THE GOLD STORY OF THE YEAR

06/04/2002

IN THIS ISSUE ...


MARKET NEWS BRIEFS ...

-Gold Toys with $330 an Ounce - CBSMARKETWATCH

-Dow down 2.2%, Nasdaq down 3.3% - CNNfn

-FBI's New Authority Draws Criticism - AP NEWS

-Dollar Decline Sets Off Investment Search - FINANCIAL TIMES

-Claims Show Job Market Isn't Recovering - BLOOMBERG


COMMENTARY ...

-Investor Nervousness Warranted - CRAIG SMITH, SATC

-Reversal in the Dow-to-Gold Ratio - RICHARD RUSSELL, DTL

-The Boom Quarter That Wasn't - JOHN MAULDIN, 2000WAVE

-A Golden Era Is Getting Started - ADEN FORECAST

-It's Time to go on the Offensive - CAL THOMAS, TOWNHALL


QUOTE OF THE WEEK ...

"Put not your trust in money, but put your money in trust."

-OLIVER WENDELL HOLMES (1809-1894)


LAUGH OF THE WEEK ...

"The stock market has 'fallen and it can't get up!' It is not merely obvious that stocks ARE in a bear market, but also that they DESERVE to be in a bear market. The dollar has been the most successful paper money in history. Thus, it needs a great correction to bring it to mediocrity."

-ERIC FRY, The Daily Reckoning


MARKET NEWS DIGEST ...
Gold Toys with $330 an Ounce - CBSMARKETWATCH
Mike Maynard, June 4, 2002

NEW YORK (CBS.MW) -- With relatively few attractive options open to investors, the benchmark gold futures contract gained more ground Tuesday, toying with $330-an-ounce level.

After cautious trading in the previous session, gold resumed its flight-to-safety status in the face of testy rhetorical exchanges between the leaders of nuclear powers India and Pakistan at a regional security conference in Kazakhstan.

Meanwhile, media reports said the Bank of Japan intervened in the currency market in the latest in a series of attempts to slow gains made by the yen against the dollar. A weaker dollar makes gold more affordable for foreign buyers.

SOURCE: CBS.MarketWatch

Read GOLD: The Bull Market of 2002 by Craig Smith


Dow down 2.2%, Nasdaq down 3.3% - CNNfn
June 3, 2002, Alexandra Twin

NEW YORK (CNN/Money) - U.S. stocks fell sharply Monday as investors took in new concerns about corporate governance, weakness in chips, software and biotech, and continued fears about international conflicts, despite good news from the manufacturing sector.

According to preliminary reports, the Nasdaq composite index fell 53.89 to 1,562.84, or more than 3 percent. The Dow Jones industrial average lost 218.68 to 9,706.57, (-2.2%) falling below 9,800, seen by many traders as a key technical level. The Nasdaq lost 3.3%, closing down 53 points to 1562.

"There's still a great deal of uncertainty. We've got a pretty worrying international situation," said Michelle Clayman, chief investment officer at New Amsterdam Partners. "There is a decline in confidence in business leadership based on a few bad apples and a certain complacence about the economic data."

SOURCE: CNNfn


Dollar Decline Sets Off Investment Search - FINANCIAL TIMES May 30, 2002

LONDON — The dollar's tumble against major currencies, threatening an end to more than six years of remarkable dominance and strength, is leading to a sharp reassessment of likely returns from global investments.

Although the U.S. currency has twice fallen sharply since late 2000 only to recover, the latest decline is being seen in many quarters as a more sustained trend.

If it proves so, the implications for global stock and bonds will be large, changing the price of investments and whatever rewards they might eventually reap.

"We are going to see a further weakening of the dollar and see a divergence of flows away from the U.S. and into the rest of the world," said Keith Skeoch, chief investment officer of Standard Life Investments.

Since late January, the dollar has fallen more than seven percent against a weighted basket of six currencies. It is down more than six percent over the same period against the euro and eight percent against the yen.

The weakness comes after six years of gathering strength for the U.S. currency, driven by robust economic growth and a boom in dollar-denominated investments.

But with low interest rates and stagnant profits, the bloom is off the U.S. investment rose and money has been shifting.

SOURCE: London FInancial Times


Claims Show Job Market Isn't Recovering - BLOOMBERG
By Siobhan Hughes

Washington, May 30 (Bloomberg) -- The number of U.S. workers filing new claims for jobless benefits exceeded 400,000 again last week, as the slower pace of economic growth this quarter holds down demand for labor.

States received 410,000 initial applications in the week that ended Saturday, the Labor Department said. While down from 422,000 a week earlier, claims have been higher than 400,000 since mid- March, a level economists associate with little hiring. The number of people collecting benefits rose to the highest in more than 19 years.

International Business Machines Corp. eliminated 1,625 jobs last week, making the computer maker one of the latest companies to reduce costs through dismissals. Business spending on software and equipment has declined since late 2000, reflecting caution about the economy. The same wariness is limiting payroll growth.

"We don't see the labor market turning around any time soon," said Drew Matus, an economist at Lehman Brothers Inc. in New York. "It might end up leading toward more of a jobless recovery rather than the quicker turn after other recessions."

SOURCE: Bloomberg


FBI's New Authority Draws Criticism - AP NEWS
May 31, 2002

WASHINGTON (AP) - The Bush administration is drawing sharp criticism from civil libertarians and others for new terror- fighting guidelines that will allow FBI agents to monitor Americans at religious services and in other public meetings.

Attorney General John Ashcroft on Thursday freed the FBI to visit Internet sites, libraries, churches and political organizations as part of an effort to give the beleaguered agency new tools to pre-empt terrorist strikes.

"Our philosophy today is not to wait and sift through the rubble following a terrorist attack," Ashcroft told a news conference.

But critics said the new guidelines were just another erosion by the Bush administration of Americans' constitutional freedoms in the name of fighting terrorism.

FULL STORY


COMMENTARY ...
Investor Nervousness Warranted
by CRAIG SMITH, SATC - June 4, 2002

"Dow Down, Gold Up ... DDGU ... get used to reading these headlines in 2002," -BILL BONNER, Daily Reckoning

I agree will Bill and would simply add to his acronym DOLLAR Down, Gold Up. Putting them both together, it would read ... "Dow And Dollar Down Again Gold Up" (DADDAGU).

Gold prices hit fresh market highs on Tuesday, cresting $330.00 an ounce - up over 17% so far in 2002. But this is just the beginning of the next bull market according to Richard Russell, The Aden Sisters and Bill Bonner's Daily Reckoning.

Soon the markets will be so predictable, that even the average investor will no longer be able to ignore the logic behind owning some gold in today's unstable financial environment.

One day we're told the "recovery" is well under way ... the next day a new scandal comes to light, or a new earnings report illustrates the lack of profits on Wall Street today.

Is it any wonder the average guy is on the sidelines? And smartly so, from my perspective. Investors are no longer blinded by media cheerleaders with a vested interest in pumping up the perpetual Wall Street bull.

I applaud investors who is nervous today, because frankly, they should be - unless they have added some gold into their portfolio to serve as a "financial antacid." Here's why investor nerves are so raw ...

- The incredible shrinking dollar is making it harder to attract big money into the U.S.markets. Our precious U. S. dollar has been hitting new lows almost every day (28-month low to Swiss Franc, 16-month lows to the Euro as of 6-4-02).

-The U.S. stock markets are still near record highs, with unrealistic price-to-earning ratios (S&P 500 P/E Ratio 54:1 - Ned Davis Research says the norm is 15:1). See John Maudlin article and chart below.

-U.S. household debt has surpassed $75,000 per person, which places a heavy burden on any economic recovery which is (we are told) to be driven by American consumers.

-The ongoing war against Israel by Palestinian terrorists. This type of warfare prevents market stability.

-The new threat of war between India and Pakistan and Iraq to depose Saddam Hussain. The list goes on ...

I say it's time to face our fears and do something positive to control the growing investor nervousness that is based on the troubling realities of 21st century life.

As I told you last week, gold is the source of financial confidence. With gold, you are protected from virtually any financial crisis, without gold, you are sailing without an anchor.

Gold is the simplest solution to investor nervousness. Asset diversification is the key to surviving this new era. Swiss America is helping America rediscover gold, and learning how to diversify into tangibles ... one person at a time.

Don't wait to buy gold ... buy gold and wait! (Remember, DADDAGU marks a major new financial trend)

Sincerely,
CRS

Editor's P.S.

THE GOLD STORY OF THE YEAR
MULTI-MILLION DOLLAR 1933 GOLD DOUBLE EAGLE
COIN DISPLAYED AT LONG BEACH COIN EXPO, JUNE 6-9

PHOENIX, AZ (June 4) Craig Smith, CEO of Swiss America will be available for live comment at the first West Coast viewing of the famous 1933 $20 Saint Gaudens coin to be auctioned at Sotheby's in NYC on July 30th.

Mr. Smith will be bidding on the historic one-of- a-kind coin which survived the great gold meltdown of 1933 by FDR. Smith and other coin experts expect the coin to bring between $2,000,0000 and $5,000,000 - making it the most valuable coin on earth.

Craig's highly acclaimed new book, "Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush," was written to help readers understand why gold is timeless money and the basis for all "money."
See RediscoveringGold


Reversal in the Dow-to-Gold Ratio - RICHARD RUSSELL, DTL
May 30, 2002

In July of 1999 the market did something that has been done only twice before in the last hundred years. The Dow relative to gold turned down on a trend basis. Let's trace the history of this ratio. Back in 1895 gold was cheap. The Dow at that time would buy an ounce of gold. During the 1920s a great bull market took the Dow to a high of 381 (1929) at which time the Dow would buy 18 ounces of gold.

From the'29 high, the market collapsed with the Dow sinking to a low of 42. A short bull market followed, but that bull market topped out in 1937, only to be followed by another bear market that took the Dow down to 92 in 1942. At the '42 low the Dow would buy only 2 ounces of gold. From the World War II low set in 1942, a great bull market was born. The bull market carried prices steadily higher into the 1960s. In May of 1969 the Dow could buy 28 ounces of gold.

From the high ratio of the late-1960s, the ratio declined and by 1980 with the Dow at 1000 and gold over 800 the Dow would buy a little over 1 ounce of gold. That was the lowest Dow/Gold ratio in history.

From the early-1980s Wall Street gave birth to the greatest bull market in stock market annals. By July of 1999 the Dow could buy more gold than ever before in history - the Dow could buy over 44 ounces of gold! Next came the turn, and the ratio turned down. As I write, the Dow will still buy over 33 ounces-but the ratio continues to decline.

Now the following is just my own opinion. The ratio started in 1980 from its lowest point in history and by 1999 the ratio rose to its highest point in history. Therefore, I would think that the correction or reversal of this huge rise in the ratio will be a major decline, a decline to the point where the Dow again might buy only 1 ounce of gold or even less.

This will require either a huge rise in gold or a massive decline in the Dow - or probably both. On this basis I believe all subscribers should own gold or gold shares or preferably both. I realize owning gold and gold shares is foreign to most of my subscribers (except my old-timers). Nevertheless, owning gold is a necessary part of an "investment-survival" program in the current bear market. So my dear subscribers---do it, do it do it. How long will that bull signal be good for? Obviously, I don't know, but if I had to guess I'd say three to five years. That's how long I think the bull market in gold could last.

SOURCE: DowTheoryLetters


The Boom Quarter That Wasn't - JOHN MAULDIN, 2000WAVE
May 30, 2002

The economy grew at 5.6% in the first quarter of this year. By normal standards, that is not a "Muddle Through Economy." That is Red Hot. The number of economists who are calling for a full blown recovery are legion. The cheerleaders on CNBC point to 1991 and tell us it's time to get on the Bull Market Train. Now, however, we are getting a flood of statistics which show that this number is less than it seems.

Stephen Roach points out that fully 73% of the growth in the first quarter was inventory related. That is, companies were bringing their inventories back up to stable levels commensurate with sales. But sales did not increase all that much, so this is a one time pop. Take out that 73% and GDP growth was around 1.6%, which is definitely Muddle Through.

Corporate profit growth was anemic, any way you slice it. "Economic profits" grew at only 2%. These are the profits a company makes from current operations when you take away all the accounting adjustments.

A mere 90 days ago, First Call tells us, analysts projected that earnings in the first quarter for the S&P 500 would be $9.11. The number is now in, and it is $4.40, or less than half. For the last 12 months, earnings have been $19.97. That corresponds to a trailing P/E (Price to Earnings) ratio of 53, the highest on record.

The 25 year average for P/E ratios is 17.59 and the 50 year ratio is 16.44. We are currently more than 3 times those numbers which are at a nose-bleed height never seen before. Go to: S&P 500 P/E Ratio Chart and look at the graphs of P/E ratios for the past 70 years. It is quite sobering.

Valuations are at an all-time high, and as we move into the year, it will start to become obvious that earnings growth will not be strong enough to bring P/E levels back into normal patterns.

This environment will be accompanied by a decrease in foreign investment in the stock market. IdeaFirst tracks foreign inflows into the US, and their graph shows foreign investments in the stock market are down by over 60% from the high of a few years ago. Notice the talking heads moan about light volume on the stock market? Part of that is directly attributable to a decrease in foreign investment.

SOURCE: 2000Wave


A Golden Era Is Getting Started - ADEN FORECAST
May 30, 2002

We've been writing a lot about gold in recent months because what's happening now doesn't occur very often. The last time was over 20 years ago. And for the first time since then the setting is right for a sustained rise in the gold price.

It's hard for the average investor to see massive changes when they're first happening because they're often subtle. But an important change has been in the works for over two years now and the change is this: the major 20 year rise in the U.S. stock market is over. The juicy rise in the bond market is over. The six year rise in the U.S. Dollar is over. The 20 year slide in gold and gold shares is over. This means hard assets are the place to park your money looking out over the next few years. Currencies like the Euro, British Pound, Swiss Franc, New Zealand Dollar and the Australian Dollar are good investments too. In other words, they'll continue rising as the U.S. Dollar heads lower.

This new era also means that interest rates are eventually going higher worldwide. The same is true of the oil price and commodity prices in general. In fact, the price of oil has already soared 63% over the past six months. This is going to result in inflation later this year, which will be felt in most countries. That in turn will be good for gold, which is the tried and true inflation hedge, but it'll be bad for stocks, bonds and the U.S. Dollar.

In the meantime, Wall Street is skeptical of gold. They've seen it drop for years and they're not interested. They're still touting the “hold stocks for the long term” strategy, which is what most investors are doing: sitting with losses and hoping. And while they are, a golden era is getting started. It's still early and even though gold shares continue to soar as we write, it's certainly not too late to buy. Once you buy, just hang on for the great ride that lies ahead.

For more in-depth analysis on all the markets, read the Aden Forecast

Until next week...
Mary Anne and Pamela Aden

Read Financial Markets Out ... Tangibles In by the Aden Sisters


It's Time to go on the Offensive - CAL THOMAS, TOWNHALL
June 4, 2002 - Which will it be: victim or victory for the United States of America?

Our leaders tell us nearly every day that another attack by terrorists -- possibly with nuclear, biological or chemical weapons -- is imminent. The message seems to be, "get your affairs in order, make sure your will is up to date and prepare to meet thy God."

Instead of our leaders sending that message to us, how about them sending the message to our enemies in a package more powerful than rhetoric? Whatever happened to the confidence represented by the World War I song, "Over There" ("The Yanks are coming, the Yanks are coming... and we won't come back 'til it's over, over there.")? Who has more to fear, them or us? Do we have more to fear than fear, itself?

In his remarks last Saturday (June 1) to graduates of the U.S. Military Academy at West Point, President Bush may have signaled the beginning of the end of this victim attitude. Halfway through his speech, he said: "...our security will require all Americans to be forward-looking and resolute, to be ready for preemptive action when necessary to defend our liberty and to defend our lives."

Preemptive action, not reaction, is what's needed. The president said we must uncover terror cells in 60 or more countries. Let's start with one cell in one country, besides Afghanistan. Villagers in some backward country that harbors terrorists should wake up one morning and notice the terrorists among them are dead or missing. People like Saddam Hussein, not Americans, should start each day looking in the mirror and wondering if today is their last day on Earth. Money should be missing from terrorist bank accounts all over the world as American intelligence confiscates large amounts of cash through electronic transfers. Terrorist cells in this country should be located, their headquarters raided and their members arrested before they know what hit them.

We've had enough warnings. Besides, what can we do? Remain vigilant? What does that mean? Is a terrorist likely to leave a briefcase nuke at a bus stop?

It's time to go on the offensive. President Bush correctly told the West Point graduating class, "We cannot defend America and our friends by hoping for the best. We cannot put our faith in the word of tyrants, who solemnly sign non-proliferation treaties, and then systematically break them (that should also apply to tyrant Yasser Arafat and his broken treaties and promises). If we wait for threats to fully materialize, we will have waited too long."

Let's stop waiting for terrorists to do us harm and start doing them harm. We shouldn't be thinking about deterrence. We should be planning to wipe them out, starting now, and then start planning the victory parades.

SOURCE: Townhall







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