Oct 24, 2003

->S.E.C. Finding Fund Abuses, Official Says - NY Times
->Stocks in triple-digit slide...Gold eyes 7-yr high
->Microsoft 1st-Qtr Net Falls on Stock Option Costs -Bloomberg
->Record $387B Deficit...Dollar falls, $1.18 euro.
->Leading indicators Real Estate next?
->CEO Expectations: 71% see sales growth in Q4 -Bloomberg
->Record high commodity prices, investors spread exposure
->Jump Bids Define Coin Market's Demand - CDN

->THE EXHAUSTED RALLY - Bill Bonner, Daily Reckoning
->Chinese banks going for gold -Craig R. Smith, SATC
->Fawning Analysts Betray Investors - NY Times
->Russell & Templeton see "40% dollar drop"
->Raising the red flag as housing prices rise -NJL
->Real Estate; A sure thing? - Bill Bonner, DR


"What is robbing a bank compared with founding a bank?"

-Bertolt Brecht, The Threepenny Opera

* * *

"All the perplexities confusion and distress in America arise not from defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.

-John Adams, in a letter to Thomas Jefferson in l787

* * *

"Gold, like the sun, which melts wax and hardens clay, expands great souls and contracts bad hearts."

-Antoine de Rivaroli (1753-1801)

* * *

Read more Historical Quotes at

SPECIAL OFFER: Register today for a free review copy of Rediscovering Gold in the 21st Century by Craig R. Smith.


Gold eyes seven-year high - Reuters
Thursday October 23, By Clare Black

LONDON, Oct 23 (Reuters) - Gold tried to push higher still in Europe on Thursday as it entered the fourth day of a rally that has added some $20 on prices since last week's low, with a weak dollar and stocks adding to the positive tone.

After notching up a one-month high, the market was now eyeing September's seven-year peak at $393.30 as its next target on the upside, ahead of the psychological $400 an ounce level.

Opinions were divided as to whether gold's latest rally was the start of a move to take out "magic $400", or if it was just another leg up the ladder that would need consolidation and correction before continuing higher.

By 1029 GMT, gold was marginally higher at $386.30/387.80 an ounce, compared with New York's late quote on Wednesday at $386.00/386.50. The precious metal was fixed in London's morning session at $386.75 -- its highest level in four weeks.

"The runes are looking fairly good. The dollar is weak, the stock markets are going down the drain," one trader said.

"Funds and commission houses have been voracious for the past three days. They have been price insensitive to buy and the market's rallied more than $20 in three sessions."

However, echoing the fears of several traders, he said that funds typically followed a three-day buying pattern, which could see prices stabilise or fall over the next few sessions as investors digested their latest feeding frenzy.

Microsoft 1st-Qtr Net Falls on Stock Option Costs - Bloomberg

Oct. 23 (Bloomberg) -- Microsoft Corp., the world's largest software maker, said first-quarter profit dropped as the company started treating stock options as an expense. The stock fell after Microsoft said it overestimated sales from some contracts.

Net income declined to $2.61 billion, or 24 cents a share, from $2.73 billion, or 25 cents, a year earlier, the Redmond, Washington-based company said in a statement. Option costs cut net income by 6 cents and would have reduced year-earlier profit to 19 cents. Sales in the period ended Sept. 30 rose 6.1 percent to $8.22 billion from $7.75 billion.

The sales gain was the smallest for Microsoft since the quarter ended in June 2000 as revenue from Windows for personal computers increased less than 1 percent. The value of contracts already signed but not yet recognized as sales fell 8.5 percent as Microsoft overestimated demand and salespeople were distracted by computer-virus attacks, the company said.

``The unearned revenue balance declined more than people had thought,'' said Marty Shagrin, who helps manage $50 billion for KeyCorp's Victory Capital Management, including Microsoft shares.

Shares of Microsoft fell $1.37, or 4.7 percent, to $27.54 at 6:29 p.m. New York time in Nasdaq Stock Market composite trading. They had risen 12 percent this year, compared with a 17 percent increase in the Standard & Poor's 500 Index.

Unearned revenue, an asset on the company's balance sheet, fell $768 million from the quarter ended June 30, Microsoft said. The company had forecast a $200 million to $300 million decline. Unearned revenue comes from multiyear contracts in which Microsoft recognizes sales over the term of the agreement.

Sales Distractions

``In hindsight our forecast was a little too optimistic,'' Microsoft Chief Financial Officer John Connors said on a conference call with investors and analysts. ``Security concerns diverted the focus of our customers and sales force away from closing new deals and renewals.''

Stocks in triple-digit slide - CBS.MW
Investor displeasure at latest numbers weighs on stocks
By Susan Lerner, - Oct. 22, 2003

NEW YORK (CBS.MW) -- A bout of selling against a backdrop of disappointing corporate earnings drove stocks lower Wednesday.

Drugmakers were taking some of the biggest hits as a handful of other pharmaceutical companies also failed to impress.

The Dow Jones Industrial Average tumbled 149.40 points, or 1.5 percent, to 9,598.24, its lowest close since Oct. 6. The Nasdaq Composite slid 42.83 points, or 2.2 percent, to 1,898.07, its first close below 1,900 in two weeks, and the S&P 500 slumped 15.67 points, or 1.5 percent, to 1,030.36.

Stein Roe's chief investment strategist Al Kugel blamed the decline on investors who took profits amid fears recent gains would evaporate.

"(The selling) kind of fed on itself and gradually the decline got bigger as the day has rolled on but I don't think it's got too much predictive value," said Kugel, who noted that anytime there's been such a big market rise there can be a correction of as much as 10 percent. "We haven't been anywhere near there so far and hopefully we won't get there," he added.

U.S. dollar tumbles with stocks - CBS.MW
Greenback at decade low vs. Canada, six-year Aussie low
By Rachel Koning,, Oct. 22, 2003

CHICAGO (CBS.MW) - The U.S. dollar fell broadly Wednesday, including 1 percent-plus declines against the euro, the U.K. sterling, the Swiss franc and the Canadian dollar, as U.S. stocks took a beating on blue-chip and technology earnings disappointments.

In recent trading, the dollar fell 0.5 percent vs. the yen at 108.88 yen. The euro rose 1.3 percent at $1.1812 to trade at its highest level in more than a week. The dollar fell 1.1 percent vs. the Swiss franc at 1.3144 francs.

The greenback was last down 0.9 percent vs. the Canadian dollar at C$1.3036, a 10-year high that's the result of U.S. dollar pressure but also improved Canadian retail sales and an upbeat forecast, including a mild inflation outlook, within a Bank of Canada report issued Wednesday.

Currencies' choppy waters lure investors - Financial Times
By Jennifer Hughes in New York, October 20, 2003

If the bull market in bonds is ending and investors are still wary of piling into equities, does that make currencies the new asset class of choice?

Investment banks have been beefing up their foreign exchange trading, strategy and sales teams, and the market has seen a clutch of new investor-friendly products to make buying into currencies easier.

But this year, much of the volatility has been in currencies. Strategists say the dollar's downward trend since 2002 has forced investors to take note of what some are calling a sea change in currency market thinking.

That was recently underlined at September's G7 meeting where the group called for flexible exchange rates. Aimed at Asia, where the dollar is kept artificially strong, the call was widely interpreted as tacit acceptance of further dollar weakness.

The greenback's weakness creates additional volatility in the market, which in turn can spark investor interest since it offers the chance to make more money than steady prices might. The dollar is still, by far, the world's reserve currency of choice but the euro is no longer the "toilet currency" of its initial years and the yen's recent three-year highs against the dollar have shaken investors' preconceptions of Asian currencies.

"The market believes the third leg to the post-bubble world is now in train," said David Bloom, currencies strategist at HSBC.

"A downward move in equities was followed by a downward move in [bond] yields and now is being followed by a downward move in the dollar."

Leading indicators fall - CNNfn
Research group's September index of forward-looking economic indicators off, first time since March. October 20, 2003

NEW YORK (CNN/Money) - A group of leading U.S. economic indicators was lower in September, a research group said Monday, as the economy appeared to slow down from a late-summer surge.

The Conference Board, a private research group, said its index of leading economic indicators (LEI) fell 0.2 percent to 113 after rising 0.4 percent in August. Economists, on average, expected the index to be unchanged, according to

It was the first decline in the index since March, when the economy slowed down due to fears about the impending U.S. war with Iraq.

"One of the things this points out is that we're on the road to recovery, but the road is going to be bumpy -- it always is," Conference Board economist Ken Goldstein said, adding the decline would be more worrisome if it were matched by a similar fall in October.

CEO EXPECTATIONS: 71% see sales growth in Q4 -Bloomberg
October 17, 2003

U.S. chief executive officers are the most optimistic in at least a year amid expectations sales will keep rising, according to a survey by the Business Roundtable, a 150-member association of company leaders.

The group's economic outlook index rose to 67.7 in the third quarter, the highest since the gauge's inception in the fourth quarter of 2002, from 64.5 for the April-to-June period, the survey showed. The percentage of CEOs looking for sales to rise in the last three months of 2003 rose to 71 percent from 69 percent in the second quarter. "America's largest companies believe the U.S. economy is poised for progress," said Philip Condit, chief executive of Boeing Co. and the association's chairman.

Record high commodity prices, investors spread exposure -FT
By Kevin Morrison, October 17, 2003

Commodity prices from aluminium and cattle to cotton and zinc hit record highs this week as investors seeking to diversify from equities and bonds found appeal in the sector.

Oil prices hovered close to their post-Iraq war highs and base metal prices were at heights unseen for up to 13 years.

Cotton prices hit five-year highs this week on expectations of increased demand from China's rapidly expanding textile sector, which has led to higher imports while the country has been cutting its cotton production estimates. Cotton prices are up more than 150 per cent since reaching a 29-year low in October 2001.

Even US cattle futures hit a record high this week on the Chicago Mercantile Exchange. Cattle prices have risen sharply since the US partially banned beef imports from Canada, following the discovery in May of mad cow disease. Hog (pig) futures are also up almost 40 per cent in the past 12 months.

Commodity prices across the board have taken off this year on the back of a world economic recovery. But higher raw materials costs could trigger an increase in inflation.

"It is very unusual that metals, agriculture and energy prices are all rising at the same time," said Michael Lewis, head of commodities research at Deutsche Bank.

Jump Bids Define Coin Market's Demand - CDN
Oct. 3, 2003

"Pretty hot" . "Busy" . "Still strong" . are some of the responses we received about current market conditions. As you can see, dealers continue to prosper and enjoy the surging bull rare coin market. Many of these dealers are too busy to even maximize their profits. The market is moving very fast and Bids are changing more often than usual. It's imperative that dealers maintain contact with current conditions. We see that those dealers who are willing to stay on top of things stand to benefit the most. Others are not as concerned about getting the absolute top price and are quite satisfied turning profits repeatedly. All believe that the collector base is still expanding and that bodes well for the future.

This market is an easy one for dealers trying to sell rare coins. Many agree, "It is a lot easier to sell than to buy." Today's overall demand is seen as "generally strong" for many areas of the rare coin market from common to rare and from modern to the more traditional series.

SOURCE: Coin Dealer Newsletter


THE EXHAUSTED RALLY - Bill Bonner, Daily Reckoning
Oct. 23, 2003

We don't know any more than anyone else, but this rally looks as though it has finally exhausted itself, having retracted just a bit over half of its losses from 2000-20002.

The Dow fell 149 points yesterday. And this morning, the Tokyo market is down 554 points, for a 5% loss. It looks dangerous, dear reader; it looks dangerous. October is not over.

Despite all the blabber, stocks are still at near-record high prices... after the most stimulating gush of money and credit in history. But how many more tax cuts will there be? How much more will interest rates be cut? How much deeper into mortgage debt are householders willing to go?

Of course, everyone still expects the 'recovery,' now blossoming so sweetly in investors' imaginations, to bear fruit. At least until after the elections next year, growing conditions should be good, they think; both the Fed and the Bush administration will pour on all the liquidity they can pump... and spread manure around everywhere. Who doubts that higher sales and earnings will soon bud out... leading to plump, juicy stock price gains?

And yet, what administration... what Fed chairman... ever wanted a slump? What kind of morons were running the Fed in the 1930s?

That was, of course, a long time ago, and much progress in central banking has been undoubtedly been made. But didn't the Japanese try out all the miracle grow of modern macro-management? Didn't they spread the manure so thickly that it began to stink? Didn't they open all the spigots, valves, sluices and floodgates? Didn't they drop interest rates to zero and hold them there for more than 5 years?

Sometimes, dear reader, things happen that you don't want to happen... and that you do everything you can to avoid. When you eat too much, you gain weight -- like it or not. When you spend too much, you grow poorer -- whether you realize it or not. This is so obvious, we hate to bring it up. But who believes it? The lumpen -- economists, investors, analysts, presidents -- seem to think people can go deeper and deeper into debt, forever, and still get richer!

Ah, but it is a cold, cold world we're livin' in... as Percy Sledge put it. And, here in the Northern Hemisphere, it gets colder every day.

And what's this? Looks like the pump done broke down... in a recent week in September, the money supply, M3, actually fell by $38 billion. Could be a fluke or something... or it could be the end of the world. We'll have to wait to find out.

But what's this? Bonds are rising. If there really were a recovery developing, bonds would be falling, foretelling higher interest rates and higher levels of inflation. Instead, bonds seem to be looking ahead to more of a Japan-style slump.

We don't know what will happen, but we would be careful...

Over to Eric in New York...

Convergence Under The Bed Spread

Chinese banks are going for the gold - Craig R. Smith, CEO, SATC
Oct. 21, 2003

Last week, four of the largest banks in China applied to the Shanghai Gold Exchange for permission to trade gold for their millions of Customers.

Bank of China, Agricultural Bank of China, Industrial & Commercial Bank of China and China Construction Bank have all applied. This would be like J.P. Morgan, Citibank, Bank of America and Wachovia all applying to The N.Y. commodities exchange for permission to trade gold.

The banks have a combined 148 billion U.S. dollars in the form of customers savings sitting in their banks. Many of these depositors will get very nervous as we see the Yuan/Dollar value starts to change under the WTO agreements.

Could this shift cause many of their customers to direct the banks to buy gold on their behalf for their accounts?

I believe they will. Especially with gold performing as well as it has. This could take millions of ounces of gold off the market. This could be why so many major economists are suggesting that gold is headed to $550 or more per ounce.

This is big news, yet how much press has this been getting? ZERO. There is and has been an anti-gold bias in the media in America and when the crisis hits the media will be blamed ... and rightfully so. -CRS

P.S. India also a major force ... "NEW FUTURE FOR BULLION"

Fawning Analysts Betray Investors - NY Times
By GRETCHEN MORGENSON, October 19, 2003

PROVING that the more things change, the more they stay the same, Wall Street analysts have their pompoms out again.

Yes, cheerleader analysts are not quite as prevalent as they were in 2000. But as the Intel earnings conference call last Tuesday showed, too many analysts still seem to think it is part of their job to high five the companies they are supposed to be assessing for the benefit of their clients.

Intel, as you may have noticed, had a magnificent third quarter. Revenues were $7.8 billion, up 20 percent from the same period last year, and net income came in at $1.7 billion, a 142 percent increase over 2002.

But listening to the question and answer period on the conference call was like being transported back to 1999. More than half of the 16 analysts who got to ask a question took care to plant a wet kiss on management's cheek before they proceeded.

The most vocal sycophants hailed from the big Wall Street firms, like Morgan Stanley, Credit Suisse First Boston and Citigroup, that in January paid $1 billion to settle regulatory allegations that their analysts were too bullish on many stocks because they were improperly collaborative with their firms' investment bankers.

"Another nice quarter, guys!" trilled Dan Niles, the semiconductor analyst at Lehman Brothers. "Nice quarter!" Eric Gomberg at Thomas Weisel Partners chimed in. Not to be outdone, Mark Edelstone at Morgan Stanley gushed, "Congratulations on a truly phenomenal quarter!"

Don't they see that such fawning is conduct unbecoming to research professionals charged with being objective about the companies they follow?


S.E.C. Finding Fund Abuses, Official Says - NY Times

An investigation by securities regulators has uncovered widespread improper trading of mutual fund shares at the nation's largest fund companies and brokerage firms, an official at the Securities and Exchange Commission said yesterday.

The commission is investigating mutual funds in the wake of several recent disclosures that have shaken investor trust in the industry. A major focus of the investigation is determining how common it is for funds to allow certain investors to trade fund shares rapidly and capitalize on inefficiencies in share prices. The practice, known as market timing, is not illegal but is discouraged by many fund companies because it can interfere with management of a fund and can allow certain traders to profit unfairly at the expense of other long-term fund shareholders.

The S.E.C. official said that after sending out 88 letters to mutual fund companies and brokerage firms, it found that half of the fund companies had arrangements with one or more investors allowing them to trade in and out of shares. These arrangements occurred even though about half of the fund companies have policies specifically barring market timing, the official said.


Templeton bearish on stocks, sees "40% dollar drop" -HT
By MICHAEL BRAGA, Herald Tribune, Oct. 16, 2003

SARASOTA -- Legendary investor Sir John Templeton is worried about the U.S. economy and stock market.

Gary Moore, a Sarasota investment adviser who met with Templeton last week in the Bahamas, says Sir John has never been more bearish.

Moore says Templeton is telling investors to avoid U.S. stocks and sell off excess residential real estate. He's also suggesting they buy bonds -- not U.S. bonds, but Australian, New Zealand, and Canadian bonds.

The reason for all this, Moore says, is that Sir John, who founded the highly successful Templeton Growth Fund and Templeton World Fund, believes the dollar will lose 40 percent of its value against foreign currencies in the coming months, especially the Japanese Yen and Chinese Yuan.

This depreciation will cause the Chinese and Japanese, who own 36 percent of all U.S. foreign debt, to sell their bonds and mortgage obligations and take their money out of the country.

When that happens, market forces will cause interest rates to rise, choking off investment in residential real estate and forcing the construction industry to contract.

Stagflation, a combination of economic stagnation and inflation, will then set in, Moore said.


Raising the red flag as housing prices rise - Star Ledger
Thursday, October 9, 2003

John Lonski, chief economist for Moody's Investors Service, discusses the outlook for the housing market. What's going on with housing prices? Nationwide figures for the median price of existing homes sold were up 9.4 percent in August, year over year. It was the steepest such advance since early 1981, which is when we had double-digit inflation economywide.

You have to ask whether or not home prices might decline significantly if the job market fails to recover, or if it declines. Where do you think the regional labor market is going to be over the next several years? If it declines significantly, you run the risk of having paid too much for your newly purchased home.

The problem could become price deflation, declining salaries and declining real estate prices. I don't know if mortgage yields can go any lower. They're likely to move higher. You only hope that when they do move higher, we'll have employment growth that will offset that rising pressure.

Is there a bubble in the housing market?


The Thoughts Of The “Saint of the Gutters” Who Dedicated Her Life To The Poor
By Dan Wooding, Founder of ASSIST Ministries

CALCUTTA, INDIA (ANS) -- In his latest column, international journalist Dan Wooding recalls the time he interviewed Mother Teresa at her headquarters in the Missionaries of Charity home in central Calcutta, India, and discovered her surprising views on poverty. This incredible Catholic nun revered for her tireless dedication to the world's most wretched, died on Friday, September 5, 1997 surrounded by grieving sisters of her order. She was 87. (Pictured: Dan Wooding with Mother Teresa in Calcutta).

John Paul declared Mother Teresa as blessed of the Roman Catholic Church on Sunday, October 19, 2003, putting her on the fast track to sainthood for her selfless life dedicated to helping the poor.

Mother Teresa of Calcutta was small in stature -- she stood only 4-foot-11-inches tall -- but she was a giant to the have-nots of life that she ministered to during her six decades on the subcontinent of India, as well as others around the world. Her friends were the starving, the dying, the poor.

When I visited her at her headquarters in Calcutta back in 1975, I immediately warmed to this gentle, Yugoslav-born woman, who went on to win the Nobel Peace Prize, for she had seen more poverty than anyone I had ever met. Speaking in the founding, festering slum where she made her simple home, I was surprised to hear her express pity for the "poverty-stricken West."

"The spiritual poverty of the Western World is much greater than the physical poverty of our people," she told me, as the fan whirred above us, trying to alleviate the unbearable heat of the Indian city.


"You, in the West, have millions of people who suffer such terrible loneliness and emptiness. They feel unloved and unwanted. These people are not hungry in the physical sense, but they are in another way. They know they need something more than money, yet they don't know what it is.

"What they are missing, really, is a living relationship with God."

Mother Teresa cited the case of a woman who died alone in her home in Australia. Her body lay for weeks before being found. The cats were actually eating her flesh when the body was discovered. "To me, any country which allows a thing like that to happen is the poorest. And people who allow that are committing pure murder. "Our poor people would never allow it."

And the teeming millions of the poor of the Third World have a lesson to teach us in the affluent West, Mother Teresa declared.

"They can teach us contentment," she said, her leathery face gently smiling. "That is something you don't have much of in the West.

"I'll give you an example of what happened to me recently. I went out with my sisters in Calcutta to seek out the sick and dying.


Mother Teresa, who had a wonderful way of making you feel you were the most important person in the world when you were talking to her, told me of another incident.

"I gave another poor woman living on the streets a bowl of rice," she said. "The woman was obviously starving and she looked in wonder as I handed it to her. "She told me, 'It is so long since I have eaten.'

"About one hour later, she died. But she did not say, 'Why hasn't God given me food to eat, and why has my life been so bad?'

"The torture of hunger and pain just finished her, but she didn't blame anybody for it. This is the greatness of our poor people."

Mother Teresa added: "We owe a great debt of gratitude to those who are suffering so beautifully. They teach us so much."

She also told of her battle against abortion in Calcutta. "We have sent word to clinics, hospitals and police stations, not to destroy babies, but to send them to us and we will give them to families who want them.

"At birth, we arrange for adoption also to foreign countries, as well as in India."

And she had harsh words for abortionists. "Life is a God-given gift and who has the right to destroy life?" she said. "God's life is in that human body. "I believe abortion is a reason why there is so much trouble in the world today. People have ceased loving God, and they think they can do without Him."

When I flushed as I asked Mother Teresa her age at that time, she told me: "There is no need to be embarrassed. I'm 64."

She added with a twinkle in her eye: "I'm getting old now aren't I? But it's a wonderful thing to be able to spend all those years for God."

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