Market News Digest ... Dec. 9th

"The main thing I learned in college is that words are not simply tools we use to think. More likely, we are the tools, and the words do our thinking for us. (If you're a qualified egghead, this is known as the Sapir-Whorf Hypothesis. Its proof: You can watch an entire evening of television without thinking once.) That's why the PC police want you to adopt their vocabulary � wholesale. By controlling your words, they can at least channel, if not control, your very thoughts. As George Orwell might have said, their aims are ungood."

-JAMES RUTZ, author MEGASHIFT

Last week's quote ... "This has been a stealth bull market. Only years after a bottom has been made do people realize it. People shouldn't be surprised to see gold trade in the four digits." -JOHN HATHAWAY, "Four-Digit Gold" -Barron's 11/21/05 (More from John Hathaway...)

Russian Central Bank May Double Gold Reserves (ResourceInvestor.com) -- Russia's Head of External Reserves Management, Maria Guegina, said gold reserves as a proportion of all reserves may be doubled. Russia presently has 5% of its national reserve portfolio invested in gold, Guegina said, �10% of gold in reserves would be appropriate�. Were the Russian Central Bank to move immediately to the 10% gold allocation, it would need to buy an additional 21.1 million ounces.
Economist: Central Bank Gold Buying -ResourceInvestor.com ... Kenneth Rogoff told delegates attending the 2005 LBMA Precious Metals Conference that he expects central bank gold sales to be reversed in time. The Professor of Economics at Harvard was also bearish on the American economy and the US dollar especially. �There are less compelling reasons to sell gold in future,� Rogoff told the bustling conference ongoing in Johannesburg. He noted that central banks would continue to diversify reserve portfolios which are presently heavily dollar weighted. [Ed. Note: Central banks have been heavy sellers of gold over the last decade ... for them to start buying signals a major policy shift. If they're buying again, should you consider doing likewise? ...]
Gold output to drop to 80-yr low -Mineweb ... Johannesburg - South African gold output was likely to fall to an 80-year low of 300 tons in 2005 down from 346 tons in 2004, which was the lowest level since 1931, Andisa Securities gold analyst Dr Dave Davis said on Monday.
Gold grinds on, with Fed lending a hand -MW ... "This was a 'recovery' week for the ... gold correction. ... On the daily chart, last week's $16.90 gold fall pushed gold well below both its 10- and 20-day moving averages. The $11.50 rise this week has reversed the process."
Isn't that precious? Platinum hits high -CNN ... Platinum hits high Asia drives rally; platinum at 26-year high; palladium hits a 17-month mark, gold and silver follow... expectations that growing commercial demand for platinum group metals would keep prices climbing.
Analysts see shift in gold, greenback correlation -Globe&Mail ... "the disconnect between gold prices and the U.S. currency goes back nine months or so. Over that period, the U.S. dollar has been fairly strong, and the amazing thing about it is that gold has been stronger than not only the U.S. dollar, but the euro and the yen, and even the stock market..."
Merrill Says Gold May Be a Good Bet as Growth Slows -Bloomberg ... "Merrill Lynch & Co.'s Chief North American Economist David Rosenberg said gold may offer an alternative to investors as U.S. capital markets head for a "year of heightened volatility."

2000-2004 Investment Scorecard
Gold bullion is headed dramatically higher during the ongoing 20 year up cycle and rare U.S gold and silver coins continue to outperform bullion (See 2000-2004 Investment Scorecard).

According to veteran gold analysts Mary and Pam Aden (The Aden Report)... "Gold is poised for $500. Gold has finally started to move up in ALL currencies -- even when the dollar is UP! This serves as confirmation of Phase Two of the bull market in precious metals and rare U.S. gold and silver coins we announced last month.

According to author/CEO Craig R. Smith, "$500 gold is dirt cheap compared to $60 oil! $600 gold is the next major breakthrough and from there it's headed toward $800 to $1,000 -- especially given the long-term shrinking value of the U.S dollar."

"The American economy is not prepared for expensive energy", writes energy expert Dan Denning for Daily Reckoning. He goes on, "The American economy was built on an aberration and abetted by a mistake. The aberration is cheap oil, which will prove to be the exception and not the rule of industrial development. The mistake is fiat money and low interest rates, which, when coupled with cheap oil, created an American economy whose current structure can't survive higher energy prices."

It all adds up to a coming gold price �super spike�, according to Mr. Smith, "Today the world supply of "funny" money is increasing at a historically high rate, so the value of "real" money must increase too."

In 2001, Mr. Smith's book, "Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush", announced that a new bull market had begun in U.S. gold coins based on market trends, diversification principles and common sense. The book (now in it's 6th reprint) explains how to diversify assets based on historical principles. Publisher's Free Book/DVD Offer

The market initially drew a bit of support from news that the University of Michigan's preliminary consumer sentiment survey for December had a reading of 88.7. The result was up from 86.1 in November.

Separately, the Commerce Department reported that U.S. wholesalers rose 0.2% in October as sales climbed 1.2%. The inventory-to-sales ratio fell to 1.13 in October from 1.15 in September, marking the latest monthly decrease.

VR Trader Today's Market Comments...
"Little has occurred this past week to change our view expressed before and after Thanksgiving, namely, that we were anticipating a post and possibly sharp post-Thanksgiving correction toward mid December! A series of positive news releases have come coincident with or just after the posting of recent highs fulfilling the adage of 'good news at the top'.

"The financial press has been beating the drum on the Santa Claus rally which, indeed may have ended early. The smart buyers placed their bets in mid-October and November and the 'johnny-come-latelies' may have already experienced disappointment."

General Motors announced plans recently to cut 30,000 manufacturing plants and close 9 plants. �This is a clear impact of rising gas prices,� says Craig R. Smith, co-author of Black Gold Stranglehold: The Myth of Scarcity and the Politics of Oil. �At $1.75, or even $2.00 a gallon, Americans wanted to drive larger, more comfortable, family-oriented SUVs. But at closer to $3.00 a gallon, the shock of spending $50 to $75 to fill the tank sent many American families in search of smaller vehicles. With GM stock at the lowest point in years, GM probably has no choice but to shift gears and get in line with the consumer�s demand for smaller, more fuel-efficient vehicles.�

Smith and co-author Jerome R. Corsi, Ph.D. see GM�s move as having a major ripple effect upon the economy. �The backbone of the American economy has been automobile manufacturing,� explains Dr. Corsi. �When a major auto manufacturer such as GM announces a shake-up this major, the ripple effects will be felt throughout the economy. Higher gas prices can be expected to have a negative effect across many areas of the economy and this announcement today is a serious cause of concern.�

Does GM�s decision mean we are in for a recession? �Very possibly,� Craig Smith responds. �Our economy is very large and we can absorb large hits, but when gas prices hit auto manufacturing, then we have to be concerned.�

For New Fed Head Bernanke, Inflation Is Key -Wharton...Ben S. Bernanke is a superb choice to replace Alan Greenspan as chairman of the Federal Reserve, but he will have to demonstrate to financial markets that he is as much an anti-inflation hawk as his predecessor, according to Wharton finance professors and private-sector economists.

The Real Inflation Threat Isn't Energy -BW ... Unless the economy slows in the first half of 2006 to a pace that will relieve some of the stress on businesses' ability to meet demand, then inflation pressures will keep building even if energy prices continue to fall. More important, cheaper energy, by itself, will not be the key to the Fed's decisions on interest rates next year.

Where is inflation really headed? Wall Street can't reach consensus -AP ... This disparity is one factor that may cause investors to realize "that inflation is higher than the government is acknowledging"...

(Reuters) The government's consumer price index increased 0.2 percent in October after a 1.2 percent rise in September, the biggest increase in 25 years, the Labor Department said in Washington.

Producer prices unexpectedly rose 0.7% in October as surging costs of natural gas and home heating oil outweighed cheaper gasoline, but prices outside of food and energy ticked lower, a government report showed on Tuesday. Economists had expected October prices received by farms, factories and refineries to be flat after a roaring 1.9% gain the month before.

The wholesale PPI last month soared 1.9% (22.8% annualized!) the largest amount in 31 years, reflecting the surge in energy prices that occurred following the Gulf Coast hurricanes. U.S. consumer inflation surged at the fastest pace in more than 25 years in September, rising a bigger-than-expected 1.2%, (14.4% annualized) last Friday.
Related:
Gas Prices Fall, Inflation Moderates ...prices are being closely watched by financial markets and the Federal Reserve for any hint that the surge in energy prices are beginning to exert upward pressures on overall inflation.

"INFLATION SOLUTION" - FREE 10-Page Special Report... Today everyone from Paul Harvey... to Alan Greenspan... to WSJ is worried about rising inflation. Wouldn't it be a sin if inflation was really TWICE as high as reported? Well, it is! ... "Our deceptively low "official" CPI numbers hurt everyone, but especially those who rely on SSI and fixed retirement incomes. Cost-of-living income adjustments based on an artificially low CPI will never be able to keep pace with higher "real world" prices. Even Fed Chairman Alan Greenspan has said that official CPI numbers have no basis in reality. It's nonsense to say we live in a world of 2 to 3 percent inflation today, because the government has systematically stripped out of their CPI virtually all of the "real world" indicators, such as rising home costs." - Craig R. Smith (from the Special Report)

WASHINGTON � The comptroller general of the United States is explaining over eggs how the nation's finances are going to hell.

"We face a demographic tsunami" that "will never recede," David Walker tells a group of reporters. He runs through a long list of fiscal challenges, led by the imminent retirement of the baby boomers, whose promised Medicare and Social Security benefits will swamp the federal budget in coming decades.

The breakfast conversation remains somber for most of an hour. Then one reporter smiles and asks, "Aren't you depressed in the morning?"

Sadly, it's no laughing matter. To hear Walker, the nation's top auditor, tell it, the United States can be likened to Rome before the fall of the empire. Its financial condition is "worse than advertised," he says. It has a "broken business model." It faces deficits in its budget, its balance of payments, its savings � and its leadership.

See:
ONE NATION UNDER DEBT -- By Craig R. Smith
TIMELESS ASSETS ... ARE DEBT-FREE! -- By David Bradshaw

Home sales shifting into buyer's market By Adam Shell, USA TODAY ... As signs of a real estate slowdown mount, more agents are having to break the bad news to sellers: Just because your neighbor's house sold for a king's ransom a few months ago, doesn't mean your home will fetch the same princely sum today. A transition from a seller's to a buyer's market is underway, and agents say they are spending more time trying to get clients to understand the market has changed. They note homes are sitting on the market longer and price gains are slowing as higher interest rates make buyers balk at exorbitant prices. (Chart: Prices in 150 metro areas)

New Home Sales Rise, but Prices Decline according to NY Times ... New home sales rose 2.1 percent from August, to an annual rate of 1.22 million in September, but that was slightly below the pace of sales in September 2004, the Commerce Department said. The median price - half the homes sold for more and half for less - fell 5.7 percent from August, to $215,700. Still, prices were up 1.9 percent from a year earlier. Also, the August home sales figures were was revised down to 1.197 million from an initial reading of 1.237 million.

Rising home prices take toll -AZRep-10-23-05 ...The typical metro Phoenix home is now selling for $263,000, which is $40,000 more than the national median home price. Valley home prices were always below national averages before this year. Firms like Motorola and USAA moved here because housing costs were low. People have flocked to Phoenix since the 1950s because they could find work and buy homes. But now, families with the Valley's median household income don't earn enough to buy the average home."

"If you take away affordable housing, what do we have?" asks Jay Butler, director of the Arizona Real Estate Center at Arizona State University Polytechnic. "Affordable housing has spurred growth in the Valley, but we can't count on it anymore."

READ: BOOM OR BUST: A Strategy to Hedge Your Dream House New Special Report.

"IN GOD WE TRUST"... Irreverance or truth? By David Bradshaw, Editor ... In 1905, both Augustus Saint-gaudens and Theodore Roosevelt agreed that using the motto, "In GOD We Trust" on the new U.S. $20 gold coinage showed "irreverence." Not because it did not reflect the worldview of America, but because they thought GOD's name too holy to put on money which may be used for unGODly purposes.

GOLD vs. Wall St: Who's laughing now? By Louis Paquette ... The stigma is gone! "One might question, in this Internet age of instant information - why did it take so long to sink in? Sure the information may be available. Beliefs change slowly, denial is an extremely stubborn trait! Also groupthink is important here - nobody wants to be part of a "fringe group� that the gold bugs were perceived as before. But now that the financial news networks are talking up gold on a daily basis, the sector has lost the stigma that was once attached to it. Indeed, the fools are increasingly looking more like the ones who have continued to have faith in a recovery on Wall Street."

Reuters reports "Gold is seen hitting new peak of $500 in 2006".

U.S. Rare Coin Auction in Dallas Breaks Records ... Swiss America broker Tom Rodriguez reports, "The Phillip Morse Collection, consisting of the finest known set of $20 Saint Gaudens brough record prices at auction this last weekend. A Proof-69 High Relief $20 Saint brought 2.9 million -- triple the price of the industry expectations!"

According to Heritage, "This event also set a record for the largest gross sales in a numismatic auction for a single day," Rohan said, "with more than $36 million realized on November 3, our Platinum Night session, which incorporated the main sections of the Phillip Morse & Jack Lee Collections. We couldn't be happier with these results."

The highest bid in the auction, $2,990,000, was paid for a specially struck U.S. $20 gold piece with the date "1907" in Roman numerals MCMVII, and known as an "ultra high relief" because of the elevated height of the design. Its sale price was a record for that specific type of coin, and tied (with a Brasher Doubloon sold by Heritage in January) for the third highest price ever paid for a coin at auction.

BIG money is moving into U.S. collectible rare coins for safety, privacy and excellent profit potential. Read more Phase II of the rare gold rush

"The U.S. has lost control of the budget deficit"
-Alan Greenspan, Chairman, Federal Reserve

"The U.S. has a broken business model..."
-David Walker, U.S. Comptroller General

We the people are facing a "fiscal hurricane" any moment according to the men entrusted with protecting and auditing our nation's financial future.

One does not need a Ph.D. in economics to understand when the top dogs begin to howl loudly that our nation is systematically going broke, we must go to the root issues to discover what's wrong now... or pay the consequences later.

Most Americans seem content whistling past the graveyard, unconcerned about the consequences of the gargantuan growth of debt on all levels; personal, corporate and national. The numbers have become so astronomical that fathoming ONE trillion dollars of debt, which took the U.S. government 205 years to accomplish (1776-1981), is beyond us. Let alone the SEVEN trillion dollars of additional national debt we've racked up in the past 25 years.

The root meaning of the word DEBT is 'death'. That's right, 'morgue' and 'mortgage' are closely related to each other in the English language -- and in life.

Debt abuse is enslaving and consuming modern American culture -- in addition to robbing and strangling the generations to come. Debt has now become the legalized drug of this generation -- after having been shunned by the previous 10 generations in America.

"The result has been unfettered deficit spending, gluttonous consumption, and fearless military adventurism. All the while, the nation slouches ever more precipitously towards bankruptcy", says "EMPIRE OF DEBT: The Rise of an Epic Financial Crisis", an important new book by Daily Reckoning editors Bill Bonner and Addison Wiggin. The book offers readers a peek into the economic future of our aging American empire by carefully reflecting upon clues from the past.

"EMPIRE OF DEBT" now tops my "recommended reading" list for anyone who suspects the American Empire is in decline based on widespread ignorance of the economic corruption of our modern money "system".

Precious few politicians or even Nobel prize winning economists have enough wisdom or guts to impart a "big picture" perspective -- especially in terms readers can understand, let alone enough humor to help the medicine go down. But the Bonner/Wiggin team has written yet another blockbuster, as they did back in 2003. (see "FINANCIAL RECKONING DAY": A Dangerous Read!)

At this moment in history when our leadership has tossed the world view of our founding fathers into history's trash can, "EMPIRE OF DEBT" plucks it back out by explaining how the U.S. has been transformed from a "modest republic" into a conceited empire -- like it or not. Old virtues have been replaced by new vices. Old money has been replaced by new debt.

As subjects of a "slouching" empire, Americans are no longer endowed by our Creator with certain unalienable Rights like; "Life, liberty and the pursuit of happiness," but instead, we value the pursuit of higher credit card limits, mortgages, debt, deficits, and even a moronic economic world view which promises we can miraculously �spend our way to wealth� rather than saving.

As for practical investment advice, EMPIRE OF DEBT is full of contrarian common sense. "Betting against the end is what most Americans are doing, borrowing and spending as if there were no tomorrow, and investing as though there were no yesterday." Other sage financial advice; "Stocks today are expensive -- so in the future they will get cheaper.� "Houses are expensive too -- so prices will fall or stop rising.� "The dollar is almost certain to revert to its real value -- zero.� "Gold is what people buy when they start to wonder about the empire and it's money. We guess that they will begin to wonder more and more."

In an effort to help turn the ailing empire around, I have three humble suggestions;

1) Ask your Senator and Congressman to read EMPIRE OF DEBT before approving another penny of spending. The publisher has already delivered a copy to all 537 of them in Washington D.C.

2) If they won't read it, I say we should start a petition to change the Declaration of Independence from... "Life, liberty and the pursuit of happiness" to... "Life, liberty and the pursuit of higher credit limits".

3) Be prepared for a debt implosion in the near future unless we reverse direction. No nation, company or person can prosper over the long term who has "lost control" of their debt or operates on a "broken business model�. I say let's fix America from the bottom up. EMPIRE OF DEBT will help give you the tools to do just that.

David M. Bradshaw is Editor of REAL MONEY PERSPECTIVES, a new, syndicated daily financial/cultural news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY: The Complete Guide to the Next Gold Rush and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 2004, he produced "A CITIZEN'S GUIDE TO COUNTER-TERRORISM" a free-to-the-public educational resource on DVD and CD. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" a one-hour CD sample from his 24-hour series, "THE BIG PICTURE: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE ... PERSONAL NOTE: Youngest daughter Braida Zoe (age 22 mo.) feeds herself, climbs, swims, trampolines and is building an ever-widening vocabulary. Shown with her mom (and loving wife) Micki.