Mar 4, 2005
-> Triple-digit gains push Dow to new highs -MW
-> Crude near $53 on OPEC comments -MW
-> Greenspan: Budget Policy `Unsustainable' -BL
-> Hurray! Savings are higher: 1% -Dallas News
-> Gold near year high on weak dollar -Reuters
-> New home sales tumble -CNN
-> Lebanon government quits office -BBC
-> ATOMIC IRAN : Introduction and Foreword -CRS
-> Social Security talk rattling U.S. nerves -MW
-> The Dollar as the Old Maid -John Mauldin, FLT
-> A penny for your thoughts -Dan Majors, PPG
-> Students learn about joys of collecting coins -Tribune

"The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite."

-James Madison, Federalist No. 45


Greenspan: Budget Policy `Unsustainable' -BL

March 2 (Bloomberg) -- Current federal budget policy is ``unsustainable'' and Congress must cut the deficit and shore up funding for Social Security and other benefit programs, Federal Reserve Chairman Alan Greenspan said.

``I feel that we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver,'' Greenspan told the House Budget Committee. ``If existing promises need to be changed, those changes should be made sooner rather than later.''

Greenspan used his third trip to Capitol Hill in less than three weeks to urge Congress to restore restraints on budget planning, given the costs of promised Social Security and Medicare payments. The government reported a record $412 billion budget deficit in fiscal 2004.

While the expansion should raise tax revenue, helping narrow the budget deficit some, ``our budget position is unlikely to improve substantially in the coming years unless major deficit- reducing actions are taken,'' he said.

Greenspan is saying ``that there needs to be some very substantial restraints on the use of fiscal resources unless we're willing to get ourselves in a real mess years from now,'' said Lyle Gramley, a former Fed governor and now adviser at the Stanford Washington Research Group in Washington, in an interview.

Economy `Reasonably Good'

The Fed chairman made only brief reference to the economy in the text of his remarks, telling committee members the expansion is proceeding at a ``reasonably good pace'' this year. He did not discuss monetary policy. Greenspan, who turns 79 on March 6, joined the Fed in 1987 and his term expires Jan. 31, 2006.

The benchmark 4 percent 10-year note maturing in February 2015 fell 1/8 at 10:52 a.m. in New York, pushing the yield up 2 basis points to 4.38 percent. Against the euro, the dollar traded at $1.3120 in New York from $1.3098 before his testimony was released at 10 a.m. The dollar was at 104.85 yen, from 104.39.

The Fed has raised its benchmark overnight bank-lending rate six times since June, to 2.5 percent, in an effort to head off faster inflation.

Focus on Spending

Congress should focus on reducing spending, Greenspan said. ``The government's own imbalances will require scrutiny of both spending and taxes,'' he said. ``However, tax increases of sufficient dimension to deal with our looming fiscal problems, arguably pose significant risk to economy growth and the revenue base.''

At the same time, Greenspan called for Congress to offset any spending increases or tax cuts by reducing spending elsewhere in the budget, a so-called pay-go rule. Reinstating such a rule, which had been allowed to lapse in 2002, ``would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process,'' he said.

In response to a question, Greenspan said that ``containing budget expansion is the over-riding principle'' in his view. ``That we have some form of pay-go system, which is agreed upon by the Congress, is the over-riding consideration,'' he said.

Greenspan also reiterated his support for a private account system for Social Security as ``a more credible means of ensuring that the program actually adds to overall savings.''

Greenspan said in fiscal 2004 outlays for Social Security, Medicare and Medicaid totaled about 8 percent of GDP. Government projections show those outlays will rise to 9.5 percent by 2015, and will be around 13 percent by 2030, when the number of people receiving old-age benefits will have roughly doubled.

Social Security and Medicare

``The pressures on the budget from this dramatic demographic change will be exacerbated by those stemming from the anticipated steep upward trend in spending for Medicare beneficiaries,'' he said. ``So long as health-care costs continue to grow faster than the economy as a whole, the additional resources needed for such programs will exert pressure on the federal budget that seems increasingly likely to make current fiscal policy unsustainable.''

Bush last month sent Congress a $2.57 trillion budget that would cut spending on agriculture, housing and other domestic programs while allowing defense spending to grow. The budget projects a deficit of $390 billion in the fiscal year beginning Oct. 1, and the Congressional Budget Office has estimated that the transition to the president's personal accounts may cost as much as $2 trillion more.

Public Support

Senate Majority Leader Bill Frist said yesterday he can't promise that a bill restructuring Social Security will be brought to a vote this year and urged supporters to do a better job of explaining it to the public.

Congressional Democrats yesterday said they found little support among voters for the private accounts at town hall meetings last week. ``Social Security privatization is not selling well in the heartland,'' Representative Chet Edwards, a Texas Democrat who represents Bush's hometown of Crawford, told reporters in Washington.

Greenspan stressed in his text the need for Congress to move quickly, or ``the consequences to the U.S. economy of doing nothing could be severe.''


Related Story:
3-4-05 --Fed's Chief Gives Consumption Tax Cautious Backing -NYT ...Alan Greenspan cautiously endorsed a shift in the nation's tax system on Thursday from one that primarily taxes what people earn to one that taxes what they spend. Testifying before a presidential advisory panel on overhauling the tax code, Mr. Greenspan steered away from sweeping plans to replace the income tax with a national sales tax.

Hurray! Savings are higher -Danielle DiMartino, DMN
Feb 28, 2005
Dallas Morning News

It was me you heard shouting from the rooftops Monday morning, when the savings rate hit a whole number. At 1 percent, the January rate was still pretty dismal, but it beats a fraction.

At an average of less than 1 percent for all of 2004, personal savings hit the lowest annual level since the Depression.

At the Federal Reserve, Alan Greenspan and friends were cringing at the thought of the savings rate going negative.

Wall Street, however, would have been perfectly happy to see it, revealing that the oblivious U.S. consumer was still emptying his wallet onto corporations' bottom lines.

To that end, investors will study February auto sales as they trickle out today. Overall retail sales are not due for two weeks, so car lot activity gives analysts a temporary fix.

Hang in there

At 70 percent to 75 percent of the biggest economy on the planet, consumer spending had better hang in there.

And it basically always has. Betting against the U.S. consumer has left quite a few economists with eggy faces.

The most-repeated saying among economists the whole world round is, "Don't underestimate the U.S. consumer."

But the stresses are legion. The latest example: In the government's measure of "total personal income," wages now account for scarcely more than 50 percent – the smallest share in history. Benefits account for an increasing share of the pie, but we can hardly spend the extra money our company is forking over for health care.

Martin Barnes and his merry band of economists at Montreal's Bank Credit Analyst examined this issue in a recent report, "Don't Underestimate the U.S. Consumer, But ... ".

3% growth?

They aren't calling for anything close to a collapse in spending; indeed, they predict 3 percent growth in 2005.

"Tax cuts, low interest rates and rising house prices supported continued growth in consumer spending and housing investment at a time when weak employment and post-bubble trauma would normally have led to a retrenchment," the report says.

The BCA's outlook for longer-term consumer spending is threatened on two fronts – the Federal Reserve's continued march toward higher interest rates and the fact that the U.S. economy is badly positioned for any kind of disappointment.

"There is not much financial cushion for any disappointment on the employment and/or housing front," it says. "In the longer run, there will be a major consumer retrenchment ... and it could be very painful."


Gold near year high on weak dollar -Reuters
Mar 1, 2005

LONDON (Reuters) - Gold prices hovered just below their highest for the year on Monday in Europe, bolstered by renewed weakness in the dollar and firm oil prices, traders and analysts said.

Spot gold rose to an eight-week high of $437.00 a troy ounce -- its strongest since the start of the year. By 1117 GMT, gold was quoted at $436.75/437.50 an ounce, up from New York's late Friday quote of $434.55/435.30.

"The strength today is partly due to the weaker U.S. dollar and partly as a result of the oil price going higher. We are looking for a break through the year's best," said Paul Merrick, vice president for commodities at RBC Capital Markets.

A weaker U.S. currency makes dollar-priced metals cheaper for non-U.S. investors.

The dollar broadened against major currencies on Monday, falling to a two-month low against the yen and a seven-week trough versus the euro. The euro was last at $1.3258, having touched $1.3233 earlier.

Oil prices climbed for a sixth day, hitting fresh four-month highs above $52 as forecast of more U.S. cold weather threatened to draw on already low stocks of heating fuels.

Sentiment has improved dramatically in gold over the past couple of weeks when a bout of liquidation aided by fears of gold sales by the International Monetary Fund (IMF) took the metal right down to $410 an ounce.

Traders were now looking for bullion to regain $440 an ounce -- a level seen late last year. Gold peaked in early December 2004 at $456.75, its highest since June 1988.

Analysts noted news out late last week that a majority of Group of Seven members favour selling some of the IMF's gold reserves to fund debt relief.

Alan Williamson, analyst with HSBC Bank, said the report had been "effectively ignored" given the U.S. has a veto on such sales and is known to oppose the plan that was proposed by British finance minister Gordon Brown.

Merrick said funds were still interested in gold and saw further interest if prices started to move back above $440, which he predicted to happen over the next 10 days or so.

"I am looking at the moment at gold investments for clients who are keen to get back in," he said.

Silver firmed in line with gold and also tracking a buoyant base metals complex, trading at $7.36/7.39 from


Related Coin Story:
2-28-05 -- Bison back on nickels -CNN...NEW YORK (CNN/Money) - There's more change for your change, as another new U.S. nickel is launched into general circulation. On Monday, Feb. 28, the U.S. Mint will release the latest in its series of redesigned five-cent coins, honoring the 200th anniversary of the Lewis & Clark expedition and its patron, President Jefferson.

Triple-digit gains push Dow to new highs -MW
U.S. economy adds 262,000 new jobs in February
By Mark Cotton, MarketWatch
Mar. 4, 2005

NEW YORK (MarketWatch) - Blue chip gains extended to triple-digits Friday afternoon as U.S. stocks rallied after a better-than-expected jobs growth in February suggested the economy was growing at a steady pace.

The Dow Jones Industrial Average was last up 102 points, or 0.9 percent, to 10,935 its highest level since June 2001.

The Nasdaq Composite Index rose 15 points, or 0.7 percent, to 2,073 while the S&P 500 Index rose 11 points, or 0.9 percent, to 1,221.

Advancers outnumbered decliners 3 to 1 on the New York Stock Exchange and 9 to 6 on the Nasdaq. Big Board volume was about 900 million shares while nearly 1.1 billion shares traded on the Nasdaq.

All but three Dow components were on the rise led by a 2.8 percent jump in DuPont and 1.8 percent gains in Alcoa and Caterpillar.

McDonald's was also a notable advancer, climbing 1.1 percent after Smith Barney told clients that based on channel checks it "strongly" believes the fast food giant's U.S. same-store sales for February came in "meaningfully higher" than Street expectations.


Crude near $53 on OPEC comments -MW
By Steve Goldstein, MarketWatch
March 3, 2005

LONDON (MarketWatch) -- Crude-oil futures held onto most of the overnight gains Thursday in electronic trade, underpinned by a report that the head of OPEC thinks oil prices rising to $80 a barrel is a possibility.

Acting OPEC Secretary-general Adnan Shihab-Eldin said the possibility of oil prices rising to $80 a barrel over the next two years is highly unlikely, but he couldn't rule out the chances of such a steep spike.

Light crude contracts eased 16 cents to $52.89 per barrel.

Kevin Norrish, an analyst at Barclays Capital in London, said the OPEC headlines as well as record gas prices and cold weather were underpinning Thursday's position.

"OPEC is backing away from production cuts pretty rapidly," he said, though he added that in his view, prices are "some way ahead" of fundamentals.

Crude-oil futures rose to their highest level in four months Wednesday after the Energy Department said that U.S. distillate supplies fell last week but that crude and gasoline inventories rose.

Related Stories:
3-4-05 --Gas prices might increase 24 cents -USAToday...Gasoline prices could rocket 24 cents a gallon the next few days, as stations across the USA scramble to keep up with big jumps in the prices of oil and wholesale gas. "It's going to be brutal, horrendous," says Peter Beutel, president of energy-price tracker Cameron Hanover.

2-27-05 -- OPEC signals it wants high oil prices -AFP ... PARIS (AFP) - OPEC is sending out signals to the global market that the cartel wants oil prices, at near-record highs, to remain there this year. Ali al-Nuaimi, oil minister for Saudi Arabia, OPEC's largest producer, made it clear on Thursday where he expects the US price of a barrel of crude to be: "The price today is between 40 to 50 dollars, and that's where it will probably stay during 2005."

$5 GAS COMING SOON? -- 3-3-05 -- SWISS AMERICA SPECIAL REPORT -- Oil prices jumped from $17 in 2001 to over $55 in 2004 -- skyrocketing 65 percent in the past year alone! Gas is already over $4.00 per gallon in all of the top 10 most expensive cities in the world. Demand is swamping available capacity which means high oil prices are here to stay. Here's what do about it...

[Image: Lavan oil refinery quay in Iran. OPEC is sending out signals to the global market that the cartel wants oil prices, at near-record highs, to remain there this year].

New home sales tumble -CNN
Sales sink 9.2%, well short of forecasts, in what may be a worrisome sign for housing.
February 28, 2005

NEW YORK (CNN/Money) - New home sales tumbled 9.2 percent in January, the government reported Monday, coming in below Wall Street forecasts and raising worries about rising interest rates and the nation's housing market.

Sales of new one-family homes fell to a seasonally adjusted annual rate of about 1.11 million in January from a revised December rate of 1.22 million, the Commerce Department said.

Economists had estimated that new home sales would rise to a rate of about 1.13 million in January, according to a survey by Briefing.com.

January's big drop comes after new home sales hit a record high last year, up some 9 percent over 2003, according to Briefing.com. Sales got a lift last year as low mortgage rates helped keep buyers in the market.

By region, sales posted the sharpest drop in the Midwest in January, down 40.3 percent, and fell 17.1 percent in the Northeast, the department said in its report.

The median price of new homes sold in January 2005 hit $199,400 and the average price for all homes was $281,900, according to the department.

The seasonally adjusted estimate of new houses for sale at the end of January was 438,000. This represents a supply of 4.7 months at the current sales rate.


Lebanon government quits office -BBC
Feb. 28, 2005

Lebanon's Prime Minister Omar Karimi has announced he and his government are resigning, two weeks after the murder of former PM Rafik Hariri.

The move comes as crowds protest in Beirut, calling for Syrian troops to leave the country.

The Lebanese parliament was also debating an opposition-sponsored motion of no-confidence in the government.

"I am keen the government will not be a hurdle in front of those who want the good for this country," Mr Karimi said.

"I declare the resignation of the government that I had the honour to head. May God preserve Lebanon."

His announcement came after a lunch break in the parliamentary debate, which was being televised live.

A cheer went up among more than 10,000 protesters who had gathered in Martyrs Square to demand the resignation of the government and the withdrawal of Syrian troops.

Opposition leaders also welcomed the decision.

Interim government ...



ATOMIC IRAN : Introduction and Foreword
By Craig R. Smith
CEO, Swiss America
Mar 2, 2005


The International Atomic Energy Agency (IAEA) reported yesterday that Iran has backed away from cooperating in key areas with UN experts investigating possible atomic weapons work.

Then comes news that a Russian plant has announced they're ready to deliver nuclear fuel "at any time and in a necessary amount to the first reactor of the Iranian nuclear power plant in Bushehr, Iran" -- over strong American objections.

What's wrong with this picture? Are the inmates running the prison?

This reminds me of the Nuclear Nonproliferation Treaty that North Korea agreed to back in 1994, only worse, because the radical Islamic ideology calls them to either death or domination.

You may remember that the "treaty" was violated back in 2002, when U.S. officials accused N. Korea of running a secret uranium-enrichment program in violation of international treaties. In early 2003, N. Korea restarted their plutonium-based nuclear weapons program and last week announced that today they have five nuclear weapons!

President Bush took a huge chance going into Iraq. Recently Libya has agreed to give us back its nuclear weapons. Afghanistan, Palestinians, Iraq, Saudi Arabia, and now perhaps Lebanon have had, or may soon have democratic elections. Hezzbolah and the Syrians are now going to have to fight the people or leave.

It appears that the wall of repression in the Arab world is falling just like the wall of Communism fell under Reagan. Can you imagine where this puts the extremists? We Americans need to be careful of what terrorist may do when they see that they're losing the battle.

Political pressure is forcing Mid-East citizens to choose between accepting a new democracy or destruction —- specifically the destruction of the two “great satans,” Israel and The United States.

New intelligence indicates that Osama bin Laden is now enlisting Abu Musab al-Zarqawi, his top operative in Iraq, to plan potential attacks on the United States.

Can any America really imagine that when Iran becomes armed with nukes that they are not going to use it against Israel and/or America?

Dr. Corsi's new book will expose the corrupt Iranian mullahs’ scheme to acquire nuclear capability and the help they have had from within the U.S. democratic party.

The goal of ATOMIC IRAN is to educate Americans about the danger that Iranians and the rest of the free world will face if these mad mullahs are not stopped in time.

Dr. Corsi and I want to remind Iranians that they can peacefully effect change in their own government, as Afgahnastan and Iraq are now doing.

The threat of an attack upon the U.S. via a dirty bomb in a major city is growing daily. If smugglers can manage to deliver 4 tons of cocaine or heroine, they can easily deliver 4 pounds of nuclear material -- enough to kill tens of thousands and create economic havoc in the United States.

Here is the Foreword to the upcoming bestseller that you must read to understand this critical issue ...FOREWORD

Feb. 28, 2005

"Inflation up, Oil up, wages down," says Marketwatch. They're starting to feel that "stagflation is in the air."

Last October most analysts wrote off the rise of oil, saying it was market traders playing off of supply-demand issues, and that oil prices would come back down soon.

Well they did, but not for long.

Then we have the decline of the dollar, which has now moved into phase two: "The Domino Effect." First it was Warren Buffet, then Bill Gates, then George Soros, now even our alies like the Korean central bank are starting, one by one, to diversify out of U.S. dollars and into other forms of money. And who can blame them?

This week we have oil back over $50. Keep in mind that according to Merrill Lynch, each 1-cent rise in gas prices sucks about $14 billion a year from consumer spending.

Stephen Roach, Morgan Stanley economist, warns us that, "With oil prices now in the low $50s, there is good reason to treat this development as yet another in a long string of energy shocks. When a weak economy is hit by any type of a shock, recession normally results."

So, we facing a possible recession if the oil spike continues AND price inflation results - a financially deadly combination birthed in the 1970s known as "stagflation."

Rising oil prices bring with it rising inflation -- no rocket science here. Rising inflation brings rising commodity prices on everything, which boils down to less money in consumer's pockets, which drives 2/3 of the U.S economy, which drives the world economy -- or used to anyway.

The last oil crisis started with terrorism and today's oil crisis is no different, only worse this time, given all the other geopolitical uncertainties.


John Mauldin, author of "Bullseye Investing, recently reported about the relationship between oil prices and 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. 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."

What about the Real Estate market? According to Daily Reckoning's Chris Mayer, "It is hard to look at today's market and not see housing as a potential panic spot. It is like looking at a normal- sized man with elephant ears: It's hard not to notice. The housing market has all the makings of a bubble - lots of debt (mortgages), artificial government stimulation, incredible price increases and a belief that housing is always a good investment. The United States has not seen such a long bull market in housing since at least the 1950s."

Grant's Interest Rate Observer notes, "Since the stock market peaked, Americans have shifted their hopes for capital appreciation to the roofs over their heads, net of the mortgages on their backs."


The coming oil and dollar shock will affect every investment you own. It is clearly unstoppable. I'm terribly concerned that tens of thousands of investors will watch in despair as the profits they've made over the years slip away during the next oil shock.

Hundreds of American businesses, from the smallest "mom and pops" to the largest corporations, will capsize in a churning sea of change. But not you. Not if I can help it.

Some investments will soar, while many more will plunge during inflation or stagflation. Anyone who bets on a continually rising stock market in which everybody profits, is destined for utter failure!

Ever since the early 1960s, the inflation trend has been the scourge of investing. Inflation is the one wild card that can whip investment markets into a frenzy, cut your true wealth by half in just a few years and completely derail an otherwise sound investment strategy.

In the late '60s inflationary surprises ripped through the stock market, dropping the Dow some 35% ... in the 1970s stocks suffered through a tortuous two-year bear market as inflation spiraled ... in the '80s Paul Volcker nearly plunged the U.S. into a 1920s-style depression when he miscalculated the strength of "runaway" inflation. Now today, after years of relative calm on the inflation front, the risk of grievous error is just as strong as at any point in history.

So, if large stock and even real estate markets fall during an inflationary-recession, what assets are there left to protect your assets from the most dramatic economic trend-shift of the last two decades?


Historically, higher oil prices also bring with it higher gold and other commodity prices. The Aden Sisters have been following this trend for over three decades and their conclusion is that the present record high oil prices is very bullish for gold.

"The oil price keeps hitting new record highs. High oil prices reflect two things. The enormous appetite the world has for oil, especially with China adding to the demand side since it's now the second largest consumer of oil after the U.S. The second factor is the supply side. Any act that might disrupt or limit the oil supply causes the oil price to rise. That's what recently happened when Yukos, Russia's largest oil exporter, was ordered to halt production. Plus, oil disruptions in Iraq have added more fuel to the fire."

"It all boils down to uncertainty. As long as we have uncertainty in the supply or demand side, we'll continue to see higher oil prices. And since the oil price strongly affects inflation, this means inflation is headed higher too. This in turn will be good for gold since gold is the maximum inflation hedge." [AdenForecast]

CNBC Anchor and economist, Larry Kudlow reported to National Review magazine back in 2001, "Gold is a useful benchmark because its monetary purchasing power is relatively constant over long periods of time. Hence, over time, an ounce of gold should buy roughly the same number of barrels of oil. In the past decade, an ounce of gold bought seventeen barrels of oil."

Using Kudlow's formula, that means that $55 per barrel oil should bring $935 per ounce gold! We shall see. In the meantime, take some of your falling dollars off the table and convert them to tangible assets ... you can thank me later.

Read "The In-Credible Shrinking Dollar"
$5 Gas Coming Soon? -- Full Story

Social Security talk rattling U.S. nerves -MW
Commentary: Bush could be risking economic slowdown
By Dr. Irwin Kellner, MarketWatch
March 1, 2005

February was a bad month for consumer attitudes. The major surveys of public opinion, including those taken by the Conference Board, the University of Michigan, ABC News/Washington Post and AP/Ipsos, all showed a souring of people's moods in February compared with January.

You would think that people would be more cheerful, since their number one concern for many years, finding and keeping a job, appears to be less problematic, these days. You would be wrong.

To be sure, economists now believe that at least 200,000 jobs were added to the nation's payrolls in February. That would be the most for any month since last October. Indeed, February could very well turn out to have been one of the best months for jobseekers in almost five years.

This is by no means a stretch. First-time claims for unemployment insurance have been running at four-year lows and the jobless rate appears to have remained low as well.

All well and good - but for a growing number of people, not good enough. This is because all the talk you hear nowadays about Social Security having problems is beginning to make lots of folks nervous.

Keep in mind, this is not merely chatter coming from academia. Assertions that Social Security is "going bust" comes from no less a source than the president of the United States.

Now when people hear words like this from the White House, they sit up and take notice. It makes even more of an impression when the president considers this so important, he has made it his number one domestic priority.

These concerns cut across all age groups. Older folks think their pensions are at risk, while younger people worry that they won't get the benefits they've been counting on when they do retire.


Related Stories:
3-1-05 -- Administration Sets Timeline to Change Public Opinion on Social Security -CATO
"White House officials are telling Republican lawmakers and allies on K Street that they must begin to overcome opposition to President Bush's proposal for changing Social Security within six weeks," The Washington Post reports. "Polls show widespread skepticism of Bush's proposal for creating individual Social Security investment accounts for younger workers, and Democratic lawmakers have voiced nearly uniform opposition." However, according to the Cato Institute's own poll, conducted by Zogby International in January, a majority of Americans agree that younger workers should be allowed to invest a portion of their Social Security taxes in individual accounts.

2-8-05 --A Plan to Unite America on SS Reform -CRS

The Dollar as the Old Maid -John Mauldin, FLT
Feb. 26, 2005

Remember the card game we played as a kid called Old Maid? You can take a standard deck of cards and remove one queen. The dealer then deals out all the cards to the players. The players all look at their cards and discard any pairs they have (a pair is two cards of equal rank, such as two sevens or two kings).

Then the fun begins. At your turn you must offer your cards spread face down to the player to your left. That player selects a card from your hand without seeing it, and adds it to her hand. If it makes a pair in her hand she discards the pair. The player who just took a card then offers her hand to the next player to her left, and so on.

If you get rid of all your cards you are safe - the turn passes to the next player and you take no further part. Eventually all the cards will have been discarded except one queen (the Old Maid) and the holder of this queen loses.

Korea wants to diversify its holding of dollars in its reserves. How does it do this? It sells the dollar and buys Japanese yen or Taiwanese yuan or Thai baht or euros or any of a number of currencies. Now, of course, someone else has those dollars. If other countries also want to diversify, they start selling their dollars and buying other currencies.

The dollar could get traded from Korea to Taiwan to Singapore to Malaysia. Now, as long as these countries want to keep their currencies weak against the dollar, and are willing to take the loss as the dollar drops, this process works just fine. But what happens when two or three or four countries start to diversify out of dollars? Who gets the Old Maid?

Now I don't think the Korean central bank is completely inept. They made the "announcement" because their books would show that is what they are doing in any event. And you can bet they are watching other countries buy the won in an effort to diversify their holdings.

Hedge funds are convenient scapegoats for a process that is going to happen. Korea is acting just like a hedge fund when they start selling dollars which they think are going down and buy baht or yen or euros. Its just that hedge funds are so convenient when governments want to whine and try to avoid people looking at what they are doing.

If they wanted to weaken their currency, they could do what the Japanese do. The Japanese simply print more yen. Or they could do what the Chinese or do - they could fix their currency to the dollar. Of course, this would hurt the Korean consumer and make their imports more expensive.

Not to pick on the Koreans, but this dilemma is facing all of Asia. When do you start the diversification process? How much of a loss do you take? This interesting note came in today from my friend Dennis Gartman in his daily letter:

"Finally, while discussing the US dollar, we thought it interesting to note comments from Mr. Pierre Lassonde, the President of Newmont Mining. Mr. Lassonde has been steadfastly bearish of the US dollar for quite some long while and has been correct, so we give his views some larger credence than we might otherwise give that past performance. He believes strongly that the dollar has much further to fall. With private capital flows insufficient to fund the US' current account deficit, and now with the additional loss of foreign central banks as suggested by the statements much earlier this week by the S. Korean central bank, Mr. Lassonde speaks now of a literal run on the dollar.

"Following S. Korea's 'lead,' he expects countries like Malaysia, Thailand and Singapore 'to be the next defectors... [for] the appetite of foreign central banks for US dollars is starting to wane.' Interestingly, Mr. Lassonde said that Japan and China shall be the last countries to continue to support the dollar, for they have such enormous positions already established that they've no choice but to hold to their present course of action and try to defend their positions. If we had to bet, we'd bet that Malaysia will be next on the list to join S. Korea."


A penny for your thoughts -Dan Majors, P-G
Friday, February 25, 2005
Pittsburgh Post-Gazette

This experimental copper penny made by the United States Mint in Philadelphia in 1792, was purchased Monday at a Beverly Hills, Calif. auction for $437,000. (AP Photo)

Erik Heikkenen, in his role as registrar for the Money Museum in Colorado Springs, Colo., spends a lot of time on the telephone. All day long, people call with questions about their coins.

The dime that Grandpa kept in his sock drawer. The half-dollar discovered under the floorboard. Most of them aren't worth much more than twice their face value.

So when he got the call late last summer about the penny kept in the Prince Albert tobacco can, Heikkenen was routinely skeptical. Especially when he heard the description of the coin.

A 1792 silver center cent -- without silver -- with a depiction of Lady Liberty and the unique wording: "Parent of Science & Indust: Liberty." If the caller was correct, it would be one of the first copper pennies produced at our young nation's first mint in Philadelphia. Extremely rare. There were only eight of them known to exist.

"The chances of it being one were so slim," Heikkenen said.

But he couldn't say for sure over the phone, and all the real coin experts were out of the office, attending the American Numismatic Association's World's Fair of Money convention in Pittsburgh. "Somebody had to stay behind and run the museum," he said.

When he learned that the caller lived in upstate New York, he suggested that the coin be taken to Pittsburgh to be examined and authenticated.

On Saturday, Aug. 21, the caller and his family -- who wanted to remain anonymous -- arrived at the David L. Lawrence Convention Center with their precious penny. They had removed it from Grandpa's tobacco tin and placed it in a clear plastic "flip."

They walked up to the reception desk, manned by local volunteers, and said they had a penny that they thought might be worth something.

The family was in the perfect place. "Most of the experts on modern and ancient money were right there within a 30-second walk," said Donn Pearlman, president of Minkus & Pearlman Public Relations, representatives of the ANA.

Pearlman was there when the room began to buzz.

"The historical importance of this coin cannot be overstated," said Michael Sherman, vice president of Professional Coin Grading Service, which directed a team of experts who authenticated the coin.

Heikkenen could not be blamed for not knowing. What the family had failed to mention to him when they called was that they were descendants of Oliver Wolcott, the governor of Connecticut in the 1790s and signer of the Declaration of Independence.

Within three hours, the experts in Pittsburgh had graded the coin as "very fine 30." It's value, based on its condition and the number of like coins in existence, was set at upwards of $400,000.

With that, the coin was taken to a security room with armed guards and vacuum-sealed in an airtight plastic holder to protect it from smudgy fingerprints and prevent it from being switched with a counterfeit.

"This is a major discovery," Pearlman said. "It's not just symbolic. It's important, not only for coin wienies like me, but a tangible piece of early American history."

The coin was not seen again in public until Monday of this week, when it was auctioned off in Beverly Hills, Calif., for $437,000 to Anthony Terranova, of New York City, a dealer and expert in Colonial American coinage.

People at the American Numismatic Association still look back at the Pittsburgh coin convention as one of the best they ever had. "A fairy tale event," I was told, in large part due to the little chocolate-colored copper penny that played the part of Cinderella.

"It's all part of the magic of coin collecting," Pearlman said. "You can have coins that are worth a lot of money. And then you have a coin that your great-grandfather carried that is a family heirloom. It may be worth only a few cents, but it's millions of dollars worth of memories."

To coin a phrase.


Students learn about joys of collecting coins -Tribune
By DEB CLEWORTH, Daily Tribune Staff
Feb. 25, 2005

NEKOOSA - Jerry Soukup is proud to be a numismatist.

The 72-year-old retired math teacher spent this week teaching Humke Elementary third-graders about numismatics - the hobby of coin collecting.

During classes, students learned about coins and tried their hand at designing their own.

Several students wanted to start collections.

"There could be older coins that are rare," said Lexi Brost, 8.

Austin Winch, 8, wanted to collect coins, so he could sell them and "get more money."

Soukup, a Nekoosa resident, has been a coin collector since 1966.

"I collect all American coins. I collect foreign coins," Soukup said. "My specialty is in the error circulation."

An "error coin" is an improperly produced coin that was overlooked in production and later released into circulation. The coins often are considered valuable.

It's important for students to learn the history of coins, Soukup said.

While speaking to students in Mitzi Feutz's class, he explained the differences people could observe in coins.

Armed with magnifying glasses, the students looked at a bagful of pennies.

"I didn't know there were silver ones," said Dylan Bauer, 9, of Saratoga, a young collector himself.



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DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.

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