DIVERSIFICATION PAYS!

Jun 16, 2003

Waiting on the FED... $44T deficit!... Joblessness: 20-yr. high... $357 gold (the bull W.S. ignores)... Housing bubble threatened

QUOTES OF THE WEEK

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"A study applying rigorous accounting standards to the US budget suggests the true fiscal deficit - counting long-term pension and health care liabilities - is a whopping 44 trillion dollars."

-JAGADEESH GOKHALE, American Enterprise Institute
-KENT SMETTERS, Economist, Univ. of Pennsylvania, (see below)

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"Consider: Uncle Sam's "Financial Imbalance" is 10 times the size of our current national debt. In order to achieve current solvency, the government would have to raise payroll taxes by 68.5%, beginning today, or could cut Social Security and non-Medicare outlays by 54.8% immediately and forever. It's unlikely that either huge tax hikes or huge Social Security cuts will occur. Most likely, nothing will happen. And so, the government's insolvency will grow much larger. By 2008, 'FI' will reach $54 trillion. To reach solvency at that point, taxes would have to increase by 73.7%."

-PORTER STANSBURY, THE REAL ENDGAME (see below)

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"Gold bugs have for years contended that the price of gold has been manipulated by bullion banks in cooperation with the central banks. Based on the admission of Barrick's attorney, it appears the central banks are indeed very much involved if only to assist in Barrick's defense."

-KELLY PATRICIA O MEARA, INSIGHT, 6/12/03
Gold Bugs Get Their Answer

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"If rates rise, the housing bubble will pop."

-MARTHA KAUFMAN, Prudential Preferred Empire, NY Post (see below)

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"There are few things that shock me these days, but I was truly shocked to read over this weekend that none other than the same Milton Freidman has just recanted the central premise of monetarism. In an astonishing interview published in the Financial Times, (6-7-03)the 91-year-old retired professor concedes that “The use of quantity of money as a target has not been a success. I’m not sure I would push it as hard as I once did.” This is an extraordinary mea culpa for a man who single- handedly turned the macro policy debate inside out over the past 30 years. The founding father of modern-day monetarism is now telling us that the quantity of money doesn’t matter after all. Ironically, the admission comes at just that same point in time when the Fed is telling us that it’s all that matters."

-STEPHEN ROACH, Morgan Stanley (see below)

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"Before you run out and spend your tax windfall, though, you might want to think about this: at the same time Uncle Sam is giving us a break, money-hungry state and local governments are raising taxes and rolling out new fees."

-SARAH MAX, CNNfn (see below)

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"Everyone, everywhere knows you can't get 'something for nothing'. But that doesn't seem to stop anyone from trying. Government offers pensions it can't pay for...central bankers offer 'money' out of thin air...and stock markets promise rates of return that can't possibly be sustained. The big question is: how does it end? Can a sophisticated democracy reform itself before it is too late? Or does every boom have to end in a bust? We don't know. There have been few attempts at popular democracy. Like paper money, they all degenerated and collapsed. But maybe this time, it will be different..."

-BILL BONNER, Daily Reckoning, 6/10/03

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"Freddie Mac said its president and chief operating officer, David Glenn, was fired "because of serious questions as to the timeliness and completeness of his cooperation and candor with the board's Audit Committee counsel."

-USA TODAY, June 9, 2003 (see below)

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"More than 4,100 gold bars have been confiscated so far from the rusty beds of old trucks trundling down the bomb-cratered roads of Iraq. The combined value of the gold has been calculated at between $718 million and $1 billion -- the worst act of plunder in Iraq since Saddam Hussein's younger son, Qusai, swiped $1 billion in cash from the Central Bank."

-PAUL SALOPEK, Orlando Sentinal (see below)

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"Swiss America taught me an investment strategy that works -- whether stocks go up OR down! I call it my "NO-MATTER-WHAT -HAPPENS Strategy" because it's based on tangible assets, like U.S. gold coins, which are not driven by Wall Street shenanigans, but by the simple law of supply and demand."

-PAT BOONE, TV spot for MSNBC, FamilyNet, Cox (see below)

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Honoring Fathers

America pauses to honor fathers this weekend. Let us also include honoring the fathers of our faith, and let’s not forget to honor Father God. HE alone has called us out of the world, is gradually taking the world’s thinking out of us, and wants to send us back into the world to demonstrate the Kingdom of God – especially in the marketplace. My vision is to give honor and bring honor to all of the fathers in my life. Like Jesus, I am commissioned to be “about my Father’s business.” (Lk. 2:49)

-CRAIG SMITH, True-Wealth Archives, 6/16/00, LISTEN 2:00

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"LONDON, June 10 (Reuters) - Gold probed lower in erratic European trade on Tuesday as dealers fretted about a possible selling burst by speculators who had profits to make from the big positions they had built in the market earlier. The dollar weakened overnight after worries over the stability of the second-biggest U.S. mortgage finance firm rattled Wall Street, but gold broke with recent form and responded by dropping below support at $360.00 an ounce for the first time in six sessions in Asian trade."

-REUTERS, 6-10-03 AM (Gold down $9.20 to $352 at 11AM est NY)

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MARKET NEWS DIGEST

Study says 'true' US deficit is $44t -AFP
May 30, 2003

A study applying rigorous accounting standards to the US budget suggests the true fiscal deficit - counting long-term pension and health care liabilities - is a whopping 44 trillion dollars.

The study by economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania, found the fiscal imbalance includes seven trillion dollars for Social Security retirement costs and 38 trillion dollars for the Medicare health program for the elderly.

The forecast, released by the AEI Thursday, uses a more rigorous accounting method than that used by the government, counting all liabilities even beyond the 75-year time frame used for budget forecasts.

The study concluded that to correct the imbalance, wage taxes would have to be hiked 16.7 percent or personal income taxes by 69.3 percent.

The study was disclosed on Thursday by London's Financial Times, which said the US government shelved the report in the midst of seeking a 10-year, 350-billion dollar tax cut, which was passed by Congress last week.

President George W. Bush's administration chose to keep the findings - commissioned by then-Treasury secretary Paul O'Neill - out of the 2004 annual budget report, published in February, the daily reported.

Senator Bob Graham, a Florida Democrat and presidential hopeful in 2004, called the deficit projection "a staggering figure" and said it was "a great disservice" to withhold the report ahead of last week's vote on tax cuts.

FULL STORY

The truth about taxes - CNNfn
Pssst. What you save in federal taxes this year you may hand over in higher state and local taxes.
June 9, 2003 By Sarah Max

New York (CNN/Money) - The $350 billion in federal tax cuts pushed through in late May promise immediate gratification for many of us, in the form of child tax credits, lower income-tax rates and lower dividend tax rates.

Individual tax situations are as distinct as snowflakes, of course. But according to estimates by the Urban Institute- Brookings Institution Tax Policy Center, a household with an adjusted gross income (AGI) of $75,000 to $100,000 will save about $1,700 this year.

Before you run out and spend your tax windfall, though, you might want to think about this: at the same time Uncle Sam is giving us a break, money-hungry state and local governments are raising taxes and rolling out new fees.

When all is said and done, in fact, you may have less money in the bank.

http://www.cnnfn.com

Housecleaning at Freddie Mac - USA TODAY
June 9, 2003

NEW YORK (Reuters) — Freddie Mac (FRE), the No. 2 U.S. mortgage finance company, said Monday it had fired its president and chief operating officer for not fully cooperating with auditors reviewing its earnings statements from 2000 through 2002.

Freddie Mac, a government-chartered company, also replaced the rest of its top executives, announcing the retirement of its chairman and chief executive and the resignation of its chief financial officer.

Freddie Mac said the planned restatement of its earnings may be delayed until sometime in the third quarter. It previously said the restatement would be completed by the end of the second quarter.

Freddie Mac said its president and chief operating officer, David Glenn, was fired "because of serious questions as to the timeliness and completeness of his cooperation and candor with the board's Audit Committee counsel."

http://www.usatoday.com

The next Internet bubble - CNNfn
The top Net stocks this year aren't eBay and Yahoo! but second-tier names. Remember Ask Jeeves? June 10, 2003 By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Internet mania is back with a vengeance.

The sector is one of the hottest performing groups of the market this year. According to Thomson/Baseline, the 73 Internet stocks with a market value of at least $200 million are up an average of 65 percent this year and 76 percent since March 11.

And while industry giants such as Yahoo!, Amazon.com and eBay have all enjoyed substantial gains this year, the Net's biggest winners are much smaller -- the industry's second- and third-tier companies.

http://www.cnnfn.com

U.S. troops intercept 3rd 'gold truck' fleeing Iraq - OS
By Paul Salopek | Foreign Correspondent, Orlando Sentinal
June 8, 2003

KIRKUK, Iraq -- Another battered truck hauling what appears to be a dazzling fortune in gold bars was stopped at a routine U.S. Army checkpoint in Iraq on Wednesday, the third such cache of bullion seized in two weeks.

An officer with the 173rd Airborne Brigade, the unit that detained the truck near the northern Iraqi city of Kirkuk, said that 1,183 ingots were recovered in the latest bust.

The seizure fits a pattern established by two similar gold- laden vehicles stopped by U.S. troops in late May. All the trucks appeared to have originated in Baghdad and seemed to be heading for either the Syrian or Iranian border.

"Same modus operandi," the American officer said, on condition of anonymity. "Mercedes truck. Bad registration. Trying to pass it [the gold] off as brass."

More than 4,100 gold bars have been confiscated so far from the rusty beds of old trucks trundling down the bomb-cratered roads of Iraq. The combined value of the gold has been calculated at between $718 million and $1 billion -- the worst act of plunder in Iraq since Saddam Hussein's younger son, Qusai, swiped $1 billion in cash from the Central Bank.

The source of such vast quantities of gold in war- bruised Iraq remains a tantalizing mystery.

http://www.orlandosentinal.com

COMMENTARY

GOLD vs. DISAPPEARING DOLLAR, Pt. 2:
The Decade of Gold by Craig Smith, CEO SATC
June 9, 2003

In the classic bestseller, "1984" George Orwell warned that people were in danger of losing their freedom without being aware of it while it was happening because of psychological, emotional and intellectual manipulation.

The manipulation of words and their meaning is the key to controlling what people think. Orwell called the redefining of words "Newspeak," where traditional definitions are eliminated while new meanings are repeated over and over again until accepted.

The definition of the word "dollar" has undergone such a transformation to hide the fact that it is not money, but a unit of measurement for gold and silver coin.

Title 12, United States Code, Section 152 states: "The terms 'lawful money' or 'lawful money of the United States' shall be construed to mean gold or silver coin of the United States." Title 31, United States Code, Section 371 says: "The money of account of the United States shall be expressed in dollars."

A dollar is not money. It is the expression of money. The money of account of the United States is gold and silver coin. A dollar is a unit of measurement like an inch or a quart or a mile.

Congress, in the Coinage Act of 1792, fixed the dollar as a specific weight of silver in the form of a coin and fixed the value of gold coin in relation to the dollar unit of silver.

Logically, if there are no gold and silver coins, there are no dollars of anything. Dollars cannot be money any more than quarts can be milk. A unit of measurement cannot replace or become the "thing" for which it is a measure.

However, in the mind of the public, this is exactly what has happened. People have been led to believe that a dollar is both money and a measure of it. This is what George Orwell called "double-think," where the mind is infiltrated with conflicting ideas in order to create confusion.

It is only when we understand what a "dollar" really is that we can out-think the world of manipulated markets. Gold is the only asset that is worthy of being a "standard" in the financial markets yesterday, today or tommorrow, yet few investors can see it ... yet!

I expect in the days ahead everything than can be shaken WILL be shaken, including our definition of money and a "dollar." This may be your last chance to exchange "funny-money" for real money, gold, at prices that we will one day view as laughingly low.

The message of tangible asset diversification is the key to not just muddling through -- but prospering -- in the years ahead! Swiss America has maintained this simple message for 20 years, and I expect the next decade will go down in history as the "Decade of gold." -CRS

Read more about how to avoid the coming stock crash SHEEP-WRECKED
Read GOLD vs. DISAPPEARING DOLLAR, Pt. 1

THE REAL ENDGAME - Porter Stansbury, Frontline Thoughts
June 7, 2003

One of the smartest and best investors I've ever met, Chris Weber, says we're entering the third dollar bear market. And if there's anyone worth listening to when it comes to the currency, it's Chris Weber. Starting with the money he made on a Phoenix, Arizona paper route in the early 1970s, Chris built a $10 million fortune, primarily through currency investing. He has never had any other job. When I met him seven years ago he was living on Palm Beach. Now he resides in Monaco. I saw him two weeks ago in Amelia Island, Florida.

According to Chris, the first dollar bear market began in 1971. It ended when gold peaked out at $850 an ounce in 1980. This inflation helped ease the debts the U.S. incurred fighting the Vietnam War while wasting billions on the "war on poverty."

The second dollar bear market began after the Plaza Accord in 1985. This inflation helped pay for Reagan's tax cuts and the final build-up of the Cold War. (You should remember the impact the falling dollar had on stocks. They collapsed in 1987 on a Monday following comments over the weekend by Treasury Secretary Baker who said the dollar could continue to weaken.)

And Chris thinks this - the third dollar bear market - will be much worse than the last two. This time the falling dollar might lead to the end of the dollar as the world's only reserve currency. He's not the only one who thinks so. Doug Casey sees this happening too. And I believe it's not an unlikely outcome.

Why? Because the imbalances inside the U.S. economy have never been this large, nor has our current account deficit ever been this big and never before has the United States been more dependent on foreigners for oil.

For investors, while we muddle through this mess, it will pay to remember: America is bankrupt. Another big inflation is coming. And that's bad for equity investors. From 1968 through 1981 the Dow lost 75% of its value, in real terms.

What should you do? Imagine the 1970s, but on an even bigger scale. Doug Casey says fair value for gold right now is $700 an ounce. And he expects it to go to $3,000. It's hard for me to imagine that he's right. But then I look at my fellow American's finances, at Uncle Sam's balance sheet and the mockery corporate America has made of accounting standards...and suddenly gold looks pretty good.

Dr. Sjuggerud compiled this list of the annual returns of various asset classes from 1968 to 1981, during the last major collapse in the dollar:

* 19.4% Gold
* 18.9% Stamps
* 15.7% Rare books
* 13.7% Silver
* 12.7% Coins (U.S. non-gold)
* 12.5% Old masters' paintings
* 11.8% Diamonds
* 11.3% Farmland
* 9.6% Single-family homes
* 6.5% Inflation (CPI)
* 6.4% Foreign currencies
* 5.8% High-grade corporate bonds
* 3.1% Stocks

Chances are pretty good that you don't have a big position in these assets (with the exception of housing). It might be time to consider moving some of your savings out of stocks and bonds and into things more attuned to the declining value of the dollar.

We'll muddle through...the way we always do.

FULL STORY

MACRO SEDUCTION - Stephen Roach, Morgan Stanley
June 9, 2003

The stock market is up -- albeit still down from a year ago -- and there is growing hope the long nightmare is finally over. Convictions are rising that this rally is for real. Most believe that an imminent economic rebound is about to validate the increasingly optimistic earnings expectations now imbedded in share prices. So far, any such recovery is just a forecast.

Policy makers and politicians are doing their very best to convince financial markets that they have both the wisdom and the tools to pull it off. Long frustrated investors want to believe these tantalizing promises. It’s the ultimate act of macro seduction.

On the surface, the policy bet isn’t hard to understand. Even the fiscal authorities have jumped in. America has led the way -- upping the ante on budgetary stimulus for the second time in three years. And the Europeans are looking the other way while budget deficits in the big countries exceed the arbitrary caps of the Growth and Stability Pact. American investors are taught, “Don’t fight the Fed.” Does anyone dare to confront the collective firepower of this international “coalition of the willing”?

There are few things that shock me these days -- with age comes an unfortunate cynicism. But I was truly shocked to read over this weekend that none other than the same Milton Freidman has just recanted the central premise of monetarism. In an astonishing interview published in the Financial Times, the now 91-year-old retired professor concedes that “The use of quantity of money as a target has not been a success. I’m not sure I would push it as hard as I once did” (see “The Long View,” an interview with Simon London contained in the Weekend Section of the Financial Times, June 7-8, 2003).

This is an extraordinary mea culpa for a man who single- handedly turned the macro policy debate inside out over the past 30 years. The founding father of modern-day monetarism is now telling us that the quantity of money doesn’t matter after all. Ironically, the admission comes at just that same point in time when the Fed is telling us that it’s all that matters.

http://www.morganstanley.com

HOUSING BUBBLE THREATENED - Paul Tharp, NY Post

June 10, 2003 -- The bookkeeping time bomb being probed at Freddie Mac could yank the rug out from under our booming housing market - the last leg holding up the economy.

Economists and analysts fear that the scandal could trigger a domino effect in our banking system that could push historically low mortgage rates - now down to 41/2 percent - soaring in the weeks ahead.

"If rates rise, the housing bubble will pop," said mortgage expert Martha Kaufman, chief operating officer of Prudential's Preferred Empire, one of New York's top 10 mortgage brokers.

"It's all still a very wait-and-see situation."

Wall Street reacted immediately to news of the Freddie Mac shakeup, and sent housing and banking stocks tumbling. "There's a lot of smoke here, and many are convinced there's fire. But no one knows exactly what's involved yet," said portfolio manager Bill King.

"It could take an army of wizards to sort out all the exposure."

Freddie Mac is involved in financing one of every six home mortgages in the United States. Freddie Mac and its sister agency, Fannie Mae, own or guar- antee $3.1 trillion in mortgages.

http://www.nypost.com

MY "NO MATTER WHAT HAPPENS STRATEGY" - Pat Boone
Jun 04, 2003

BEVERLY HILLS, CA (IFNews) -- Stocks, bonds, real estate, cash, or gold? Which do you think offers the most potential to investors in the next few years?

Well, according to Swiss America, the answer is... ALL OF THE ABOVE!..IF you have a truly diversified portfolio that includes U.S. gold coins.

Yes, I'm a proud gold owner of many years thanks to Swiss America. They're helping America to rediscover gold in the 21st century.

After years of losing money in the the stock market, millions of investors are now sitting on the sidelines... waiting for clear direction. Swiss America taught me an investment strategy that works -- whether stocks go up OR down! I call it my "NO-MATTER- WHAT-HAPPENS Strategy" because it's based on tangible assets, like U.S. gold coins, which are not driven by Wall Street shenanigans, but rather, by the simple law of supply and demand.

Gold is the only asset that never becomes a liability! Unlike stocks, bonds, or even cash, gold is a physical asset with a history of safety, privacy and profit potential.

You see, most investors I've talked with, have never really taken a good look at gold or rare coin investing ...until NOW! I guess it's because gold coins provide a safe haven during troubled times - as well as complete privacy and annual returns between 5% to 50%.

Call Swiss America to discuss your tangible asset diversification strategy today for the full story about The New Gold Rush!

**Watch Pat Boone's new TV spot on The New Gold Rush!

ABOUT THE EDITOR
David Bradshaw is the editor of Swiss America's Market News Digest and Real Money Perspectives. He is the founder of Idea Factory Press... publisher of Rediscovering Gold in the 21st Century... and The Big Picture... Contact at ideaman@swissamerica.com