LIQUID ASSETS

Aug 1, 2003

GDP up, Jobless up... Stocks bounce, then fall... Confidence erodes... '87 parallels?... "New gloss for gold/coin collecting," -Wash. Times... Honest Money Act... Sold: $3M nickel... Stewarding Resources (well)...The Muddle-Through Decade... States Red Ink Hurts Recovery.

-THE MUDDLE THROUGH DECADE - John Mauldin, FrontlineThoughts

QUOTES OF THE WEEK

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"After yesterday's wild market swing, it became obvious the characteristic of the entire market may be changing - now with 'good news' being sold into! First it was the death of Saddam's sons and now yesterday's economic and employment reports -the result was the same - an initial rally and then profit taking I see a weak cyclical picture going forward, a bond market that is literally crashing with possible parallels to what we witnesse before the Crash back in 1987, and unprecedented overvaluations and investor euphoria. If I recall correctly, a big high was posted back in August, 1987, two months prior to the crash in late October. Gold is still on the top of my list for the hottest group (highest confidence) around...Today is August 1 and 401k money will arrive on schedule which could provide support for the market."

-Mark Leibovit, VRTrader.com, 8-1-03

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"A rare coin, a Liberty Head nickel bearing the date 1913, one of five illicitly minted early in the last century, turns up at last. At the start of the ANA show, another of the 1913 nickels -- the Eliasberg specimen, which most numismatists consider the best of the lot -- changed hands in a private transaction for approximately $3 million. The seller, Dwight Manley, acquired the Eliasberg in 2001 for $1.84 million. Does he have any regrets in parting with it now? 'Well, I may have underpriced it,' he says."

-GORDON T. ANDERSON, CNNfn, Found: $2 million nickel

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"Liquid assets come in many forms. Gold and silver may be the most beautiful, but watching children and grandchildren frolic in the mist of summer fun is still on the top of my list. Family is the most valuable liquid asset we all possess."

-DAVID BRADSHAW, Editor, (Granddaughter "Bella" pictured)

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"Washington, DC - Congressman Ron Paul, a leading advocate of sound money policies and an outspoken critic of the Federal Reserve, recently introduced legislation to repeal legal tender laws. The Honest Money Act, HR 2779, would eliminate forced tender laws that compel Americans to accept fiat irredeemable paper-ticket or electronic money as their unit of account."

-HOUSE.gov, 8-1-03, (see below)

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"Consumers, nervous about rising unemployment, lost confidence in their economic prospects in July, resulting in a sharp, unexpected drop in sentiment, according to the latest Conference Board survey. The Conference Board's Consumer Confidence Index, which was virtually unchanged in June, declined in July. The Index now stands at 76.6 (1985=100), down from 83.5 in June. The Expectations Index fell to 86.4 from 96.4. The Present Situation Index declined to 61.9 from 64.2."

-Consumer Confidence Index Declines Nearly Seven Points in July

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"Confidence and confusion are the only elements holding our fragile economy together right now. I expect (and hope) for even lower confidence numbers in the next few months because it will signal the a true bottom that must be achieved in order to begin meaningful, sustainable economic growth in the future, -- not simply based on bullish talking heads -- seen everywhere."

-CRAIG R. SMITH, CEO, Swiss America, 7-29-03 Confidence

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"U.S. GDP Grows at 2.4 Percent Rate, Topping Forecasts; Jobless Claims Drop. The U.S. economy expanded at a 2.4 percent annual rate in the second quarter, powered by consumer purchases, business investment and the biggest jump in defense spending since 1951."

-BLOOMBERG, 7-31-03, GDP Grows at 2.4 Percent Rate

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"I do not believe in "humility," I believe in reality. If you are in reality, you will be humble. Pride is ignorance parading as power. "

-DENNIS PEACOCKE, STEWARDING RESOURCES, Pt. 1, The Convergence 2002

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"Money's a good thing to collect," says 13-year-old Karol Kelley as she examines a 242-year-old Spanish "piece of eight," the coin on which the U.S. dollar was based."

-WASHINGTON TIMES, Money Fair adds gloss to coin collecting (see below)

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"The biggest mystery of the coin-collecting world has been solved. Today, at the 2003 "World's Fair of Money," the 112th annual meeting of the American Numismatic Association, the whereabouts of a rare nickel that could be worth more than $2 million were revealed."

-Gordon T. Anderson, CNNfn, Found: $2 million nickel

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"With the federal government sinking deeper in the red, the United States will sell $60 billion of debt next week, the Treasury Department announced Wednesday. The Treasury's quarterly refunding will raise money to address additional spending and revenue shortfalls arising from the cost of the Iraq war and the Bush administration's latest tax cut. The $60 billion will mark a record for a quarterly refunding, topping the $58 billion sold last quarter. The Treasury will raise $16.3 billion in new cash for the quarter."

-CBSMARKETWATCH, U.S. to sell record $60 bln in notes, 7-30-03

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"When it comes to wealth destruction, the recent fall in bond values must rival anything that happened to the stock market when the bubble burst. For this contribution to mankind, investors can thank Alan Greenspan for an operation we might call the 'Greenscam.'"

-ALEX BRIDPORT, Bridport and Cie, (see below GREENSCAM)

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"In the guise of worrying about the evil of deflation, Mr. Greenspan signaled to the marketplace his determination to accommodate unlimited leveraged bond purchases. Investors and speculators complied with enthusiasm, giving long-term rates another sharp downward tick. Implicitly, in a country with negative national savings, any decline in market interest rates can only come from financial leveraging.

"In this way, the last bit of restraint on financial leverage and speculative excess in the markets was effectively removed. Endless liquidity is available for the taking by the speculating financial community. The obvious result is a credit and bond bubble that meanwhile has vastly outpaced the excesses of the equity bubble.

"The fundamental dilemma today is that - by every method available - the Greenspan Fed and Wall Street are making desperate efforts to sustain unsustainable bubbles. Of these, the belabored bond bubble is now our greatest fear. Its influences have pervaded the whole economy and the whole financial system, and its bursting may have apocalyptic consequences."

- DR. KURT RICHENBACHER, An Open Mouth, Daily Reckoning, 7-29-03

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"The European Central Bank is eliminating its holdings of debt issued by Freddie Mac and Fannie Mae, the two biggest U.S. providers of mortgage financing, and recommended that its national central banks do the same."

-Bloomberg News, 7-28-03

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"Citigroup Inc. and J.P. Morgan Chase & Co., the two biggest U.S. banks, will pay a combined $308 million to settle state and federal charges that they helped Enron Corp. hide more than $8 billion of debts before the energy trader slid into bankruptcy. The banks enabled Enron to 'mislead its investors by characterizing what were essentially loan proceeds as cash from operating activities,' a Securities and Exchange Commission statement said. Citigroup also settled SEC claims that it helped Enron competitor Dynegy Inc. hide debts."

-BLOOMBERG, Citigroup, J.P. Morgan Settle Enron Probe With SEC, 7-28-03

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"The swindle of the stock market is the idea that Wall Street is there to make you rich, no matter what you buy or when you buy it."

-BILL BONNER, Daily Reckoning, 7-28-03

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"Federal Reserve Chairman Alan Greenspan and the real estate industry insist that there's no real estate bubble. Greenspan's conventional wisdom argument is that most people don't turn over relatively illiquid real estate the way they sell stocks and bonds. That's true, yet there's evidence that housing prices may be slackening. A combination of high consumer debt, unemployment and the flow of hot money back into stocks will trigger a decline in the hottest residential markets. It's time to prepare for the inevitable bursting of the bubble."

-John Wasik, Bubble Theory Shows More Evidence, Bloomberg

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"Having already stripped the nation of a source of economic growth, the budget crises in California and in almost every other state are now beginning to drag down the national economy, prolonging the weak, jobless recovery, the latest budget numbers show. Over the past two years, the states have gradually cut between $20 billion and $40 billion - no one knows exactly how much - from their spending. Billions more in cutbacks are coming in the fiscal year that started July 1."

-LOUIS UCHITELLE, Red Ink in States Beginning to Hurt Recovery

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MARKET NEWS DIGEST

U.S. economy loses more jobs in July - CBSMarketWatch
Nonfarm payrolls down 44,000, By Greg Robb, Aug. 1, 2003

WASHINGTON (CBS.MW)-- The U.S. economy continued to shed jobs in July, the Labor Department said.

But, a decline in the U.S. labor force led to a drop in the unemployment rate in July. The unemployment rate fell to 6.2 percent in July from 6.4 percent in June.

Nonfarm payrolls fell by 44,000 in July after losing a revised 72,000 jobs in June.

This is the sixth straight month of job losses. The economy has lost 486,000 jobs since February.

Wall Street economists expected payrolls to rise by 13,000 in July, and for the unemployment rate to remain steady at 6.4 percent.

http://www.cbs.marketwatch.com

MCI Faces Federal Fraud Inquiry - STEPHEN LABATON, NY Times
July 28, 2003

WASHINGTON, July 26 � Federal prosecutors have opened an investigation in the United States and Canada into accusations that MCI, the nation's second-largest long- distance carrier, defrauded other telephone companies of at least hundreds of millions of dollars over nearly a decade, people involved in the inquiry said.

The central element of MCI's scheme, people involved in the inquiry said, consisted of disguising long-distance calls as local calls to avoid paying special access tariffs to local carriers across the country. Those tariffs are the largest single source of MCI's costs for carrying calls and data transmissions.

The investigation is based on internal documents and information from former MCI executives and three other telephone companies: AT&T, SBC Communications and Verizon. They have provided significant technical evidence that shows, they say, that MCI is continuing to avoid paying access charges through the scheme, according to people involved in the inquiry.

Telecommunications experts said that in the 1990's, it became common for long-distance providers to seek legal ways to shift telephone traffic to reduce access tariffs. But there have also been criminal prosecutions of companies that improperly avoided the tariffs.

http://www.nytimes.com

New Rules Urged to Avert Looming Pension Crisis - NY Times
By MARY WILLIAMS WALSH, 7-28-03

Top government officials have begun a calibrated campaign to bring attention to corporate pension plans, which they say may be on a road to collapse. But underneath their measured words are proposals that could fundamentally change the $1.6 trillion industry, altering the way pension money is set aside and invested.

On Wednesday, the comptroller general placed the Pension Benefit Guaranty Corporation, the agency that guarantees pensions, on a list of "high risk" government operations. Elaine L. Chao, the secretary of labor, issued a statement on the same day warning that the decades-old system in which workers earn government-guaranteed pensions "is, unfortunately, at risk."

Treasury Secretary John W. Snow, a former railroad chief executive who had responsibility for a $1.3 billion pension fund, warned recently that a financial meltdown similar to the savings-and-loan collapse of 1989 might be brewing.

FULL STORY

Demand for global listing puts new gloss on gold - The Times
By Carl Mortished, International Business Editor

Sentiment towards gold as an investment has shifted since the late 1990s when central banks began to sell their gold holdings, causing the price to fall to $250 per ounce.

The search for security in another form has led some investors back to gold. The price has risen to more than $340 an ounce and the notion of gold as the ultimate store of value and means of exchange is once again being touted.

FULL STORY

Money Fair adds gloss to coin collecting - Washington Times
By Charles Hoskinson, July 26, 2003

In the library of Our Lady of Mercy Elementary School in Potomac, 79 summer campers feign interest as coin enthusiast Jack Schadegg shows them a film about how coins are made.

Some of the youngsters struggle to stay awake. But Mr. Schadegg, secretary of the Montgomery County Coin Club and a longtime collector whose visit today is sponsored by the club, knows how to pique their interest: All he has to do is show them the money.

He does, handing each child a sealed envelope with a coin inside. Their eyes open wide as silver dollars: It's a chance to hold bits of history.

"Money's a good thing to collect," says 13-year-old Karol Kelley as she examines a 242-year-old Spanish "piece of eight," the coin on which the U.S. dollar was based.

And these days a growing number of Americans have caught the fever. They've begun to search their own pockets and piggy banks for change to keep just as others search the sky for shooting stars.

Now all the romance of numismatics, as the coin collectors' hobby is known, comes to Baltimore next week at the World's Fair of Money, an annual convention sponsored by the American Numismatic Association, a coin collectors group.

� � �

The hope is that the displays at the convention, which runs Wednesday through Aug. 3, will inspire the new generation to become interested in collecting coins, says spokesman Stephen Bobbitt. Some 9,000 people are expected to attend the various events, which include educational programs, exhibits of coins from mints around the world and a giant bourse, or trading center, with more than 1,000 dealers.

http://www.washingtontimes.com

Economic Indicators July 28 thru August 1, 2003:

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Monday, July 28:

10:00 AM ET: Leading Indicators Index for June.

2:00 PM ET: Treasury Budget Statement for June.

Treasury auctions 3&6-month bills.
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Tuesday, July 29:

9:00 AM ET: Weekly Chain Store Sales.
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Wednesday, July 30:

Treasury Auctions 2-year notes.
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Thursday: July 31:

8:30 AM ET: Initial Jobless Claims.

4:30 PM ET: Weekly Money Supply.
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Friday, August 1:

8:30 AM ET: Durable Goods Orders for June.

10:00 AM ET: New Home Sales for June.

10:00 AM ET: Existing Home Sales for June.

COMMENTARY

CONG. RON PAUL INTRODUCES HONEST MONEY ACT - Press Release
August 1, 2003

Washington, DC - Congressman Ron Paul, a leading advocate of sound money policies and an outspoken critic of the Federal Reserve, recently introduced legislation to repeal legal tender laws. The Honest Money Act, HR 2779, would eliminate forced tender laws that compel Americans to accept fiat irredeemable paper-ticket or electronic money as their unit of account.

Absent government intervention through legal tender laws, individuals acting through the market decide what they will use as money. Historically, the free market has chosen some combination of gold and silver whenever they were available. As Dr. Edwin Vieira, the nation’s top expert on constitutional money, stated: “A free market functions most efficiently and most fairly when the market determines the quality and the quantity of money that’s being used.”

When government creates fiat money out of thin air, the purchasing power of existing dollars falls. Fiat money erodes the value of savings, and is especially harmful to those living on fixed incomes. Paul believes centralized planning in monetary affairs is as harmful as centralized planning in economic affairs.

“Fiat money is widely accepted only because of legal tender laws,” Paul stated. “Throughout the 20th century, the legal tender power enabled politicians to fool the American public into believing the dollar no longer meant a weight of gold or silver. Instead, the government told the people that the dollar now meant a piece of government-issued paper backed up by nothing except the promises of the government to maintain a stable value of currency. Of course, history shows that the word of the government (to protect the value of the dollar) is literally not worth the paper it is printed on.”

“While legal tender laws harm ordinary citizens, they work to the advantage of large banks,” Paul continued. “Banks have been improperly granted the special privilege of creating fiat irredeemable electronic money out of thin air through fractional reserve lending. According to the Federal Reserve, since 1950 these private companies (banks) have created almost $8 trillion out of nothing. This has been enormously advantageous to them.”

Repeal of legal tender laws will help restore constitutional government and protect the people’s right to a medium of exchange chosen by the market, thereby protecting their current purchasing power as well as their pensions, savings, and other promises of future payment. Honest money serves the needs of ordinary people; fiat irredeemable paper-ticket electronic money improperly transfers the wealth of society to a small privileged financial elite. Paul’s legislation simply seeks to offer Americans a choice between fiat money and traditional stores like gold and silver.

House.gov

THE 21ST CENTURY GOLD RUSH - Craig R. Smith, SATC
July 28, 2003

The Good Book says that wisdom comes from a multitude of counselors. Therefore, Swiss America educational resources always endeavor to feature a diversity of wise perspectives from respected leaders.

Each week I do media interviews discussing the shape of things to come in the economy and markets with great enthusiasm because the message of financial prudence, protection and safety is the message behind gold.

As I speak to live callers, I'm often amazed by the high level of common sense that exists on Main street, especially in comparison to Wall Street.

I get questions like ...

* Alan Greenspan testifies and stocks fall! Why? Was it something he said?

* $455B Deficit - but who cares? Won't we all just have to peddle a little faster?

* Has the long-awaited recovery begun, or are we looking at more muddling-through?

* Stocks, bonds, real estate, cash or gold? Which offer the most potential to the average investor right now?

* How to you advise diversifying assets?

* How can I get educated about smart and tangible alternatives?

Given the time constraints on live talk radio, I give it my best effort, but often I wish I had more time to explain.

Well now, thanks to the Internet, today my best thoughts can be archived for posterity, or a more convienent time to review. I invite you to visit the Swiss America mp3 Archives to listen to recent interviews covering most of the basics on gold.

For example, under the topic "The New Gold Rush!" there are interviews with many leading talk show hosts covering these top questions ... best of all, my answers are short!

-The basics of gold bullion and rare coins (3:06)
-"I got that safe feeling" - (2:39)
-Coins for fun & profit (2:05)
-Retirement strategy (1:00)
-IRA - on the gold standard (1:09)
-Value, stocks vs. gold (1:16)
-Liquidity, real estate vs. gold (1:50)
-Cash & CDs vs. gold (1:43)
-Are coins depression-proof? (1:04)
-Gold confiscation of 1933 -Part 1 (1:14)
-Rare coins exempt 1933 confiscation (2:35)
-Coin prices don't always equal value - guidelines (3:49)
-Numismatic coin cautions (1:03)
-Selling your gold back (1:12)
-The buy of a generation - (1:28)
-Historical economic solutions (:50)
-New demand, bring gold prices down? (1:54)
-Should you polish up old coins? (1:00)

...And this is just what I cover in 30 minutes!

Also, visit SwissAmerica.com home page for daily updates to market news, views and media interviews.

THE MUDDLE THROUGH DECADE - John Mauldin, FrontlineThoughts
July 28, 2003

The feelings expressed about Greenspan are best summed up in a statement by Alex Bridport, of Bridport and Cie., in a client letter he wrote. (Bridport is a major firm, consulting with large European institutions on their bond portfolios, which in the aggregate would be well in excess of $100,000,000,000. They have bought over $20,000,000,000 in bonds for their clients just since the beginning of the year. In short, they have their fingers on the pulse of European institutional investors.) This caustic note from Sir Alex:

"When it comes to wealth destruction, the recent fall in bond values must rival anything that happened to the stock market when the bubble burst. For this contribution to mankind, investors can thank Alan Greenspan for an operation we might call the "Greenscam." It involved him allowing investors to believe that the overwhelming risk was deflation and that all means would be used, including the Fed buying long T-bonds, to keep long-term yields low and support the "carry trade." Then Greenspan pulled the rug and investors all fell down, taking off the carry trade.

"We admit to being as much a victim of the Greenscam as anyone else. At least we all know whom never to trust again. Beyond the half-truths, the inherent contradictions and unproven optimism about the rolling "recovery in six months," our task is to weigh up the likely developments in the U.S. economy as the starting point to what will happen there and elsewhere.

"Until last week we had swallowed the Greenscam line that the economy could only recover or deflate. Since recovery with such a debt load looked impossible, we went along with deflation being the more likely scenario, although, in fairness to ourselves, we saw it as only a short-term phenomenon, as a weakening dollar would offset deflationary pressures in time (we overestimated the amount of time in making a wild guess of one year).

"A major question for the outlook in this stagflation vs. deflation competition is the future of the dollar. Bridgewater [Associates] points out that, in past periods of high twin deficits, the dollar fell but bonds did not. They see the Fed producing whatever liquidity is needed to shift some of the downward pressure on bond and stock markets to the US dollar - hoping to attract foreign capital because the dollar is cheap (presumably with a view to its appreciating again). Up to that point we agree with Bridgewater's analysis, but we have to part company with them when they continue to see the deflation model and falling yields as the most likely scenario.

"Our view is towards the stagflation model, because of the force of argument from the indices and because the dollar looks likely to fall again. Despite our now leaning towards the stagflation model (yes, we changed our minds over the last few weeks - but the facts changed, too!), it would be inappropriate to recommend maturities other than those close to the bond index. Yields overshot on the way down and may well do on the way up. Besides, the Greenscam may not have run its course. New cash should wait on the sidelines or be used to buy instruments to counter a further rise in yields and inflation."

I am attracted to this view, as it is similar to mine, although I think the time-line is somewhat longer and more stretched out. Reviewing quickly, I think we are in a slow- growth Muddle Through Economy. The Fed has virtually guaranteed that short-term rates will remain low for some time, until either inflation appears or the economy is soundly growing above trend.

Neither eventuality is my most likely scenario. At some point, there will come a recession (there is always another recession), without the Fed having the "ammunition" of being able to lower short-term rates. In my opinion, if a significant rise in rates, either long term or short term, were to happen in the current slow growth economy, it would indeed trigger a recession.

Since recessions are by nature deflationary, the Fed will respond with the rest of its arsenal, as they view deflation as the worst of all possible worlds. I believe they will indeed stop deflation dead in its tracks.

However, I think that leads not to a comfortable reflation and a return to the Roaring 90's, but to a slow-growth inflationary period, similar to the stagflation of the 70's. It will become the Muddle Through Decade.

http://www.frontlinethoughts.com

THE SWINDLE OF THE STOCK MARKET - Bill Bonner, DR July 28, 2003

The swindle of the stock market is the idea that Wall Street is there to make you rich, no matter what you buy or when you buy it. Every shopper tries to get the most for his money, when he buys clothes, food, or anything else. But when he shops on Wall Street, the poor man man's brain starts backing up; instead of looking for bargains, he looks for the most expensive merchandise he can find.

The brokerage houses, the media, Lou Rukeyeser, Abby Cohen - they all tell him not to worry; all he has to do is to be 'in the market' and he'll get rich along with everyone else. Nothing is as safe or as sure as long-term stock market investing, they say. If only it were that simple and that easy! And here's the lovely irony of it: the more he believes them, the more he and other investors will lose.

There is, of course, a way to make a lot of money by investing. But it can only be done by a few people, not by many... and only by doing what the many do not do. There is a time to buy stocks and a time to sell them. The time to buy them is when other investors are least interested in buying them and Wall Street is least interested in selling them. The time to sell them is... we think... now.

And when all investors' eyes are on stocks, it is time to recognize the humbug of Wall Street and look elsewhere. The important spectacle is being played out, we believe, not on Wall Street, but in the world's currency markets and gold exchanges.

And here, the sparkle of irony is almost blinding. When the Dollar Standard system emerged, Americans thought they had been handed the keys to a liquor warehouse on the night watchman's day off. The keys got them in... but there will be hell to pay getting out. More on this - how America has been cursed with good fortune - as the summer continues...

http://www.dailyreckoning.com

THE 14 CHARACTERISTICS OF SUCCESSFUL PEOPLE - Earlytorise.com
July 28, 2003

According to productivity expert Jeffrey J. Mayer, successful people have 14 traits in common. They:

1. have a dream
2. follow a plan
3. have specific knowledge
4. are willing to work hard
5. don't take no for an answer
6. are strongly motivated
7. are focused
8. learn how to get things done
9. take responsibility for their actions
10. look for solutions to problems
11. make decisions
12. are self-reliant
13. cooperate with other people
14. are enthusiastic

Some of these 14 traits overlap. And some are not essential. But, overall, I find Mayer's survey telling. Assigning one point to each of these traits, I gave myself a score of 11. I gave BB, my partner, the same score. JSN, my former p artner, had a score of 12. And PR and AS, two very successful friends I work with, scored 10 and 9 respectively. Another good friend, who has never found success, scored 2.

What about you? What's your score?

Make a note of which traits you have and which you lack. Then -- if you want success (and why would you be reading ETR if you don't?) -- devise a plan for "improving" your character.

Start by acknowledging your strong points and promising yourself to improve them. Experience shows that you'll make more progress by improving your strengths than by correcting your weaknesses.

Focus on the most important traits. In my view, they are the following (which I've embellished a bit):

ETR's Nine Essential Traits of Success

To become successful you must �

1. have a useful goal -- one that benefits not only you but also others

2. create a logical plan to achieve that goal

3. work hard -- at least 50 hours a week -- following that plan

4. focus on the most important tasks -- and do them first

5. learn whatever you need to know to complete your tasks

6. always focus on solutions, not problems

7. take responsibility for your actions

8. while helping yourself, help others

9. when you are ready to quit, work one more day

If you can do these nine things, you will surely succeed. And your success may be greater and come faster than you expect.

http://www.earlytorise.com