out $137bn in value for Vodafone’s shareholders, according to a study of merger and acquisition failures undertaken for The Business by Collins Stewart Tullett. Terry Smith, the firm’s co-founder and chief executive, has long been recognised as the UK’s leading critic of deals that destroy shareholder value and for highlighting the culprits. That Gent escaped universal opprobrium owes much to timing. The M&A boom in telecoms, media and technology (TMT) shares between 1998 and 2001 was responsible for nine out of the worst ten deals in corporate history. There has rarely been a time when the world’s top managers so grievously lost all grip on the fundamentals of business. Some of that euphoria is starting to return. We haven’t seen a $100bn all-shares deal yet, but judging by the hours most investment bankers appear to be working, it won’t be long. So it is a good time to see what lessons can be learned from the train wrecks of the past. The Collins Stewart Tullett study calculates value destruction by taking the total equity value of the acquiring company before the deal, and comparing it to the total equity value after one, two and three years. The result is then adjusted in line with the S&P 500 for US firms and the FTSE Europe. It then ranks deals according to the peak shareholder value destroyed in any one of the three years. This evens out bad deals which involve simple overpayment, where the damage done emerges relatively quickly, and bad deals which involved buying a flawed business, where damage can take longer to emerge. As the accompanying table compiled by Collins Stewart Tullett shows, AOL-Time Warner, for example, overtook Vodafone-Mannesman as the worst deal in history in year three. In terms of value destroyed the table makes chilling reading. So what are its lessons? Studies like Collins Stewart Tullet’s indicate that between 50% and 80% of M&As fail to create value, although not all M&A is bad. Legendary investor Warren Buffet has for more than 25 years warned of the risks of destroying value through M&As. But between 1982-2003 his own company, Berkshire Hathaway, bought $45bn worth of companies, generating a 27% annual compound growth rate partly as a result. And at the same time as AOL-Time Warner’s and Vodafone’s disasters, there were deals of similar scale between the big oil companies (Exxon and Mobil), banks (Citicorp and Traveller’s Group), and pharmaceuticals companies (Glaxo and Smithkline), yet none of these have been failures. Smith says that the distinction between these and the ten worst deals is that the destructive M&As happened when valuations were at their peak, and when the telecoms and media sector was in a period of extreme instability. At the time of Vodafone’s acquisition, using his company’s unique Quest model of company valuation, Smith was already arguing that Vodafone would be better off raising the same amount of money and buying eurobonds at a 6.1% yield. “Creating and growing value has to be the primary concern of any business. Return on capital versus cost of capital is how you properly judge value creation, not other perhaps more simplistic and easily manipulated yardsticks, like increases in earnings,” Smith says. Many of the deals done during the technology boom were perfect case studies in M&A failure. Academic Robert Bruner, author of Deals from Hell, argues that the grisliest disasters come during “hot market conditions” and at times of strategic turbulence in the industries involved. Nothing could have been either hotter or more turbulent than the telecoms market at the turn of the century. These bad deals also involve companies buying businesses that are either geographically distant or in different sectors. The faith in globalisation and convergence between different forms of media exhibited during the tech boom made the companies vulnerable to both errors. Finally, bad deals tend to involve payment in shares. So, are the companies behind the present wave of M&As making the same mistakes? A recent study by CASS business school in London argues not. The share prices of dealmaking companies in the most recent wave have outperformed the market by 7% over the last six months. In the two previous surges in 1988 and 1998, companies making acquisitions saw their share prices underperform by 2.5% and 6.4% in the six months after a deal. But Smith argues that history never repeats itself exactly. The present wave of M&A has learned the mistakes of the late 1990s, but forgotten earlier ones. He said: “The current wave of M&A activity may be seen to have forgotten the lessons of the 80’s when so many deals were made on the assumption that cost of debt and EBITDA would be constant. Yet almost all industries are cyclical and when the cycle turns, the cost of debt increases and EBITDA goes down.” Shareholders would do well to remember Smith’s warnings for a crucial test will come when global long-term interest rates rise further. When this happens, as it inevitably will one day, acquisitive companies placing soaring valuations on everything from water companies to the London Stock Exchange may be in for a shock. ///// Brain drain: Germany is now exporting its future By Eric Culp in Heidelberg 16 April 2006 THERE is an old story that German was almost selected as the official language of the fledgling United States of America. It is a myth based largely on the heavy influx of Germans into the country prior to and after its founding and promoted by those trying to stress the impact Germans have had on the development of the US. The contributions of the émigrés are myriad, and in a few pockets of the country some still speak their ancestral tongue – the Pennsylvania “Dutch”, a pidgin pronunciation of “Deutsch”, is the best example. Now a new wave of Germans is departing their homeland. These are no huddled masses attempting to flee political repression, appalling living conditions and privation. They are the university-educated young and the highly trained tradesmen being driven abroad not by wanderlust, but the hope of finding a job and the chance to have a successful career. So, don’t be surprised if you soon hear more German accents on a street near you. When it comes to Germany, many young people are looking at their homeland and asking, “What’s to like?” Unemployment is high – as is underemployment. Many under-30 job seekers are only working part-time. Massive corporate job cuts are eliminating the prospects for recent graduates to secure career footholds. The country is greying rapidly – the average age is 42 and rising, which erases a bit of vibrancy each year. A recent worldwide poll of people over 50 showed that Germans in that age bracket were the most pessimistic about the future. Love of country is low, too, with Germany’s scoring last in a recent survey on patriotism in the world. Germany had the lowest birth rate in the world in 2005 and its lowest level since World War Two, which has set alarm bells ringing in Berlin. Family minister Ursula von der Leyen told a German newspaper the country has to become more child-friendly. “If we cannot do that, our daughters and sons will migrate to countries where life with children is easier”. In fact they are doing just that. Here in Heidelberg, home to one of Germany’s leading universities, one hears the concerns of those most would expect to be optimistic about the future. Inside the university’s “language laboratory” red-cheeked knowledge seekers climb stairs to their English lessons in a fourth-floor classroom. Those interested in Russian, Polish and other former Comecon languages have fewer steps to climb, perhaps an indication of the pro-socialism bent of the university, and the country. By appearance, the students could be from anywhere: They are a well-groomed bunch, with many clad in the latest style of distressed jeans despite aspirations of becoming lawyers, corporate managers and members of other professions requiring a business suit. As they discuss their country in good English, the group alternates between defending their homeland and lambasting it. Some of the most interesting comments come from a young man who moved to Germany when he was 10. He is one of hundreds of thousands of ethnic Germans who have returned to the Fatherland, a source of population support which has slowed drastically over the past decade, down from nearly 250,000 in 1991 to one-fifth that level last year. “Regulations make this country slow”, he says and then attacks taxation. “Most of the money goes to welfare. People are thinking, ‘Why should I support the social system?’” This view grates on the sensibilities of a budding political scientist, who attacks the witness by questioning the heritage of someone who spent his formative years in the former Soviet Union. The retort is curt: “My parents are German, so were my grandparents, and so am I.” He turns back to the argument at hand: “It’s becoming harder and harder to maintain the system. We will have to change the system, or we cannot compete on the global market.” Few of his classmates disagree. Germany’s young scholars know first-hand how difficult life in their country has become. It is common for graduates to work three or four unpaid internships and still not get a job. On occasion, some work 10 or more and still wind up on the dole. The subject of Germany’s high taxes stokes the discussion, with students talking about people who leave so they can send more money home. Others see that as greed-driven emigration. A comely law student says she will stay put, mainly because it is her civic duty. “The country is paying for my education – I have the obligation to live and work here. That’s something I think about.” She glances disapprovingly at one of the men who talks about leaving for lower taxes: “If everybody would fight for Germany, things would be better.” Her comments open the discussion to the idea of patriotism, long a taboo subject in Germany. Most of the students agree that their generation is more patriotic than the one that preceded them. When asked why, a quieter member of the class was blunt: “It is allowed to be. The older ones who studied in 1968, they just talk about the bad things.” One still cannot have an extended conversation in Germany without broaching the subject of its Nazi past, even if that era is not named per se. A Mexican student shakes her head at all the hand-wringing about patriotism. “People here say something is ‘typically German’ and they mean that as a put-down.” No one in the class argues with the opinion, which mirrors the national mood. Germans leaving their country is nothing new. From 1820 to 2004, more than 7m emigrated to the US, the largest number from a European country. And they can be found throughout Europe, too. Much of the current exodus is to other European Union (EU) countries, which makes the flight virtually impossible to track, according to Karl Brenke, a labour market expert at the Institute for German Economics in Berlin. “One thing is for sure: there is a lot of moving around in the common market”, Brenke says. “It is a problem.” The chronic lack of births bodes ill for Germany’s future: “We have a demographic development that is not very cheerful”, he says. Another concern is that German taxpayers are subsidising educations that wind up in other countries, where the knowledge will be applied to help boost someone else’s gross domestic product (GDP). Weak German GDP over the past decade has done little to encourage young Germans to stay, Brenke says: “We have always been below the EU average for growth, and usually in one of the last spots.” The movement outward has left an intellectual vacuum at Europe’s centre. “We should be importing the highly trained,” Brenke notes. For example, Germany is heavily reliant on engineering prowess for its car and heavy machinery industries, whose exports keep the economy humming. But the country’s engineering association VDI says Germany has a shortfall of 15,000 engineers, most of whom are needed at medium-sized companies. Even though Germans often choose to work in other EU countries, many still opt for a place still known here as “the land of limitless possibilities”. Claudia Diehl, an author on immigration and a researcher at the German Federal Institute for Population Research in Wiesbaden, says the US has again become a magnet for her fellow citizens: “The number of Germans obtaining temporary visas to the US jumped from 25,000 in 1990 to 40,000 in 2001.” “A certain percentage stay there – they fall in love, get a job offer”, Diehl says, and she should know. She studied twice in the US and found it alluring: “I almost stayed there both times. There is no mass flight to the United States”, she says, but notes “there is a migration of highly qualified people.” In the past, more UK citizens usually headed for the US. However, according to the US Office of Immigration Statistics, the number of Germans emigrants in 2001 and 2002 exceeded those from the UK, then fell behind UK levels over the following two years. But according to the Federal Statistics Office in Wiesbaden, last year some 150,000 Germans left the country, the highest number in more than a decade. Just as importantly, the number of Germans returning to their homeland was also at a 13-year low, barely outpacing those departing. Other countries may be draining German brains, but at least the European economic primus is also attracting a few educated foreigners. Diehl says of all the new immigrants who entered Germany last year, one-third spent time at university So, while Germans with top-flight educations bolt for more lucrative environs, eastern Europeans and others enter to fill the gap. However, their schooling is often considered sub-par compared to a German education, and language can be a barrier. For example, headhunter Roland Spitzegger says Polish doctors have difficulty dealing with patients due to language problems, but they are needed in eastern Germany to help buttress the area’s collapsing healthcare system. The requirement for foreign physicians has cropped up primarily because taking a job as a doctor or nurse in the former communist region is anathema for most western Germans. “No one wants to work there”, Spitzegger says. According to a German doctor’s association, some 12,000 German physicians were seeing patients outside the country at the end of 2004; the number of foreign doctors working in Germany rose 4.3% that year to more than 17,000. Most of the influx came from Russia. But not only the hard sciences see greener pastures elsewhere. Daniela Wagner, 26, has a bachelor’s degree in social work from one of the Germany’s best universities in the discipline, and she wants to counsel youth in England. One would think that with more than 12m unemployed Germans and a fraying social net, there would be plenty of work in her own country, but government cutbacks have hit social work hard. For example, lack of funds has drastically reduced the officially recognised jobs required to earn a social work certificate. “In my town, they cut them from seven to two.” Wagner says she worked an unpaid internship for a year to pad out her experience. Currently, she serves drinks in a pub and has turned down work for which she trained due to low pay. “We are being exploited because there are no jobs comparable to our level of education, so we have to bite the bullet and take a job in daycare.” Another deterrent is that many of the positions available have short-term contracts of 3-12 months. Wagner says she did not expect to get rich in social work, but entry level pay has dropped dramatically in recent years: “A friend’s take home pay is E1,800 ($2,178, £1,242) a month. I didn’t study four years for that.” One sees concern in her face as she complains about a rise in self-centeredness and the unwillingness to help others. Social work is closely linked to the idea of civic duty, but Wagner’s is dissipating fast. “When I see a country with so many social problems, ones caused by economic problems then it is no longer a ‘social’ state. It doesn’t look like things are getting better – in fact, they are getting worse.” Those bolting come from all walks of life. A German television show recently portrayed out-of-work tradesmen heading for Iceland, a destination one prospective architect is also considering. The student, works for an architectural firm while finishing a degree: “I’ll go to Iceland, Sweden, Dublin, anywhere.” The student, closing in on 30, says since the degree will be accepted throughout Europe, staying in Germany is not an option. Jobs in architecture have dried up with the decline in German construction, so there is an overabundance of those entering the profession. “A lot of classmates see it the same way”, the student says. “And even if you get a job, the pay is terrible and there is no extra money for overtime. Why should I serve as cannon fodder here?” In some cases, sectors of Germany are decades behind those in other countries, and many young graduates want to go where the action is. Nik Grohe, 30, earned a finance and law degree in Frankfurt but always wanted to be a part of the film industry. Instead of staying in Germany or moving to nearby France, countries with significant film-making, he headed to Hollywood in 2001 and now lives there permanently. He is manager of operations at Freyermuth and Associates, a law firm specialising in international film financing. For Grohe, it was a question of economies of scale, with filmmakers in Germany scrambling for a smaller number of euros and ideas. “The scope of their films is not big enough for me – they have cute little films that win awards but there are not enough projects for all the people who want to work there.” Plus, the audience is generally limited to German-speaking Europe, which is largely Switzerland, Austria and Germany. “Here in America, they make global films.” The attitude on the US west coast was also an attraction. “Here it’s an industry. In Germany, it’s art”, he says. As long as the average age of Germans continues to increase, the economy is flat-lining and unemployment remains high, young people will strike out for better opportunities elsewhere in the world, just as they have in the past, when the country was in dire straits. Germany remains one of the largest per capita exporters in the world. However, the latest good being sent abroad, the country’s best and brightest, is also its future. Have your say e-mail: letters@thebusiness.press.net /////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	16-Apr-06, 07:43 AM (GMT)
6. "the overvaluation of property is simply part of an overvaluation of all assets, resulting from the massive injection of liquidity by central banks into the world economy after the technology crash of 2000"
Dear Friend of Silver, We thought this radio broadcast might be of interest to you. It goes into specifics of the silver market and projects a many-fold rise in silver price even from $13/oz level. http://www.netcastdaily.com/broadcast/fsn2006-0415-3.mp3 Got Silver???? Got to be in it, to win it! ///// House price rises confound experts LIZ DOLAN HOUSE prices are showing surprise growth in property hotspots all over the UK. But how long will it last? Is this a mini-bubble that's about to burst, or will we be facing even higher prices later on? It's an age-old question experts always find hard to answer. But it's causing particular problems now, because most observers admit to being somewhat baffled by the reason for the strong recent rises. Annual house price inflation in London, for instance, was running at 5.1% in the first quarter, according to Nationwide - the first time it has been above the UK average (currently 4.9%) for four years. Prices in Edinburgh, meanwhile, have rocketed by nearly 20% over the past year, after remaining virtually static in the previous 12 months, according to ESPC, the 260-strong chain of solicitor estate agents. However, ESPC director Simon Fairclough reckons the most likely reason for the rate of increase is simply that while house prices had risen too high a couple of years ago, demand has now caught up once more. Edinburgh will always be popular among homebuyers, but demand is also underpinned by the fact that the city and nearby towns are the only part of Scotland with a growing population. This should continue to fuel demand for some time to come, Fairclough says. It may be good news for homeowners, but the strong rise in prices is, as ever, proving bad news for first-time buyers. And while Scottish house prices are still generally more affordable than virtually anywhere else in the UK, first-timers are also the oldest, with an average age of 37, according to Ross Keany of Bank of Scotland. He's not sure why - as the labour market is probably stronger than anywhere else in Britain, partly because of a shortage of skilled labour. Buy-to-let investors have been helping to prop up prices, particularly at the lower end of the property market. But, says Fairclough, the investment market is subject to a much greater degree of volatility than the market for those buying homes to live in. And despite initiatives aimed at helping new homebuyers on to the property ladder, nothing seems to have worked. Despite strong performances in parts of the UK, figures released last week by the Office of the Deputy Prime Minister appeared to run counter to findings elsewhere. They showed that house prices in February fell by 1.2% - almost wiping out the 1.3% rise recorded in January. This compares with a 1.1% rise recorded by Nationwide and a 0.9% rise reported by Halifax, both in the previous week. The reason for the discrepancy could be that the ODPM's figures relate to mortgage deals completed several months earlier. However, several commentators are expecting the market to calm down again in the next few months. Martin Ellis, chief economist at the Halifax, for instance, has predicted the improvement in the market will be short-lived as households struggle to service mortgage and other debts. Rises in council tax and utility bills are causing further grief. Ellis expects house price inflation to stick pretty closely to wage inflation (currently 3.5%, according to the Office of National Statistics) for the next 20 years or so. And housing market experts at Deutsche Bank expect prices to ease later in the year, partly because they are predicting an increase in the borrowing rate over the summer. Indeed, figures from the Bank of England showing that new mortgage approvals fell in February could be an early sign that the market is already beginning to calm down ahead of any interest rate rises. So, the message seems to be: if you're looking for the best price for your property, put it on the market now. But the misery looks set to continue for first-time buyers, as no one seems to be expecting prices to fall. • Figures just released by Bank of Scotland show that much of the house price inflation in Scotland has lagged behind almost every other part of the UK over the past 10 years. West Lothian enjoyed the highest average increase over the last 10 years, at 180%, followed by Midlothian (171%) and Highlands (158%). Aberdeenshire, at 103%, saw the lowest UK rise. Of the 102 counties in the UK, East Lothian came 53rd and Midlothian 64th.With the exception of Merthyr Tydfil (83rd with 137%), Scottish counties filled the bottom of the table. This is good news for Scottish homebuyers as it is a sign of the remarkable stability the Scottish market has traditionally enjoyed. Unlike many other parts of the UK, it has never suffered a total collapse in prices and is unlikely to do so in the future. Homebuyers in Wales and the southwest, on the other hand, are looking pretty vulnerable to price falls right now, following incredible rises over the past decade. Cornwall saw the greatest rise at 268%, followed by 252% in Anglesey, 244% in Ceredigion and 243% in Cardiganshire, taking average prices in these counties to £195,388, £158,527, £165,663 and £152,049 respectively. These prices are a lot cheaper than Berkshire's £246,460, or £239,014 in Buckinghamshire, but there are good reasons for this (not least overcrowding in the southeast fuelling higher demand) that do not exist in Wales or the southwest. Last updated: 15-Apr-06 00:12 BST ////// The Sunday Times - Business The Sunday Times April 16, 2006 City probe into Regal Petroleum AN investigation has started at the London Stock Exchange (LSE) into allegations that Regal Petroleum, the embattled oil company, misled the market over oil discoveries in Greece, writes Louise Armitstead. The probe was prompted by revelations in The Sunday Times that Regal was told its crucial Greek oil well was dry just weeks before it raised £37m from City investors. The exchange has primary responsibility for the regulation of the Alternative Investment Market, where Regal has been listed since September 2002. The senior City watchdog, the Financial Services Authority, is also looking into the matter. The LSE declined to comment. A senior oil consultant who tested the Kallirachi 1 well said he told Regal management in January 2004 that the well was “not commercial”. Regal insisted: “We stand by the findings in the exploration drilling report on the Kallirachi 1 well. The announcements made at the time were from advice from professionally technically qualified advisers.” But the experts have distanced themselves from Regal. ////// The Sunday Times April 16, 2006 Massive fraud hits tsunami aid Michael Sheridan, Banda Aceh Builders take charity millions THIS was supposed to be the scene of the world’s greatest aid effort, but endemic corruption has drained it of millions of pounds while leaving tens of thousands of tsunami victims stranded in tents. Banda Aceh was ground zero in the tsunami of Boxing Day 2004, which claimed more than 200,000 lives across the Indian Ocean. More people died here than anywhere else. Now two charities that raised unprecedented sums in Britain have fallen victim to rip-offs that ruined their efforts to house the survivors and have forced them to suspend key projects. Save the Children and Oxfam were both targeted by unscrupulous building contractors who took their money, only to build structures so flimsy that a new wave would wash them away. Save the Children may have to write off more than £400,000 worth of building contracts. Oxfam, which counts its losses in “tens of thousands of pounds”, has stopped its construction work around Banda Aceh until investigators establish the extent of the abuse. Indonesian anti-corruption campaigners, who uncovered the Save the Children case, have also assembled a dossier of fraud and incompetence that reveals why the Jakarta government and international aid agencies have failed in their promises to the survivors of Aceh. “We calculate that 30% to 40% of all the aid funds, Indonesian and international, have been tainted by graft,” said Akhiruddin Mahjuddin, an accountant who investigates aid spending for the Aceh Anti-Corruption Movement. The movement is partly funded by foreign donors and its findings are regarded as credible by embassies and aid agencies. The betrayal is all the more cruel because it has been committed, in the main, by the Acehnese themselves. Indonesia, which lost more than 131,000 people, got the most pledges of aid, totalling $6.5 billion (£3.7 billion). It has already collected $4.5 billion in funds. The aid effort won praise for saving thousands of lives by prompt action to stop disease and to restore clean water supplies. Yet the bereaved, the orphans and the dispossessed are eking out their 16th month in tents and shacks flung down amid palm groves and rice paddies around this sweep of ravaged coast, ringed by sharp-toothed green mountains, in the north of Sumatra. Funds have been frozen. Projects wait on hold while worried aid administrators fly in and out of Banda Aceh clutching audit reports. Bureaucratic and political paralysis means only 10.4% of the funds allocated by the government have actually been spent, said Akhiruddin. Of the 170,000 homes promised to the people of Aceh, only about 15,000 have been built, one year and four months after the tsunami. Save the Children intended to help bridge the gap by funding 741 buildings, including schools, in the Bireun, Pidie and Lhokseumawe districts of the province, issuing contracts worth £404,000. Akhiruddin displayed the list of 15 contractors on his Microsoft Excel spreadsheet, showing a web of companies and subcontractors. Most appear to be controlled by a few individuals related to one another. “They were supposed to sink foundations up to 60cm,” he said. “But we found they’d just propped wooden stilts on stones and dug no foundations at all. The timber was substandard and already warping.” His team recommended that Save the Children demolish all 741 buildings and start again. The contractors have been dismissed but neither compensation nor criminal proceedings are likely, he said. Save the Children issued a statement to the Indonesian media, acknowledging problems with the Aceh projects and promising to put them right. Jasmine Whitbread, chief executive of Save the Children, said this weekend: “During routine evaluation and monitoring, we discovered the poor workmanship and immediately took steps to rectify the situation, including terminating the contract and instigating repairs. We will tolerate nothing less than the most efficient and effective use of money.” Oxfam has sent in five investigators, including a former police officer, to unravel the skein of apparent corruption that has led to losses in its Banda Aceh office and forced it to suspend construction. “We took the decision because of the need for accountability and also to make it clear that aid agencies are serious about these issues,” said Craig Owen, a spokesman. “We are committed to spending £42m here over three years and you have to remember that this is like rebuilding an area the size of Birmingham: it’s a challenge.” Oxfam plans to resume work in phases while the investigation team prepares its report and recommendations. According to Akhiruddin, however, these woes are a mere fraction of the frauds. Among the cases that his investigation uncovered were: o Indonesia’s government reconstruction agency spent £6.3m on temporary housing that was either overpriced or fictitious. “I went to one site in Aceh Besar and found no barracks had been built at all,” said Akhiruddin. o More than £40,000 was embezzled from a children’s food distribution centre. o One aid group paid for 70 new houses, only to find that its own local staff had occupied most of them. o Another bought 100 new fishing boats for £1,166 each when a fair price was £800 per vessel. The cost difference came to £86,600. o A German aid group sent £1.4m raised from provincial newspaper readers, promising to rebuild 400 homes. So far one has been built. The government reconstruction agency is trying to fight internal corruption, said Akhiruddin. It cancelled 90% of tenders in one two-month period last year. But having issued a blacklist of 18 companies deemed unsuitable for contracts, it hastily withdrew the list. Kuntoro Mangkusubroto, the agency’s head, is respected for his personal honesty and has pledged to clamp down. Last week Susilo Bambang Yudhoyono, Indonesia’s president, vowed there would “be no safe haven” for the corrupt. He was backed up by Paul Wolfowitz, president of the World Bank, who has spearheaded tough lending guidelines for borrowers such as Indonesia. But the politics and scrutiny all take up time. “The consequences are that people’s suffering is being prolonged unnecessarily,” said Akhiruddin. While the contractors and their accomplices enjoy the fruits of their misdeeds, one young survivor, a girl named Fajriyana, is still living in a blue plastic tent in the mud. The Sunday Times found Fajriyana there last December and told her story of miraculous survival, of the loss of her mother and her reunion after many months with her father and sisters, who had believed that she was dead. Fajriyana celebrated her fourth birthday in the tent on February 4. “I have scraped together all our savings to buy us a small piece of land,” said her father, Nasruddin, a mechanic. “Now we are waiting for the government, God willing, to build us a new house.” It may be a long wait. And the soaking rains, with their cargo of dampness and disease, are coming over the teeth of the mountains soon. ///// The Sunday Times April 16, 2006 Jailed Russian tycoon knifed Kevin O’Flynn, Moscow THE jailed Russian billionaire Mikhail Khodorkovsky has been slashed in the face by a fellow prisoner while he slept in his dormitory cell. Khodorkovsky, 42, who was Russia’s richest man — worth £8 billion — before the Kremlin dismantled his oil company Yukos, woke up in his bunk bed to find his face covered in blood. He needed stitches and is now recovering in the hospital wing of the prison camp in Krasnokamensk, Siberia, about 3,000 miles east of Moscow. The motive for the attack with a shoemaker’s knife was not clear, but Yury Schmidt, his lawyer, warned yesterday: “He is being singled out.” Last night it was claimed by Natalia Terekhova, another of Khodorkovsky’s lawyers, that a young prisoner named Kuchma had attacked Khodorkovsky to avoid being transferred to another prison barracks. Kuchma is now in an isolation cell, she said. Sentenced to eight years for tax evasion and fraud, the tycoon, who once lived in a luxurious Moscow villa and travelled by private jet, is now held in a prison dormitory with 100 other men. His barrack block, number eight, is said to house the blatniye, or bandits. Conditions at the prison are hard. The area is heavily contaminated with radioactive waste and in winter the temperatures drop to -40C. Khodorkovsky has not had an easy time in jail. He has been disciplined twice — once for receiving illegal documents on prisoners’ rights and once for drinking tea in the wrong part of the jail. His lawyers say the charges are an attempt to stop him obtaining parole by blackening his prison record. Appeals to move him closer to his family have been refused. ///// The Sunday Times April 16, 2006 Special Report Bubble builds in trade property Small investors are piling into shops and offices — but is there a crash coming? Report by Angus McCrone THE conference room at the Berkeley Hotel in Knightsbridge was bursting at the seams as lot 14 was announced — the freehold of a practical but unlovely three-storey brick building just off the High Road in Wood Green, north London. “Bit of potential, bit of planning, near to the Underground station. An interesting, interesting block,” waxed Duncan Moir, the affable auctioneer from Allsop, to 250 would-be purchasers sitting and standing in every scrap of space in the room. This packed audience was testament to the craze among private investors for owning shops and offices, and to a wider boom in British commercial property. After returns of 18% and 19% in the past two years — well above the normal 7%-8% — the question many old hands in property are asking is whether this is a bubble, or merely a hectic phase in a long upswing. Moir asked for an opening bid of £1.75m, and immediately hands went up all over the place. Bidders were attracted by the £132,000 rent that comes in each year from the occupants — a children’s clothes warehouse, a convenience store, a kebab shop, a phone-unlocking service and six flats leased to the council. “£2m I’m bid. That’s good, bold bidding,” said Moir, as a decisive young man in the front row quickly upped the ante. “Don’t let him frighten you,” the auctioneer advised a second bidder, wearing a white shirt and standing at the back. The two men were soon locked in a battle, as the bidding rose above £2.2m. Eventually “white shirt” went up to £2.27m, forcing his rival to concede. “I’ve got to miss it, mate,” he told Moir, shaking his head forlornly and gathering up his belongings. Commercial-property auctions aimed at the general public are held several times a month in London, and draw at least twice the number of people they did a decade ago when prices were low. Alastair Hughes, European chief executive at the property and investment firm Jones Lang Lasalle, said: “When I graduated in the early 1990s, I used to be sent down to the auction room to sit there and make it seem busier.” Today’s would-be buyers are not City types. George Walker, partner at Allsop, said: “I’d say 30% would be full-time property people, the rest small-business men, shopkeepers, pharmacists, lawyers and hoteliers. Three-quarters of them are gearing up with debt in the hope of making capital gains.” In 1996 the total proceeds from Allsop’s commercial auctions during the year were £227m. By 2001 this had risen to £597m, and in 2005 it hit £1 billion. At the auction I attended, buyers snapped up 147 freehold properties, including 19 Barclays branches — part of a batch of 700 the bank is selling off — and 12 branches of Threshers, the off-licence. There are plenty of other signs of exuberance in property. Richard Jones, head of life funds at Morley Fund Management, a property manager, said his firm had been sinking about £400m a month into commercial property to meet investor demand for its Norwich Property Unit Trust and property-linked bonds. The former has net assets of £2 billion, double the figure of two years ago, and is mostly owned by private investors. Corporate players are equally hungry. The annual Mipim European commercial-property conference in Cannes last month drew 21,415 delegates, up from 17,641 in 2005 and 15,157 in 2004. Joe Valente, head of research at DTZ, the property-advisory firm, said: “At Mipim, I was astounded by the sheer weight of capital still waiting to be invested in real estate.” In the past two years the property sector of the stock market has appreciated by 160%, outperforming the FTSE 100 index by nearly 100%. The advent of real-estate investment trusts (Reits), spurred on by revised proposals in Gordon Brown’s March 22 budget, may give the sector even more momentum — because big quoted firms such as Land Securities and British Land will have the option of converting themselves into these tax-efficient vehicles. Figures from DTZ on returns (the average increase in property values plus rental income) show that, since the slump of the early 1990s, commercial property has had 13 good years in a row. Returns have averaged 12.8% over the past decade. Inevitably, average “yields” — the rental income divided by the capital value — have fallen. Estimates are that rental yields on commercial premises have fallen from 8.5% in 2001 to 6% now, leaving a much reduced margin over short-term interest rates, at 4.5%. For some types of property, yields have dropped even lower than this — at the Allsop auction, for example, one branch of Barclays, in Stansted, sold to a local investor at a rental yield of just 3.4%, one of the lowest yet at one of these events. So has commercial property become a bubble, as it was in the late 1980s? Some prominent market observers suspect it has. Andrew Smithers, head of Smithers & Co, the consultancy firm, said: “In my view, the overvaluation of property is simply part of an overvaluation of all assets, resulting from the massive injection of liquidity by central banks into the world economy after the technology crash of 2000.” Nick Leslau, one of Britain’s best-known property entrepreneurs, also thinks the market has overheated. He said he turned bearish 12 to 18 months ago, selling most of the properties his companies owned, aside from £1.3 billion worth of pubs, Travelodge hotels and nursing homes. “The market has continued to steam ahead,” said Leslau, “but my position has not changed: the more that yields compress as wild capital flows seek a home in commercial property, and rent increases do not compensate, the harder the market’s eventual fall may be.” The Bank of England also believes there is cause for concern. Its Financial Stability Review, published at the end of 2005, noted that there had been “substantial growth in banks’ exposures to the commercial-property sector in the UK and internationally”. It said that 39% of total UK bank lending to private non- financial companies was now going to the commercial-property sector — compared with 18% in 1998, 22% at the last peak in 1992, and less than 10% in the early 1980s. By the fourth quarter of last year, bank exposure to property companies had reached £405 billion. However, the bubble theory is challenged by many in the sector. Paul Hodgkinson, chairman of Simons Group, a £250m- a-year construction firm specialising in retail developments, thinks the property market may have another 18 months of strong growth ahead of it. “There is a wall of money waiting to be invested in property. The cost of borrowing is still low, and there is good demand from retailers for space in the kind of mixed-use town-centre schemes we offer.” Hughes, at Jones Lang Lasalle, said circumstances were very different from the last boom-bust 15 to 20 years ago, and not just because interest rates are 4.5%, not 15%. “Look out over London and you will see that there are not many cranes. In 1989, at the peak of the last boom, there were 1.5m square metres of speculative-development completions in London. In 2005, by contrast, there were only 445,000 square metres of speculative completions.” Many of the market’s tycoons seem undimmed in their confidence. They do not get any wealthier than the Duke of Westminster, whose Grosvenor Estates is powering on with its £900m Paradise Project in Liverpool. Grosvenor chief executive Stephen Musgrave said the project, unfolding on 42 acres in central Liverpool between now and 2008, will create “a series of streets and squares, some like Oxford Street, others like Burlington Arcade. There will be a mixture of residential, leisure, hotels and retail. “We have done a great deal of research on retail demand and supply,” said Musgrave. “At present Liverpool has one of the shortest prime shopping streets in Britain, and unsatisfied demand from retailers for quality space.” The duke is being trumped in terms of project size by Westfield, an Australian firm. It is spearheading the £1.5 billion White City shopping centre scheme in west London, by the M40, due to open in 2008. Instead of 43 acres of wasteland where exhibition buildings and a railway depot used to stand, motorists on the M40 now see 10 cranes, standing 150ft high, plus umpteen concrete mixers and 1,000 ant-like building workers. Michael Gutman, managing director for the UK and Europe at Westfield, said: “We believe the UK is fundamentally undersupplied with high-quality retail space. This will be the largest shopping centre in greater London, but also a lot more besides — with cinemas, bars, restaurants, health clubs and gyms.” Westfield accepts that when it comes to the property market, “things go up and down”, but Gutman said: “We take a long-term view. We hope to be here for a long, long time.” Britain’s biggest property firms — British Land and Land Securities — reject the bubble theory but do have concerns about valuations in some parts of the market. Stephen Hester, chief executive of British Land, said: “This is quite different from the late 1980s, and I am not predicting a crash or even a negative move in values. “Property as a whole has moved from being undervalued to being fair value. However, even though that is the overall position, we believe there are individual properties and classes of property where people are paying over the odds.” Land Securities has been selling a steady stream of retail properties in recent months, the most recent being four retail parks, in Leeds, Halifax, Fareham in Hampshire, and Gloucester, for £67m. The company’s chief executive, Francis Salway, said: “There are two issues to look at. First, is the market in a bubble in terms of rents? Absolutely not. Office rents in London and most other places are at or below previous levels, whereas in the late 1980s there was real rental growth of 15% to 20%. “On that side, things do not look overheated. For example, we believe we will get good returns from developing central London office properties. “Second is the issue of yields and the pricing of property investments. Property yields moved in line with the cost of borrowing until December 2005, but the two have moved in different directions since then. Some 50% to 60% of the cost of property purchases in Britain is being funded by debt, and the maths on these transactions has got tighter.” Land Securities’ biggest project will not boost capacity until 2009, assuming it gets the go-ahead. Its plan to build a 45-storey (630ft) office block at 20 Fenchurch Street in the City — taller than the NatWest Tower — would add 850,000 square feet of office space. In the meantime the biggest test of the market may come in retailing, if consumer spending falters just as new shopping centres open. Do derivatives make it more risky? NO bull market would be complete these days without a part being played by derivatives, and the commercial-property boom has its own — commercial mortgage backed securities, or CMBSs. The Bank of England has observed that these instruments are ‘facilitating additional leverage of exposures’ to property. That sounds ominous, but CMBS experts argue that the opposite is true: that CMBSs actually allow banks to sell on some of the lending risk on particular property projects to other investors such as pension funds, insurance firms and hedge funds, and therefore the whole system becomes less fragile. Hans Vrensen, director of securitisaton research at Barclays Capital, said: ‘CMBS results in a more widely held lending exposure to commercial property compared with the traditional bilateral lending — this should reduce overall market risk. ‘If there was a deterioration in the commercial property market, the impact would be shared by many different parties,’ said Vrensen. European issuance of CMBSs reached €41 billion (£28 billion) in 2005, twice the amount in the previous year and up from virtually nothing in 1998. Vrensen predicts 50% growth in the CMBS market this year. /////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	16-Apr-06, 09:06 AM (GMT)
7. "in out & over"
The Sunday Times April 16, 2006 Caught: Goldman and Merrill 'insiders' A ring that netted $6.7m included exotic dancers, cleaners and forklift drivers. By Dominic Rushe in New York FOR a retired Croatian seamstress, Sonja Anticevic was astonishingly good at playing the stock market. The 63-year-old had supplemented her 1,600 kuna (£151) pension with cleaning jobs, but last August she made a $2m (£1.1m) profit by trading options in Reebok International, the sportswear firm. The canny cleaner was one of a number of people in Croatia, Germany and America to buy into Reebok days ahead of its takeover by rival Adidas. But their winning streak came to an abrupt end after the American authorities had their accounts frozen and launched an investigation into suspicious trading in the firms’ shares. Last week the authorities claimed to have solved the mystery of the smelly trainer trades when they arrested employees at two of the world’s most prestigious banks. They said it was one of the most extraordinary insider-dealing scams of all time. As well as high-flying bankers and Croatian cleaners, the scam involved forklift-truck drivers from Wisconsin, an exotic dancer from New York and even a film script written by one of the alleged perpetrators that spookily parallels the charges against them. “This is one of the most brazen and pervasive insider-trading cases we have ever seen,” said David Markowitz at the New York office of the Securities and Exchange Commission (SEC). In court papers the SEC and FBI claim that Anticevic’s nephew, David Pajcin, a 29-year-old former Goldman Sachs bond research analyst, was the person really responsible for her sudden fortune. The authorities claim Pajcin and fellow Goldman Sachs employee Eugene Plotkin, 26, made more than $6.7m after conspiring with Stanislav Shpigelman, an analyst in Merrill Lynch’s mergers and acquisitions department, on a series of insider trades. Shpigelman, a friend of Plotkin’s from college, was introduced to Pajcin in November 2004 at a Russian bathhouse in lower Manhattan called Spa 88. The authorities claim that the 23-year-old banker agreed to pass on advance information about deals that Merrill was working on in return for a percentage of any profits made by trading on the information. The trio traded illegally in at least 25 stocks in one year and tipped off several individuals in America and Europe in return for a share of their profits, claim the authorities. Monika Vujovic, 23, an exotic dancer from New York, was among those named. She, like Anticevic, allegedly had an account set up in her name by the defendants. Shpigelman and Plotkin were suspended from their jobs last week and spent the weekend in jail. Bail has been set at $3m each. Pajcin was arrested and released on bail in November last year. He is co-operating with the authorities. Markowitz said insider trading had long been a problem on Wall Street but this case showed a much higher level of premeditation than most. “This was a real caper. They really thought through what they were doing,” he said. The defendants are alleged to have netted $6.7m trading on their knowledge of deals that had not yet been announced to the market. Their biggest pay-day was the sportswear deal, but in 2005 the trio also profited from early information on deals including Procter & Gamble’s purchase of Gillette, Novartis’s acquisition of Eon Labs and the Cinergy and Duke Energy merger, according to the complaint. Adidas, Procter & Gamble, Eon and Cinergy are all Merrill clients. In another scheme the three are also charged with making $345,000 from early access to Business Week’s Inside Wall Street stock-tipping column. The men went to great lengths to find people to steal advance copies of Business Week, targeting employees at the plant with online job ads, according to the SEC. They also convinced a New Jersey man to move more than 1,000 miles to Wisconsin, where he was hired at the magazine’s printing plant. Forklift-truck drivers Juan Renteria, 20, of Milwaukee, and Nickolaus Shuster, 24, now of Lexington, Tennessee, stole magazines and gave Plotkin and Pajcin the names of stocks mentioned in the column. This is not the first time people have tried to profit from early access to Business Week. Last year a former postman agreed to pay $580,000 to settle SEC charges that he made $154,000 in illicit profits trading on early information from Business Week. In 2003, two former employees at the same Wisconsin plant pleaded guilty to violating securities laws by giving out sneak previews of the magazine in exchange for nearly $18,000 in cash. And in 2002, two New York brokers settled SEC charges that they paid cash for advance copies that were obtained from a foreman at a Business Week distribution facility in New Jersey. The Business Week scam was ingenious if unoriginal but before Pajcin and Plotkin were caught, the authorities believe they were working on a far more novel scheme for extracting sensitive information. They planned to hire exotic dancers to get inside information from investment bankers. Plotkin and Pajcin, and other co-conspirators not identified in the court papers, also tried to help others get jobs at investment banks in the hope that they could get even more insider tips, said prosecutors. None of the accused was available for comment, but Plotkin’s lawyer, Martin Schuckler, said the case against his client was in its preliminary stages. “The government has made a lot of claims and we have yet to see the evidence to substantiate those claims,” he said. Plotkin and Pajcin met at Goldman Sachs in 2000. Pajcin left the firm after five months but the two stayed in close contact — working together to make a film, One Way. The film, written and directed by and starring Plotkin, follows Dean Metrick, a Harvard graduate whose story has close parallels with Plotkin’s life. Pajcin plays Jude, a drug dealer. Metrick’s life falls apart when $30m from a client’s account mysteriously disappears into a Swiss bank. “I, uh, I just want my life back,” says Plotkin’s character near the end. “Sorry, bud,” replies Pajcin’s character, “but I don’t think that’s gonna happen.” //////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	16-Apr-06, 09:39 AM (GMT)
8. "my broadband is broken; again"
Mercedes-Benz S350: Can seriously damage your health, says Michael Booth's doctor Published: 16 April 2006 Mercedes-Benz S350 Would suit: Psychiatric consultants Price (as tested): £68,775 Maximum speed: 155mph, 0-60mph in 7.2 seconds Combined fuel consumption: 28mpg Further information: 0800 665 415 Hello, Dr Hywel McDonald here. I work as a consultant psychiatrist at the Southern Counties Psychiatric Hospital near Crawley. Michael Booth's family has asked me to say a few words in lieu of his weekly column. Unfortunately Michael has suffered a chronic psychiatric incident which has left him unable to pen his usual piece about motor cars for you today. I received a call from Mrs Booth a few days ago expressing concern about his behaviour. He seemed deeply troubled, erratic, emotional, she told me. It was clear from her description that Michael was on the verge of what we psychiatrists call "a total freakout". I was told that, soon after this photograph was taken, his condition deteriorated quite severely. He had just taken delivery of this rather splendid Mercedes-Benz S350 and was excited to be driving it, he said, but following the short drive home his mood changed dramatically. He became pensive and quiet, his wife told me. Later in the day he began mumbling to himself and repeatedly going to his front room window to look at the car, then going outside, walking round it, sitting in it and then disappearing off on drives lasting some hours. Upon returning home the mumbling would be punctuated by key words and phrases: "Perfect!" "Never in all my years..." "Is there nothing wrong with it?" and, latterly, "**** me that thing is unbelievable!" He grew despondent, depressed. "What the hell am I going to write? I can't find a single fault with the thing! It's just too good," he exclaimed, out of the blue, during dinner that night. On Wednesday things took a severe turn for the worse. Michael's family arrived home from a day out to find that he had built a life-size replica of the car out of mashed potato. He had, he said, spent the morning examining the car with a magnifying glass and high-powered torch, but still had found nothing to criticise. He started to eat the potato, and had to be physically restrained. Michael's wife called the next morning and I came as soon as I could, sedated Michael and had him committed to our Betterness Institute, until his condition improves. Unfortunately, having driven the Mercedes myself, I do not anticipate a swift recovery. It really is a beauty, I can tell you. You see, I felt it was important for my diagnosis to get to know the car as well as - if not more than - the patient. It took a while to get used to all the buttons and gadgets and whatnot, but now I've programmed everything to suit me, I find it works perfectly. I tell you, she goes like the blazes! She's got this thing called Night View Assist which means she can see in the dark, and another gizmo that makes her keep the same distance from the car in front - I managed to read 20 patient files on the M25 thanks to that one! As for Michael, he is proving a difficult patient. We have tried showing him photographs of 1970s Vauxhalls and this seemed to help a little. "Ha!" he'll suddenly say in the middle of one of his long, brooding silences, "Look at the proportions! All wrong". Or, "Those things were rusting before they even came off the production line!" But this could still take some weeks, I'm afraid. In the meantime, my wife is particularly looking forward to taking delivery of next week's car, the new Mazda MX5. s It's a classic: Mercedes S-Class The Mercedes S-Class has laid a strong claim to the best car in the world title pretty much since the first one rolled off the production line in 1972. The W116 series, to give it its code name, continued Mercedes' tradition of building superb-quality, large saloons. The original S-Class was more refined than anything this side of a Rolls-Royce, but also boasted excellent handling and simple, clean styling that still looks modern over three decades later. Most of them had six-cylinder engines giving 155bhp and a top speed of 118mph. However, the ultimate W116 was the 450SEL, which had hydropneumatic suspension, electronic rear seats and climate control, as well as a monster 6.9-litre, V8 engine capable of propelling it from 0-60mph just 0.1 seconds slower than the modern-day S350. Such performance came at a cost, of course, with fuel economy dropping to single figures (and this at the time of the oil crisis), and a list price higher than a Roller. Their tremendous build quality has meant that many 1970s S-Classes survive and remain in use today. © 2006 Independent News and Media Limited ///// Lone Chilean prospector fights giant for $10bn Andean gold mine Barrick paid just £10.89 to Rodolfo Villar for land around its massive gold find. But a court could make this a bad deal for the Canadians By Hugh O'Shaughnessy Published: 16 April 2006 In the next couple of weeks, a Santiago court could give a humble Chilean prospector an armlock on the world's largest gold mining project. The $1.75bn (£1bn) Pascua Lama project in the high Andes, which the Canadian giant Barrick Gold has been nursing towards completion for years, could, produce some 18 million ounces of gold worth more than $10bn at today's price, according to Barrick's predictions. It is by far the largest operation on the books of Barrick, the C$28bn (£14bn) which claims to be "the world's best gold company" in terms of profitability and social responsibility. But Rodolfo Villar, a mining graduate and geological fortune hunter now in his fifties, says that Barrick has no title to rights it claims, which belong to him. He says he is confident that the civil court in Santiago, the Chilean capital, will judge in his favour this month on legal and constitutional grounds. He is backed by Hernán Montealegre, one of Chile's brightest legal brains, who told The Independent on Sunday "Barrick has been arrogant and guilty of unforgivable negligence". Mr Villar noticed a few years ago that Barrick had not made the payment that the Chilean rules demand for a licence or patent to safeguard rights to 8,600 hectares around the main ore body. Without them, Pascua Lama, which anyway is covered by three glaciers, would be impossible to work. In 1997, Mr Villar signed a contract - which he says he never read - to sell these rights to Barrick. He expected to receive one million dollars but received a mere 10,000 Chilean pesos or £10.89, equivalent to 0.001p per hectare. Mr Montealegre says Barrick's willingness to buy demonstrates that Mr Villar was the owner but that under Chilean law such a figure cannot be considered a serious price. Thus the supposed sale is void and Mr Villar still the rightful owner. In a further twist to the story, reports in Santiago say that there is more gold lying in the 8,600 hectares which are in contention, than in Pascua Lama itself. Barrick's plans have been fiercely opposed by the local farmers who are fearful of damage to their livelihoods and their sources of water, particularly if Barrick uses cyanide to recover the gold. Environmentalists are also concerned about the effect on the glaciers covering the site. Barrick is hoping to mine Pascua Lama in conjunction with Veladero an adjacent ore body on the Argentinian side of the Andes which produced 56,000 ounces of gold last year. Veladero went into production ahead of schedule in September. In February, Barrick agreed with Antofagasta, the Chilean- based company quoted on the London stock exchange, that it would acquire a half-share in the Reko Diq gold and copper prospect in Pakistan, which Antofagasta is trying to buy. © 2006 Independent News and Media Limited //// Hamish McRae: Hot commodities are the markets' way of telling us to slow down or get burnt Money spent on petrol driving to the shop can't be spent in the shop Published: 16 April 2006 Will it turn out to be soaring commodity prices that curtail the current global boom? The two astounding features of the world economy over the past year have been its resilience to rising interest rates and its resilience to rising commodity prices. The apparent ineffectiveness of rates has led to a debate about the legacy of the surge in global money supply over the past five years, and to questions about the impact of strong savings in Asia. Could it be that so much money is swishing around the world that even higher rates will be needed to curb the rise in asset prices? Looking at Britain, it seems evident that the present cost of borrowing may not be enough to cap house prices. These seemed to have come off the boil last year, but now, after only the smallest of rate cuts, they appear to be on the move up again. Much the same arguments apply to the US housing market; it too seems to have shrugged off a rate rise. Or is the explanation more about global savings and global capital flows? If Japan and China save enough, and invest enough in the US to cover the American current account deficit, that will hold down long-term rates in the US and so render its bond market less vulnerable to rising short-term rates. The answer is that we don't yet fully understand what is happening; we just know it is odd. But even more odd is the reaction to rising commodity prices. The most important single commodity, oil, is the closest it has been to its all-time high in real terms. The present price, close to $65 a barrel, compares with $85 a barrel, in today's money, in the early 1980s - a price that led to a global recession. It is not just oil. Basic metals, such as copper and zinc, have shot up too. In theory, apparently, it is worth melting down US cents because the metal in them is worth more than the face value of the money. Coal and gas have also risen in line with oil, and gold and silver have made a comeback. The biggest single reason for the commodity boom is almost certainly the strong demand from China. If you take oil, the US is the world's largest consumer and China the second largest. Roughly half the world's oil is used by two countries. If you look at energy as a whole, China is the fastest-growing user. Every year it builds new power stations with the equivalent output of the entire UK generating capacity. Some 80 per cent of that output is coal-fired. The first graph shows how the country's imports of raw materials have shot up over the past four years. This leads to two linked questions. Why are surging commodity prices not feeding through into inflation more generally? And if Chinese (and Indian and US) growth continues at the present pace, will this eventually put so much pressure on commodities that the growth is snuffed out? The simple answer to the first one is that rising raw material prices have been offset by falling labour costs. Looked at globally, the more that Chinese-produced products enter the world market, the greater the impact of low Chinese wages. So the price of finished goods is held down despite the higher cost of the materials needed to make them. This may not be the full answer but I think it is most of it. You can see this phenomenon in Britain, where the price of goods in the shops is falling by around 1 per cent a year. But many of these are made either in China or in other low-wage Asian countries. By contrast, our heating bills have gone up and the price of fuel at the pumps is within a whisker of passing £1 a litre. (The price of public sector services, rates and taxes, is also rising, but then we cannot buy our public services from China.) What happens next is more difficult to judge. Historically, since the Industrial Revolution more than 200 years ago, the tendency has been for the long-term real price of commodities to fall. In real terms, commodities excluding oil are now about one-third of the price they were in 1800. It has proved cheaper to mine the stuff and we have learnt how to use raw materials more efficiently. For example, substituting fibre-optic cables for copper ones to carry telecommunications data means that much less copper is needed. Oil is different because its supply is more limited and we have come to rely excessively on it. But oil apart, in the long term it is hard to envisage a generalised commodity crisis. The short term may be different. Thanks to generally low mineral prices, investment in bringing on new production was not strong in the 1990s. Now it is. Eventually, supply will be increased and heavy users of raw materials will figure out how to economise on their use. This will take time. So we could easily face a five-year squeeze, with generally high commodity prices, and that will tend to curb growth. Put simply, money spent on petrol for driving to the supermarket is money you can't spend when you get there. So when that squeeze occurs, will it end the growth phase? My instinct is that it will be part of the explanation but not the whole one. The rising cost of imported materials and oil does account for part of the US trade deficit, but take oil out and that gap is still widening, as the middle graph shows. Take oil out of the UK trade accounts and we show much the same pattern (third graph), though we are in better shape. (The US current account balance is equivalent to more than 6 per cent of GDP, whereas the UK's is about 2.5 per cent.) The key point here is, yes, inflation remains under control in the US and UK despite the rising cost of commodities, but this is largely thanks to our importing more cheap goods. These hold down overall price levels, compensating for more expensive commodity imports. Our success on the inflation front is a directly linked to our rising trade deficits. If this line of argument is right, then commodity prices will be part of the mix of factors that ends the boom. Other factors will include the inability of the US to go on increasing its trade deficit - partly because it won't want to and partly because it won't be able to finance the deficit. It will also have something to do with the end of the US housing boom, which has to happen sooner or later . Final point. None of this means a global slump is inevitable. What it does mean is that rising commodity prices, like rising interest rates, are symptoms of strain in the world economy. And these strains are likely to be more marked if growth continues more swiftly than can be sustained in the long term. The commodity markets are flashing amber. They are saying "slow down or there will be a big problem". Why the Easter gridlock is good for us Easter, and there is a high chance you will be reading this in transit. This is the single busiest time for the airports and the roads - as people who struggled to travel somewhere on Maundy Thursday and Good Friday are all too aware. This raises an intriguing economic issue: why is Easter such a travellers' nightmare and, more generally, why do we take our holidays at the same time? While school holidays force families to take their time off in quite narrow windows, that does not fully explain why travel is so compressed. Why, for example, don't more people set off in midweek? When most of the workforce was in factories, it made sense to shut down the plant for a fortnight, so everyone went off on their break at the same time. But work patterns are quite different now, or so you might imagine. Try pondering two explanations. One is the legacy effect. Once people get into the habit of an Easter holiday, they tend to stick with it. The other is that while most service industry jobs (which is where most people are employed now) need to be done continuously, it is more efficient to have employees off work at the same time. If you look at the output of a service industry, that has to be provided all the time. You can't just shut down a hospital and start again two weeks later. On the other hand, if you look at the way a supermarket or hospital is run, it needs key people at all levels to be able to communicate with each other. If some are taking random time off, that slows down the communication process. Much better if everyone knows it is hard to get decisions in the 10 days round Easter. The same applies to August and the Christmas-New Year periods. I hope that knowledge - that it is more efficient for the economy as a whole for us to take holidays at the same time - eases the pain of the fight through the airport or the hours on the motorway. If not, the answer is to have a holiday in the low season... and bring a laptop. © 2006 Independent News and Media Limited ///// ***************************************************************************** * FIEND'S SUPERBEAR MARKET REPORT * * April 14, 2006 * * * * e-mail: fiendbear@fiendbear.com * * web address: http://www.fiendbear.com * ***************************************************************************** Fiend Commentary ================ U.S. markets closed for Good Friday. Oil finishes below $70 a week and the Dow ends above 11,000. I wouldn't bet on those levels holding next week though... /////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	16-Apr-06, 10:24 AM (GMT)
9. "The Power of Compounding"
http://www.gold-eagle.com/editorials_05/gnazzo041506.html Conclusion We are nearer to an intermediate term correction in the precious metals and related stocks then to the beginning of a new intermediate term leg up. Several markets are presently at key pivot points: gold, silver, precious metal stocks, commodities, energy, interest rates, and the overall stock market. That all these markets are sitting at such crucial junctures is an amazing coincidence. Interest rates APPEAR to be breaking out. The Fed is going to take at least one last stand to stave off the onslaught of gold and silver. It remains to be seen if the Fed can pull it off. To do so will delay a further rise in long term interest rates - for the short term - if they still have the power. In the not too distant future, the precious metal stocks will be much cheaper than they presently are. A bit further down the road all major markets: U.S. bond, stock, currency, real estate, and interest rates will all be aligned and headed down. Gold and silver will be the only asset rising. The saber rattling on the news is meant to be an affect that makes an effect of large proportions. The Fed is painting itself into a corner but as wild animals behave in such situations, it seems to be preparing to launch a last offensive. The Fed and all may well be trying to lure market players into untenable positions that cannot remain supported from such pivotal levels. Once the illusionary support is withdrawn - the markets thus set up - will fall hard. Natural gas is a perfect example. As we quoted the Governor of the Bank of England in Gold Wars: Gibson's Paradox & The Gold Standard: "We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake." "Therefore, at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded." It appears da boyz still play with their little toys - not fully cognescient of the power and responsibility of their actions. The gold and silver bull markets are alive and well. They will remain so. Intermediate term corrections actually make them stronger. Positions move from weak hands to stronger hands. Higher lows form and build a stronger base from which the next assault to new highs occurs. In a gold bull market, the higher lows are more important than the higher highs. As long as higher lows remain in place - higher highs will naturally follow. Back in November of 2005, we wrote The Charts Are Talking. Who's Listening? At that time, we showed a bevy of cup and handle formations that appeared to be indicating that a breakout in the gold and silver stocks was most probable. The XAU was at 110 the HUI at 231. On February 2, 2006, we penned another paper titled: The Charts Are Talking: Is Anyone Listening? At that time the HUI was at 340 - today it is at 348. We stated that the markets were just beginning to get a bit frothy and warranted the awareness of such. "That is what disciplined traders do during rallies in bull markets: they sell into strength, and buy during weakness. This is how one prospers in a gold war. If further upside action occurs, we will continue to do the same with a minimum of one third, and a maximum of two thirds, of our trading portfolio. That does not mean that a correction is going to start tomorrow, as once again, no one can predict the future. What it does mean is that to stay disciplined and focused, by selling into strength, and buying on weakness - that is what matters: money management and asset allocation." Our position remains the same. We have repeatedly sold into new highs and near new highs As of now we are sitting on the sidelines waiting for a much better entry point that we believe will be coming for the gold and silver stocks. Since we place booked trading profits into accumulating physical gold and silver we are quite content, especially as we said months ago - it looked like silver was poised to outperform gold and we favored silver. Silver cooperated nicely. Lastly, we agree with Michael Bolser - this is a Gold War. They have once confiscated all personal gold holdings, and at another time reneged on paying their contractual obligations to foreign nations to settle their account balances with gold bullion as they had pledged. This was Nixon's contribution to world betterment. Gold is strong and gold will win this war, but remember all great warriors learn to retreat during certain battles - to regroup and become stronger to return another day - to win the war. Even Shaka Zulu used the deadly effectiveness of this ploy. Caveat Emptor. Expect the unexpected and be prepared. ///// http://www.gold-eagle.com/editorials_05/mauldin041506.html The Power of Compounding /////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Duncan	16-Apr-06, 03:43 PM (GMT)
10. "it is the results that count."
Good Morning, Please find here the link to the latest issue of the Investment Commentary. Please download the pdf file by clicking on the following link: http://www.samariumgroup.com/downloads/Investment-Commentary.pdf (The link has been checked for viruses and worms, and does not contain any malicious software according to the latest scan) Happy Eastern. Sincerely, Dr. Volkmar G. Hable http://www.safehaven.com/article-4979.htm ///// http://bigpicture.typepad.com/comments/ The Basic Tenets of My Investment Consciousness in Apprenticed Investor | Investing | Psychology/Sentiment | Trading Doug Kass published a terrific column -- a list of sorts -- of his investment tenets. The concepts that form the basis of his investment process, as he wrote, are "admittedly simple to write about, but more difficult to execute." Here's an excerpt from this very instructive list (you can read it in entirety here). Know Thyself, Work Hard and Don't Get Emotional - If you don't know yourself, Wall Street is a poor place to find yourself. - The hedge fund biz is survival of the fittest, the smartest and the most practical. - Do not get emotional in making investments and however eloquent the strategy is, it is the results that count. The Investment Process Is Methodical - Write a brief synopsis of each investment analysis/conclusion. - Keep all your charts, reflect on past mistakes/successes. - A combination of fundamental and technical input is usually a recipe for investment success. - Logic of argument and power of dissection are the two most important ingredients in delivering superior investment returns. Stay Objective and Independent - Neither be a Cassandra nor a Sunshine Boy! - Within limits, stay independent in view. - equilibrium is rarely observed in the stock market. -"Participants perceptions are inherently flawed" -George Soros. Investment Discipline Is Key - Let your profits run and and press your winners - Knowing when to seize opportunity is one of the basic principles to investing. - stop your losses as discipline always should trump conviction. - Always sell what shows you a loss and keep what shows you a profit." -Edwin Lefevre, Reminiscences of a Stock Operator The Past Is Not Necessarily Prologue to the Future - History should be a guide, but not a jailer. - There is little permanent truth in the financial markets. - Change is inevitable and change is constant. - Do not extrapolate the trend in fundamentals in your company analysis nor in the trend in stock prices. - Be independent of analytical and investment conclusions - Be greedy when others are fearful and fearful when others are greedy - Always remember that holding on to a variant view has outsized risk as well as outsized reward. Risk and Reward Should Be Assessed Properly - Remember risk/reward is asymmetric. - Long positons can climb to indefinite heights and only lose 100% of the value. - Buy value, but only with a catalyst. - When longs have high short interest ratios, investigate the bear case completely. - In shorting a stock, remember risk/reward is asymmetric. - A short can only return 100% (a bankruptcy) but can rise to indefinite heights. - Never make conceptual shorts without a catalyst. - Avoid shorts when the outstanding short interest exceeds five days of average trading volume. - Use leverage wisely -- but rarely - Financial markets are inherently unstable. - Leverage can deliver superior investment returns, but it can also wipe you out. - Only the best of the best consistently time the proper use of leverage. Knowledge of Accounting Is a Must but Meetings with Management Have Little Value - There is no substitute for a thorough knowledge of financial accounting. - Accounting can be misleading, opaque and unaccountable, but free cash flow rarely lies. - "Corporate managers lie like Ministers of Finance on the eve of devaluation." -Warren Buffet, Berkshire Hathaway letter Be Open to Others' Ideas but Rely on Your Own Analysis - Always be self critical. - Once your view is formulated, be open to criticism from others that you respect. - Take criticism and test your thesis (constantly). - Bullheadedness will get you into trouble in the investment world. Only Invest/Trade When Distractions Are Limited - Invest/trade/speculate only if you are not dependent upon the investment profits to maintain your standard of living. - A stable personal and financial life is a necessary ingredient to investment success. - Take vacations and smell the roses. When you return you will be rejuvenated and a better investor/trader. - Be well rested and in good shape physically. - Keep your investment expectations reasonable - Expect to make mistakes as perfection is not attainable. - Chase perfection; the byproduct will be investment excellence. Read and Learn From the Best - Learn from those investors that have excelled - Read and re-read the classic books on investing. > Terrific advice . . . Thanks, Doug! > Source: The Basic Tenets of My Investment Consciousness Doug Kass Street Insight, 4/10/2006 7:54 AM EDT http://www.thestreet.com/markets/activetraderupdate/10278406.html Sunday, April 16, 2006 | 07:14 AM | ///////
Remove | Alert	Edit | Reply | Reply With Quote | Top

Lock | Archive | Remove

Lobby | Topics | Previous Topic | Next Topic

Select another forum Lobby Futures Indices (Public/Moderated) (Conference)   |--Current Daily Commentary (2005) (Public)   |--Daily Commentary 2004 (Protected)   |--Daily Commentary 2003 (Protected)   |--Daily Commentary 2002 (Protected)   |--Daily Commentary 2001 (Protected)   |--Daily Commentary 2000 (Protected) Members (Private/Moderated) (Conference)   |--Recommended Reading List (Private)

Powered by DCF2000 ©1997-2000 by DCScripts. All rights reserved.