Jan 21, 2005
MARKET NEWS DIGEST
-> Gold Rises, Oil Costs Boost Metal as Inflation Hedge -BL
-> Warren Buffett sees no way but down for US dollar -AFP
-> Stocks flounder on earnings jitters -CBSMW
-> CPI posts biggest rise in 4 years -CNN
-> Analysts Fear Buying of Overvalued Stocks
-> Slow Job Growth Shadows Sunny Economic Forecasts -FOX
-> Gold price to reach the highest level since 1981
-> New bull market in stuff, not stocks -CRS
-> Real assets create real riches -USATODAY
-> 4 ECONOMIC PROPHETS OF DOOM -Forbes
-> WorldCom's Audacious Failure and Its Toll -NYT
-> "Templeton Curve" helps decipher Social Security reform
-> Church Leader Blames Abortion for SS Crisis
FOUNDERS QUOTE OF THE WEEK
"Religion in a Family is at once its brightest Ornament & its best Security."
Bush Inaugural Message Marked by Hope -AP
Jan 20, 2005
By DEB RIECHMANN and DAVID ESPO
WASHINGTON (AP) - George W. Bush stood at the brink of a second term in turbulent times on Thursday with a pledge to seek "freedom in all the world" as the surest path to peace.
"In a world moving toward liberty, we are determined to show the meaning and promise of liberty," the nation's 43rd president said in inaugural address excerpts released in advance of the noontime swearing in at the Capitol.
Bush awoke before dawn in the White House, the nation's cold capital under security so tight that 100 square blocks were sealed off to traffic.
The president, his wife Laura and their twin daughters, Jenna and Barbara, traveled by motorcade to St. John's Church a few blocks away for the traditional pre-inauguration prayer service.
MARKET NEWS DIGEST
Jan. 21 (Bloomberg) -- Gold prices in New York rose for the first time in three sessions as rising energy prices boosted the appeal of the precious metal as a hedge against inflation.
Crude oil rose today on speculation that violence in Iraq could further disrupt oil exports and that freezing weather in the U.S. may last longer than forecast. Gold reached a 16-year high of $458.70 on Dec. 2 partly because crude oil soared to a record $55.67 a barrel.
``Early strength in the energy market is supporting gold,'' said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis. ``Energy prices will drive inflation and gold serves as an inflation hedge.''
Gold futures for February delivery rose $1, or 0.2 percent, to $423.60 an ounce at 9:43 a.m. on the Comex division of the New York Mercantile Exchange. Prices have gained 30 cents this week. A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
Prices for crude oil, trading at $47.77 a barrel today, may rise next week as colder weather in the U.S. Northeast drains heating-oil stockpiles, and attacks by insurgents in Iraq increase concern about supply cuts before the Jan. 30 elections, according to a Bloomberg survey.
U.S. consumers paid 3.3 percent more last year for goods and services, the biggest gain in four years, the Labor Department said on Jan. 19. Some investors buy gold in times of inflation, which erodes the value of fixed-income assets, such as bonds. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.
Higher oil prices, which surged 34 percent last year, also contributed to a wider U.S. trade deficit. The trade gap unexpectedly grew to a record $60.3 billion in November as demand for oil and consumer goods pushed imports to a record.
Gold, sold in dollars, rose 5.4 percent last year as the U.S. currency fell to a record against the euro on concern more dollars may have to be converted to other currencies to pay for imports.
``What happens with the dollar is going to have considerable importance with what happens with gold,'' Vaught said. ``When you have increasing inflation, the currency tends to lose buying power.''
1-21-05 -- Dollar Weakens as Consumers Turn Gloomy> -Reuters
CPI posts biggest rise in 4 years -CNN
Biggest annual gain since 2000 is capped by December dip due to retreat in energy costs.
January 19, 2005
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - Consumer prices rose 3.3 percent last year, the biggest increase in four years, after a slight decline in December, the government said Wednesday.
Energy costs, which jumped 16.6 percent last year, were the main culprit for the rise -- the biggest in the Consumer Price Index, the government's main inflation gauge, since a 3.4 percent rise in 2000, right before the 2001 recession cooled off prices.
The Labor Department said a 1.8 percent retreat in energy prices in December led to a 0.1 percent drop in CPI in December following a 0.2 percent November increase. It was the first fall in CPI since July. Economists surveyed by Briefing.com had forecast an unchanged reading for December.
The so-called core CPI, which excludes often volatile food and energy prices, rose 0.2 percent in the month, matching November's increase as well as economists' forecasts.
For the full year, core CPI posted a 2.2 percent increase, the department said in its report.
Core CPI is closely watched by economists and policy-makers at the Federal Reserve for signs of inflation. Minutes of the December Fed meeting showed members expressed concern about growing risks of a pickup in inflation.
Only three years since 1966 have seen the core CPI rise less than 2.2 percent, and two of those were 2002 and 2003, when a weak labor market helped keep consumer prices in check.
Even with the pace of inflation picking up last year, and some Fed members expressing concern, most analysts expect the Fed will keep raising interest rates in quarter-point increments rather than boosting them more aggressively. The central bank's policy-makers' next meeting is set for Feb. 1-2.
Warren Buffett sees no way but down for US dollar -AFP
January 20, 2005
The dollar cannot avoid further declines against other major currencies unless the US trade and current account deficits improve, legendary investor and businessman Warren Buffett said.
"I think, over time, unless we have a major change in trade policies, I don't see how the dollar avoids going down," the world's second-richest individual told CNBC television.
"I don't know when it happens. I don't have any idea whether it will be this month or this year or next year, but we are force-feeding dollars on to the rest of the world at the rate of close to a couple billion dollars a day, and that's going to weigh on the dollar."
Buffett noted the record US deficit of 164.7 billion dollars in the third quarter of 2004 in the current account, which measures trade and investment flows.
Buffett, nicknamed the Oracle of Omaha for his investment acumen, has a net worth of some 41 billion dollars, second only to Microsoft chief Bill Gates, according to Forbes magazine. But he said he saw few opportunities in the near term.
"I'm having a hard time finding things to buy, if that says anything about the market," he said.
"If I find something ... tomorrow to buy, I don't give a thought as to whether the market is going up," he added. "I barrel in."
THE IN-CREDIBLE SHRINKING DOLLAR -- 1-20-05 - By Craig R. Smith, SATC -- The U.S. dollar has lost over 40% of it's buying power since 2001 -- and that's under Bush's "strong dollar" policy! Can you image what's ahead over the next four years for the heavily indebted dollar? I can: "Trouble!" A surging cost of living! 'We the People' are the ultimate victims of the shrinking dollar. Get ready for Phase II of the gold bull market!
Stocks flounder on earnings jitters -CBSMW
GE, UTX results can't mask lackluster week for earnings
By Mark Cotton, MarketWatch
Jan. 21, 2005
NEW YORK (MarketWatch) - U.S. stocks extended losses in afternoon trading Friday as strong quarterly results from General Electric and United Technologies could not erase what has been a very mixed week for earnings.
The Dow Jones Industrial Average was last down 70 points at 10,401, off an early high of 10,512.18.
The benchmark index remains on track to open the year with three straight weeks of losses, an event not seen since 1982. In that year, the Dow fell 3.4 percent in those three weeks but ended up 20 percent on the year.
Turning back to Friday's Dow movers, losses for Procter & Gamble, 3M and Boeing Co were weighing heavily on the index.
General Electric saw early gains fade as its better-than-expected earnings failed to act as a bulwark against the broader market downturn. GE was last down 0.1 percent.
The Nasdaq Composite Index dipped 8 points to 2,038 after closing Thursday at its lowest level in more than two months.
The S&P 500 Index ticked slipped nearly 4 points to 1,171.
"There was some unsettling news with regards to consumer sentiment and there is still the reverberation of some of the more disappointing earnings news this week, which more than anything else has proved troubling for the market," said David Sowerby, portfolio manager, at Loomis Sayles.
In morning trading, stocks came off early highs after researchers at the University of Michigan said consumer sentiment eroded in January.
The university's consumer sentiment index fell to 95.8 in January from 97.1 in December. The increase was below the consensus forecast of Wall Street economists who had expected sentiment to rise to 97.4. See full story.
Dollar, gold, bonds, oil
In the currency markets, the dollar extended its losses against the euro and turned lower against the Japanese yen as the weak sentiment data left some traders betting that the Fed might pause its policy of raising interest rates at a measured pace.
Gold futures ended higher, marking their highest closing level since early January, as expectations of lasting weakness in the U.S. dollar and broad market uncertainty fueled investment and physical demand for the precious metal.
The benchmark February gold contract was up $4.30 at $426.90 an ounce.
Dow set for worst new-year losing streak since '82 - NEW YORK (Reuters) - The Dow Jones was looking set to close lower for the week Friday -- marking the first time in more than 20 years it has fallen for the first three weeks of the start of a year. Dow Jones Indexes said the last time the Dow had fallen for the first three weeks of a year was 1982. A weak January could set the tone for the months ahead, said Robert Drust, managing director of listed trading at regional investment bank Wedbush Morgan. "It seems to me that it sets the tone for how people will position themselves for the coming months," he said. "I think traders have been disappointed with what's going on in January and will be more cautious going forward and less likely to buy on the dips."
Analysts Fear Buying of Overvalued Stocks -AP
Jan 15, 2005
By MEG RICHARDS, AP Business Writer
NEW YORK - Even as market experts forecast modest returns for 2005, investors have snapped up shares of stocks that appear overvalued - a troubling sign that suggests people are pinning their hopes on short-term momentum instead of long-term fundamentals.
The broader market sagged during the year's first two weeks of trading, but even on days when the major indexes were weak, investors showed great interest in stocks like Sirius Satellite Radio Inc., Taser International Inc. and other issues with questionable potential. The fact that so many are so excited about companies offering so little makes some more conservative analysts nervous about a rise in speculation.
"The momentum monkeys are back. 'It's going up? Let's buy it,'" said Jeffrey D. Saut, chief investment strategist at Raymond James & Associates. "This is very reminiscent of what was going on in some of the bubble years. Most people have not accepted the fact that we're in a low-return environment."
Saut considers Sirius, Taser and other issues that have developed strong followings despite minimal earnings, or even losses, to be "cult stocks." Since their gains are driven by momentum, these stocks tend to be quite volatile. Shares of Sirius, which needs to quadruple its subscribers to become profitable, were trading around $2 during the August lows, surged to more than $9 last month, and are now hovering near $6.50 - despite the company's lack of earnings.
Taser, which does have positive earnings, has also gyrated, from an August low of less than $13 per share to a Dec. 30 high of $32.59. Now the subject of an informal inquiry by the Securities and Exchange Commission (news - web sites) regarding the safety of its stun guns and the timing of a recent distribution deal, it is trading for just under $20.
As of Friday's close, the Nasdaq was down more than 4 percent since the start of the year, the Philadelphia Semiconductor Index has shed nearly 7 percent. Yet fear in the marketplace, as measured by the Chicago Board of Options volatility index, or the VIX, has remained at lows not seen since the mid-1990s.
"It's like whistling by a damn graveyard," Saut said. "You've got rising inflation, waning economic momentum, waning earnings momentum ... I feel like I'm from a different planet. How can we all eat at the same table and then disagree about what's been served? I look at some of this stuff, and the valuations make no sense to me."
When droves of investors seem to be following a "buy high and sell higher" theory of investing, it's difficult not to get swept up in the excitement, said Ken Janke, chairman of the National Association of Investors Corp. But if you're a long-term investor, leaping in on a fad is almost always a mistake.
"There is probably always room for some speculative stocks on the market," Janke said. "But it scares me. I don't want any percentage of large investments in my own portfolio in those stocks. I want ones with proven growth records and good managements in place."
1-17-05 -- Nasdaq market continues to shed stock listings - Matt Krantz, USA TODAY...Despite 2004 being a banner year for companies going public, best since the boom of 2000, the number of stocks on the Nasdaq Stock Market continues to fall. There were 3,271 companies trading on the Nasdaq at the end of last year, a decrease of 1.9% from 2003 and the eighth year of erosion. ...
Slow Job Growth Casts Shadow Over Sunny Economic Forecasts -FOX
January 16, 2005
By Susan C. Walker, FOX News
Midway through January, and the economic forecasts for 2005 are in.
The Conference Board predicts annual real gross domestic product (GDP) of 4.7 percent. That number represents the high end of the range, as a group of economists surveyed by The Wall Street Journal pegs it at 3.6 percent, while the White House declares it will be closer to 3.5 percent.
And here's some good news for those who are worried about inflation: the Federal Reserve says that "inflation and longer-term inflation expectations remain well contained."
So, decent GDP growth with few worries about inflation � the kind of reassuring outlook that says all will be well in 2005. Except for one thing: slow job growth.
A pessimistic report for job growth in 2005 got buried under the more optimistic economic forecasts. It's been lurking around since Dec. 17, when the White House announced it was scaling back its expectations for U.S. job growth. Instead of the 3.6 million new jobs it had projected for 2005 in early 2004, it now projects 2.1 million new jobs.
Let's take a look back to the beginning of 2004 to find out what the outlook for job growth was then. On Jan. 2, 2004, The Wall Street Journal reported that 54 economists it surveyed believed that "rising corporate profits and steady economic growth are expected to prompt companies to hire workers more aggressively in the months ahead."
But in July, the Christian Science Monitor (search) published a story on the economy that stated: "So far this summer, the job market is the economy's weakest link." Following a good report in October of 312,000 new jobs (revised), the latest report from the Bureau of Labor Statistics (search) was little more than half that number, coming in at 157,000 new jobs created in December. Wall Street had been expecting 175,000 new jobs for the month.
Here�s the point: This economic recovery is creating new jobs (and 2004 was the best year since 1999), but it's not creating enough new jobs to support a full recovery from a recession. And no one � not private-sector economists, not academic economists, not Council of Economic Advisors economists � had forecast such a scenario.
A recent BLS publication, based on November 2004 jobs data, starkly highlights this fact. In November's "Current Employment Statistics Highlights," one chart compares data that reflect job growth following the 2001 recession with average job growth following all earlier U.S. recessions combined. Guess which line shows a strong upward curve? Unfortunately, it's not the one representing job growth after the 2001 recession.
The BLS points out that "the recovery that followed the 2001 recession is not only less robust when compared [with] all other recessions, but employment still has not fully recovered." In fact, 44 months after other recessions, on average, the U.S. economy created more than 4 percent more new jobs compared with the business cycle peaks before the recessions started. Yet, the current economy has yet to add the same percentage of new jobs it was creating at the peak in March 2001.
That's bad news. And what's really been an eye-opener is that this job growth picture continues to be dismal despite the Bush Administration's tax cuts. So dismal that the president's economists on the Council of Economic Advisors (search) (CEA) had to recast their job growth numbers downwards for 2005.
Here's why: The White House had projected job growth of about 300,000 per month for 2004. Instead, the numbers came in at about 185,000 per month. So, the administration now forecasts that job growth will come in at an even lower average amount in 2005: about 175,000 per month, according to the Dec. 17 press release from the CEA.
These are not the kind of numbers the administration thought it would be looking at when its tax-cut package took effect a year and a half ago in July 2003. Back then, the CEA economists had mapped out a much faster clip of job growth, coming in at 228,000 jobs a month without a tax cut and 306,000 jobs a month with the tax cut, as noted by the Economic Policy Institute, a nonpartisan think tank that has been tracking the effect of the tax cuts on job growth.
So, here's the real bottom line: Not only has job growth not met the CEA's projections for the economy following the tax cuts, it hasn't even met the projections that do not include the tax cuts.
In fact, on its Job Watch site, the institute points out that with the final job growth numbers in for 2004, "(t)he final verdict is grim. Job growth over the last 18 months has fallen short by 1,703,000 � more than one-third less than the number of jobs the administration said would be created without the tax cuts."
That's how frustrating and difficult this economic recovery has been.
Gold price to reach the highest level since 1981 -BR
January 17, 2005
By Stuart Wallace, Business Report
London - Gold prices will reach their highest level since 1981 this year as a weakening dollar boosts demand for the metal as a store of value, Deutsche Bank has said.
The bank has also increased its estimates for aluminium, coal and iron ore prices.
Gold in 2005 would average $458.80 an ounce, 7 percent more than a previous estimate, Deutsche Bank said in a report dated January 13.
The average next year would jump to $490.30, the highest since 1980, according to Europe's third-largest lender.
Gold closed down $4.10 at $422.50 an ounce in London on Friday. The metal's average price rose 13 percent last year to almost $410 an ounce, the third annual gain, as the dollar fell against all major currencies.
"Further weakness in the US dollar as a result of unsustainable external imbalances and only measured return to a positive real interest rate environment in the US is expected to be particularly beneficial to dollar gold prices," said London analysts John MacKinnon and Tama Willis.
The forecast for this year's gold price was higher than the $435 median from 37 analysts surveyed by Bloomberg last month.
Estimates ranged from $395 to $550. Frankfurt-based Deutsche Bank had the seventh-best mining analysts in 2003, with UBS, ABN Amro Bank and Merrill Lynch the top three, according to the Thomson Extel survey.
London-based precious metals research group GFMS said on Friday that gold prices would probably rise to a 16-year high by July and average $447 an ounce in the first half.
Gold climbed to $454.20 in December, the highest price since June 1988. The average price was $614.49 in 1980.
"The kind of buying you can see from speculators and funds could take the gold price above $500," said Gillian Moncur, an analyst at London-based consultant CRU International. "The dollar remains the dominant factor."
The euro touched a record high of $1.3666 on December 30. The dollar's value has eroded as US trade and fiscal deficits have widened.
The US trade gap unexpectedly grew to a record $60.3 billion in November. The federal budget deficit was a record $412.3 billion in 2004.
The dollar in 2005 might end a three-year decline against the euro as the Federal Reserve adds to its five interest rate increases June, a Bloomberg survey notes.
Deutsche Bank also raised estimates for aluminium and coking coal prices for this year and next because of expectations that global industrial production will be above average.
The aluminium estimate for 2005 was raised 6 percent to $1.92/kg, and for next year by 10 percent to $1.87/kg.
The bank increased its coking coal estimates by 39 percent, to $125 a ton this year and $118.80 a ton in 2006. Iron ore estimates for this year and next were raised by 7 percent, Deutsche Bank said.
"An extended period of strong growth in China, renewed strength in the US economic outlook in 2005 and a rebound in Japanese and euro zone growth in 2006 are set to deliver another two years of above-trend global industrial production growth," the bank said.
New bull market in stuff, not stocks -CRS
By Craig R. Smith, CEO SATC
Jan 19, 2005
Thanks to the excellent article by John Waggoner in USA Today, Real assets create real riches, I feel more confident than ever regarding the new bull market in gold, silver and other commodities. John sums it up well ...
"Some of the sharpest minds on Wall Street are betting that you'll make more money in metals than Microsoft the next few years. The new bull market is in stuff, not stocks, they say. We're talking about land and oil and gold, the commodities that once made John Jacob Astor, John D. Rockefeller and the Hunt brothers very rich men."
So, tangible "stuff" is where the big money is moving and that means we are still in the early stages of a bull market that could last another decade. This is excellent news for the individual investor IF they are willing to first invest some time to learn before earning.
LET'S APPLY SOME COMMON SENSE
Common sense seems to have become rather uncommon in today's complicated world. Therefore, when faced with financial decision, I find it is best to look at the facts objectively first and discover the truth myself using my common sense. Then, after I am confidence in my decision, I often will seek someone trustworthy to see if it makes sense them as well. This process of using common sense has served me well over the years most of the time.
Common sense says that understanding America's economic future must be based on an accurate assessment of the present, and a working understanding of the past.
Today the undeniable economic fact is that America has become a
debtor nation, as evidenced by ...
1) The world's confidence in the U.S dollar is faltering, nevertheless they loan us more.
2) The world loans us about $1.8 B per day, totaling about $7.6 Trillion.
3) The U.S. government debt of over $44 Trillion -- between Medicare and Social Security 'Trust' Fund.
4) The U.S personal debt has grown to a staggering $9.3 Trillion.
Add it up and we have about $60,000,000,000,000 (Trillion) in acknowledged U.S debt. Divided by roughly 100,000,000 employed U.S households and you get about $60,000 debt per household - up from $25,000 just a few short years ago.
My point is that common sense says that borrowing from tomorrow to pay for today is dead wrong -- yet we whistle by the graveyard, pretending that we are "Donald Trump" wealthy -- that is, for appearance sake only. Americans, like the central bankers who pull the big money strings, pretend that they are above the laws of economics. But they and we are not. It is this type of American pride that could bring this debt-driven economic house of cards down.
THE "MONEY" CONFIDENCE FACTOR
Confidence is defined as believing in someone or something that is trustworthy, OR belief in truth or the reality of a fact.
All true money must be derived from a commodity, or at least have a substance to back it up, or it will gradually become fraudulent, or "fiat" money and then, over time public confidence erodes the value of the "money" -- internationally first, then domestically.
Have you seen the chart for the U.S. dollar recently? It sure does not look like a "strong" dollar to me -- especially if you look at a dollar chart spanning the last 92 years, since the FED first started "helping" the government maintain public confidence in the dollar.
Historically, the most common substance used as a medium of exchange and a store of value has been gold or silver coins of a standard weight and fineness.
The U.S. Coinage Act of 1792 specifically defined a "dollar" as "one twentieth of an ounce of gold (25.8 grains of 90 percent fine) or a silver coin containing one ounce of silver (421.5 grains of 90 percent fine)."
The Founding Fathers specifically prohibited the federal government from issuing Bills of Credit, (paper money) in the U.S. Constitution.
"Congress shall have Power to coin money and regulate the value thereof ... No State shall make any Thing but gold and silver Coin a Tender in Payment of Debts." -Art.1 Sec. 8 & 10
America's system of constitutional, commodity-based money functioned well in our nation for 125 years, from 1792 to 1913. Then "We the People" made a big mistake - we allowed a privately owned corporation called the Federal Reserve to begin creating paper money instead of gold and silver coins as the Constitution requires.
The Federal Reserve's monetary manipulation began with a promise to create paper money that could always be redeemed for commodity money - gold or silver coin. This 100 percent redeemable money is referred to as fiduciary or "trust money."
The creation of fiduciary money assumes that the promise of payment in substance by the issuer is redeemable at some future point. Trust money was used as a medium of exchange even though it consisted largely of an intrinsically valueless substance - paper.
Since the U.S. government was prohibited by constitutional law from issuing this trust money, the Fed - a private corporation - was created to soften and manipulate the economic down-cycles in 1913. The price we have paid is surrendering our substance money (gold) for trust money (credit/debt). In my view, central bankers took the mine... and we got the shaft. Why do I say that?
History has proven time and again that neither bankers nor governments possess the discipline needed to limit the amount of credit (or paper money) to equal the true supply of gold and silver coins. So the supply of paper money (credit/debt) must continually rise.
The result is always disastrous in the long term because the economy suffers through cycles of inflation, deflation, artificial growth, recession and depression. Because U.S. citizens did not protest the use of trust money, our economic system then began to degenerate into untrustworthy or fiat money.
WELCOME TO THE NEW COMMODITY-DRIVEN ERA
So, what's next. Inflation? Stagflation? Should you adjust your portfolio to reflect this 21st century shift from a "stock-driven era" to a new "commodity-driven era"? USAToday again sums it up well ...
"A new inflationary cycle is starting ... The Federal Reserve, desperate to head off recession from 2001 through 2002, flooded the economy with money, primarily by making loans dirt cheap. In addition, we have a massive federal deficit. That, combined with easy money, has weakened the value of the dollar but driven up commodity prices. All this signals not-so-good news for stocks. The bottom line is that rising commodities prices mean higher expenses for most companies. Higher expenses mean lower earnings, and lower earnings mean lower stock prices."
In the meantime, Kevin Lipton reports that both collectors and savvy investors are snapping up high quality numismatic U.S. coins at record prices and in record volume. Last week's national trade show in Florida, sold over $77M of rare coins in three days.
As we pointed out in our 21st Century Investment Scorecard, tangible assets that you can touch, see or taste - have soared. While the CRB index of commodities is up 36% since the end of 1999, gold bullion is up 54%, U.S. rare gold coins are up 230%, silver bullion is up 30%, while rare silver coins are up 76%. Clearly the higher quality gold and silver coins have outperformed their bullion counterparts, as we have often told our readers.
WSJ: MORE MONEY IN COLLECTIBLE COINS THAN METALS
Wall Street Journal recently published "Investors Flock to
Coins Amid Rising Metal Prices" By JEFF D. OPDYKE in December
2004, saying ...
"Rare coins are starting to attract investors more at home with stock brokers than coin dealers. The interest in coins comes as sophisticated investors are increasingly looking for assets outside of the U.S. stock market, which many market observers expect to post only modest gains during the coming year. In buying rare coins, individuals not only acquire a collectible asset, but they are also getting exposure to precious metals. The prices of gold and silver, from which many popular U.S. coins are made, are both rising smartly...Of course, you don't have to be rich to invest in coins. In fact, the lower end of the market is booming, too. "
Now if that is not good news for the small and medium size investor, I don't know what is. Morgan Silver Dollars were the top performing tangible asset in 2004, up 54%! But I believe that the best is still yet to come. As financial reckoning day approaches, all roads will lead to metals in general, and high quality numismatic gold and silver coins specifically. As for Microsoft, well it may be tops on the NASDAQ, but it will likely play second fiddle to the new bull market in tangibles.
Please take some time to consider the advantages of owning some tangible U.S. gold and silver coins, not just for profit potential, but for safety and privacy. Remember, the proof is in the pudding, not a paper promise of pudding later. I am very proud to have a staff and brokerage team that is 100% dedicated to helping America rediscover all of the advantages of owning gold and silver in the 21st century.
Some of the sharpest minds on Wall Street are betting that you'll make more money in metals than Microsoft the next few years. The new bull market is in stuff, not stocks, they say.
We're talking about land and oil and gold, the commodities that once made John Jacob Astor, John D. Rockefeller and the Hunt brothers very rich men.
Stocks have languished the past five years, but commodities -- real assets that you can touch, see or taste -- have soared. The Commodities Research Bureau index, which measures a basket of commodity prices, has gained 36% since the end of 1999. The Standard & Poor's 500-stock index, which measures the performance of a basket of high-quality stocks, is down 20%.
A soaring commodities cycle can go on for "years, if not decades," says John Brynjolfsson, manager of Pimco Commodity Real Return Strategy fund, one of the few mutual funds that invests in commodities futures.
That means we could be in the early stages of a seismic shift in the financial markets: a bull market in commodities that could last another 10 years. A rip-snorting market in sugar, steers and steel would send shivers through Wall Street. "When you have a bull market in commodities, you don't have one in stocks," says Jim Rogers, co-founder of the Quantum fund, a high-octane hedge fund.
That has sent investors flocking to commodities. Volume on the commodities exchanges is soaring. Trading in agricultural futures at the Chicago Mercantile Exchange rose 15% last year. Overall commodities trading rose 31%, vs. 12% for the New York Stock Exchange.
For the most part, investing in commodities is a route the well-off take to greater wealth. Already, the latest commodities run-up is creating a new generation of land and oil barons among the USA's richest people. But even little-guy mutual fund investors are being lured by the call of gold, coal and real estate.
Learning from the past
The last big boom in commodities began in the 1960s, as late as 1982, when the cycle was almost finished. Many of the nation's self-made millionaires -- people such as Marvin Davis and T. Boone Pickens -- had made their money in assets such as land or oil. One of the most popular TV shows of the era, Dallas, was centered around an oil baron, the nefarious J.R. Ewing.
But by 1999, most of the wealthiest had made their money through initial public offerings of telecommunications, software and computer companies.
Now, five years later, talk about a change in fortune: Most of the 45 new members of the 2004 Forbes 400 list of the nation's wealthiest people made their fortunes not through stocks but stuff such as natural resources, hotels, shoes and sandwiches.
Dan Duncan, for example, made his $4.2 billion in natural gas. Leonard Blavatnik got his $2.4 billion in oil, coal and real estate. Evgeny "Eugene" Markovich Shvidler rode oil to his $1.8 billion.
Only four of the 2004 newbies made their fortunes in technology.
Suddenly, investing in commodities no longer seems quite as unsavory to investors, and they are drawing a lot of people with a lot of money.
The number of commodity pools -- mutual fundlike vehicles for investing in futures -- has soared to 3,500 from 1,714 five years ago.
"Five years ago, if I showed our products to 100 clients, we'd have 20, 30 new investors," says Craig Caudle, whose Liberty Funds Group in Lubbock, Texas, puts together commodities pools. "Today, it would be closer to half, maybe even higher."
Commodities pools, as are hedge funds, are designed for high-net-worth investors -- people with net worths of $1 million or more. Typically, those people rely on financial advisers to steer them toward commodities, Caudle says. That's where most of his new clients are coming from.
Institutional money managers, who invest for pensions, trust funds and other big pots of money, are dipping their toes into the commodity pool, as well.
The Harvard Endowment is devoting 13% of its assets to commodities, for example, and the Ontario Teachers Pension fund has put about 6% of its assets in commodities. And $25 billion in institutional money is now benchmarked to the Goldman Sachs Commodity Index, up from $8 billion in 2000.
Even small investors are showing interest in commodities. "Everyone has a brother-in-law who bought soybeans and lost his shirt," says Rogers, author of Hot Commodities, an investment book. But a few mutual funds, such as Pimco Commodity Real Return and Oppenheimer Real Asset, have brought limited commodity trading to small investors.
StreetTracks Gold Trust, an exchange-traded fund that invests only in gold bullion, has seen its market value soar to $1.3 billion since its debut in November.
It's no wonder commodities have been pulling in investor money. Prices for commodities have been going through the roof. Oil prices soared as high as $55 a barrel in 2004, up from $32.52 at the start of the year. But oil isn't the only hot commodity these days. Copper has gained 30% ; hogs are up 45%.
There are two reasons for the climb in commodities prices:
* Demand is outpacing supply. Consider lead. Its price soared to $976 a ton last year, its highest ever. That's despite the fact that two major uses for lead, as an additive to gasoline and to paint, have disappeared. What's pushing up prices? Lack of supply. Lead production in the USA fell to 237,000 tons the first six months of 2004, from 266,000 tons the first six months of 2003.
"In the 1980s and 1990s, you had people calling you about hot stocks, but not one person called you with a hot lead mine," says Rogers. "But lead mines deplete, and there has only been one new lead mine opened in 25 years. No one has invested in production capacity."
Overall, the USA had 82 active metals mines as of June, down from 92 in 2002, according to the U.S. Geological Survey. Gold production fell to 226 tons in 2003, vs. 331 tons in 1993. Copper production dipped to 1.1 million tons in 2003, from 1.8 million tons 10 years earlier.
And you can't just open a new mine. You first have to find the metal you're looking for. You have to figure out if the location makes economic sense. Then you line up investors and get government approval before you turn the first dirt. On average, it takes five to seven years from discovery to production.
In the meantime, consumption is growing. The war in Iraq is one factor. "War has never been good for anything but commodities," Rogers says, because the demand for iron, steel, lead and copper soars.
But the biggest driver is China. The Chinese economy grew at a 9.1% rate the 12 months ended in September, the latest data. Its imports rose 39% to $51.1 billion, according to Economy.com. Its total trade � exports and imports � cracked $1 trillion for the first time in November.
* A new inflationary cycle is starting. By definition, inflation drives down the value of paper money but increases the value of real assets.
To create a new inflationary cycle, you have to begin with a surplus of dollars and a shortage of goods. That makes money cheap and commodities expensive. Commodity bulls say that's happening. The Federal Reserve, desperate to head off recession from 2001 through 2002, flooded the economy with money, primarily by making loans dirt cheap.
In addition, we have a massive federal deficit. That, combined with easy money, has weakened the value of the dollar but driven up commodity prices. For example, it now takes $1.33 to buy a euro, up from 86 cents in 2002. But gold, the premier real asset, has soared above $425 an ounce from a low of $255 in 2001.
Inflation hawks argue that neither the Federal Reserve nor the bond market will allow inflation to rekindle. But it's tough to snuff out once it gets started, because large segments of the population would love a whiff of it.
Farmers, for instance, are helped because inflation increases the value of their commodities, crops and land. The same goes for mining and mineral companies. Rising inflation is linked to rising employment and higher wages.
Politicians find it hard to muster support for inflation-fighting measures. "It's hard to get the inflation-fighting backbone needed to fight inflation," Brynjolfsson says.
All this signals not-so-good news for stocks. The bottom line is that rising commodities prices mean higher expenses for most companies. Higher expenses mean lower earnings, and lower earnings mean lower stock prices.
Consider a company such as Kellogg's, the cereal maker. In a period of rising commodity prices, the company would pay more each year for corn, packaging and transportation.
"When the price of raw materials is declining or under control, companies do well," Rogers says. "When commodities are going through the roof, they don't do as well."
Marc Faber, publisher of the aptly named GloomBoomDoom.com Internet site, says the world is now at the inverse of where it was in 1981, at the peak of the last commodities boom. Back then, energy stocks made up 28% of the S&P 500, while financial stocks were 7%. Today, energy accounts for 8% of the S&P, while financials are more than 30%. To his mind, it's time for the cycle to tip back toward real assets.
Rogers figures the bull market in commodities started in 1999 but could still have a long way to run.
"Six years after the bull market started in 1982, most people were not aware of it," he says. "It usually dawns on people slowly that a bull market in commodities has started."
We might be past the dawn of a great commodities bull market. But it could yet be early morning.
2000-2005 Investment Scorecard ... Rare Morgan silver dollar investment-grade coins topped the chart with annual growth of 54% in 2004, followed by rare $20 Liberty gold coins at 31%, rare art at 20%, silver bullion at 15%, residential real estate 10%, Nasdaq 9%, Gold 5.4% Dow +3%, Bonds +3% and CD's +2%. "From a five-year perspective, tangibles look even better," according to Mr. Smith. "Rare $20 Liberty gold coins are now up 230% since the new millennium started, second only to rare art, up 110%." Real estate prices have jumped an average of 47% since 1/2000, while gold bullion is up 54%. "Who says real estate is the only way to hedge market volatility and rising inflation?" says Smith.
4 ECONOMIC PROPHETS OF DOOM -Forbes
JAN 12, 2005
Imagine the future as these experts do: a world where the dollar is scorned, America needs foreign aid, oil is $150 a barrel and big drug companies no longer save lives.
By Dan Ackman, Forbes
The stock market is up and economic growth has been steady, if unspectacular. But, an increasing number of economists are seeing serious storms build on the horizon. They point to ever-growing federal budget deficits, a record trade deficit, increased consumer debt, a real estate market that looks like a bubble ready to burst, a surge in personal bankruptcies and the prospect of inflation.
Meanwhile, interest rates are on the rise, and if they increase much more, many of these problems could get dramatically worse.
Doomsayers tend to be ignored -- until it's too late. Now we're giving four prophets of doom their say.
Doom for the dollar
Could the falling dollar mean we're in for a major financial disaster? Peter Schiff, CEO and chief global strategist of Euro Pacific Capital, thinks so. Banks and insurers check your credit. So should you.
He has been warning about the currency's fall for a while now and believes it will decline even further. But, the dollar's fall is more a symptom than a cause. The real problem is that the United States is producing too little and spending too much.
"We are going to go through one of the most trying financial times in U.S. history, including the Great Depression," Schiff says.
"The basic problem," Schiff states, "is that Americans don't produce enough, and don't save enough." Indeed, over the past 15 years, the savings rate has fallen from over 6% to less than 1% in recent quarters. As a result, the goods that we are consuming are being supplied to us by foreigners. Not only are they producing the goods, but they are lending us the money to buy them, and, in doing so, are driving the U.S. deeper and deeper into debt to the rest of the world, Schiff says.
"We are using dollars that we print to exchange for goods that we don't produce. We have to borrow from abroad as there are no domestic sources of savings, so the value of those dollars will continue to fall."
How bad will it get? "Very bad," Schiff says. The dollar will fall a lot lower than it already has -- dropping by perhaps 50% against the Japanese and Chinese currencies. How will the government respond? Could efforts to forestall the currency decline have a perverse -- and ultimately negative -- effect? No matter what the outcome, Americans will have to consume a lot less and save a lot more. Spending on cars, clothing and electronics will all drop dramatically -- perhaps right out of the economy.
"The further into the future this starts, the worse it will be for Americans," Schiff says.
It's payback time
Almost everyone knows that the U.S. has a growing trade gap and that it has gotten bigger than ever before. But few view the $600 billion gap with the same level of worry as Chris Dialynas, a managing director and portfolio manager at Pacific Investment Management, the giant bond-fund company.
He sees "potential for a dangerous financial crisis" in the situation, one that could even result in a military conflict.
In "Trouble Ahead --Trouble Behind," Dialynas points out that U.S. nonfinancial business debt has roughly doubled since 1994. Over the same period, the U.S. current account deficit soared from approximately 2% of gross domestic product to nearly 6%. The gap is still widening, and Dialynas and other observers, Warren Buffett included, expect it will grow, perhaps to 8% of GDP in a few years.
As a result, he calls for nothing less than a "new Marshall Plan." But unlike the first Marshall plan, the U.S. would be the beneficiary, not the benefactor.
Dialynas calls for not just a 40% revaluation of the Chinese yuan and other currencies but also "the renegotiation or even forgiveness of U.S. debt held by countries with large trade surpluses with America." The alternative, he says, is a "path to ruin and global conflict."
The effect of the debt is that the U.S. is in weaker political position negotiating with allies and other countries. The U.S.'s inability to garner much support for the Iraq war is just one example. Also, the emergence of China and other Asian countries has utterly changed what Dialynas calls the global economic architecture. As China and India start to beef up their economies, they will ultimately begin to assert military power as well.
"People don't build up claims without building up the ability to collect," Dialynas says.
The coming oil crisis
The world economy has gotten fairly comfortable with oil at $45 a barrel. But how will it react to paying $100 a barrel three years from now? Or $150 in five years?
That's what the future holds according to Stephen Leeb, president of Leeb Capital Management and author of "The Oil Factor." The result, Leeb says, will be double-digit inflation -- if we're lucky. If we're not, it will be a severe depression.
"The problem we have is that there are 2.3 billion people in Chindia," Leeb says, using shorthand for a combined China and India. "Today, China and India use 5,500 barrels of oil per person per year, while rich nations use 39. No matter how rosy your thinking is as to the global supply of oil, there is no way there is going to be enough to satisfy the demands of an extra 2.3 billion people coming online."
At the end of 1999, oil was trading for around $10 a barrel. Since then, it has risen by about 29% per year. Simply extending the trend line means that oil will be at $100 a barrel in about three years and at $160 in five years, Leeb says. If prices rise the way they have in the last year, the resulting levels will be even higher, and that's without any major geopolitical crisis in the Persian Gulf or anywhere else. "It's not a heroic position," Leeb says. "But I don't know how you avoid it."
America's other drug problem
Health care is one of the few areas of the American economy where costs are raging out of control. Pharmaceuticals, miracle and otherwise, held the promise of lower costs and better medicine, but the costs of drugs have spiraled ever higher, too. Lately, many drugs have appeared to be unsafe to boot.
In her book "The Truth About the Drug Companies," Dr. Marcia Angell, a senior lecturer at Harvard Medical School, highlights the problem and puts the blame on the big drug companies.
"Prices for the top brand-name drugs are now rising at over three times the inflation rate," Angell says. "At the same time, the number of life-saving innovative drugs has fallen dramatically, as the industry concentrates instead on 'me-too' drugs -- trivial variations of top-selling drugs already on the market.
"Drug companies say they need to charge ever-higher prices to cover their research costs, but they spend far less on research and development than they do on marketing and administration, and afterwards they actually keep more in profits. In fact, for over 20 years, this has been the most profitable industry in the U.S. (It fell slightly last year, from first to third place.)
"This represents an immense transfer of wealth from the rest of corporate America to the pharmaceutical industry.
"This is what I predict: Drug companies will continue their ballet of mergers, which mask the dwindling pipelines of new drugs. There will be fewer companies, and they will be bigger -- much like supernovae before they collapse. They will probably outsource most research and development and instead become giant marketing machines."
WorldCom's Audacious Failure and Its Toll -NYT
By KEN BELSON, New York Times
January 18, 2005
Few executives have helped create and then watched the destruction of as much wealth as Bernard J. Ebbers, the former chief executive of WorldCom.
With resolve and salesmanship, but little training in finance or engineering, Mr. Ebbers built one of the world's largest telecommunications companies - at its peak worth $160 billion. Now, with WorldCom in tatters, he stands accused of masterminding a record $11 billion accounting fraud that toppled the company he created and left investors, former employees and others to pick up the pieces.
It was the largest bankruptcy ever, measured by WorldCom's $107 billion in assets at the time of its filing for bankruptcy protection in July 2002. And the fallout from WorldCom's implosion includes many other telecommunications companies that staggered or collapsed, in part from trying to keep up with the phantom growth pace set by WorldCom.
Once heralded as an outsider who bucked the system and won, Mr. Ebbers has become an outsider in the truest sense: He is millions of dollars in debt, has been widely assailed for his excesses and is treated as an outcast even by some in Mississippi, where WorldCom had its headquarters and where he was once held in esteem for his pluck and foresight.
As far as he has fallen, Mr. Ebbers could lose still more if he is convicted of conspiracy, securities fraud and filing false financial reports in a criminal case scheduled to begin today in United States District Court in Manhattan with preliminary motions and the beginning of jury selection. The trial is expected to last about two months. If convicted on all counts, Mr. Ebbers, 63, faces a prison sentence as long as 85 years.
Regardless of the case's outcome, Mr. Ebbers's business demise continues to reverberate well beyond the courtroom. WorldCom - doing business again as MCI, the company's original name - is half its former size and struggling to survive. And whether or not one believes that he masterminded an accounting fraud, there is little doubt that the telecommunications industry, whose 1990's boom Mr. Ebbers help fuel with his deal making, is in a shambles - riddled with heavy debt, sagging stock prices and network overcapacity.
Phone carriers, emerging from the financial ruins, are relying less on the long-distance and data services that Mr. Ebbers championed, and more on bundles of products like wireless and video that can attract customers with deeper pockets.
"Templeton Curve" helps decipher Social Security reform
New analytical tool graphically displays 75 year cash flows of reform proposals
Let Freedom Ring, Inc. today proposed a new tool to compare the transition costs of various social security reform proposals and their impact on the long-term liquidity of the Social Security Trust Fund.
The �Templeton Curve� is named for Dr. John M. Templeton, Jr., the Chairman of Let Freedom Ring, Inc. (Dr. Templeton is the son of Sir John Templeton, founder of the Templeton Funds, who was recently hailed by Money magazine as the �greatest stock picker of the [twentieth] century.�)
The Templeton Curve plots the cash flow impact of any Social Security proposal. The span of time measured is seventy-five years. The basis for the Templeton Curve is the cash flow analysis portion of the �Financial Effects� studies performed by the Office of the Actuary of the Social Security System. To date, two reform Social Security reform proposals have been scored according to this system by the Office of the Actuary: the Ryan � Sununu bill, also known as the �Social Security Personal Savings and Prosperity Act� and the Kolbe � Stenholm proposal, also known as the �Bipartisan Retirement Security Act.�
�For the first time, the Templeton Curve makes it possible to see the effects of these various complex proposals in terms that are easy to grasp, both visually and conceptually,� said Let Freedom Ring�s President, Colin A. Hanna. �The Templeton Curve is a product of actuarial science, not just a symbolic graphical device like the Laffer Curve,� Hanna explained.
�The Laffer Curve conveyed the idea that tax cuts can sometimes increase tax revenue, and that taxes increases can actually decrease tax revenues. It all depends on where on the curve the current level of taxation falls. Not even Dr, Laffer presented the Laffer Curve as a predictive mathematical model; it was just a graphical representation of a concept. Nonetheless, it was a powerful and effective means of conveying that concept.� The Templeton Curve, on the other hand, is a mathematical representation of an actual policy proposal.
�From a public-policy standpoint, the best thing abut the Templeton Curve is that it puts the matter of transition costs into an understandable perspective. People can see that reforming Social Security by going to large personal accounts rather than small ones, as some so-called reformers have recommended, is not only in the best long-term interest of the worker, it is also in the best interest of the taxpayer.�
As the debate over Social Security reform heats up, and as new proposals emerge, Let Freedom Ring, Inc. will issue Templeton Curve analyses of the major proposals.
�As other reform proposals are analyzed and Financial Effects reports on them are released by the Office of the Actuary, we will produce additional Templeton Curves for them. There is simply no better way for the average citizen to grasp the financial impact of Social Security reform proposals� impacts on both the worker and the taxpayer than to see their Templeton Curves,� Mr. Hanna concluded.
Church Leader Blames Abortion For Social Security Problems -AP
January 17, 2005
SAN DIEGO -- A member of the governing board of the nation's largest black denomination said Social Security is in trouble today because baby boomers aborted much of the generation that would have supported their retirement.
Bishop George McKinney of the Church of God in Christ said, "Part of the problem that we're seeing now with Social Security has to do with the fact that 40 to 50 million people who have been killed through abortions have not taken their role as productive citizens."
McKinney said the Democratic Party's support for legal abortion and gay marriage has cost it support in the black community.
The Church of God in Christ is the nation's fourth-largest denomination -- and the largest black church group -- with about 5.5 million members.
RECOMMENDED BOOK: EMPTY ARMS
(2004 news/views weekly summary
ABOUT THE EDITOR
David M. Bradshaw is Editor of Real Money Perspectives, publisher of Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush (7/01) and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 1997, he produced a one-hour TV documentary, "Preparing Wisely for the Next Millennium," which was distributed free of charge at Blockbuster Video nationally. In 1999, he produced a one-hour radio special, "The Big Picture: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE ... 2004 Reflections: A Year of New Beginnings...and Answered Prayer! NOTE: Youngest daughter Braida Zoe (11-mo old) is now WALKING, clapping, waiving, says her name, "mama" & "dada" to the correct parent.
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.