Al Qaeda Claims to Have Nukes
Killing of leader seen to boost, not cripple Hamas Reuters AlertNet, UK
Introduction to radical Islamic organization of ... - Xinhua
The newest financial terrorist threat
The massive U.S. debt, deficits and Wall Street market over-valuation
FROM OIL FOR DOLLARS ... TO ... OIL FOR GOLD!
THINGS THEY NEVER TOLD YOU ABOUT ...
TIME FOR CHANGE!

Mar 19, 2004

Market News Digest
-> Dow deepens its downturn -CBS
-> U.S. PPI rises 0.6% in January -CBSMW
-> Security worries, weak dollar suck money into gold -Reuters
-> BofA, Fleet in $675 mln fund settlement
-> U.S. Gasoline Prices Hit a Record High -AP
-> First U.S. silver dollar found -AP
-> Greenspan sees jobs picking up -CNNfn
-> Investment, not SS, can make retirement secure -ZTR
-> Economic Reports for March 15 - 19:


Commentary
-> SILVER BOAT ABOUT TO SET SAIL - Richard Spohr, SATC
-> LEIBOVIT FILES | by Mark Leibovit
-> BEWARE THE IDES OF MARCH - Eric Fry, DR
-> IS SOMEBODY RINGING A BELL? - John Mauldin, FrontlineThoughts
-> ASSET MODELS REQUIRE RADICAL SURGERY - Thom Calandra
-> ST. PATRICK'S DAY PRAYER - David Bradshaw, Editor

Market News Digest


U.S. PPI rises 0.6% in January -CBSMW
By Rex Nutting, CBS.MarketWatch.com
March 18, 2004

WASHINGTON (CBS.MW) -- The nation's producer prices rose 0.6 percent in January as energy prices jumped 4.7 percent, the Labor Department said Thursday in a report that was delayed for more than a month.

Read the full release.

Economists had been expecting the PPI to rise about 0.4 percent in January after a 0.2 percent gain in December, according to a survey conducted by CBS MarketWatch. The core rate was expected to rise 0.1 percent after falling 0.1 percent in December.

The January reading of inflation at the wholesale level was delayed because the government agency had difficulty switching to a new industrial classification system. The February release hasn't been scheduled yet.

In a separate report, the Labor Department said initial jobless claims fell to a three-year low, with the four-week average dropping to 344,000.

The PPI report showed wholesale gasoline prices soared 14.1 percent in January. Heating oil costs rose 16.8 percent.

http://www.cbs.marketwatch.com


Dow deepens its downturn -CBS
Waiting game trips up U.S. stocks
By Michael Baron, CBS.MarketWatch.com
March 19, 2004

NEW YORK (CBS.MW) - U.S. stocks struggled for direction Friday as investors hedged bets on the outcome of the stand-off involving the "high-level" al Qaida target surrounded by Pakistani forces along the border with Afghanistan ahead of the weekend.

At last check, the Dow Jones Industrial Average was down about 37 points, or 0.4 percent, to 10,259, while the Nasdaq Composite ave back roughly 3 points, or 0.2 percent, to about 1,959.

The Standard & Poor's 500 Index dipped 0.4 percent to 1,117.91, and the Russell 2000 Index of small-cap stocks rose fractionally to 574.79.

The averages have spent the day in a holding pattern, showing little conviction in one direction or the other. The Dow and Nasdaq have traded in tight ranges of roughly 65 points, and 20 points, respectively.

Breaking news of a bomb threat in the Washington, D.C. area also affected sentiment. Police in the Capitol City were searching schools after receiving indications that "several explosive devices" had been planted, a spokesman confirmed.

http://www.cbs.marketwatch.com


Bank of America, Fleet in $675 mln fund settlement -Reuters
March 15, 2004

NEW YORK, March 15 (Reuters) - Bank of America Corp. and FleetBoston Financial Corp. on Monday agreed to pay $675 million to settle regulatory charges that they helped favored clients trade mutual funds improperly at the expense of ordinary investors, New York Attorney General Eliot Spitzer said on Monday.

Bank of America, the third-largest U.S. bank, agreed to pay $125 million in fines and $250 million to reimburse investors, while Fleet agreed to pay $70 million in fines and $70 million in restitution. The banks also agreed to reduce fund fees by $160 million over five years.

Spitzer said the U.S. Securities and Exchange Commission (News - Websites) also agreed to the settlement, which he called the largest in the widening mutual fund industry scandal. Eight members of the board of directors of Bank of America's Nations Funds will resign or leave the board in the next year, Spitzer said.

http://www.reuters.com

[COMMMENT: Hmmm. Mutual Fund hanky panky does have its price. And it's more than a slap on the wrist, perhaps because BofA usually has "higher standards." By the way, mutual fund inflows in February in the U.S. and Canada hit near-record levels. Apparently, 'investors' aren't bothered by the fact that crooks are running these funds ... and are once again proving that "the little guy always gets most bullish at the top."]


U.S. Gasoline Prices Hit a Record High -AP
Mar 14, 2004

CAMARILLO, Calif. (AP) - Prices for all grades of gasoline rose 1.34 cents in the last two weeks to a record high nationwide average of $1.77 a gallon, according to a study released Sunday.

Gas prices have jumped by nearly 26 cents so far this year, and while they won't be falling by that amount any time soon, they aren't expected to rise much higher, according to the Lundberg survey of 8,000 stations nationwide. The survey was conducted Friday.

The previous combined average record high was $1.76 in May 2001.

Analyst Trilby Lundberg said the latest spike reflects the rise in crude oil prices and an increase in refinery work to prepare for greater spring and summer gasoline demand.

OPEC declared earlier this year that it would reduce official oil production by April 1 and crack down on those countries exceeding the level.

"Where crude oil prices go next - whether they push or pull on gas prices - is OPEC's guess," she said.

Lundberg said work at the refineries is nearly complete.

"The pace of the pump price hike has slowed and prices are dropping on a spotty basis around the country," she said.

In California, prices remain higher than the rest of the country due to the state's strict environmental regulations and sales tax on gas pumps. Still, pump prices dropped nearly a penny in the last two weeks to $2.10 per gallon.

The national weighted average price of gasoline, including taxes, at self-serve pumps Friday was about $1.74 for regular, $1.84 for midgrade and $1.92 for premium.

http://www.apnews.com


Security worries, weak dollar suck money into gold -Reuters
Security worries, weak dollar suck money into gold -Reuters March 18, 6:57 am ET

LONDON, March 18 (Reuters) - Gold held firm in European trading on Thursday, holding near its highest level in a month as strong buying interest linked to security concerns and currency moves buoyed the precious metal. Traders said yen strength, which makes dollar-priced gold relatively less expensive for Japanese investors, had attracted buying earlier in Asia.

In euro terms, gold prices hit their highest since mid-January, analysts said. "It is looking good this morning and there could be some more ground out there, but it needs to break this $408 level during the morning session. Otherwise we could see profit-taking coming in," one trader said.

Spot gold (XAU=) was quoted at $407.25/408.00 a troy ounce by 1122 GMT, up from New York's late trading level on Wednesday at $406.50/407.25 but slightly off Asia's peak at $408.75.

"After the profit taking that was seen in late January and February, there are strong indications that speculators have begun to rebuild their long positions," John Reade, analyst with UBS Investment Bank, said in a daily report.

Gold slid to a 3-1/2-month low earlier this month of $387.60 after a stronger dollar spurred investment funds to liquidate their holdings in bullion.

The precious metal had not reacted immediately to last week's bombings in Madrid, but Wednesday's car bomb at a Baghdad hotel, spurred fresh safe-haven buying, traders said.

"Strong buying interest has returned to gold again, arguably for the first time since early February, fuelled by a combination of security concerns...and indications the massive Japanese intervention to restrain yen appreciation may be wound back," Kamal Naqvi of Barclays Capital said in a report.

Gold had slackened its previously slavish link to the euro, but traders were keenly awaiting data on the U.S. economy later in the day.

January producer price data will be released at 1330 GMT, along with jobless claims. Due at 1500 GMT are the Conference Board's leading economic indicators for February and at 1700 GMT the Philadelpia Fed Manufacturing index.

Silver was trading at fresh six-year highs, buoyed by the firmer tone in gold and strong base metals prices. Spot (XAG=) was at $7.24/7.26 an ounce, up from New York's $7.22/7.24 and just off its new peak of $7.26 -- its firmest since early February 1998.

Analysts put its next upside target at $7.40.

http://www.reuters.com


First U.S. silver dollar found -AP
By Catherine Tsai, Associated Press
March 15, 2004

DENVER - The first silver dollar ever struck by the United States has been identified, 210 years after it was coined, experts say.

The Colorado Springs-based American Numismatic Association, which plans to display the coin free to the public beginning in mid-April, will announce the news today.

Former association President Kenneth Bressett said that while it's impossible to say with 100 percent certainty that the U.S. dollar was the very first struck, its details are so crisp that it was certainly among the first.

"Until someone walks up to me with a coin in an earlier state that looks better, I'd consider it the first," said John Dannreuther, co-founder of Professional Coin Grading Service.

Unlike others of the roughly 130 surviving 1794 U.S. dollars, the coin that Rare Coin Wholesalers President Steven Contursi bought last year is in mint condition, as determined by PCGS and Numismatic Guaranty Corp.

"Until someone walks up to me with a coin in an earlier state that looks better, I'd consider it the first," said John Dannreuther, co-founder of Professional Coin Grading Service.

Unlike the other roughly 130 surviving U.S. dollars minted in 1794, the silver dollar is in mint condition, according to evaluations performed by Professional Coin Grading Service and Numismatic Guaranty Corp.

The coin, which has only a few scratches, features images of Lady Liberty ringed with stars on the front and an eagle on the back.

Steven Contursi, owner of RCW, bought the coin last year from an unidentified owner and said he spent "multi-millions." It is insured for $10 million.

The dealer who sold Contursi the dollar -- not realizing it could be the first of its kind -- has since offered him a $2 million profit on it.

But it's not for sale, Contursi said: "I think it's a national treasure," he said.

The Mint struck 1,758 silver dollars on Oct. 15, 1794, at a time when foreign currencies circulated freely in the United States and the country wanted its own standard to use in world trade.

http://rockymountainnews.com

[ED. NOTE: Read more about the new silver rush below]


Greenspan sees jobs picking up -CNNfn
Fed chief repeats that the gloomy job market should brighten soon as economic activity picks up.
March 12, 2004

WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan repeated on Friday there was reason to be optimistic the gloomy U.S. job picture will brighten as economic activity picks up.

"As our economy exhibits increasing signals of recovery, job loss continues to diminish," the Fed chief said in prepared remarks for delivery to a financial conference at Boston College. "In all likelihood, employment will begin to increase more quickly before long as output continues to expand."

His comments were nearly word-for-word identical to testimony he delivered on Thursday to the U.S. House of Representatives Education Committee, during which he urged "rigorous education and ongoing training" for all Americans to stay current with job needs.

He acknowledged that job creation was "lagging badly," partly because firms have been able to raise productivity, or output per worker, so briskly that they have managed to avoid taking on new hires.

http://www.cnnfn.com


INVESTMENT, not Social Security, can make retirement secure
Zanesville Times Recorder - Zanesville,OH,USA Mar 14, 2004

LETTER To the Editor:

It amazes me about what people think about the social program started by Franklin Roosevelt in the 1930s called Social Security.

Roosevelt intended the program to assure retired workers a small monthly payment in their old age because so many failed to have savings for retirement. Since that day, many other social payments have been tied to this program that would make even Roosevelt sit up and take notice. No wonder with so many payments being made out of the fund not related to the individual worker, there is a crisis pertaining to the viability of the program.

When I signed up for a Social Security card after leaving the Marines 50 years ago, the agent who issued the card warned me that this would only make a small payment at my retirement age and that I would be wise to start my own retirement account by putting aside the same amount in an investment program, insurance, stocks and bonds, etc. I took the agent seriously.

Several months ago I spoke with a number of people who were griping about the Social Security payments and the possibility of them being cut for future recipients. Not one had started a separate IRA, and none knew what a Roth IRA account was. In a world where information is at your fingertips, this finding was totally astounding to me.

At age 20, a young person can start a Roth IRA and put away the same amount he has taken away from his paycheck. By the time he retires at 65 or 70 years of age, he will be a millionaire with ease. With a million in the bank, he can easily withdraw earnings and live a good life. When he dies, he leaves his family with a good sum of money to hopefully remember him by or fight over or maybe give the IRS a healthy death tax payment ... whatever.

H.J. Lewis, M.D.

Zanesville

http://www.zanesvilletimesrecorder.com


SOCIAL INSECURITY: Research Report -- 3-10-04 -- Part I: An Overview of the Social Security Crisis and Proposed Solutions. 77 million baby-boomers are about to retire. What can be done to avoid a funding crisis NOW? Three gov't solutions, six private sector solutions.

Economic Reports for March 15 - 19:
---------------------------------------------
Monday, March 15:
NY Empire State Index for March (8:30 am ET)
Industrial Production & Capacity Util. for February (9:15 am ET)
Treasury auctions 3&6-month bills
---------------------------------------------
Tuesday, March 16:
Housing Starts & Building Permits for February (8:30 am ET)
Weekly Chain Store Sales (9 am ET)
FOMC Meeting (policy announcement at 2:15 pm ET)
---------------------------------------------
Wednesday, March 17:
Consumer Price Index (CPI) for February (8:30 am ET)
---------------------------------------------
Thursday, March 18:
Weekly Initial Jobless Claims (8:30 am ET)
Leading Indicators Index for February (10 am ET)
Philadelphia Fed Index for March (12 pm ET)
FOMC Minutes released (2 pm ET)
Weekly Money Supply (4:30 pm ET)
---------------------------------------------
Friday, March 19:
Quadruple Witching - options & futures expiration
---------------------------------------------


Commentary


Silver Boat About To Set Sail-Richard Spohr, SATC
Nov. 21, 2003

The biggest knocks against silver are that it is too bulky, takes up too much space, or weighs too much. As super bull Ted Butler puts it, with silver you get too much for your money.

Although silver does have its drawbacks, investors determined to protect their assets from a declining dollar should make silver a part of their portfolios. Historically, silver outperforms gold--on a percentage basis--in precious metals bull markets. Further, an examination of current developments suggests that silver could do even better than in past precious metals bull markets.

Despite what some analysts say, silver is as much a monetary metal as is gold. More people around the globe have used silver for money than have used gold. In at least fourteen languages, the same words are used for silver and for money. In the US, gold coins were called from circulation in 1933. Standard US 90% silver coins, however, were minted through 1964.

Analysts who relegate silver to the category of "industrial metal" do so because a huge industrial demand has developed for silver over the last half century. Gold, on the other hand, has no such demand. About 90% of the annual production of gold is turned into jewelry. Yet, no one asserts that gold is a "decorative" metal.

Gold is considered a monetary metal because it has been used as money for centuries. But, so has silver. Then why is gold a monetary metal and silver not? In reality, both are monetary metals.

Still, the constant haranging that silver is an industrial metal has diminished its desirability in eyes of many investors. Actually, though, the huge industrial demand for silver is what makes it as good or better investment than gold.

A few decades ago, when the now disposed US Strategic Stockpile stood at more than two billion ounces, one could argue that silver was going nowhere for ample supplies were available to meet the growing industrial demand. However, only a decade after most of the Strategic Stockpile was sold off, which meant that huge supplies were still available but then in private investor hands, silver skyrocketed to $50 in the face of a monetary crisis. Gold went to $850; both responded like the monetary metals that they are. In that crisis, demand as a safe haven trumped the cries that "silver is an industrial metal."

Instead of disdaining silver, analysts should be saying that silver is the better investment of the two because it is a monetary metal with a staggering industrial demand. When the next (current?) crisis is recognized, diminished silver supplies--because of industrial usage--should cause silver to turn in a better performance than what we saw in 1980. Astute investors should not miss the silver boat.

May I suggest high-grade Morgan Silver Dollars to start?

Morgan silver dollars were minted between 1878 and 1921 with a notable break between 1905 and 1920. 1921 versions of the Morgan dollar are the most common in circulation, although in rare cases ultra-high, pristine uncirculated grades of the Morgan dollar are traded by coins collectors.

Morgan dollars are second only to Lincoln Cents in collector popularity. The large size, design and inexpensive nature of most dates of the Morgan dollar makes them highly popular. The coin is named after George T. Morgan, its designer. The mint mark is found on the reverse below the wreath, above the 'O' in 'Dollar'.

All Morgan dollars in ultra high pristine uncirculated condition command high prices. Finest known pieces often fetch hundreds of thousands of dollars. If you hear of an 1878 Silver dollar selling for $100,000 that doesn't mean your average uncirculated dollar is worth that, it means that this "Finest Known" piece is going for that.

High-grade Morgan dollars could be considered "investor" coins. That is because the price is very volatile, and the prices set for slabbed (certified) pieces are set on well established exchanges. Sight seen trading often exceeds these sight unseen prices, but the fact that the sight unseen prices are posted is seen as a boon to investors.

There are quite a few rare dates in the Morgan dollar history. The rarest is the 1895 without mint mark which was released as a proof only. These sell for over $10,000. Most of the early CC dates are worth a premium. Other premium dates include 1892 S, 1894, 1903 O, 1903 S, 1904 S, 1893 S, 1893, 1894 S, and 1902 S. There are other dates that are a little better than common, but most people won't pay much of a premium for these.

Sources: Comprehensive Catalog and Encyclopedia of Morgan and Peace Dollars


Is Silver Scandal On the Horizon? By Kelly Patricia O'Meara, Insight
A growing number of investors are speaking out about their suspicions that the market has been manipulated to hold down the price of silver and that a handful of select traders have been allowed to commit fraud.
Read more about The New Silver Rush

LEIBOVIT FILES | by Mark Leibovit

Friday, March 19, 2004

Opening Comments

Why does the market want to rally?

Is it the fact that interest rates are still so low there is no where to go? This morning is it the fact that an asteroid passed within 26,000 miles of Earth and we were spared catastrophe (even though we didn't know until the last minute that it was even here)?

Is it that Pakistani forces have surrounded an estimated 200 fighters they suspect are protecting al Qaeda's second in command, Ayman al-Zawahiri and that OBL may not be far behind?

Is it Greenspan's PPT out there ready to stand behind U.S. markets and prevent anything that might discourage the Bush presidency?

Is it today's quadruple witching option expiration, tomorrow's Autumnal Equinox or merely the fact that we're still oversold and need to retrace about 50% of the downmmove (inverse gravity)?

Probably all of the above.

We're a little overbought but the market 'feels' like it wants to trade higher and with potential in the Dow Industrials even if you're bearish up to the 10,400-10,500 range, we have to remember that even hot air rises.

Gold had a big day and gold bugs are pounding the table THAT THIS IS IT! As you know, we've been bullish on gold and gold shares for two years and all this enthusiasm is not affecting our thinking. Keep reflecting on stocks such as BEMA GOLD (BGO) which all the speculators love and the fact it has rallied from 32 cents to $4.30 these past two years. Isn't that enough? Apparently not, the bulls want $9.00. Maybe they will get it, but our interest has waned.

http://www.vrtrader.com


BEWARE THE IDES OF MARCH - Eric Fry, DR
Mar 13, 2004

March is a funny month; it's a wonderful time of year to be a daisy, or an amorous sparrow. But not a great month to be a dictator, as Julius Caesar and Saddam Hussein both discovered.

March is also a funny month for the stock market... sometimes wonderful, sometimes awful. Interestingly, mid-March has witnessed very important trend changes in each of the last four years. In mid-March 2000, the Nasdaq reached a record 5,132... before plummeting 65% to 1,794 by mid-March 2001. Then, the post 9/11 rally took the index to an important peak of 1,942 in mid-March 2002, representing the start of 2002's long decline. Most recently, mid-March 2003 provided an excellent entry point to a year-long rally.

Is March 2004 another critical turning point in the stock market? Despite the market's strong showing on Friday, when the Dow bounced 112 points and the Nasdaq surged 2%, the major averages still limped into the weekend with large losses. The Dow slumped 4.4% during the week to 10,240, while the Nasdaq fell 5.1% to 1,985. Both averages are in the red for 2004.

Perversely, the dollar rallied while stocks tumbled. The greenback gained more than 1% against the euro to $1.221. As the dollar strengthened, gold slipped back below $400 an ounce. For the week, the semi-precious metal fell $6.00 to $395.25 an ounce.

Weighing on stocks this week was the now-familiar news of an ever-widening trade gap. The U.S. trade deficit widened in January to a staggering $43 billion. The inflating oil price, which closed the week over $37, added $200 million to the tab... despite the fact that the U.S. imported 8 million barrels less than the previous month. Exports were hit by a sharp drop in beef sales - the result of another mad cow on the rampage. Beef sales are expected to decline further in February.

But shouldn't the declining dollar be soothing this giant deficit? Not necessarily. The trade balance with China, by far the largest source of imported goods, is independent of currency movements because the Chinese yuan is pegged to the dollar at a fixed exchange rate. The dollar and the yuan, therefore, are monetary conjoined twins. In January, the closely watched deficit with China rose from $9.9bn to $11.5bn - a 22% jump over the same month last year.

"The dollar devaluation campaign is twice a failure," we noted earlier this week. "Isn't the weak dollar supposed to boost job growth here at home, while narrowing our trade deficit overseas? But neither one is happening. In February, the average length of joblessness rose to 20.3 weeks, the longest since January 1984."

Evidently, investors don't care much about jobs... as long as stocks are going up. For the last 12 months, Wall Street has been gripped by "irrational exuberance - part deux." But there's a new twist this time around: In 1994, when Greenspan coined his famously ill-time phrase, he was trying to dampen excessive investor optimism. But today, he's encouraging it... which is one more reason why the stock market is probably much closer to a major top than a major bottom.

One year ago, the U.S. was about to blitz Iraq, determined to topple a crazed dictator who had amassed - we believed - a massive cache of highly destructive weapons. Investors were nervous. Who knew that the perceived threat would be a chimera? Who knew that instead of finding and destroying Saddam's weapons of mass destruction, we would instead pummel the "rogue nation" with our own WMDs, while finding little more than firecrackers buried in the sands of Iraq?

One year ago, the U.S. economy was muddling along, unemployment was rising, and corporate earnings growth was non-existent. Buying stocks back then seemed like a risky proposition. But the stock market soared anyway. Today, the economy is humming, investors are confident and the chairman of the Federal Reserve throws caution - and billions of newly minted dollar bills - to the wind. These are the good old days, revisited.

Unfortunately, our national debt is now larger, our trade deficit is breaking records, the consumer is more "upside down" than ever before and the world's growing ranks of terrorist organizations continue to amuse themselves by blowing up people they've never met.

And one more thing: the economy is adding jobs at an abysmally slow pace. In fact, U.S. payrolls have increased by only 122,000 jobs since March of 2003.

No doubt, this week's sharp selloff will be seen as another great buying opportunity by the lumpeninvestoriat. Most likely, it isn't... If March 2004 continues the pattern of the previous Marches of this Millennium, the stock market is on the verge of a major trend change...

Et tu, Mr. Market?

Regards,

Eric Fry
The Daily Reckoning


Is Somebody Ringing A Bell? -John Mauldin, FrontlineThoughts
Mar 13, 2004

The old line is that no one rings a bell at market tops and bottoms. Of course, in hindsight, we all imagine we heard the bell and wish we had not ignored it. Even Warren Buffett is not immune from Monday morning quarterbacking his own decisions. He tells us this week in his annual letter:

"We've found it hard to find significantly undervalued stocks...The shortage of attractively-priced stocks in which we can put large sums doesn't bother us...Our capital is underutilized now, but that will happen periodically. It's a painful condition to be in, but not as painful as doing something stupid. (I speak from experience)...I made a big mistake in not selling several of our larger holdings during The Great Bubble. If these stocks are fully priced now, you may wonder what I was thinking four years ago when their intrinsic value was lower and their prices far higher. So do I."

Buffet is sitting on a huge hoard of cash, some $36 billion with over $12 billion in non-dollar assets. The world's most successful value investor can't find something he thinks has value, and even openly wonders about the value of the US dollar.

There are a lot of professionals who question the current levels of value. My young English friend James Montier, the global equity strategist for Dresdner Kleinwort writes today in his weekly letter that he has weighed the values in his scale and finds them wanting.

"All of our favored measures of absolute valuation attempt to abstract from the vagaries of the business cycle. Regardless of which one we examine, we reach the inescapable conclusion that the US market is vastly overvalued. For instance, the Hussman PE (prices relative to peak cycle earnings) is currently trading on 21 times, against an historical average of 11.7 times!"

"Even on the basis of the la-la land forward earnings multiples, the US market looks dear. The current 12m forward PE based on consensus earnings is just over 18 times. Inside we show that a rough approximation for the long run average forward PE would be close to 11-12 times. "

What he develops inside his letter is an estimation of forward earnings projections since 1955. Basically, forward earnings projections have been historically way too high. Generally they are about 26% too high based upon what actual earnings turn out to be. As he calculates, by factoring out the clear track record of irrational exuberance of analysts, you find a market historically over-valued by 33%.

The Stock Market - Interest Rate Connection

Ah, I can hear the bulls mutter, most of those years were not ones in which there were low rates. Today's low interest rates justify high P/E valuations. That argument has some surface logic. If interest rates are low, then investors should be willing to take lower earnings yields from stocks, which justify higher valuations.

But the logic breaks down under this fact: If rates rise, and they always eventually rise, then that will be a drag on future valuation levels. It is precisely this lowering of valuation levels which creates the secular bear market. I actually spend a major portion of one chapter in my book detailing the connection. I wish I had seen the two studies Montier also gives us to buttress this fact so that I could have included them, but at least I can give them to you here.

Montier breaks down historic stock market returns into five groups based upon then current interest rate levels and how the market subsequently performs at different levels of interest rates. Before we look at that study, remember that I have shown in previous letters that typically about 80% of the rise of stocks during bull markets can be explained by a rise in valuation or a rising P/E ratio (what some call a multiple expansion). Only a small part of the rise in stocks is due to an actual rise in earnings.

What Montier finds is ... FULL STORY


ASSET MODELS REQUIRE RADICAL SURGERY - Thom Calandra
Many dismiss cash, gold, commodities, silver
Oct. 7, 2002

SAN FRANCISCO (CBS.MW) -- Investors, consumers and November voters are holding more influence over the U.S. economy than at any time since the 1991 recession.

The president of the United States is courting voters and legislators with a Monday night speech about Iraq. The Federal Reserve is keeping fingers crossed on the mood of shoppers. Mortgage investors are wondering when the home refinancing boom will stop reducing the take from their monthly income.

Individuals, for the first time in recent memory, are beginning to ask if the stock market's demise is something more than a passing trend. At the shopping mall and alongside their kids' soccer matches, Americans are making earnest queries about the erosion of paper wealth in America.

Their concern comes after three years of what brave Americans regard as stoic investor behavior in the face of the equity storm. Some of us are even wondering whether it's prudent to be taking refi-cash out of their homes and spending it on home improvements or new cars when their next paycheck may evaporate with a J.P. Morgan Chase-style layoff. J.P. Morgan reports 4,000 possible layoffs.

"We are either going to inflate out or deflation will (persist)," says Michael A. Berry, a former professor of quantitative analysis who favors radical shifts in asset allocation for ordinary investors. "The U.S. equity market is, by historic standards, still significantly overvalued even with the declines in the spring and summer of 2002. It is still replete with the psychology of hope each time a bear rally occurs."

The psychology of hope centers on those one-day, 300-point Dow rallies we see each week. While ordinary folks are praying the rallies signal a return to good times, professionals and prudent investors are using the one-day inflations to sell their holdings and shift into cash.

Berry, who holds a doctorate in finance, recently presented a paper at the San Francisco Money Show. In it, he refers to Gustav Le Bon's 1895 book, "The Crowd: A Study of the Popular Mind." Le Bon explains, "When by various processes an idea has ended by penetrating into the minds of crowds, it possesses an irresistible power and brings about a series of effects, opposition to which is bootless."

In real life October 2002, this means most Americans, snow- stormed by a decades-long rush into stocks, have "forgotten to diversify, forgotten asset allocation, forgotten that markets always revert to their mean value," says Berry.

Wall Street doesn't make life any easier. The big banks and brokerages routinely ignore gold, silver and agricultural commodities in their asset allocation models. The Wall Street and London banks pay lip service to cash, an investment that is not even on the radar screen for ordinary folks seeking their cruise-ship retirements in 10 or 20 years.

The few Americans out there who restyled their portfolios two years ago, or even two months ago, almost certainly weren't considering cash as a powerful investment alternative. Forget about gold and commodities in general -- even though these two classes are up about 18 percent since Jan. 2.

"Gold has been such an under-performing asset class for so long (last 20 years) that it has been forgotten," says Kevin Lane at Technimentals Research in New York. "Not to mention not too many gold and silver companies pay banking fees." In these days of double-dealing Wall Street banks, there is no business reason for a J.P. Morgan or a Goldman Sachs to advertise gold in their portfolio models.

SOURCE: CBSMW


ST. PATRICK'S DAY PRAYER -David Bradshaw, Editor

May the strength of God pilot us.
May the power of God preserve us.
May the wisdom of God instruct us.
May the hand of God protect us.
May the way of God direct us.
May the shield of God defend us.

-St. Patrick

Possibly the only national holiday that is given recognition outside its native land is St. Patrick's Day. This is a clear indication of the Irish influence throughout the world. For instance in the United States, though not a national holiday, March 17 is recognized in many communities and cities. Everything from parades to wearing the color green, to serving green beer (they really add green coloring to it!), to some places going as far as dying rivers green, mark the holiday of Ireland's patron saint.

The biggest observance of all is, of course, takes place in Ireland. Almost all businesses, with the exception of restaurants and pubs, close on the 17th of March. Being a religious holiday as well, many attend mass, where it is the traditional day to offer prayers for missionaries throughout the world, before the serious celebrating begins in earnest.

True history and legend are intertwined when it comes to St. Patrick. It is known that he was born in Banwen, Wales and was kidnapped and sold in Ireland as a slave. He became fluent in the Irish language before making his escape to the continent. Eventually he was ordained as a deacon, then a priest and finally as a bishop. Pope Celestine then sent him back to Ireland to preach the gospel.

Evidently he was a great traveler, especially in Celtic countries, and as a result innumerable places in Brittany, Cornwall, Wales, Scotland and Ireland are named after him.

Patrick is known the world over for having driven the snakes from Ireland. While it is true there are no snakes in Ireland, chances are that there never have been since the time the island was separated from the rest of the continent at the end of the Ice Age. In many old pagan religions serpent symbols were common and possibly even worshipped. Driving the snakes from Ireland was probably symbolic of putting an end to that pagan practice.

While not the first to bring Christianity to Ireland, it was Patrick who encountered the Druids at Tara and abolished their pagan rights. He converted the warrior chiefs and princes, baptizing them and thousands of their subjects in the Holy Wells, which still bear that name. According to tradition St. Patrick died in A.D. 493 and was buried in the same grave as St. Bridget and St. Columba at Downpatrick, County Down.

Read more at St-Patricks-Day.com


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 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...


DISCLAIMER: All of the information in this story is believed to be true, however errors are possible.
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