HO! HO! HO! GOLD!

Dec 26, 2003

Market News Digest

U.S. stocks rebound after mad-cow- CBSMW
Amazon, Sharper Image gain; food stocks snap back
By Tomi Kilgore & Mark Cotton, CBS.MarketWatch.com
Dec. 26, 2003

NEW YORK (CBS.MW) -- U.S. stocks closed higher on positive sales data from retailers Amazon and Sharper Image and a bounce in food stocks hit by Wednesday's mad-cow scare.

Erasing early weakness, Wal-Mart also moved higher despite offering up less-than-enthusiastic comments on its seasonal trading performance.

"We got some good news out of Amazon.com and Sharper Image which certainly set the tone for retailers," said Peter Cardillo, chief strategist at Global Partners Securities. "But the strength is pretty much across the board."

Volumes were very light during Wall Street's second-straight abbreviated session, as many investors extended their Christmas holiday.

The Dow Jones Industrials Average ($INDU: news, chart, profile) gained 19 points, or 0.2 percent, to 10,325, off its best level for the day of 10,343.

On the first trading session after the Christmas holiday, the Dow has gained ground in 9 of the last 11 years, according to the Stock Trader's Almanac.

http://www.cbs.marketwatch.com

[Ed. Note: Finally the Dow has moved into positive territory for the year, considering the net effect of a falling U.S. dollar ... the Dow is up 21% year-over-year ... while the U.S. dollar is down 20% year-over-year ... let's hear it for breaking even! ... It's a bit like walking up a "down" escalator. See "Net Zero Sum Game" below.]

Stocks Fall on Mad Cow Report -Bloomberg

Dec. 24 (Bloomberg) -- U.S. stocks declined, led by McDonald's Corp. and Tyson Foods Inc., the world's largest meat producer, after the government detected the first case of mad cow disease in the country.

``It's a negative for beef producers, a negative for restaurants serving beef and it's going to drive up the cost,'' said Russ Koesterich, equity strategist at State Street Global Markets in a radio interview with Bloomberg News.

The Standard & Poor's 500 Index fell 2.22, or 0.2 percent, to 1093.80 as of 9:56 a.m. in New York. The Dow Jones Industrial Average lost 26.07, or 0.3 percent, to 10,315.19. The Nasdaq Composite Index shed 5.03, or 0.3 percent, to 1969.75.

Stocks also declined after November durable goods orders unexpectedly fell, denting optimism that the pace of U.S. economic growth is sustainable.

Six stocks dropped for every five that advanced on the New York Stock Exchange. Some 78 million shares changed hands on the Big Board.

Trading may be slower than the daily average as stock exchanges shut at 1 p.m. Markets will be closed tomorrow and will shut at 1 p.m. on Friday in observance of Christmas.

http://www.bloomberg.com

Beef bans could hurt multi-billion dollar industry-AFP
Wed Dec 24, 2003

CHICAGO (AFP) - The first suspected US case of mad cow disease could gut the US beef industry, which the government calls the top farm business in the nation, following a series of temporary bans slapped on by importers.

The industry generates annually about 40 billion dollars directly -- as measured by sales of cattle and calves -- and approximately five times that per year in related economic output.

It employs almost one million people directly, while processing and packing add 400,000 full-time jobs, the National Cattlemen's Beef Association said.

Jobs go up the food chain, from farmers and ranchers who raise feeder and breeding cattle to stocker operators, cattle feeders who fatten the cattle up to market weight, and packing and processing workers.

FULL STORY

U.S. cities hike security on terror alert rise -CNN
Ridge: Possible attacks could rival 9/11
December 22, 2003

WASHINGTON (CNN) -- U.S. travelers should expect more random vehicle searches and a higher police presence now that the Department of Homeland Security has raised the terror threat level from elevated to high.

Holiday travelers also are being cautioned that security check-in lines could be long.

In announcing the heightened terror alert, Homeland Security Secretary Tom Ridge warned Sunday of possible terrorist strikes more devastating than the al Qaeda attacks of September 11, 2001.

He said the move was the result of a "substantial increase" in the volume of intelligence pointing to "near-term attacks that could either rival or exceed what we experienced on September 11."

http://www.cnn.com

Dollar's Drop Becomes Ominous -Reuters
December 21, 2003, By Nick Olivari

NEW YORK (Reuters) - After months of looking at nothing but the bright side of a weaker dollar, investors are starting to look at the dark side of its struggle against the euro.

Demand for the dollar has been dampened by concerns about the widening U.S. current account deficit and expectations that benchmark U.S. interest rates will remain low.

For most of the past six months, that was seen as positive for the most part, as U.S. goods and services become cheaper compared with those produced overseas. Now though, investors are looking at the pace of the dollar's decline, fearing that an orderly drop in demand may turn into a rout.

http://www.reuters.com

Experts see '04 'firing on all cylinders' -USAToday
By Barbara Hagenbaugh and Barbara Hansen, USA TODAY

WASHINGTON — The U.S. economy next year will grow at its fastest pace since the '90s boom and unemployment will fall, economists surveyed by USA TODAY say.

In their most optimistic end-of-the-year outlook in years, the economists expect the stock market to continue to rise. And business spending, a key economic element, is expected to rebound strongly after being largely absent. (Related charts: Economic forecasts)

"After a number of false starts over the last couple of years, I think it's pretty clear that now most, if not all, of the sectors of the economy are firing on all cylinders," says FleetBoston Financial chief economist Wayne Ayers.

Says Larry Chimerine, president of Radnor International Consulting: "Almost everything is pointing in the right direction."

http://www.usatoday.com

Commentary

"WALL STREET IS A NET ZERO SUM GAME" SAYS WHISTLEBLOWER
By Craig R. Smith, CEO SATC
Dec. 18, 2003

Last Wednesday night Noreen Harrington, the whistleblower from Stern Asset Mgmt. who was brave enough to take her concerns about the after-hours mutual fund trading to the NYC Attorney General Elliot Spitzer, was a featured guest on CNBC's Kudlow & Cramer.

When asked why she came forward, she said that after seeing the "human toll" of her sister's 401k losses - at the hand of her firm - it "pushed" her to take the issue to her boss, who promptly told her that it was the mutual funds who should be looked in to, not his firm.

So, Noreen then took the case to Mr. Spitzer, and the rest, as they say, is now history. Noreen said that from her perspective, there is a big difference between skimming money from "nameless, faceless" small investors and skimming money from a family member or loved one.

Spitzer says that "95 million investors owe Noreen their gratitude for uncovering the tip of the fund scandals." Noreen said she has gotten hundreds of positive letters thanking her for coming forward and blowing the whistle on this fraud.

Both Kudlow and Cramer were congratulatory, but asked Noreen questions she was unequipped to answer ... like ... "Is this an isolated case?" ... "Is the SEC doing enough?" ... "Do we need another gov't agency?"

Noreen said she believes that "Wall Street is a "net zero sum game," that is, if someone wins someone else loses. She wants more enforcement rather than more regulations, saying "we need to see compliance as a resource."

Noreen is right, Wall Street is a net zero sum game -- and fund clients and brokers ought to understand that. Unless the company makes money and they increase the economy, it is simply taking from one to give to the other. With the "little guy" always taking it in the rear.

In closing, Noreen confessed that she still doesn't understand the motivation for the super-rich fund execs (like Richard Strong) in stealing pennies from the small investors. But then, greed is not that hard to understand, right?

Earlier, CNBCs Maria Bartiromo asked her guest, "So, where are your BETS in this market?" And it struck me ... Wall Street is just that ... a bet.

Thankfully, physical gold ownership isn't a bet, it is money in your hand.

I wonder if ... in the years ahead those who have been brave enough to tell the media the truth about our declining dollar ... and the wisdom of owning physical gold to protect assets ... will ever be congratulated? Time will tell, but don't bet on it!

Read my 2004 Investor Resolutions

Who to blame when the next bubble bursts -Dean Baker, Globe
Dec. 20, 2003

Any assessment of Alan Greenspan's long tenure at the Federal Reserve has to present the stock bubble as his biggest failure. If Greenspan had effectively and consistently warned investors of the irrationality of stock prices in the late 1990s, the bubble never would have reached such dangerous proportions. His "irrational exuberance" comment just wasn't enough.

The collapse of the bubble, which destroyed more than $8 trillion in paper wealth, was the immediate cause of the 2001 recession and the economy's subsequent period of weak growth and failure to create jobs. The collapse also left pension funds unbalanced and forced millions of workers to delay retirement. After his failure regarding the largest financial bubble in the history of the world, it looks like Greenspan is now actively promoting the world's second-biggest bubble: the housing market.

The basic story is simple: Over the last eight years housing prices have outpaced the overall rate of inflation by more than 35 percentage points. There is no precedent for this sort of rise in home prices. In the past, home prices largely kept even with the general rate of inflation.

The housing bulls have a number of explanations for this increase in home prices: a growing population, a limited supply of urban land, environmental restrictions on development. But these stories are no better than the "new economy" yarns of those who defended the stock market bubble. We have always had a growing population and limited supplies of urban land, and environmental restrictions predated the mid-1990s. These factors never led to elevated home prices in previous decades, which is why experts are warning about a housing bubble.

FULL STORY

Read more on Greenspan and the emerging housing and other market bubbles.

Gold bulls show determination -CBSMW
By Peter Brimelow, CBS.MarketWatch.com - Dec. 22, 2003

NEW YORK (CBS.MW) -- A decisive December for gold? But two old gold bulls are not charging yet.

In my Nov. 24 column, I reported that some gold experts were anticipating that bullion was about to attempt a break above $400. It did. Spot gold has been above that level all December, even absorbing a sharp break when Saddam Hussein's capture was reported.

One such expert was respected Australian gold service The Privateer. Editor Bill Buckler said on Friday:

"This week, gold set another 2003 high with a spot future close of $US 412 on Dec. 17. That's only $US 2.00 below the spot future close of $US 414.00 set on Feb. 6, 1996 which marked the top of Gold's last bull market...We are confident that the REAL breakthrough of $US 400, which will come with a break above $US 420, will be a much bigger "sea change" than breaking through $US 300 was."

Buckler is a technician who makes fundamentalist noises. His rationale for continued gold strength:

"So, as 2003 draws to a close, we have the two biggest US Dollar holders in the world, Japan and China bending their financial and monetary systems all out of shape, both gearing up for a new year which they both clearly foresee as being a 'difficult' one. The Bush Administration and the Fed, meanwhile, pretend that there are no clouds on the horizon and that everything is 'business as usual'."

Another possible bullish sign: amazingly, the gold timers followed by the Hulbert Financial Digest are still no more exposed to the market (34.6 percent) than they were in early December - and that was sharply down from November, although gold then was significantly lower. (See Mark Hulbert's Dec. 12 column).

But gold shares have been weak. At week's end, Richard Russell wrote in his Dow Theory Letters:

"A number of gold shares have now formed head-and-shoulder top patterns. These are patterns of distribution... [G]old shares may be ready for an important correction."

Russell's advice:

"This is the time for you to decide whether you have the stomach to take a big correction. If you sit, it could be scary (assuming you scare easily). If you sell, there could be two problems -- the chart patterns may fool us since there is obviously no guarantee of a coming correction. Or the corrections may be mild -- there's absolutely no way of knowing either outcome beforehand. Another problem is that if you sell out and avoid any downside, you may not, and probably won't, establish the same position again. This is always the problem of trading out in a bull market..."

Russell's own position: "Sure, gold and the gold shares may now be ahead of themselves. They may correct or they may sit while their 200-day moving averages rise to meet their current price..."

But "Gold is in a very long-term bull market, and I'm going to be sitting with the metal and the stocks for a long time to come."

http://www.cbs.marketwatch.com

Read more from the Richard Russell Archives

The "fallacy of composition." –Bill Bonner, Daily Reckoning
Dec. 20, 2003

What I've seen, over 26 years, is that the stock market is extremely efficient... efficient at humiliating people. Right when everyone is finally convinced there really is an easy path to riches... the strategy, whatever it is, becomes a sure path to destruction.

Why is this... ?

Economists call the problem the "fallacy of composition." In short, what may work for a single person, may not work for a group. For example, some engineers may make fortunes building new electronic widgets, which make the Internet work better. And, in the early 1990s, many people did make fortunes building routers... or rotors... or whatever.

But everyone cannot get rich in that, or any other single business. So, just as everyone was convinced that simply buying the shares - at any price - of one of these companies was the sure way to get rich, disaster struck. They lost 90% of their money - if not more.

Here's the worst part: the greater the evidence that some strategy really works for some people, the more likely it will lead to ruin for many.

After more than 26 years of watching this happen, over and over again to investors, I have generally come to believe that it is impossible for the average person to make money in stocks. History supports my view. In the main, the average person does not buy stocks, except at exactly the wrong time. And when lots of people do buy stocks, the only thing you can be sure of is ruin - for everyone.

But I'm not trying to discourage you from buying stocks... I'm just telling you what I've learned about it... and why caution and humility are winning traits for a stock market investor. I also want to let you know that there is a way to invest where you harness those traits. It's the only investment strategy that doesn't succumb to the fallacy of composition. In fact, its entire premise is based on avoiding the crowd.

Not surprisingly, this kind of investing is the only kind proven (in 44 different academic studies) and by real investors that I know, to work over time and in all markets.

The strategy is based on only five factors. These are the only five factors anyone can prove - over time - matters to successful investing. They are:

1. A low stock price relative the assets of a business.
2. A low stock price relative to the earnings of a business.
3. Significant purchases by company insiders.
4. A large, prior decline in a stock's price.
5. A small market capitalization.

DR

Gold as a hedge? How about a 64% return? -Houston Chronicle
By SCOTT BURNS, Universal Press Syndicate - Dec. 21, 2003

Is gold a good hedge? It certainly looks that way.

Let's start by considering the incredible performance of the precious metals funds.

In the 12 months that ended Dec. 12, according to category average data from Morningstar.com, the average precious metals fund blows away the competition. The category average return: 64.1 percent.

Nothing else comes close. Funds specializing in Latin America come in a distant second at 55.1 percent. Technology funds, recovering from their near-death experience, placed third at 42.3 percent.

The hedge value of gold is still clearer when you look back three years. During that miserable period, the average precious metals fund gained 44.4 percent a year, while the average domestic large blend equity fund lost 6.6 percent a year.

Big difference.

Indeed, while a 50/50 domestic stocks/fixed-income portfolio would have suffered a small loss over the last three years, your overall return would have been 4.3 percent a year if you had simply owned a gold fund "insurance policy" equal to 10 percent of your starting portfolio.

As a consequence, many people who probably sold at the bottom of the bear market might have held on and enjoyed the recovery.

This isn't your usual "portfolio for the apocalypse" approach to gold. The gold bug crowd hordes its gold coins and awaits the Mother of All Economic Disasters with dreams of $5,000-an-ounce gold, worthless paper money, a devastated economy and social chaos.

But in that environment, the coin of the realm won't be gold coins. It will be bullets for your .357 Magnum.

In the more conventional -- and more likely -- world of portfolio construction, the basic idea is far less dramatic. Indeed, it is anti-dramatic. What you and I need to look for in portfolio construction is assured boredom, not excitement. We want regular, unexciting returns that double our money in reasonable -- but attractive -- periods of time.

To do that, we try to have a collection of assets with good but largely unrelated returns.

FULL STORY

Read more about THE WISDOM OF ASSET DIVERSIFICATION
ALSO, note that gold stocks and funds aren't the only type of gold that is up "64%" ... U.S. rare gold coins are up 57%-80% since 2001.

The Connection Between Oil and Stock Prices –John Mauldin, FLT
Dec. 20, 2003

"We find that changes in oil prices strongly predict future stock market returns in many countries in the world... The impact of this predictability on stock returns tends to be large."

They point out that there is a whole host of papers on the effects of oil prices (especially shocks) and the economy. There has been little done relating oil prices and stock prices.

It turns out there is. In 12 of the 18 countries, changes in oil prices significantly predict future market returns on a lagging monthly basis. Not surprisingly, a rise on oil price suggests a lower stock market and a drop in oil price infers a rise in stock prices. The magnitude of the oil price shift is also carried over into the magnitude of the expected increase/decrease in stock prices.

"We find strong evidence that changes in oil prices forecast stock returns. This predictability is especially strong in the developed markets in our sample countries and the world market index... and is robust over time and cannot be explained by [other market effects]. While one might expect that this predictability is related to the size of specific sectors in different countries we find this is not the case. The predictability tends to be country specific. This suggests that this is a macro economic phenomenon.

"It might be that this predictability is related to a lagged reaction of the market to the general impact of oil price changes in the different economies... But even if we are able to determine the source of the predictability, we have not idea why the financial markets react so slowly to this information in the oil price. That remains the real puzzle to be explained."

Now, before I sound too breathless, let me point out that this method, while adding alpha or excess returns over buy and hold, is still volatile as heck (that's a technical term) and is wrong over 40% of the time in most countries. It is just that when it is right, the returns are excessive. Which also means that there could be certain random entry/trend following variables, about which the professors would obviously not agree. To use this system you would have to be a very disciplined trader. It is probably more useful as something to keep an eye on than as opposed to using the system as a rigorous model.

But even given those caveats, the study clearly show that oil prices and stocks, especially if there are big moves in oil, tend to go in opposite directions.

The Effect of Oil on Muddle Through

>From some time, I have been thinking the price of oil should come down. We all know the propensity of OPEC members to cheat. Indeed, only Indonesia and Venezuela are currently producing under quota, and not for lack of trying to cheat. OPEC is currently producing 1.22 million barrels of oil per day above their quotas. That is HUGE.

Every major oil producing region increased production in November. Iraq brought on more supply and is bringing on more if they can get the security on the oil pipeline fixed.

The world is awash in a tidal wave of oil. If you had asked me a year ago, given such production, where I thought the price of oil would be, I would have said down. In fact, if I go back and check the record, I probably predicted a drop in oil prices for this year. If I did not, I certainly privately thought so.

World wide demand is up as a recovery starts to manifest. The Wild Card? Can you say China, boys and girls? Marshall Steeves, oil analyst for Refco, told me that strong demand, especially from China and the US is pushing the price of oil up. Supplies are quite tight, he notes. Weldon tells us (where does he get his stats?) that refinery production capacity is at 94% and in California it is at 97%, even as the supply of gas in California is dropping. That is well above seasonal averages.

http://www.frontlinethoughts.com

** The Story of Chanukah -Holidays.net

** Movie Review ** THE LORD OF THE RINGS: THE RETURN OF THE KING -Movie Review by Dr. Ted Baehr

** Whistleblower on CNBC ** "WALL STREET IS A NET ZERO SUM GAME" -Craig R. Smith, CEO SATC

** The Playboy philosophy at 50 -Cal Thomas, Author

** Christmas Trivia ** History of the 12 Days of Christmas -IFP

The Story of Chanukah -Holidays.net

Every year between the end of November and the end of December, Jewish people around the world celebrate the holiday of Chanukah, the Festival of Lights. Chanukah begins on the 25th day of the Hebrew month of Kislev, but the starting date on the western calender varies from year to year. The holiday celebrates the events which took place over 2,300 years ago in the land of Judea, which is now Israel.

Jews celebrate Chanukah to mark the victory over the Syrians and the rededication of the Jerusalem Temple. The Festival of the Lights, Chanukah, lasts for eight days to commemorate the miracle of the oil. The word Chanukah means "rededication"

In America, families celebrate Chanukah at home. They give and receive gifts, decorate the house, entertain friends and family, eat special foods, and light the holiday menorah.

FULL STORY

Movie Review by Dr. Ted Baehr
THE LORD OF THE RINGS: THE RETURN OF THE KING
The Kingdom Comes

Quality 4 Stars
Acceptability -1

SUMMARY: RETURN OF THE KING, the final chapter of LORD OF THE RINGS, tells what further trials Frodo, Sam, and their friends must face in order to defeat the demonic forces led by Sauron. RETURN OF THE KING is one of the great movie masterpieces that weaves many biblical principles and allegorical Christian metaphors into a magnificent story, but it is too scary and intense for younger children.

WARNING CODES
Language: None
Violence: VV
Sex: None
Nudity: N

FULL REVIEW

Also ... BIG FISH We become the stories we tell and, by doing so, we can become immortal. That’s the final message of BIG FISH, a curious drama directed by Tim Burton (THE NIGHTMARE BEFORE CHRISTMAS) that plays with fantasy and drama, in a story about a perplexed son and his dying father, an incorrigible teller of tall tales.

FULL STORY

The Playboy philosophy at 50 -Cal Thomas, Author
December 17, 2003

For the past weeks, the media have been gaga over the 50th anniversary of Playboy magazine and the "Playboy philosophy," whose guru, Hugh Hefner, began to mainstream pornography and de-couple sex from a committed marital relationship.

What interested me most about this latest excuse to run pictures of almost naked women on television and of the 77-year-old Hugh Hefner in his silk pajamas, surrounded by surgically enhanced women young enough to be his great-granddaughters, was the usual media complicity in promoting a one-sided and incomplete picture of the "free love" generation (which, as it turned out, was neither free nor love).

Where were the stories on venereal diseases, broken marriages and shattered lives of the women who were "bunnies" and "playmates" in Hefner's fantasy world? One might think that those "hard-hitting" journalists so dedicated to presenting both sides of any story would have interviewed people whose lives have been transformed - not for the better - by the sexual revolution.

FULL STORY

The History of the 12 Days of Christmas -IFP

You'll probably agree that there is one especially baffling Christmas Carol. We can't help but wonder, what in the world do leaping lords, French hens, swimming swans and especially the partridge who won't come out of the pear tree have to do with Christmas?

The Twelve Days of Christmas are not the twelve days before Christmas as many people believe. They are the days between Christmas and January 6th, which is called Epiphany. This is the time in which the three wise men traveled to see the baby Jesus, arriving on Epiphany, January 6th.

The Christmas song “The Twelve Days of Christmas” seems to be a silly repetitious rhyming song telling of an unusual list of gifts a suitor sends to his true love during the Christmas season. The song actually was created for a serious religious purpose.

From 1558 until 1829, Roman Catholics in England were not permitted to practice their faith openly. Someone during that era wrote this carol as a catechism song for young Catholics. It has two levels of meaning: The surface meaning plus a hidden meaning known only to members of their church. Each element in the carol has a code word for a religious reality which the children could remember.

The partridge in a pear tree was Jesus Christ.
Two turtledoves were the Old & New Testaments.
The three French hens stood for faith, hope and love.
The four calling birds represented the four gospels.
The five golden rings recalled the Torah or Law, the first five books of the Old Testament.
The six geese a-laying stood for the six days of creation.
Seven swans a-swimming represented the sevenfold gifts of the Holy Spirit: Prophecy, Serving, Teaching, Exhortation, Giving, Leadership & Mercy.
The eight maids a-milking were the eight Beatitudes.
Nine ladies dancing were the nine aspects of the fruit of the Holy Spirit: Love, Joy, Peace, Patience, Kindness, Goodness, Faithfulness, Gentleness & Self-Control.
The ten lords a-leaping were the Ten Commandments.
The eleven pipers piping stood for the eleven faithful disciples.
The twelve drummers drumming symbolized the twelve point of belief in the Apostles' Creed.

So there's your Christmas history lesson for today.

Happy Chanukah and Merry Christmas from SwissAmerica.com!

David M. Bradshaw is Editor of Real Money Perspectives, publisher of Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush (7/01) and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 1997, he produced a one-hour TV documentary, "Preparing Wisely for the Next Millennium," which was distributed free of charge at Blockbuster Video nationally. In 1999, he produced a one-hour radio special, "The Big Picture: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE...